Retirement Planning Now: Roth IRA

Retirement Planning Now: Roth IRA

Why you need to start now!

Every Millennial should create a Roth IRA NOW and MAX it out if possible each year! Now more than ever we need to start saving for retirement and with compound interest every year matters. The sooner you open and start your savings the better you will be off. But there are steps to ensure your setting yourself up for future financial success. First if you have a company 401k MAX out the match your company offers if you don’t your missing out on free money. If you aren’t currently doing that stop here and first change your contribution to ensure you earning the full match provided by your company.

If you are currently putting in more than your match from your company adjust your strategy. Look to change your contribution to earn just the match and put the rest up to the max into a Roth IRA.

What are the benefits of a Roth IRA? What is the difference between IRA & Roth IRA?

Roth IRA contributions are solely after tax contribution that are withdrawn tax free during retirement (After the age of 59 1/2). The contribution limit is capped at $5,500 per year if under 50, if over 50 you can contribute a max of $6,500. They also offer benefits such as Educational Payment for early withdrawal (on only contributions not earnings) as well as buying a new home with no fees when withdrawn before 59 1/2. Withdrawing early is not recommended but it can always be used if needed for that need.

IRA can be contributed to either before tax which will lower your taxable income or after tax. Withdraws in the future will be taxed at your income rate unlike the Roth IRA that is Tax Free withdrawal after 59 1/2.

Overall: Roth IRA will provided you a comfort that all your Earnings can be withdrawn Tax Free during retirement. If you need to withdraw money for a life event in most occasions you can and not have to pay any fees or penalties. When contributing to a Roth it will be post tax so it won’t reduce taxable income.

What I use..

For the last three years I have been following this preferred method of collecting all the potential free money from my employer and then trying to max out the Roth IRA. I use eTrade with provided you with great versatility with Mutual Funds to choose from and you can also purchase individual stocks.  

In future articles I will share the tools I use to prepare myself for a financially stable retirement and future.

What is your retirement strategy? Do you have a plan in place?

 

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