The Hidden Gem of Roth IRAs

I believe that overall a Roth IRA is an incredibly valuable saving vehicle to get started in. Yes, there are situations where it may not be for your exact situation, but for the vast majority they are great!

There is a lot of literature on Roth IRAs and comparing them to Traditional IRAs or 401(k)s, and that is not my goal here. Yes, if you are in a very high tax bracket today you may want to prioritize the deductibility of a pre-tax account. But there is one thing the Roth IRA provides that others do not.

The simple truth is that a Roth IRA can function uniquely as a backup emergency fund. Yes, you heard that correctly. The money that you contribute to a Roth IRA can be taken out tax free and penalty free before you turn 59 ½.

So to highlight an example, if a couple both contributed to their Roth IRAs each year over the next 6 years and they put $6,000 each into their individual accounts or $12,000 combined, they will have $72,000 in contributions and quite probably some growth. If this couple now has a major life event, they have an additional $72,000 in options available to them. From those contributions, that’s $72,000 in medical treatments for cancer just diagnosed; $72,000 to help during that unexpected layoff that went on for 2 years; and $72,000 to go towards a down payment on a house to make sure they don’t have to pay private mortgage insurance (PMI).

In short, that couple would have access to $72,000 in after-tax, penalty free options that other people who only have pre-taxed retirement accounts do not have. Do we want to recommend that you withdraw from a Roth for non-retirement – no! But is it nice to have options – yes! At the end of the day it is easy to do a cost benefit of Roth vs Non-Roth accounts monetarily, but we also need to consider the emotional side of investing and life as well.

The information contained in this communication does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Andrew Cremé and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

The examples included are for illustrative purposes only. Individual cases will vary. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Prior to making any investment decision, you should consult with your financial advisor about your individual situation.

Earnings withdrawn prior to 59 1/2 would be subject to income taxes. In addition, with a Roth IRA, your allowable contribution may be reduced or eliminated if your annual income exceeds certain limits. Contributions to a Roth IRA are never tax deductible, but if certain conditions are met, distributions will be completely income tax free.

3 views0 comments

Recent Posts

See All

Cremé Wealth Team is a Part of Southwestern Investment Group

© 2021 by Cremé Wealth Team

Raymond James

Southwestern Investment Group

2601 Network Blvd, Ste 101

Frisco, TX 75034

(972) 987-1634

Links are being provided for information purposes only Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of the information regarding any website's users and/or members.


Securities offered through Raymond James Financial Services, Inc., member FINRA / SIPC. Raymond James financial advisors may only conduct business with residents of the states and/or jurisdictions for which they are properly registered. Therefore, a response to a request for information may be delayed. Please note that not all of the investments and services mentioned are available in every state. Investors outside of the United States are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this site. Contact your local Raymond James office for information and availability. Cremé Wealth Team, Southwestern Investment Group, and The Southwestern Co. are not registered broker/dealers and are independent of Raymond James Financial Services. Investment advisory services offered through Southwestern Investment Advisory Services, Inc., an independent registered investment adviser. Raymond James does not provide tax or legal advice. You should discuss these matters with the appropriate professional.