Investment Tips – Fund a Roth IRA
I’m back with another great investing tip! The latest copy of Forbes magazine has a list of 365 tips on investing to get rich. I thought I’d go through some of the ones I found the best and expand on them to provide a more detailed discussion.
This investment tip is: Fund a Roth IRA if You’re Eligible; Your Money Will Grow Tax Free for Retirement, and You Can Withdraw Your Contribution Back Without Penalty!
Investment Tips – Fund a Roth IRA – Background
Without trying to get too complicated here. You can generally contribute $5,500 (in 2013) to a Roth IRA if your income is less than $112K or your combined household income is less than $178K. Check here for more information on eligibility.
In a Roth IRA, you contribute AFTER tax money up to the annual limit. Then, all of the interest you receive grows tax free when you withdraw it! You can begin to withdraw the contribution plus any interest after age 59-1/2 without any penalties at all.
An added awesome benefit is that you can withdraw your contribution amount (that $5,500 you’ve been putting in every year) without any penalty at all at any time!!!! That’s right, this can work perfectly for those worry-warts that want a cash emergency fund saved up but don’t want 0.4% interest from their bank to hold all of their money. You get the best of everything here!
Investment Tips – Fund a Roth IRA – My Take?
This is one of the best investment tips I’ve run across. I used to put myself in that worry-wart category where I’d have a lot of cash sitting around in the bank. If I would have known that I could withdraw my after tax contributions from a Roth IRA at any time without penalty, I could have been investing my saved cash for the past 12 years of my working career! Between my wife and I, we’ve missed out on more than $100K of authorized contributions.
But no more! Now that I recently ran across this tip, my wife and I setup Roth IRA accounts in 2013 and started our first contribution. I’m so excited I can hardly contain myself!!! If you’re not maxing out your Roth IRA contribution, you make less tha $112K by yourself, or less than $178K combined (if married), and you have an emergency stash of cash just sitting around, then what the heck are you waiting for?!?!? Start a Roth IRA today and get on the road to retirement savings!!
Investment Tips – Fund a Roth IRA – Final Thoughts
I love this investment tip – it is pure gold! I wish I would have run across this Roth IRA info when I first started working. The idea that you can easily withdraw your contribution amount without penalty is such a great feature for those savers among us that worry about emergencies. This means that you can basically take your emergency fund money and put it to work to help you save for retirement. Hopefully you’ll never need the money. But, but if you do, you’ll be able to access it without penalty if the worst does happen 🙂
This is something we’ve been looking at for some time. I have a funded pension account and 401K contributions through my employer (with matching funds), but we want to get a Roth going as well. Great tip!
Brock @cleverdude recently posted…A New TV vs. $325 Lightbulbs, That is the Question
I’ve heard mention several times the best way is to:
1) fund 401K up to employer match
2) Max out Roth IRA ($5,500 per spouse)
3) fund 401K up to limit (currently $17,500 per spouse)
Not sure if that helps with your decision making or not. Some folks find they need to back down on the 401K to the employer match and fund the Roth IRA vs. maxing out 401K and missing out on the Roth IRA all together. Good luck and thanks for commenting!
Hey Derek,
I checked on Scottrade site and it says that Withdrawals prior to age 59½ may incur a 10% IRS penalty as well as income taxes!
Your article says that we can easily withdraw our contribution amount without penalty!
I am a little confused. Could you please clarify? Thanks!
AP,
Things are a bit tricky when it comes to IRAs. A ROTH IRA lets you withdraw the money early because you are paying with AFTER tax money. So, any CONTRIBUTIONS can be withdrawn without penalty.
For a NORMAL IRA, you will pay the penalty for early withdrawal. Does that make sense?