A Roth IRA is a special type of retirement investment account that allows you to invest money for retirement. Many people like Roth IRA accounts because the money you earn from your investments grows tax-free. When you open a Roth IRA, you are able to invest your money in a diverse number of options including stocks, bonds, real estate, certificates of deposit, and more. You can make risky investments, safe investments, or any combination you choose. The question is, are Roth IRAs a good investment for parents, or should you invest elsewhere? Here is a look at the advantages and disadvantages of investing in a Roth IRA account.

Roth IRA Advantages

Benefits of investing in a Roth IRA include:

  • Money you invest into your Roth IRA grows tax-free.
  • If you need to withdraw money from your account you can do so penalty free, as long as you only take out the principal, or in other words, the amount you have contributed into your account. You cannot however, take out any of your earnings without being penalized until you have reached age 59 ½, or for some exceptions.
  • Once you reach age 59 ½ you can start taking money, principals and earnings, penalty- and tax-free.
  • At any time, if you are getting ready to purchase your first home, you can take out up to $10,000 for a down payment. This can include the money you have contributed as well as any earnings, all penalty-free.
  • If you were to pass away, your spouse or beneficiary would inherit your account and the money would still be distributed tax-free.

Roth IRA Disadvantages

Along with all the great advantages of investing in a Roth IRA, there are also some drawbacks you should be aware of before opening an account. These include:

  • You will have to pay taxes upfront on your investment. But keep in mind you will be able to withdraw tax-free later on.
  • Some income levels are not eligible for Roth IRAs. You will want to make sure your income is within the current levels.
  • Your contributions to your Roth IRA, unlike some other retirement accounts, do not adjust your gross income when filing your tax return.
  • There are limits to the amount of money you are permitted to invest each year into your Roth IRA account.
  • Congress could change the rules at any time. If this was to happen down the road, your earnings might be taxed. Additionally, they could change the income levels for qualifying along with the amount of money you are eligible for contributing each year.

Roth or Not?

So, the question remains, should you or should you not invest into a Roth IRA if you are a parent? Or, should you stick with other types of investments? The answer is really in your personal preference and what you can afford right now. Many financial advisers will tell you that overall they are a good investment and you should open and max out your contributions every year. At the same time, some families really need their investments to be tax-free now so that they can lower their gross income for tax purposes.

Bottom line, every parent needs to look at their current financial situation and make their own personal decision. The most important thing for parents to keep in mind is that they should be investing in some way, whether it be in a Roth IRA or other type of retirement account. Even if money is tight, do everything you can to start saving — the sooner the better. If you wait until later, you will most likely be scrambling to come up with enough money to ensure a comfortable retirement.

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