Read all the disadvantages of a Roth IRA to keep an open mind. You can contribute to a Roth IRA if you fall into the marginal federal income tax category of 24% or less. However, there are strong arguments why you shouldn't contribute to a Roth IRA. If you're looking for an alternative to a Roth IRA, consider investing in a Top Gold IRA.
Thanks to all the wonderful comments over the years, I've been less dogmatic about the downsides of the Roth IRA. People should diversify their retirement savings for tax reasons. However, keep in mind the increase in taxes under the new administration. Paying income tax at the time of conversion, which could be substantial, is the main disadvantage of converting to a Roth IRA. If you expect to have a lower income tax rate in the future, converting to a Roth IRA may not have any tax benefits.
In addition, calculating the amount of taxes can be complicated if you have other traditional IRA, SEP or SIMPLE accounts that you are not converting. All those taxes you paid in advance to the shrewd government and you'll never be able to use your Roth IRA returns. While the Roth IRA is an important tax-advantaged retirement account, there are also disadvantages of the Roth IRA that are rarely discussed. In addition, there are no minimum distributions (RMDs) required from a Roth IRA when you turn 72, so if you don't need these funds, they can stay in your account and transfer them to your beneficiaries.
You make contributions to the Roth IRA with after-tax money, so you don't get the initial tax relief offered by traditional IRAs. Just don't be naive and let the government re-tax your Roth IRA contributions after taxes one day after you get out of taxes. The money saved in a Roth IRA can be invested in financial instruments, such as stocks, bonds or savings accounts. To qualify, withdrawals must be made when you are at least 59 and a half years old and at least five years have passed since you first contributed to a Roth IRA, also known as the five-year rule.
Unlike most retirement accounts, it's easy to withdraw your Roth contributions, not your earnings, of course, without penalty, at any time. The irony is that the government is actually saving people who earn more than the maximum income limit of the Roth IRA to contribute by paying more taxes and being tricked into joining the Borg. A Roth IRA allows you to contribute money after taxes and withdraw any tax-free earnings during retirement. As a personal finance blogger who wants to help you achieve financial freedom sooner rather than later, it's my duty to write this post to help you see the mistake of contributing or becoming a Roth IRA if you haven't reached your 401 (k) maximum limit.
Therefore, a good part or all of your years of contributing to Roths and covering your tax brackets with the Roths back door will do no good if you are forced to spend them on assisted living or skilled nursing care, which approximately 70% of us will do for some time. This is called a clandestine Roth IRA, which involves contributing to a traditional IRA and immediately transferring the money to a Roth account.
