It Will Pay Off Open A Roth IRA Today

It Will Pay Off Open A Roth IRA Today

In today’s world there are millions of different item to spend money on. Thus when it comes to the individual that is looking to save money for the future it can be a very taxing task.  
Whether it is for future vacations, retirement, purchase of the dream home, and/or future college tuition, future expenses are going to be high, and most likely only growing.  For example the current average across the county for a year of college tuition is $30,094 at private colleges, $8,893 for state residents at public colleges, and $22,203 for out-of-state residents attending public universities.

The question quickly becomes how will people be able to afford these significant and growing expenses.   One of the single best vehicles to save for retirement/the future is a Roth Individual Retirement Account (IRA).  A Roth IRA is a type of retirement account that provides tax free, and compounding, income in retirement.    When talking with financial representatives, one of the most highlighted aspects of the Roth IRA vehicle is their tax efficiency. 
  Roth IRA’s are of tremendous value at any point in ones life, but just like most things the earlier you start the better.  An added benefit for Roth IRA’s is that they are very inexpensive to open.  Most investment firms, such as Fidelity and Charles Schwab offer a plethora of investment options that offer no-load or no transaction fees, and may only require an initial investment between $1-$100.  

The quick explanation of how Roth IRA’s work is they take pre-taxed dollars and you invest them to grow tax-free.  Think of it as you pay taxes now, to not pay later.  This is why the earlier you start the better, because typically you will be in a lower tax bracket in your 20s-30s than you will be in your 50s-60s, thus you can increase the value of your account year after year.   
Keep in mind that it is important that you can access your gains from the Roth IRA at any point BUT if you touch the money before 59 ½ years old, you will be charged very steep withdrawal penalties.  However, if you touch the money after 59 ½ years old, there are no penalties and no minimum distributions required.  It is important to also note that the penalties only apply to earnings in the account, and not to the contributions you make, as you have access to the money you contribute with no fees or penalties.  

Can everyone have an account?  Great question the guidelines for eligibility is as a single filer, you can make a full contribution to a Roth IRA if your income is less than $112,000 ($112,00–127,000 for a partial contribution) for 2013 and $114,000 ($114,000–$129,000 for a partial contribution) for 2014. If you are married filing jointly, you can make a full contribution to a Roth IRA if your income is less than $178,000 ($178,000–$188,000 for a partial contribution) for 2013 and $181,000 ($181,000–$191,000 for a partial contribution) for 2014.  Additionally, there are contribution limits per year of $5,500 in 2014.

All in all, it is never to early to start saving for the future but the sooner the better.  The effects of compounding tax free dollars that grow year over year can be tens of thousands of dollars added to your pocket, if not more.  So, I challenge you to reach out to a financial representative or give me a call if you have any questions so you can get your account started TODAY.

Check out this awesome chart to see what the effects of compound interest are.

Michael Kane is a Broker Associate at Keller Williams. He is a member of the Carr Peck & Associates team that is recognized locally and nationally as in expert in real estate. Locally he is a member of the Denver Metro Association of Realtors.  Nothing brings him more joy than making his client’s dreams become a reality!  For more information feel free to contact him or call 303-717-9284.

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Dated: August 25th 2014
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