Contribute to a Roth IRA Today

By in Advanced Investing, Asset Allocation, Automatic Saving, Investing

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For whatever reason, I find talking about Roth IRA’s boring. Nevertheless, they are an unbelievable way to amass great wealth. To minimze the disomfort of talking about the subject, I’m going to give you the Cliff Notes Version.

INVEST IN A ROTH IRA

Background; I’m one of those finance nerds who started investing in my 20’s and have not stopped. I was decades younger than the other attendees at my first retirement investing seminar. When a way to invest and save taxes came up, I dove in! Thus, as soon as self directed IRAs became accessible, I started contributing the max. When I met El Carino in my mid-20’s, after just a few months of dating, I got him to contribute to an IRA as well.

This article will tell you why you must contribute to a Roth IRA and how to do it.

WHAT IS A ROTH IRA?

According to Money Chimp a Roth IRA is a tax advantaged investment vehicle which allows your money to grow over the long term and only get taxed one time! You put money in an investment account after taxes, invest it in your preferred investments, and pay zero taxes as the money grows and zero taxes when you take the funds out!

That’s correct, you pay no taxes at retirement when you withdraw the funds.

HOW MUCH COULD YOU EARN?

Assumptions:

Put $5,000.00 in an investment account once every year from ages 25 to 65.

Invest in 3 funds:

40% in Vanguard Total Stock Market Index Fund (VTWMX)

40% in Vanguard FTSE All World ex-US Index Fund (VFWIX)

20% in Vanguard Total Bond Market Index (VBMFX)

Earn an average return of 7% over 40 years.

At age 65 your investment account will be worth $998,175.56

When you withdraw the funds, you pay zero taxes.

HOW TO SET UP A ROTH IRA?

Contact a discount broker such as Vanguard, Fidelity, Charles Schwab, Etrade, or other.

Either on line or by phone, follow the required steps to set up the account.

Transfer money into the account either directly from your bank account, paycheck, or mail a check (very old school).

Choose the funds and indicate your preferred percentage for each one. Instruct the brokerage to transfer this money and future contributions into your funds.

WHAT IF I DON’T HAVE $5,000.00 PER YEAR TO INVEST?

No worries. Invest any amount you can. Start now, and set up an automatic transfer every month. Increase the amount as your income grows. Check out an online calculator to find out how quickly even small amounts can grow into large sums over time.

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What type of retirement accounts are you using? What asset allocation do you prefer?

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