Roth IRAs Are Fantastic -- but Here's When You May Want to Skip One

Key Points

• Roth IRAs offer tax-free gains and withdrawals.

• They also don't force you to take RMDs.

• There are certain reasons why a Roth IRA may not benefit you now or in the future you should know about.

• The $23,760 Social Security bonus most retirees completely overlook ›

It's important to do your best to build a strong retirement nest egg. Social Security might only replace about 40% of your pre-retirement income once you stop working.

Most seniors, however, need a lot more money than that to cover their expenses without having to make too many spending cuts. So it's important to have savings to supplement your Social Security benefits.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

Image source: Getty Images.

In that regard, you have choices. You could opt to contribute to a traditional retirement plan. Or, you may be interested in a Roth.

A growing number of companies are offering a Roth component in their 401(k) plans. But if yours doesn't have one, you could look to save for retirement in a Roth IRA instead.

Roth IRAs offer a world of benefits. They allow your money to grow tax-free, you're not taxed on withdrawals, and you're never forced to take required minimum distributions.

Despite these benefits, Roth IRAs aren't for everyone. And if any of these situations applies, a Roth IRA may not be the ideal retirement account for you, either.

1. You need the tax break now

Maybe your income rose this year because you got promoted or your side business really took off. Or maybe you sold a lot of investments in your taxable brokerage account and are sitting on huge capital gains.

If you need an immediate tax break, a Roth IRA won't give you one. And if you're looking at potentially writing the IRS a huge check, you may want to mitigate that burden by funding a traditional IRA or 401(k) instead of a Roth.

2. You're convinced you'll be in a lower tax bracket in retirement than you are today

The benefit of funding a Roth IRA today is that you're effectively locking in your tax rate on the money that goes into your account. We don't know what future tax rates will look like. And if they increase, it's people with money in a traditional IRA or 401(k) who could lose out in retirement.

That said, if you're a very higher earner now, and you're therefore convinced that you'll be in a lower tax bracket in retirement than you're in today, then a Roth IRA may not make sense for you. You might as well take your tax deduction at a time when you know it has a lot of value.

3. You don't trust yourself to leave your money alone

Traditional IRAs and 401(k)s impose a 10% early withdrawal penalty for removing funds before turning 59 and 1/2. With a Roth IRA, you can withdraw your principal contributions at any time without a penalty.

But that's not necessarily a good thing, as it could mean leaving yourself without enough retirement income down the line. If you don't trust yourself to leave your IRA untouched until retirement, then you may want to stick to a traditional IRA or 401(k) so you're more motivated to avoid a penalty.

There are plenty of things to love about Roth IRAs. But if any of these situations apply to you, you may want to steer clear of one for now.

The $23,760 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.

One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.

View the "Social Security secrets" »

The Motley Fool has a disclosure policy.