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So your interest has been piqued. You’re considering opening a Roth IRA, but you’re afraid to jump in the pool. Your toes are on the edge and you’re looking into the deep end thinking $5,500 (the annual maximum most people can contribute) is a lot of money to sink into an investment account. The deep end is deep and you don’t have your floaties on.

But let’s stop and consider these points:

  • You don’t have to drop $5,500 into your Roth IRA all at once.
  • You can withdraw your Roth IRA contributions at any time.
  • You can use the Roth IRA as part of your emergency fund.

Let’s look at these in depth.A paper with the word Roth IRA circled in red.

1. The Ability to Invest over the Year

You never (ever!) want to invest a massive amount of money all at once. That may seem contrary to something that is good. Why wouldn’t you want to go ahead and knock out your full contribution limit at the very beginning of the year? While it is a good idea to invest in a Roth IRA, and I would certainly applaud anyone that opened up a Roth today and immediately funded it up to the contribution limit. But I also think it can be counterproductive.

Investing, to me, is about good habits. Maybe you’re the type of person who would have great habits and every single year you would dump $5,500 (or whatever that year’s contribution limit is) into your Roth IRA. I think a lot of people would tend to forget and not plan over the following 12 months to budget for that big cash investment every year.

Instead, I think most individuals are better off investing a steady, consistent amount every single month without fail. If your Roth IRA provider will allow you to set up automatic deposits so you don’t have to think about it, even better! (Assuming you’re not living paycheck to paycheck.)

Also, it is usually better to average out your investment times throughout the year. While you’ll end up hitting the high points of the market at times—and the low points, too—you’ll end up investing at the average price for whatever mutual fund or stock you pick. So if the task of investing $5,500 seems daunting…fear not. You can invest $458 per month and achieve the same result. $458 is a lot less scary than $5,500.

2. The Option to Withdraw Roth IRA Contributions at Any Time

If you’re afraid of opening a Roth IRA because you don’t want to lose access to $5,500, I have good news. Unlike a Traditional IRA, you can withdraw your contributions to a Roth IRA at any point. Of course you shouldn’t be investing money that you’re relying on for tomorrow or next month; the plan should be for the funds to stay in the account…and grow. But if you run into financial difficulty you can always pull your contributions back out.

3. The Safeguard of Using a Roth IRA as an Emergency Fund

In coordination with the above point you may be thinking, “Should I use my Roth IRA as some sort of emergency fund?” Well, it’s not the best plan…but if you have a dire, short-term need, it’s certainly do-able. Depending on how much you need to withdraw, your age, and how long the account’s been in existence, there may be early-withdrawal penalties if your withdrawal amount includes earnings.

But there are special circumstances that allow it. Or, if you can put the equivalent funds into the same or another tax-advantaged account within 60 days, you’re good.

So when it comes to Roth IRAs don’t be afraid!

Compare Popular IRA Providers

Provider
Fidelity Investments
Merrill Edge
E*Trade
NameFidelity Roth IRAMerrill Edge IRAE*Trade IRA
DescriptionGet a range of investment choices, tax advantages and 1:1 help with a Fidelity Roth IRA Learn MoreGet up to $600 when you invest in a new Merrill Edge IRA. Plus one-on-one guidance, actionable insights and easy-to-use tools. Learn MoreLearn more about an E*TRADE Roth IRA. > Learn More