DEFINITION OF THE DAY
Roth IRA: A type of individual post-tax retirement savings account.
Today we touch on Roth IRA’s, the retirement account for people who love control! Also - for people who don’t get a retirement account through their employer. Here’s why the “Roth Independent Retirement Account” (Roth IRA) is great:
1. You can always access your money. Unlike a 401(k), you’ve already paid taxes on the money you put into your Roth IRA. That means you can take it out of the account at any time without fees or taxes, including when you retire.
2. No taxes on the money you make through interest. When you invest money, like you do with the Roth IRA, you earn interest on it. As long as you wait to take out that interest until you hit retirement age (59.5. Weird!), you don’t pay taxes on it. More money for pant suits and cruises! So we’re sayin: The money you put in to the Roth IRA you can take out at any time (control!), but the money you earn through interest has to stay put until retirement unless you want to pay hefty fees. Let that retirement egg breathe.
3. Your taxes are lowest now. Chances are that right now you make less money than you will in a few years (trust the process). Less income means a lower “tax bracket,” aka lower tax rate. With the Roth IRA, you get to pay taxes now at the (probably) lower rate. With the 401(k), you would have to wait and pay taxes later when you’re rolling in dough, retiring to the Bahamas, and in a high tax bracket. Shorty- Get low, low.
4. You get the control. This account is yours. So as long as you make less than $120k($189 if you’re hitched) and are earning income, you can put $5,500 in that baby each year. You pick where you want to invest it and when you take it out (except the interest). And if you want to leave it in there until you’re 90 - that’s cool too. You’re in the driver’s seat.
Maybe you’re a super saver, and you want more options. Or maybe retirement feels crazy overwhelming. Either way, our challenge for you today is to take a peek at Wealthfront. It’s a super easy, totally online way to set up a Roth IRA, and they will manage it for you for a .25% fee on the money you invest. Even if you don’t jump in, we hope you’ll take a look and walk away knowing that there are great tools and services to support you whenever you’re ready to make that move. Plus, (cough, cough), you know...we’ll be here for you too.
DEFINITION OF THE DAY