I’ll admit it. I don’t know much at all about Roth IRAs. When Good Financial Cents suggested a Roth IRA movement, however, I jumped at the chance to write about my experience.
I was never really interested in saving, budgeting or retirement until I started reading personal finance blogs. Once I started learning things and started budgeting, I was amazed at how much faster I would reach my savings goals. Then I started to think about retirement. As I’ve mentioned once here before, I did some simple math and realized that my 401K alone would not provide me with a very cushy retirement.
So armed with all my new personal finance knowledge, I decided to open a Roth IRA. I still had no idea why.
Let me get this out of the way now. I opened it last year and didn’t contribute anything. There’s a $5000 contribution limit per year (unless you make less/more than a certain amount or are over 59 and 1/2) so I decided to start contributing in 2012. Here is what I have so far:
Yup. I have $100 in my Roth IRA. I definitely want to contribute more this year but because I’m still hesitant of dumping money into an account that I can’t take it out of, I started a new savings account just for my Roth IRA.
Ok fine. It’s still not much. But it is a starting point and that’s all I need right now as I learn more about Roth IRAs. Here are the benefits I’ve learned so far.
Benefits of a Roth IRA
- You’re funding this with after-tax money so the money in here will not be taxed when you take it out. All the money you earn will also not be taxed.
- In certain cases, you can withdraw your earnings after 5 years (for example, to buy your first house)
- You can invest the money in your Roth IRA in different funds – this supposedly can give you a great return but I don’t know much about it yet.
I’ve definitely simplified the benefits here. For me, a young professional who is just starting out thinking about retirement, this is all I need. An account where my money can grow and will not be taxed when I take it out for retirement – this is perfect.
As I learn more about how to invest the money in a Roth IRA, I’ll write about that too. But sometimes, the best way to start out is the simplest. Let’s just worry about funding this account first.