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Roth IRA

If you're on the younger side, in a lower tax bracket, and haven't opened up a Roth IRA (individual retirement account) - let me attempt to get you thinking about opening that account.

A Roth IRA is a post tax, retirement savings account. The money you put in this account has already been taxed, so there are no immediate tax savings (that is why those in lower tax brackets benefit a little more from this account). However, the money you put into this account AND THE GROWTH are tax free when you withdraw it after the age of 59.5.

Another benefit is that you can access the money you've contributed to your account penalty free in the case you experience an emergency (once certain conditions are met). You may also be able to access the growth on your contributions, but that will be taxed and penalties may incur.

Let's run a scenario:

Age: 30
Income: $35,000
Annual Contribution to Roth starting at 30 years old: $5,500 (max)

You many think contributing $5,500 is difficult on that salary, but take a look at this blog post where I shared easy ways that I could save $5000 per year. Let's continue...

Retirement age: 65
You will have contributed: $192,500 (35 years @ $5,500)
IRA Roth balance at retirement: $637,000!! (Based on 6% annual growth in the market)
Provides you: $1,725 per month in retirement until age 85
Tax Savings: $113,467 compared to a standard taxable account

Some may be able to retire on this alone. Some can combine this with a tax deferred account like a 401k or a traditional IRA. Most can and should start saving in a Roth IRA immediately if you aren't already.

Here is a calculator to play with using your information
https://www.nerdwallet.com/investing/roth-ira-calculator

Have a great day.



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