Roth IRA's are beneficial to a traditional IRA because the guidelines allow you to withdrawal money tax free before you officially reach retirement age. If you're saving only for retirement, you can start making tax free withdrawals after you reach 59. 5 years old. If you choose to withdrawal before this age, you have to meet certain criteria. One way is to become officially disabled. Another option is to use the withdrawal toward your first home, or the first home for your children or grandchildren. These withdrawals are still tax free.
 
While this type of account does make it much easier to access your money before you reach the age of retirement, there are also some restrictions on the amount of money you can put into the account each year. The ultimate amount is determined by how much money you earn in a year and your age. Anyone over 50 years old will be able to contribute more.
 
The 2009 IRA contribution limits are unchanged. In both 2008 and 2009, the limit you may contribute is $5,000. However, if you will be 50 or older by the end of the year, you can contribute an extra $1,000, for a $6,000 total contribution limit. These limits apply to both regular and Roth IRAs. Although you may be eligible to contribute to both plans, your combined contribution to both accounts cannot exceed your above limit ($5,000 or $6,000).
 
There is also a cap on income earned, which means you have to earn less than a certain amount in order to qualify as a Roth IRA contributor for the year. In 2009, the cap is $105, 000 for anyone who files as a single taxpayer. For anyone filing jointly or as a married couple, the cap is currently at $166,000.
 
There are some disadvantages with Roth IRA accounts.
 
You have to pay the taxes today for the contributions. How is this a disadvantage?
 
Let's say you make $80,000 this year on taxable income, making you in the high tax bracket. If you contribute $4000 to your Roth IRA, you are taxed on that $4000 at the high tax rate. You are better off making Roth IRA contributions when your income is low (to avoid paying big taxes today) and not when your income is high. For instance, if one contributes $1000 to a traditional IRA while in a high tax bracket, you can receive a substantial tax deduction thereby reducing the initial cost of contributions. This is not the case with Roth IRA. If during retirement one ends up in a lower income bracket than today, one will wind up with less usable cash by choosing a Roth IRA over a Traditional IRA. Please note that money in a traditional IRA is taxed once it is withdrawn at retirement.
 
Another major disadvantage of Roth IRA is heavy penalty for early withdrawals. Withdrawals up to the total of contributions + conversions are tax-free. However, an unqualified withdrawal of earnings will result in federal income tax plus a ten-percent penalty on the amount. Though there are exceptions to it like buying a first home and paying qualified educational expenses, you need to be careful.