Roth IRA Disadvantages

The disadvantages to a Roth IRA make it a bad choice for low income earners who are presently working. The reason why is because you will have to pay taxes on all contributions to your Roth IRA. If you’re making $30,000 a year and you want to open a Roth IRA with $5,000, then guess what? You’ll have to pay taxes on your full $30,000 (less other deductions, of course). That one aspect of a Roth IRA makes it much more difficult for average to low income-earners to invest in this type of retirement account.

Then again, a Roth IRA makes perfect sense for someone planning on earning a low income, or someone who knows that he or she will not be earning much money later in life. If you plan to live 100% on social security, then a Roth IRA is perfect because the tax-free withdrawals will not add to the gross amount of your social security income which will help keep your tax base low.

So, the question to ask yourself is: how much money do you plan on earning later in life? A lot? A little? Hardly anything? Knowing the answer to that question can help you determine whether or not a Roth IRA is an ideal retirement vehicle.

The other income related facts surrounding a Roth IRA relate to your current level of income. Any single individual making under $110,000 can contribute the maximum amount of money to his or her retirement account. If, as a single individual, you earn between $110,000 and $125,000 per year, you can still contribute to a Roth IRA account but at a reduced rate.

Married individuals filing jointly can contribute the maximum amount to a Roth IRA up to $173,000 per year income. Between $173,000 and $189,000 you can still contribute to a Roth IRA account but at lower limits.

Both your current income and your anticipated income make a difference as to whether a Roth IRA is a good choice for your retirement.

It’s important to remember that rules and regulations relating to retirement accounts often change on a yearly basis. To get the most current information available, you should speak directly with a licensed agent within your state.