Source: goodfinancialcents.com via Jeff on Pinterest
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.
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The Roth IRA Movement
From Shopping to Saving says:
I did the same thing when I first started out PF blogging in 2010!
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YPFinances says:
Just another thing I learned from PF bloggers!
LifeInTransition says:
I had no idea what I was doing when I started my Roth IRA. All I knew was that I should start one especially since I don’t get a retirement plan with my employer.
I think you’ve made a step in the right direction just by starting one.
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YPFinances says:
Thanks for the support! I figure even with a 401K, it doesn’t seem like it will be enough since I’m contributing only the minimum to get a full company match. I’m definitely learning a lot more about Roth IRAs today!
WorkSaveLive says:
Even if you don’t understand it completely it’s wonderful that you decided to start saving into a Roth IRA!
Keep learning and eventually your knowledge will lead to more great financial decisions!
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MyMoneyDesign says:
Don’t be embarrased about how much you’ve got in your Roth! Sure its $205 today. Then $2000 in a few years. And before long, you’ll be hitting the full $5000 mark each year. That’s where my wife and I are now ($10,000 per year), but it took A LOT of disciple and gradual increases to get there – nothing happens overnight! I’ve got a post that works through the math of comparing a Roth to a Traditional IRA if you are intersted in learning how taxes play a role in the debate:
http://www.mymoneydesign.com/personal-finance-2/retirement/traditional-vs-roth-ira-%e2%80%93-part-3-why-i-prefer-a-roth-ira/
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GB says:
Actually, I read that contributing just enough to get a company 401(K) match while working to max out your annual Roth contribution can be a really smart move for young professionals who are typically in a lower tax bracket than they expect to be in retirement. I also learned that you can use your Roth contributions (but not the earnings) as an emergency fund if needed and not get hit with a penalty fee if you decide to withdraw it.
I think the fact that you’re a PF blogger and that you’ve started a Roth speaks a lot about your growing financial savvy!
Bichon Frise says:
Be careful about the first time home buyers thing. You’ll get to reduce your earnings for this year, but you’ll have to reduce your basis by that amount in the following years. In other words, it can be an indirect way to take money out of your contributions while using all or part of your lifetime “first” time home buyers distribution from ANY IRA. We have a post on Monday that covers all the nitty gritty and how this happens on the Tax forms.
But, keep plugging away on your savings!
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Leigh says:
When I first opened a Roth IRA, I took $5,000 from a savings account because I had no idea that you could contribute less than the max! (I realize that’s weird now.) I opened mine at Vanguard since that’s where my 401(k) is.
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Jeremiah Brown says:
Like everyone says, keep up the good work. Remember, you will never get anywhere if you don’t take the first step. Look at it this way, you have $200 more than the average person does. The heck with being normal right?
Great post, and thanks for taking a step to lead everyone in the right direction.
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NuView IRA says:
A Roth IRA is an appealing option for individuals who believe their retirement income will be taxed at a higher rate than their current income. As long as you can be patient and let your money compound interest, a Roth IRA can prove to be very beneficial for your future.
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