Does the Roth IRA make sense?

[Petunia 100]

Better investment decisions and higher returns will benefit more from a Roth IRA. Also, with the current economy, I bet a lot of people expect higher tax rates in the future (my generation will probably have to pay for some of the mistakes of this generation) which gives Roth an advantage over traditional.

The mistakes do not belong to the entire generation, only to the handful who have made poor decisions with public monies. There are some very poor decisions being made right now. You have just as much power to stop them as the previous generation has.

[TheGooch]

I'm confused on withdrawing the contributions at any time with no penalty. How does this work out with the $5k yearly contribution?

What I'm picturing is :
Jan - Contribute $5k
Feb - Withdraw $3k
Mar - Contribute $3k

The balance at this point is $5k, and for Feb it was $2k. Did I contribute $7k? Or do they calculate the net contribution for the year, which in my example $5k?

[Scanner]

Another benefit of a Roth (Not sure if this was mentioned or not) is you can take out contributions without penalty, just not earnings and appreciations.

That is, if you contributed $20,000 but your Roth is worth $100,000, you can take out $20,000 without an excise tax.

So, not that I would recommend it, but it does sort of function as a savings account in that way also.

[Scanner]

I'm confused on withdrawing the contributions at any time with no penalty. How does this work out with the $5k yearly contribution?

What I'm picturing is :
Jan - Contribute $5k
Feb - Withdraw $3k
Mar - Contribute $3k

The balance at this point is $5k, and for Feb it was $2k. Did I contribute $7k? Or do they calculate the net contribution for the year, which in my example $5k?

Oops, apparently, it was covered.

To answer your question, you have access, at any time to that 5K you put in. You can't contribute more than 5K in a year but you could move it in and out on a daily basis.

I think it has to do with the fact it is "after tax" money, so you have more freedom with it vs. a traditional IRA where you have to kiss it bye-bye until retirement.

So, a more likely scenario is this

Jan. Contribute 5K.
Feb: Blance $5100, remove 3K. . .balance $2100.
March: Recontribute (place back) 3K. . .assuming 0% return that month. . .balance $5100 again.

You just can't touch that $100 until retirement. It's an earning.

It's a very good account IMHO. . .probably among the best invented by the government for retirement. I personally have a SEP-IRA and a Roth, but I tend to take greater risks with my Roth because the earnings will exit tax-free someday.

That is, if I have a $1,000,000 at age 65 someday, I'd rather have $750,000 in my Roth and $250,00 in my SEP-IRA vs. the other way around. So anyway, riskier assets go into Roth and boring stuff goes into SEP-IRA for me. I'd do teh same with Roth and Traditional if I were you and it makes sense tax-wise.