Do You Have a Roth IRA? What if I told you that you could invest $5000/year, every year and that once the money was invested you’d NEVER have to pay taxes on your investment or its gains when you withdraw it. Does that sound like something you might be interested in?
Well there’s no big secret. Just open a Roth IRA. If you make under $105k ($165k if you’re married) you’re eligible to invest in a Roth IRA. If you’re a regular reader of The First Million is the Hardest you might be asking yourself why I’m going over this. I’ve mentioned it plenty of times before and have made no big secret that a Roth IRA is my favorite investment option.
The simple fact is that too few people know about the Roth IRA, and even fewer are taking advantage of its benefits. That’s why Jeff Rose a Certified Financial Planner and Yakezie member started the Roth IRA Movement. Today, I, along with hundreds of other finance bloggers are taking the time and bandwidth to try to spread the word.
What Is A Roth Ira?
For the uninitiated, a Roth IRA is a type of retirement account. You need to meet the income requirements I mentioned above (which I’m assuming the majority of my readers do), and you can only invest $5000 per year (more than it sounds like!). The real draw is that you’re investing after tax dollars now, and don’t have to pay tax as you withdraw the money in retirement.
Why You Should Have a Roth IRA
Hmmmm, let me think about this one… TAX FREE GAINS. Need I say more? If you’re a young investor there is no single greater weapon in your investing arsenal.
If you’re just starting out in your career there are two things working against you.
1. You’re probably not making all that much money
2. You have a LONG way to go until you can retire.
This is where the Roth IRA steps in to help. You’re not making as much money now as you will later in your career, which sucks, but you’re also not paying as much tax as you will later in your career. So by taking money that you pay tax on now, and putting it in a Roth IRA you benefit twice. First, the tax rate you pay on the money now, before you invest it. Will presumably be lower than if you had to pay that tax later in life when you’ve worked yourself up to a higher tax bracket. Second, you’re far away from retirement (remember?) so the money you invest has 30-40 years to grow.
Think of it this way. If you’re 25 years old, and you start today, contributing $5000 to a Roth IRA every year until you reach 65, even if that investment returns a relatively conservative 7% you’ll hit retirement with $1,068,048. That means you’ll be able to withdraw over 80,000 tax-free dollars every year from the ages of 65-95.
I don’t know about you, but having an $80,000/year income tax-free sounds pretty good to me!
If you’re not 25 anymore don’t worry! It’s not too late. A 45-year-old who opens a Roth IRA today and contributes $5000 every year until age 65 still ends up with almost $220k (assuming the same 7% rate of return).
So if you’ve put it off, or weren’t sure if it was right for you. Now is the time to go and open a Roth IRA. I honestly believe that everyone who can have one, should.
If you want some more information on Roth IRA’s check out
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If you want to discuss anything having to do with a Roth IRA with me further, leave a comment below, email me from my contact page, or find me on Twitter! I’ll do anything I can to help.