The 1 Reason You Shouldn't Save for Retirement in a Roth Account

There's a reason Roth retirement plans have long been a popular choice among savers. Although you don't get a tax break on the money you contribute to a Roth IRA or 401(k), you get numerous benefits to make up for that.

Roth retirement accounts offer tax-free investment gains and withdrawals. When you're living on a fixed income and are no longer working, not having to worry about losing a portion of your withdrawals to the IRS is huge.

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Plus, Roth IRAs and 401(k)s do not force savers to take required minimum distributions (RMDs). That gives you more flexibility with your money -- for yourself and in the context of estate planning.

But the flexibility Roth retirement accounts offer is actually a mixed bag. In fact, Roth IRAs and 401(k)s are almost a little too flexible in one regard. For that reason, a Roth may not be the best option for you.

There's too much temptation to touch the money

When you save for retirement in a traditional IRA or 401(k), there's a big incentive not to take withdrawals ahead of your senior years. Removing funds before turning 59 1/2 generally subjects you to a 10% penalty.

But Roth IRAs and 401(k)s work differently. With a Roth savings plan, you can withdraw money early without a penalty as long as you're tapping the principal portion of your account and leaving the gains portion alone. The logic is that since you didn't get a tax break on that money when it went into your Roth account, there's no issue with you taking it out.

But that flexibility could become problematic if it tempts you to keep tapping your savings ahead of retirement. So if you don't trust yourself to leave your long-term savings alone, you may want to stick to a traditional retirement account, despite the many benefits Roth accounts offer.

Let's say you manage to contribute $5,000 to a Roth IRA this year. But next year, you're hit with an unplanned $2,500 expense. If it's easy enough to take that money out of your retirement savings rather than cut back on spending or work a side hustle to come up with it, you might do just that. But that means removing half your savings, thereby negating much of that effort.

Now, imagine you keep doing that repeatedly. Needless to say, it could leave you very short on savings once your career comes to an end.

Be careful when saving in a Roth

Saving for retirement in a Roth IRA or 401(k) requires discipline on your part. This isn't to say that the occasional emergency won't force you to take an early withdrawal.

But if you generally don't trust yourself to leave that money alone as you're trying to build savings, a Roth retirement plan may not be right for you. If so, sticking to a traditional IRA or 401(k) could be your ticket to having enough money to retire on once you're ready.

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