The Roth IRA (individual retirement account) can be a saver's dream. You can pay your tax bill up front and contribute money to the account every year you qualify. When you hit retirement age, you'll have a stash of tax-free money waiting for you. 

As good as the Roth IRA sounds, you might not have easy access to it forever. That's why it's important to contribute as much as you can now -- even when the market is tumbling.

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How a Roth IRA Works

Many savers are excited to get their hands on the Roth IRA because of its exclusive perks. Here are a few: 

  • You can pay your tax bill up front in exchange for tax-free income later. This makes sense if you expect to be in a higher tax bracket later. 
  • You can open an account at a financial institution of your choice without permission from an employer.
  • You have the freedom to invest in stocks, exchange-traded funds, and other assets offered at the institution that holds your account. 
  • You don't have to worry about required minimum distributions during retirement. 

As long as you have earned income and meet the annual income limits, you can make direct contributions to a Roth IRA. When your income jumps above the threshold, you'll have to find other ways to save for retirement.

If you meet the Roth IRA requirements and expect to be in a higher tax bracket later, you should try to contribute as much as you can right now while the offer is still hot. You should stash cash away in a Roth IRA even if the stock market is plummeting -- just make sure you have your financial house in order. You don't want to miss out on future Roth IRA growth and earnings that could be tax-free during retirement. 

The 411 behind Roth IRA contributions

The more money you save in a Roth IRA, the more money you can invest. But there's a cap on how much you can contribute to your account every year. 

For 2022, you can't contribute more than $6,000 to a Roth IRA if you're under 50. The contribution limit rises to $7,000 as soon as you hit 50. 

If the stock market's rollercoaster ride has you second guessing your contributions, assess your financial situation first. Make sure you have your emergency fund and savings in order, and then tuck away money in a Roth IRA.

You could beef up your emergency fund during the first half of the year and then commit to Roth IRA contributions later in the year. You don't have to contribute all your money to a Roth IRA at one time. You have until the tax filing deadline (April 2023) to make Roth IRA contributions for 2022. 

Don't mix up contributions and investments 

Contributing money to a Roth IRA is not the same as investing it. When you contribute money, your cash will sit there until you put it to work. That means it doesn't matter if the market is up or down when you make a contribution. A contribution allows you to tuck away money in a Roth IRA so that you can have money to invest when you are ready.

Let's say you skip contributions when the market is down. That's one year of contributions you won't be able to make up for later. After the deadline to make contributions to a Roth IRA has expired, you can't double up and make contributions toward previous years.

Also, when the market is down, your Roth IRA dollars may go further, allowing you to pick up stocks at a discount and take advantage of future growth when the market turns around. If you want to invest your contributions now, it may work out in your favor. But it's not a good idea to time the markets. It's more important to have time in the markets to allow your money to grow and move through the volatile moments. 

Don't let the markets ruin your portfolio potential 

Being able to contribute to a Roth IRA now can be a huge benefit if you expect to pay higher taxes in the future. You can pay taxes on your contributions at current tax rates without worrying about future tax hikes. 

However, uncertainties in the market can easily cause you to rethink your entire retirement plan. But if you have your finances in order, you have to drown out the day-to-day noise and stick to your long-term strategy. That means contributing to your Roth IRA no matter how the market is behaving. Consistently contributing to your Roth IRA can reward you handsomely during retirement. Your contributions can turn into profitable investments that allow you to build the retirement portfolio you've always dreamed of.