Today I join over 100 bloggers posting about the Roth IRA. Almost every person should have a Roth IRA yet many don't. Why? For most it is just lack of knowledge about how great Roth IRAs can be and all the options having one will give you.
The biggest reason to put your money into a Roth IRA is that, because you pay taxes on the money you put in, you do not pay taxes when you taxes when you take it out after you turn 59.5. This means that a Roth is the best place to put your money as a young person. Your income will go up as you age, as you get raises and promotions, therefore when you start out you are paying the least in taxes. You can open a Roth IRA at the same places as a traditional IRA, for example Vanguard, Fidelity, and T Rowe Price.
Another advantage of the Roth IRA is that after 5 years of opening the account, you can remove the money you have put in without a penalty. This can count as a secondary emergency fund or as a extra saving account for large purchases such as your first house. For your first house you can take up to $10,000 out a IRA, traditional or Roth for the down payment, but for a Roth you can take out the up to $10,000 of the interest/earning plus all the money you put in. It is a great way to not pay taxes on the interest on the money you are saving for retirement. Also, money in a IRA is not counted on your FASFA form, therefore it is a great way for a student to keep some of their hard earned money.
I did it that way, I put 10% away in my 401k when I worked as a student and saved another $7000 in an IRA for my first house. I was lucky though, we moved to a very cheap area for my fiance's graduated school and our duplex only cost $60550, so my IRA covered most of our $12,110 down payment.
If you choose to put money away in a Roth as a student, you can, if you have had the Roth for five year, take out the money after college at use it to pay down your subsidized student loans. The biggest drawback of a Roth IRA, is that you must have a Roth IRA open for five taxes years before you can remove the deposits without a penalty. Therefore, everyone who is legally allow to open a Roth should do so, even if all you put aside is $50 in a credit union Roth IRA. So who can put money in a Roth IRA? Well, if you are married filing jointly or qualifying widow(er) and your modified AGI is at least $173,000, you can each deposit $5000 ($6000 if you are 50 or older). The amount you can deposit get lower from $173,000 to $183,000. If you are single (like most on this blog), head of household, or married filing separately and you did not live with your spouse at any time in 2012 you can deposit $5000 if your modified AGI under $110,000. From $100,000 to $125,000 the amount you can deposit decreases.
A Roth IRA can be a great tool if you use it correctly but you need to make sure you will not remove the money you need for retirement from the Roth. A way to keep the retirement money separate from your secondary EF or first house savings is to open up a second Roth IRA at a credit union and just use that for the savings and have your Roth IRA at a investment company for retirement.
Check out the Roth IRA Movement at Good Financial Cents and see what others are saying about having a Roth.