Rules for a Roth IRA to be tax free are if the fund has been open for 5 years on principal withdrawals, and the individual is 59.5 on withdrawals on the growth portion above principal. Listed below are a few of the major advantages as well as disadvantages to having a Roth IRA.
The advantages to a Roth IRA include Roth IRA conversions from traditional IRAs. If there is money in a Roth IRA due to conversion from a traditional IRA, then the owner can withdraw the total amount of converted funds without penalty. This is as long as the seasoning period has passed, which is currently five years.
Also if an owner of a Roth IRA dies, then the heir to the plan can receive the funds while also holding their own Roth IRA. Even better, the beneficiary can combine their Roth IRA with the deceased with no penalty. Thus a single plan is created for the heir to benefit from.
Some of the disadvantages to a Roth IRA include, if a person has a high income level it can phase them from being able to contribute to a Roth IRA. Unlike most tax deductible employer based plans which allow any income level to contribute funds. Also If a person has a Roth IRA plan and dies before the funds are distributed, then they never benefit from the tax cuts available.
Granted when the funds pass to an heir there is no time limit for when the funds have to be taken out. Unlike a traditional IRA which states that at the age of 70.5 by April 1st funds have to be withdrawn. Therefore in a Roth IRA if a person dies before they can realize the tax benefits, it really does not benefit the individual, but it is good for an heir.
- Retirement Plans; A Roth IRA (2009tax.org)