I do, in fact, have a love affair with the Roth IRA. (If you’re unfamiliar withÂ it, J.D. has an excellent explanation of the Roth.) But, it is an unrequited love – the Roth does not love me back. Someday, it will. Someday, I will open my own Roth IRA and my money (and love) will grow inside it. But not yet.
A friend of mine asked me what a Roth IRA is, and whether I should get one. I sent him J.D.’s link, but I also said I didn’t think he should get one. Yet. For the same reason that I don’t have one. Yet.
We’re both carrying around some nasty, high interest credit card debt. Sure, we could start putting money into Roths, and if the Investment Gods shined down upon us, we could earn around 10% on our money each year, and the power of compounding would give us a tasty retirement. But if we’re still carrying around our credit card debt (at 17% or higher!), then we’d just beÂ back-pedaling. We’d beÂ paying more to the credit card companies than we’d earn.
This is where the difference between investing in a 401(k) and an IRA can really be seen. If your employer offers matching funds in your 401(k), then it makes sense to contribute, even if you’re carrying around credit card debt. But there’s probably no one matching your IRA contributions (unless you have a generous relative – in which case, go for it).
So, my friend and I, we’ve got some credit card debt to tackle. Once we’re clear of that… well, I know I’ll be beginning my sordid affair with the Roth!