So I received a question today regarding contributing money to a Roth IRA this year even though the account lost money since last year.
The short answer is Yes!, if you have the money to spare to save for retirement. Although the contributions to the Roth IRA are already taxed from your income, all further
capital gains, dividends, and interest are not taxed. In addition, any contributions can be withdrawn from the account at any time without additional tax or penalty, unlike a 401k loan.
For example if 5 years later, you need additional money for a down-payment on a house, you can withdraw the contributions made in the past 5 years (Up to $25k assume the contribution limits don't change). A 401k is not as flexible as you would need to take a loan from the account and repay the loan over a predetermined period. If you needed to leave or change jobs, the loan would have to be immediately or you would pay a penalty and tax on the withdrawn funds.
So why continue investing even though the account lost money in the last year?
Well as with investing in mutual funds in a standard brokerage account, the Roth IRA account is subject to the same market conditions. Investing in stocks/mutual funds requires a long term outlook due to the volatility of the markets. However over a long period a time, investing in stocks has provided a better return than many other investments. (Of course, past performance doesn't necessarily mean that future performance will be the same.) But investing early and diversifying investments will help in your long term financial health.
