Roth IRA: How to Become a Millionaire by the Time You Retire!

Instructions on How to Grow $1,000,000!!!

A Roth IRA is a type of retirement investment account. The difference between a Roth versus a regular IRA is “when” you pay the taxes on the money.

Roth IRA: Pay income taxes at the time you earn the money, and the invested funds and compounded interest grows tax free. When you pull the money out later, you will not have a tax liability on those funds.

Regular IRA: You take a tax deduction for the funds during the current tax year. When you liquidate the funds at the time of retirement, you owe taxes on the amount you withdraw per year based on your current income tax rate.

I like a sure thing, which is why I pay my taxes up front (so that when I withdraw the funds later I don’t have to pay taxes). This means that when I look at my Roth IRA account, all of the funds are mine (no calculations or guessing involved)! You can open an account with any number of brokerage companies. I use Vanguard because you can trade an unlimited number of their index funds for free.

gold piggy bank

In a prior blog post I showed you how you can save $650 per month by reducing the amount you eat at restaurants and cooking your own meals. The maximum amount that you can contribute to a Roth IRA account per year is $5,500, which is $458 per month (you can fund your future retirement by not eating out today)!

Experts say that over any 40 year period, the stock market has an average return of 7%. By using a retirement fund calculator, we can see that the overall return for a Roth IRA account that has annual contributions of $5,500 which grows at 7% per year is $1,174,853!!!  Bam! You are a millionaire!!!

Dollar Cost Average:  Buying a fixed dollar amount ($458 to max out the Roth IRA) of a particular investment on a regular schedule (say the 1st of the month).

Retirement is possible. Start young, and be consistent. The younger you are, the better off you will be. The more time the funds are invested, the more tax free compounded interest you will earn! With any retirement account, there are restrictions and penalties for withdrawing before the age of 59.5.  One of the general goals of this blog series is to explain how to win the “game of money”. We all have a financial report card, dreams of retiring (or at least want to not HAVE to work), and a desire to have enough money financially.

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Investing in your future should be part of your once per month habits. You pay your bills on the 1st of the month, add “Roth IRA contributions” to that list (so that you won’t forget)! Investing should become an automatic habit, like brushing your teeth. You get one body and one mind, what habits and routines do you have in place to  take care of yourself?

 

Do you have a topic that you would like to know more about? Post a comment below!

 

Photo credit piggy bank

Photo credit clock 

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