A Roth IRA is an investment account designed to help you save money for retirement, while a money market account is a type of savings account that provides earnings through an interest rate based on the fixed rate established by the Federal Reserve. Both money market accounts and Roth IRAs are available widely through financial institutions.
Risk and Growth
A money market account is a conservative investment tool, providing a relatively stable return. When interest rates are low, the money market account format has diminished value, but when interest rates are high they become more attractive. A Roth IRA is a more flexible investment tool. It allows you to select a plan that is aggressive, directing your retirement savings toward higher risk investments that offer potentially high rewards, or conservative, focusing your plan's funds in less volatile investments. It also allows you to develop a balanced portfolio within the account, encompassing both aggressive and conservative investments.
If you want to contribute to a Roth IRA, you must have taxable compensation and your income must be less than $199,000 per year if you are married and file a joint tax return or less than $135,000 if you are single. A money market account also has basic financial requirements. Banks that offer money market accounts require you to open an account with a minimum balance, and you must maintain that minimum balance to avoid fees.
The principal tax impact on money market accounts is that you have to pay income taxes on the interest that you earn each year on your account. A Roth IRA, meanwhile, offers a tax advantage for those who use it for retirement. The earnings in your account grow tax-free, and you can withdraw earnings from a Roth IRA without paying any taxes as long as you are at least 59 1/2 years old.
A money market account is meant to be a moderately active account for a depositor. You can write checks from a money market account, though you may be limited in the number of them that you can write, and you can make withdrawals. A Roth IRA account, meanwhile, is meant to provide income in retirement with regular distributions, but it is not designed for earlier frequent access. You can withdraw your contributions to a Roth IRA account any time without penalty, but you must pay income taxes and usually an additional 10-percent tax penalty on earnings that you withdraw before you reach the age of 59 1/2.
Tom Gresham is a freelance writer and public relations specialist who has been writing professionally since 1999. His articles have appeared in "The Washington Post," "Virginia Magazine," "Vermont Magazine," "Adirondack Life" and the "Southern Arts Journal," among other publications. He graduated from the University of Virginia.