A Roth IRA Sounds Great -- But Here's the Catch No One Talks About

You have a number of options when it comes to finding a home for your retirement savings. Traditional individual retirement accounts (IRAs) give you a tax break on the money you put into your account. But with these accounts, investment gains are eventually taxed, and your withdrawals count as taxable income.

Traditional IRAs also eventually force savers to take required minimum distributions (RMDs). Those can be a pain in multiple regards.

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The nice thing about Roth IRAs is that investment gains are tax-free, and so are withdrawals. Roth IRAs also don't come with RMDs. The main drawback of Roth IRAs is that you don't get a tax break on your contributions.

But there's actually another less obvious downside of using a Roth IRA to build retirement savings. And it's a point that's often touted as a benefit of these accounts.

The hidden risk of easy access

If you take a withdrawal from a traditional IRA before age 59 and 1/2, you risk getting hit with a 10% early withdrawal penalty. With a Roth IRA, you can withdraw your principal contributions at any time without a penalty since you didn't get a tax break on that money.

Now, you do have to be careful because if you touch the gains portion of your Roth IRA before age 59 and 1/2, that early withdrawal penalty could apply. Otherwise, you get the flexibility to treat your Roth IRA as an emergency fund of sorts.

But that's not necessarily a good thing.

When your retirement savings are easy to access, you might frequently justify having to dip in. The result? You could end up with a retirement savings shortfall on your hands.

It's one thing if you tap your Roth IRA early to fix your leaking roof. But once you see how easy it is to dip in, that could become a habit.

You might raid your Roth IRA to pay for a vacation or buy a new couch when your new one gets too worn. And unlike a regular savings account, you can't simply put the money back in when you want to. Roth IRAs have annual contribution limits, and once you've maxed out, you're done for the year.

Be careful with a Roth IRA

Since Roth IRAs offer a world of benefits for retirement savers, it's a good idea to take advantage. But if you're going to fund a Roth IRA, tell yourself that money is off limits for anything other than retirement savings purposes. If you allow yourself to start dipping into your Roth IRA ahead of retirement, you could put yourself at risk of whittling down your nest egg to a dangerous degree.

Also, if you're going to save in a Roth IRA, make sure to build yourself a separate emergency fund. That way, if you need money in a pinch, you can withdraw it from a bank account -- not your retirement account.

With the right attitude and separate cash reserves, you can save in a Roth IRA more safely. But if you don't put these protections in place, the decision to save in a Roth IRA could end up costing you your financial security in retirement.

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