• Roth IRAs can be a great to save money, but be aware of the pitfalls.decision image by bilderbox from Fotolia.com
  
  For many investors, Roth individual retirement accounts (IRAs) are a sweet opportunity to set aside money for retirement and let it grow and compound, tax-free. Though investors pay money on their annual Roth contributions, qualified withdrawals, or distributions, are not taxed--which means that a Roth's investment earnings are safe from the IRS. However, a Roth IRA isn't the ticket for everyone--the devil is in the details.
  
  

Unpredictable Tax Rates

• As a rule of thumb, tax professionals encourage you to put off paying a tax as long as legally possible--why hand that money over to the IRS if it could be put to work for you now? This is sometimes true for a Roth IRA, which requires you to pay taxes upfront to get savings down the line. If you think you will be in a higher income bracket when you retire, a Roth IRA is a good idea because your tax rate is lower now. But if you end up making less in retirement, your taxes will have been higher than necessary.
  
  

Early Distribution Penalties

• If you want to withdraw Roth IRA funds before you turn 59 1/2, you may be responsible for paying a 10-percent penalty on the Roth's earnings--as opposed to your contributions, which are never penalized. Roth IRAs are also subject to the five-year rule, which stipulates that you cannot take a qualified distribution until the account has been open five years, even if you turn 59 1/2 in the meantime. The same is also true for funds you roll over to a Roth IRA--you must let them sit for five years.
  
  

Early Death

• It sounds morbid, but it's something to consider: you could die without ever seeing a tax benefit from your Roth IRA. At least with a traditional IRA, you can take a tax write-off for your contribution the year you make it. With a Roth IRA, you usually need to wait until retirement to get your hands on those tax-free earnings.
  
  

Conversion Tax Blues

• A 2010 loophole that eliminates income limits for Roth IRA conversions has many people scrambling to roll over their traditional IRAs and 401ks to Roth accounts. It may be a good opportunity to save money, but there is a costly downside: conversions are taxed at the account owner's income tax rate. This means that, if you decide to convert, you could have a very large tax bill if your investment portfolio is large.