Photo: Flickr / sirqitous
If your Twitter feed’s been overrun with posts on the Roth IRA today, then you’re not alone. It’s part of a one-day movement—#rothiramovement—launched by Jeff Rose of Good Financial Cents.When Rose realised just how ignorant people are when it comes to Roth IRAs (here’s a good breakdown), he decided to wrangle as many experts in the money blogosphere for help. All they had to do was write about Roths–whether they loved them or hated them.
So far there are more than 100 submissions. We’ve prowled the lot to find some of the best arguments for and against the Roth.
More investment options
“One reason is the wide array of investment choices at my disposal with a Roth IRA. For instance, my current employer offers a great 401k plan, but as with most 401k plans, I’m limited in my investment options. I can choose between approximately 15 or 20 mutual funds, and in all honesty, I don’t think I would invest in any of them if given more options. But with my Roth IRA, I’m in charge.” (Via/YourRothIRA.com)
Perfect for procrastinators
“The Roth IRA account type allows people to contribute to their Roth IRA right up until tax day of the following year. So for example, if I wanted to start a Roth IRA and fund it for 2011, I could do that right up until April 17th, 2012, the day that taxes are due for 2011.” (Via/Bible Money Matters)
“You can withdraw your contributions from a Roth IRA any time, with no tax or penalty. In other words, say I open a Roth IRA and put $100 in it. I look at it in a few months and it’s grown to $105. I can withdraw my original $100, but not the $5, without penalty. This means that for a young saver, a Roth IRA can double as an emergency fund. (Your brokerage will keep track of how much of your RothIRA is contributions and how much is earnings.” (Via/Mint.com)
It’s a cheap way to invest
“You can open one for practically nothing. While Vanguard imposes a $1,000 minimum to open a Roth IRA, plenty of companies will let you open one for practically nothing. T. Rowe Price will let you start a Roth IRA for $50, for example.” (Via/AmateurAsssetAllocation) UPDATE: T. Rowe Price has since raised the regular contribution limit from $50 to $100, according to a spokesperson.
Age is nothing but a number
There isn’t an age limit to have a Roth IRA, so even your children can have one! As long as you or your child have earned income, and you’re below certain income thresholds, most likely you will qualify to contribute to a Roth IRA.” (Via/Bible Money Matters)
Your tax bracket could change
“If you are in a higher tax bracket now than you will be at retirement, the Traditional IRA is better. If you are in a lower tax bracket now that when you retire, the Roth IRA is better. If you are in the same exact bracket, it is a wash.” (Via/WallStreetSteward.com)
“In general, there is a top amount of money you’re allowed to earn each year and still make full contributions. Then, there is a phase-out income zone. If your income falls in this zone above the full contribution limit, you may contribute, but not the full amount.” (Via/TheFreeFinancialAdvisor.com)
Missing out on tax benefits
“Starting in the 2010 tax year, the IRS allowed all taxpayers, regardless of income, to convert traditional IRAs to Roth IRAs. Besides being a benefit to those that wanted to invest via a Roth IRA but were above the income limits, this also lets everyone else convert traditional IRAs to Roth IRAs … The reason that you would want to do this is perhaps your Roth IRA decreased in value after the conversion. Now you could just sit on those losses and complain about it, but I’d rather not pay taxes on money that I don’t have any more.” (Via/CultofMoney.com)
You can’t always contribute what you want
“There are annual contribution limits as well as income limits for participation.” (Via/GirlsJustWannaHaveFunds.com)