Disadvantages of IRAs One drawback of using IRAs to save for retirement is that the annual contribution limits are relatively low. In the case of traditional IRAs, the distributions you make will be taxed according to your income tax rate at the time the withdrawal takes place. If distributions are made before age 59 and a half, a federal tax penalty of 10% applies. However, in certain situations, you may be allowed to make early withdrawals from an IRA without a 10% penalty.
Expenses that may exempt you from the penalty include, but are not limited to, buying a home for the first time, medical bills and higher education payments. It's not available to taxpayers with retirement plans at work. Another drawback of IRAs is that you can't contribute if your employer offers a qualified plan, such as a 401 (k). You may have low contribution limits and limited investment options that are not sufficient in the event of an emergency or financial crisis.
IRA is an acronym for individual retirement agreements. It's a savings plan designed to help you save to reach your retirement goals. The IRA is very similar to the 401 (k) plan in many ways. A major disadvantage of an IRA plan is that you cannot withdraw or borrow your funds while you are still working for the company that participates in this tax-advantaged retirement savings plan.
However, if you lose your job, you can use your IRA funds for other investment opportunities outside your employer's 401 (k) plan.