Why Haven't You Started Your Roth IRA Yet?
It happened again.
Twice. This past weekend alone.
"What Happened?" you might ask.
What happened is that I spoke to two people, who are eligible for a Roth IRA and are not contributing to one.
I am not a religious person, but this is the equivalent of a FINANCIAL CARDINAL SIN.
Recap:
The Roth IRA is the MOST POWERFUL financial vehicle one can contribute to.
YES, MOST POWERFUL.
You put in AFTER-TAX money, and the account will one day turn into TAX-FREE dollars. ALL YOURS. The difference could be in the MILLIONS.
Someone put it best (my apologies for not being able to credit the person who first said it) - "You are paying on the SEED, NOT THE FRUIT."
So, please, stop cheating your "future" self. Open up a Roth IRA. I don't care what you invest in with it - stocks, money market, real estate, gold, oil, whatever tickles your fancy - just open it!
If you want to JUMP START your Roth IRA, you can wait until January and do the DOUBLE-WHAMMY - contribute $5000 for the previous year's contributions, and $5000 for the current year's contributions.
Congratulations - you have $10,000 to invest with.
Comments (15)
Loc R. A few things that come to mind, and mind you, Whole Life is not for everyone as it is not cheap as an investment, but by building up cash value in your whole life insurance policy, you essentially are building up a cash portfolio that gets very modest returns (2-6% say) and gives you the option to borrow against it to buy more investments, such as notes, or real estate, and have the income from those assets pay the loan back to yourself. People have talked about that tactic to the point where I know people are trying to "guru" the concept up. But, if you are in a position where you need to diversify, you can afford to invest say $10,000 a year into yourself, and you don't want to bet on dying before your term policy expires, and you want tax free returns for you and your beneficiaries, then I would suggest looking into it. There is a great book that discusses the topic and many more that you will get thru in less than a day. "Leap: Lifetime Economic Acceleration Process"
Kevin Kaczmarek, about 13 years ago
Kevin Kaczmarek that's interesting, as I've always had the "conservative" investors tell me that term is the only way to go with respect to life insurance. Care to further support your stance?
Loc R., about 13 years ago
the Roth and dare I say a whole life insurance policy with cash value should be your #1 and #2 investments. In my humble opinion.
Kevin Kaczmarek, about 13 years ago
Contributions to roth ira can be withdrawn tax free any time. its only earnings that are withdrawn early, that are penalized.
Brandy Y., about 13 years ago
Any time you place funds in other peoples hands - the risk of losing it increases. Plus not being able to use the money until you are 59.5 is stupid as far as I am concerned.
Dale Osborn, about 13 years ago
Dale Osborn I agree. However, the Roth IRA and its contribution amounts ($5000/year) should only be small portion of one's portfolio. My personal "buckets" include my "cash" portfolio, my SD-401k, and my SD-Roth IRA.
Loc R., about 13 years ago
http://online.wsj.com/article/SB10001424052702304072004577325551162426954.html "The Internal Revenue Service hasn't raised any red flags on backdoor Roths that are properly reported on form 8606. According to a spokesman: "The law is pretty clear on this issue." As you @loc mentioned Roth IRA is a very powerful financial vehicle that can be utilized in so many ways.
Brandy Y., about 13 years ago
Both are legal techniques that have been used and IRS is aware of it. There have been articles on it as well(though long after people were using it). eg http://www.forbes.com/sites/ashleaebeling/2012/01/20/the-serial-backdoor-roth-a-tax-free-retirement-kitty/. Spousal IRA as you mentioned is for families with a non working spouse
Brandy Y., about 13 years ago
Brandy Y. I am aware of the Roth conversion, when allowed. I was not aware of the "backdoor" method - I don't want to comment or suggest it without ever having done it, as my first impression is that it would be frowned upon by the IRS. I could be wrong. As to the spousal contribution for a non-working spouse, I do not have experience with that, either, as (fortunately) my wife is employed.
Loc R., about 13 years ago
A Backdoor Roth IRA is a technique for contributing to a Roth IRA when your income exceeds the contribution limit. There is no income limit on contributing to a nondeductible Traditional IRA, nor on converting a Traditional IRA to a Roth IRA. To make a backdoor contribution, first make a regular contribution to a Traditional IRA with your IRA custodian. You do not specify to the custodian whether the IRA is deductible or not; it is just treated as an IRA. As soon as the contribution posts, convert to a Roth IRA. Spousal IRA: If filling married jointly, the working spouse can contribute a roth ira for a non-working spouse. OF course the working spouse has to have enough earned income to cover the contribution.
Brandy Y., about 13 years ago
Brandy Y. I am not aware of what you mean by "backdoor" and "spousal" IRA...
Loc R., about 13 years ago
Loc R. maybe another blog article on backdoor roth ira and spousal ira could help others ,unaware of the same.
Brandy Y., about 13 years ago
Loc R., I have no faith in our government running anything responsibly. As an Accountant and Investor I find the Roth account to be the most advantageous option available. You can generally invest as many ways as you would like... TAX FREE. I keep my best deals in the Roth. I'm young enough that the benefits will be huge by the time I retire. I even have a Roth 401k to allow me to contribute even more. I do regularly roll over my matching contributions.
Steven Hamilton II, about 13 years ago
@Jon: taxing the Roth would eliminate any last bit of faith I have in our government. I hope that threat falls under the same category as the threat of getting rid of the mortgage interest deduction.
Loc R., about 13 years ago
Senator Roth, welcome to BiggerPockets! Don't worry, your legacy is assured. That is, until your cohorts on the Hill vote your sweet little plan taxable. So Loc, when will your IRAs be worth more than Governor Romney's? I'd vote for you!
Jon Klaus, about 13 years ago