What is a Roth IRA?

Who wants to be a millionaire?

Chances are that you aren’t going to win a million dollars on a game show, and chances are you aren’t going to get a million dollar inheritance from your rich uncle any time soon.  That leaves you with one choice; get started on investing early! Getting an early start at investing is always a wise choice, and can put you on a pathway to success.  If you are a teen, you can take the extra money that you are making, while you are still semi-dependent upon your parents, to build your retirement account.  If you want to be a millionaire by the time you are 40, then a Roth IRA is what you need.

What in the world is a Roth IRA?

A Roth Ira is a type of individual investment account that works in the favor of teens and college students.  How does a Roth IRA work?  Well, it’s just like a bank account that you pay income taxes on and use to invest in stocks.  Since you pay taxes upfront on your contribution, you can take your retirement money out of the account TAX FREE!

Why is it good for a young adult?

You might think, well why would I want to pay taxes upfront?  The answer is to pay Uncle Sam the least amount of taxes possible, so you have as much money in your hand as possible.   It works in the favor of us young investors, because of tax brackets.  When you are in college or even high school, you are usually working a minimum wage job.  This means you are in a lower tax bracket than most other Americans (in other words, the government sees us as poor).  When you invest, you will pay less taxes since you are considered poor, compared to later in life when you might be considered middle class.  In the end, you will be paying fewer taxes now, rather than paying more taxes later.  In other words, just trust me.

Restrictions on a Roth IRA

Like any other account there are restrictions on how much you can contribute, the maximum amount of income you are allowed to recieve and still contribute, and things of the such.  If you are interested to see if you make the mark for a Roth IRA check out the IRS website @ http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits.

Final thoughts

The key for the young investor is to get an early start, and to stay consistent with your savings!  Whether you can only invest 5 dollars a month, or 500+ dollars a month, you need to start investing.  Dave Ramsey says, “If you will live like no one else, later you can live like no one else.”  Start investing now, so that you can retire early.  It’s never too early to start Investing!


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