When I was just a pre-teen, ROTH and I were introduced by our mutual friend Suze Orman. We hooked-up when I turned 18 and finally the legal age to indulge, but I was too young and undisciplined to maintain anything meaningful. I never made any contributions to our relationship, but over the years we stayed friends and got to know each other. Once I matured and got on my feet after college, ROTH and I made things official on March 1, 2013. After 6 months of building, I announced our love on Instagram/Facebook and the feedback and questions on my post and follow-ups were so overwhelming that it inspired me to start this blog.
HA! Ok, let’s go…
I wanted to put something away where it could earn more than literally one penny a month via banks -_- and I’m not trying to hear that I can’t touch my own bread until I’m 60 years old without a 10% penalty. It’s my money and I want it now! So I opened a ROTH IRA.
DEFINITION: A ROTH IRA is a type of account offered by banks and brokerage firms that you fund with the money the government is so kind to leave you with out of your paycheck (aka “net pay” or “after-tax dollars”).
My top 5 favorite qualities of this type of account…
1. You don’t need to be employed to get in.
2. If you’re already saving for retirement… good for you! But for the rest of us, you can get the benefits of high return investemnt options without putting your cash on lock. I personally use my ROTH for my emergency fund (emergency funds will be discussed in a future post). You can withdrawal whatever you put in at any time tax/penalty free* because you already paid the taxes on it (unlike a plan with your employer).
*note: if you choose to invest some/all of your money, the earnings on that money is the only part subject to tax/penalty before you’re age 59 1/2.
3. When you make a deposit, it sits in a “Money Market Account” (MMA acts exactly like a savings account within your ROTH), so you have the option to invest none, some, or all of your contributions. You can’t lose money in your MMA, and the interest is low, but still higher than a regular checking or saving account with a bank.
4. If you are laid-off or quit your job you can roll-over your employer sponsored plan (i.e. 401(k)) into your ROTH. You have to pay the income tax on it at the end of the year no matter what (I’ll show you how to get around that later *wink* ), but you can avoid the 10% penalty if you can wait 5 years until after the rollover.
5. Because ROTHs are so wonderful, the government limits you to contribute $5,500 per year (a little under $460 a month). I kind of like this because it takes the pressure off of saving an unlimited amount of money. I max mine out, but you can keep a penny in it to keep it open… just open one NOW with the minimum! There’s certain withdrawal benefits you get when your account has been established for 5 years or more… and the clock starts when you open the account, not when the money goes in, so start your clock now!
This is just an introduction to bae. Using your ROTH to invest and make big returns will be a separate post. The featured picture shows both earnings and contributions for the last year, but I cashed out all my investments and I’m not making any money right now JUST FOR YOU. I want to personally walk you through from the beginning… not just say “here, now do it”. I did touch on investing within my ROTH on my Instagram (26 weeks ago and 17 weeks ago); and you can get a sneak peek of what it looks like with a small description there (excuse all the selfies).