IRA verses Savings

[I Is Broke]

What is the benefit of putting money in a ROTH IRA verses a savings account? Wouldn't it be better to put your money is a savings account so it can be accessed in an emergency?

[Logan]

You can withdraw the principal from a ROTH but you cannot put it back once withdrawn.
My job just became shaky so I lowered my company 401K contribution and I'm going to max out a ROTH IRA. I have no plans to touch the money until retirement but I want to make sure it's accessible if I need it.

I would not replace a savings account with a ROTH but a ROTH could be an emergency fund if the emergency savings fund runs out.

Logan

[BKDefender]

If you put it in a savings account you can withdraw the money easily but a savings account is not exempt under bankruptcy other than the amount your state allows you to exempt. You can always withdraw money from a Roth IRA at will, but if it's been in there less than 5 years then you pay a 10% penalty for doing so, and it can take a few days to get a check.

The benefit is that if you deposit money into a Roth IRA, because the money is already taxed, if you wait until you're at retirement age you do not pay income tax on your withdrawal. So if your Roth IRA grows from $5k to $100k in X years, then retire, you don't pay capital gains tax or income tax when you withdraw $100k. Whereas in a savings account you pay income tax on the interest you earn on the savings account each year.

--William