Remember the controversial post I wrote a month or two ago titled “Screw my Roth IRA” where I blew the whistle on why Roths suck? Many of you wanted to burn me at the stake; accusing me of financial blasphemy. The comments section of that post got a little heated, but with the help of some fellow PDITF readers, my point was actually getting through to those who originally opposed it. I was vindicated. I had written an article that forced people to think about the Roth differently. I concluded that post with the following statement:
I don’t hate my Roth. I’ll continue to let what money is in there grow tax-free, but I’ll probably never contribute to it again.
Now comes the part where I eat my words…
I’m going to contribute to my Roth IRA this year.
I’m horrible I know. I say one thing, but do another. I reek of hypocrisy and Dr. Pepper (side note: I LOVE Dr Pepper).
I use to think the Roth was the sexiest thing ever, but the facts prove that’s simply not true. So what gives? Why am I continuing on with Roth contributions when I think Roths kinda suck?
We will soon have more cash than we want/need.
We should hit our $100,000 savings goal in the next few months. That’s where I’m drawing the line. I’m a big believer that there is a such thing as saving too much. Even though 80% of this will probably go towards our down payment, I’ve already told you I don’t really want more than $10,000 in the bank at any given time.
Once we’ve hit our six-figure goal, we will have to be more creative with our discretionary income. This is why we’ll be having our first-ever No Save Month in November. To keep our cash reserves in check, I’ll likely throw another $5,500 in to my Roth, start contributing to my taxable investment account, and if we still have some leftover cash, I’ll try to max out my 401k. Meeting our savings goal affords us the opportunity to maximize our investment potential.
The Roth acts as a secondary emergency fund.
This is the only significant advantage the Roth has over a traditional 401k, in my opinion. With a Roth, one can withdraw their contributions at any time, for any reason, without having to pay any penalties or taxes on that withdrawal. For example, I have a little over $37,500 in my Roth, of which $29,000 was contributed by me. That means, at any point, I can withdraw $29,000 from my Roth and do with it what I please.
I allowed my frustration with the Roth to cloud my judgement. Yes, the Roth IRA is nowhere near as tax-advantageous as people like to pretend it is, but its ability to be both an investment vehicle and a quasi-emergency fund – at the same time – make it a worthwhile option.
In conclusion, I still think Roth IRAs suck, but for now it will remain in my personal finance arsenal. Here’s to second chances 😉