ANSWERS: 1
  • <h4 class="dechead">On One Hand: Effective for young people

    Roth IRAs are most effective when started early. This is the case for two main reasons: Compounding interest over the years really adds up in savings, and the savings against taxes over a long period also results in a formidable amount of money. For example, if a 25-year-old contributed the maximum allowed yearly amount to a Roth IRA versus a taxable savings account until retirement, the difference could be $400,000 or more.

    On the Other: High entry barriers for those with low income

    While the Roth IRA is a highly effective savings tool for young people, one of its biggest drawbacks is that any contributions made to this type account are not tax deductible. This could prove troublesome for someone in a lower income bracket who might not be able to afford to put money away for saving while paying the full amount of taxes up front.

    Bottom Line

    While contributions to a Roth IRA are not tax deductible up front, all contributions to the IRA remain penalty free thereafter. All earnings can be withdrawn penalty free after age 59 1/2. If you can overcome the entry barriers to opening a Roth, the long-term benefits are undeniable and too great to pass up.

    Resource:

    Roth IRA 101: The Roth IRA in a Nutshell

    A Super-Charged Roth IRA

    Why You Need a Roth IRA

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