2) You can't take qualified distributions from your Roth IRA until 5 years after you opened the account. So if your parents were to retire in 2 years they wouldn't be able to take any money out for another 3. This limit does not apply to Traditional IRAs.
This rule is for earnings. Contributions are available for withdrawal at any time for any reason, no taxes or penalties.
Technically you're both correct. If a traditional IRA is rolled into a Roth IRA, the event is taxed and there is a 5 year seasoning period where neither the principle nor interest may be withdrawn without penalty. If you take post-tax income and contribute directly to the Roth IRA with no intermediate step, then you can draw up to the initial deposit, but not the earnings, without penalty. In both cases, it is not possible to put the money back once it has been withdrawn.
The only downside I know of for a Roth account is like sherr said, you might be taxed at a higher rate now than in the future. However, if this is the case and you’ve already maximized whatever other taxed-deferred retirement accounts are available, then you will still save money with this route versus leaving it in a taxable investment account.
Personally, I believe that taxes are going to go up across the board for all brackets in the future and I’ll still come out ahead even though we’re at a high bracket now.
Actually as an afterthought, it does occasionally get mentioned that the rules about Roths might be changed in the future such that the government taxes them anyway (think “wealth tax”), but that seems unlikely to happen anytime in the next decade or two.
Wikipedia actually has a surprisingly helpful page on Roth IRAs, so check them out in your research.
