Nickel-and-Diming Your Roth IRA

If you're unemployed, making low wages or otherwise in an unstable financial situation, it doesn't mean that it's a bad time to open or make regular contributions toward your individual retirement account (IRA). But it may mean that you should either open or convert to a retirement vehicle such as a Roth IRA, which is the type that's best-suited to students, young adults and those just getting started in their careers. And for the same reasons, it also may also be the top choice for you if you're out of work or fulfilling a role that's a far cry, monetarily, from your dream job.

That's primarily because the Roth IRA - unlike the traditional IRA and other types of retirement accounts, like a 401(k) - allows you to pay taxes on your contributions when you make them rather than when you withdraw them. For this reason, it's optimal for individuals who believe they're making less money now than they'll be making later on in life. In the end, they'll pay less taxes overall on the final sum of money added and earned. On the other hand, those making a lot of money now may stand to decrease their income by retirement, and may prefer to pay taxes when they take their payout at age 70.5 (the age mandated by all other retirement plans).

If you don't already have an account open, sooner is better for getting started. There is no right time or financial security level where you are better off opening a Roth IRA. The only timing that matters is being sure to lock in a competitive rate as early as possible. You'll want to compare the annual percentage yield (APY), which factors in not only the yearly interest earned, also but calculates how that number compounds over time - essentially, it's your bottom line when it comes to interest.

Although you can contribute up to $5,000 annually (for those under age 50, as of 2011), even making smaller, more affordable contributions in the meantime can be beneficial in the long run. You have until your tax filing deadline each year to finalize contributions to your Roth IRA, so it's not too late to begin for this fiscal term. With interest, these little payments do compound over the years, and you're apt to save more than you expected simply by making a deliberate effort to contribute anything at all, no matter how modest.

 TM Murphy is a professional writer who lives in NYC. She currently specializes in fashion, beauty, marketing and finance articles. For easy-to-understand financial advice on a retirement vehicle such as a Roth IRA, she often turns to http://www.discoverbank.com. TM Murphy has been writing full-time since 2006, when she graduated with a B.A. in English from Northeastern University.

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