The investment plans have been around for awhile, but questions about the Benefits and Drawbacks of Roth IRAs keep surfacing. A Roth IRA is much like a traditional IRA in that it lets your investment earnings compound tax-free year after year, the investment gurus at The Vanguard Group tell us.
But unlike a traditional IRA, you can make tax-free withdrawals if you are at least 59 1/2 years old and you have had your account for five years or more -- and you do not have to take a minimum distribution after age 70 1/2.
On the downside, however, your contributions do not give you an upfront tax deduction. And you're penalized if you take money out before 59 1/2 or if you contribute more than $2,000 a year.
You can convert your traditional IRA to a Roth IRA, but you will have to pay income taxes on the amount that represents deductible contributions and earnings. The Vanguard folks say you may be better off contributing up to the maximum in an employer-sponsored plan though, of course, it's always best to get advice from a trusted financial adviser.
