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Is there any downside to a roth ira?

Posted on April 4, 2023 by Juan Alanis

Key findings However, they also have drawbacks. Because of this five-year rule, it may be less beneficial to open Roths if you’re already in late middle age. There’s another reason to insure yourself against a Roth, and it relates to current access to income versus potential tax savings in the future. A Roth can save you more income in the short term, as you are forced to deposit money after tax.

In contrast, with a traditional IRA or 401 (k), the income required to deposit the same maximum amount into the account would be lower because the account draws on pre-tax income. In this video from the Motley Fool Live Financial Planning series, longtime Fool retirement and financial planning expert Robert Brokamp discusses the downsides of a Roth IRA. As he explains, the most important factor is whether you benefit more from a tax break now than from tax-free treatment later on. Roth IRAs offer the advantage of allowing tax-free withdrawals, including on income, in retirement, instead of receiving immediate tax benefits for contributions as with traditional IRAs.

So a traditional IRA may be a better choice if you need the tax deduction and still want to contribute to an IRA. If you don’t name a beneficiary, your spouse (if they’re your primary beneficiary) can decide to inherit your Roth IRA or transfer it to a Roth IRA on their behalf. If you want to transfer or “transfer” money from a traditional IRA to a Roth IRA, the entire amount is taxable.

Disclosure: This is an independent review site. Nevertheless the owners of this website may earn commissions by referring visitors to various investment opportunities in order to meet the running costs of this website. The content on this website does not constitute financial advice. You are encouraged to talk to your financial advisor before making any investment decision.

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