Who wants to be a millionaire? Us, and probably you if you clicked on this post! But who wouldn’t want to be a millionaire? Today’s post is about how using a Roth IRA can make you a millionaire.
This article was contributed by Ver Starr as a follow-on to his video to his called How to Become a MILLIONAIRE | SIMPLE Roth IRA Explained. We linked the video below, and don’t forget to subscribe to his channel to get more content. 😇🙏
What if we told you it is possible to become a millionaire by merely putting away $16/day, $500/month, or $6K/year throughout your life? That’s literally two or three Starbucks coffees a day, but it’s definitely doable!
What is a Roth IRA?
A Roth individual retirement account (or IRA) is a retirement account that saves you from paying taxes on earnings later on in life. It was created by the Taxpayer Relief Act of 1997 and was named after Senator William Roth of Delaware. Thanks, Delaware! IRAs let you put away up to $6K/year ($6K is the limit in 2021, and the year is defined as January to the following April 15th (15.5 months total)). With Roth IRAs, you set aside after-tax income, which you earn from a job and then paid taxes on. This is different than a 401(k) plan from your employer or a traditional IRA, as these accounts allow you to set aside pre-tax money, which is money you haven’t paid tax on yet. For a comparison between pre-tax and after-tax retirement accounts, be sure to check out our article called 401(k) Vs. IRA — What’s the Difference?.
So this account lets you put away $6K/year, which is $60K over ten years and $180K over thirty years. When it comes time to start withdrawing money from your Roth IRA, you’ll not only have everything that you initially contributed, but you’ll earn interest too. And best of all, if you wait until you are at least 59 1/2 (We have no idea why it’s a half number), you’ll enjoy withdraws that are tax-free! This benefit comes because you already paid tax before you put the money in the account, and you basically dedicated your life to saving for retirement. So consider that a thank you from Delaware, Congress, and the Internal Revenue Service (IRS).
What if something terrible happens and you need to take money out of your Roth IRA? It happens, probably more often than you might think, but you’re not alone. Imagine something does go wrong, though. What happens? We’ll you should try your best not to take any money out of the account, but if you have to, you’ll be able to take out your contributions without a penalty. Your contributions include all the money you actually added into the account. Now you’re earning, on the other hand, will be hit with a 10% federal tax penalty if you withdraw earnings before 59 1/2 or if you meet one of the qualified withdraw exclusions.
Should You Open A Roth IRA?
Yes, no, maybe? Really it depends on your financial goals. A big determiner of whether you should open a Roth IRA is if you have earned income. Having earned income from something like a job or have a business makes you eligible to contribute to the account. Another determiner is if you are a young person. If you are young, contributing to a Roth IRA most likely means you’ll make more money in compounded interest as you grow older. There are many other determiners, but we will end the list with your investment strategy. Maybe you want to simply use your $6K to go to school, travel, or even invest elsewhere. It’s not uncommon to see people actually enjoying life or making smarter investing decisions. There is a world of possibilities, and there isn’t a one-size-fits-all answer. Do your research and ask others for their thoughts (especially within the Millennial Investments community)!
Here is More Good Info on Roth IRAs
- The minimum age to open a Roth IRA is 18. If you’re working before 18 and want to open a Roth IRA, you’ll have to have a parent open you one.
- The requirement to contribute money into a Roth IRA is that the money has to be earned income, income from a job you work or business you own.
- You can’t contribute more than you earn, so if you made only $1000 in a year, you could only contribute up-to that $1000.
- You can open Roth IRA online on sites like Vanguard, Fidelity, or Charles Schwab.
- If you make a lot of money in the $139k+ range if you’re single, you will have to figure out other ways to contribute to a Roth IRA or look at other accounts. Check out backdoor Roth IRAs!
- Even if this is your only way of saving and investing money, it’s a simple way to become a millionaire in your lifetime. Starting early is essential for this.
Thanks for Reading!
Let us know if you enjoyed reading this article in the comments! If you want content related to retirement, be sure to check out our retirement blog! Don’t forget to subscribe at Millennial Investments to learn more wealth building tips and tricks! Happy reading, and thanks for supporting our work! 😇🙏