Why You Need a Roth IRA
(and how to get one)
What if I told you there was a magical place where your hard earned money could grow and compound exponentially over a long term. A place where, when you finally start using these (potentially millions of) dollars, it is 100% your money to use however you wish - no taxes, no nothing. Sound too good to be true? Well think again — it exists.
The Roth IRA
The Roth IRA (or Roth Individual Retirement Account) is a just a vessel or an account in which you can put money & investments into. These investments could be stocks, bonds, mutual funds, gold, real estate — you can decide how to “furnish” this account.
It is a pretty straight forward account with only a couple of rules. One of those is an contribution cap. In 2021, if you’re single, under 50, and make less than $125,000, you can put up to $6000 into an IRA.
The US government wants to encourage people to save and invest in their future, so they offer a huge incentive. Any funds in the account will grow tax-free and will be tax free when you withdraw the funds in retirement. This means you can buy and sell investments inside this account without taxes eating into your return. Without these taxes, which depending on a multitude of factors is somewhere between 10% and 40%, your money go further and compound faster.
Let’s take the Tesla stock that you bought in Robinhood. When you go to sell that stock you are going to be taxed a sizable chuck of change on its gains, which ultimately brings the earning power of any future investment on that money down. If you had opened an Roth IRA and invested that same stock, you’ll be able to sell that stock and reinvest it at any time (or sell and withdraw it if you are over the age of 59 & 1/2) without paying a dime in taxes.
For any freelancer who hasn’t thought about starting to save & invest for the long term — you should check out the article because I guarantee that you are leaving a LOT of money on the table.
So How Do You Open a Roth IRA?
Nearly every brokerage firm will be able to help you open an account. You’ll definitely want to consider what kind of investments their IRA’s will support (can you buy individual stocks like your beloved Tesla, or just mutual funds?). Also extremely important: Ask the brokerage what they charge, how often they charge, and for what types of things they charge you for. Prices and returns vary wildly based the types of investments you’re interested in and if you need a personal financial advisor helping you along the way.
I certainly am no expert in the stock market, but I also didn’t want to pay an advisor a huge fee to do something a computer algorithm could do. That’s why when I opened my Roth IRA I used the robo-advisor Wealthfront. They use some basic information to help you determine a risk score for your portfolio, then their algorithm automatically keeps a balanced and diversified portfolio. I’m setting future me up for a great retirement and expending very little energy in the process. Plus they’ve consistently delivered above average market returns on my portfolio all with an extremely low fee structure (0.25%). I think that’s a win-win-win.
If you’re ready to begin investing in your future you’ll seriously want to check out your Roth IRA options. If you’re interested in Wealthfront click below to get $5000 managed for free.