For some people, a Roth IRA presents a better retirement plan than a traditional IRA. You cannot deduct contributions on current tax returns with a Roth IRA. But your interest earnings are 100% tax free upon withdrawal, as opposed to tax deferred.
Another plus is the ability to withdraw principal balances without penalty. While this would diminish the money-making magic of compound interest, it provides a safety net if you need funds.
- Interest and principal are completely tax free upon withdrawal
- Compound interest on entire balance
- Can contribute up to $5,000 per year
- Additional $1,000 "catch up" contribution allowed for ages 50+
- Principal contributions can be withdrawn without penalty*
- Interest withdrawals can begin at age 59½
- Early interest withdrawals subject to penalty**
- No mandatory withdrawals at any age
- Invest within IRA via variable rate account, fixed-rate CDs, or both
- $500 minimum deposit to open
- FDIC insured
*Subject to some minimal conditions.
**Certain exceptions apply, such as healthcare, purchasing first home, etc.