2892: 10 Reasons to Get Off Your Butt and Start a Roth IRA by Philip Taylor of PT Money on Investing Advice

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[00:00:40] [SPEAKER_00]: This is Optimal Finance Daily, 10 Reasons to Get Off Your Butt and Start a Roth IRA by Philip Taylor of PTMoney.com. And I'm your host and personal finance enthusiast, Diana Merriam.

[00:00:58] [SPEAKER_00]: I really love the Roth IRA. So check these out and see how to start a Roth IRA.

[00:01:02] [SPEAKER_00]: 10 Reasons to Get Off Your Butt and Start a Roth IRA by Philip Taylor of PTMoney.com.

[00:01:10] [SPEAKER_00]: I really love the Roth IRA. There are so many reasons to start one of these bad boys and to get going with your retirement savings.

[00:01:19] [SPEAKER_00]: Today, I thought I'd do a little convincing and list some of the reasons to start a Roth IRA. So check these out and then get started. Seriously, no excuses.

[00:01:29] [SPEAKER_00]: Number one, you'll be more prepared for retirement. The Roth IRA was created to provide incentive for you to save for your own retirement. Use it. Retirement will be a big chunk of your life.

[00:01:42] [SPEAKER_00]: Do you want to be relying on someone else to fund your trips to go see your grandkids or your golf course green fees or fill in the blank with what you want to do?

[00:01:52] [SPEAKER_00]: Number two, pay less in taxes.

[00:01:56] [SPEAKER_00]: The Roth IRA was created as a result of the Taxpayer Relief Act of 1997.

[00:02:02] [SPEAKER_00]: This account allows you to put in after-tax dollars and never pay taxes again on those funds and never pay taxes on the earnings from those funds.

[00:02:11] [SPEAKER_00]: If you used a regular savings account, CD, or taxable investing account for retirement savings, you'd have to pay taxes on your earnings.

[00:02:20] [SPEAKER_00]: With a Roth IRA, you can avoid all of that.

[00:02:24] [SPEAKER_00]: Number three, tax diversification.

[00:02:27] [SPEAKER_00]: Odds are you already have a 401k or traditional IRA.

[00:02:32] [SPEAKER_00]: Those accounts use pre-tax dollars and then tax you when you retire.

[00:02:36] [SPEAKER_00]: The Roth IRA is just the opposite.

[00:02:39] [SPEAKER_00]: It uses after-tax dollars and then you never have to pay taxes on those funds again or the earnings you'll receive from those funds.

[00:02:47] [SPEAKER_00]: So by having both a 401k and a Roth IRA, you hedge your bets against the future of taxation in the U.S.

[00:02:56] [SPEAKER_00]: Number four, more control over investment options.

[00:03:00] [SPEAKER_00]: With a Roth IRA, you have a broad range of investment options.

[00:03:04] [SPEAKER_00]: Unlike your 401k, you're not restricted to a limited number of funds you can invest in by opening a Roth IRA.

[00:03:11] [SPEAKER_00]: This is great because you can go out and find funds with lower expense ratios, which will allow your retirement savings to grow even faster.

[00:03:20] [SPEAKER_00]: Number five, because you're young.

[00:03:24] [SPEAKER_00]: Young people have two big advantages with a Roth IRA, the power of compounding and a low income.

[00:03:31] [SPEAKER_00]: For instance, if you're in your 20s, you have around 40 years until you're able to retire.

[00:03:36] [SPEAKER_00]: That's 40 years that your money has to grow and compound on itself.

[00:03:40] [SPEAKER_00]: Also, since you have a low income now, you're more likely to fall under the Roth IRA income limits.

[00:03:47] [SPEAKER_00]: High income earners aren't able to contribute to a Roth IRA.

[00:03:50] [SPEAKER_00]: Invest in a Roth IRA while you still can.

[00:03:54] [SPEAKER_00]: Number six, because you're old.

[00:03:57] [SPEAKER_00]: Um, I mean, not young anymore.

[00:03:59] [SPEAKER_00]: If you're older than 50 and your income is still below the limits, you get to contribute an extra amount each year and catch up contributions to your Roth IRA.

[00:04:09] [SPEAKER_00]: That's more tax advantage savings towards your soon-to-be retirement.

[00:04:14] [SPEAKER_00]: Number seven, you can withdraw the contributions without penalty.

[00:04:18] [SPEAKER_00]: With a Roth IRA, you can withdraw all of your funds, both contributions and earnings, tax-free and without penalty at age 59 and a half.

[00:04:28] [SPEAKER_00]: But there are circumstances that allow you to do a Roth IRA withdrawal even earlier.

[00:04:32] [SPEAKER_00]: While I don't recommend this practice, you can withdraw funds from your Roth IRA prior to retirement to be used for whatever you want.

[00:04:41] [SPEAKER_00]: As long as you don't pull out more than your original contribution, you won't be taxed or penalized.

[00:04:48] [SPEAKER_00]: Pulling out earnings is what gets you taxed and a 10% penalty.

[00:04:52] [SPEAKER_00]: But there are even loopholes for that.

[00:04:56] [SPEAKER_00]: Number eight, use funds to buy your first home.

[00:05:00] [SPEAKER_00]: You can withdraw all your Roth IRA funds, contributions and earnings if and when you decide you want to buy your first home.

[00:05:08] [SPEAKER_00]: Again, I don't recommend you using your Roth IRA for a down payment, but it's good to know the Roth IRA is so flexible.

[00:05:16] [SPEAKER_00]: Number nine, extra college savings.

[00:05:19] [SPEAKER_00]: While I believe you should try and put retirement before paying for your kid's college,

[00:05:24] [SPEAKER_00]: you can use the Roth IRA funds towards a college education.

[00:05:28] [SPEAKER_00]: Some people specifically use a Roth IRA to save for college expenses.

[00:05:33] [SPEAKER_00]: And number 10, it's easy to start a Roth IRA.

[00:05:38] [SPEAKER_00]: Opening a Roth IRA can be done online in less than 30 minutes.

[00:05:42] [SPEAKER_00]: If you need more convincing or a helping hand through the process,

[00:05:46] [SPEAKER_00]: check out the Roth IRA rules and how I opened my first Roth IRA on my website.

[00:05:55] [SPEAKER_00]: You just listened to the post titled,

[00:05:58] [SPEAKER_00]: 10 Reasons to Get Off Your Butt and Start a Roth IRA by Philip Taylor of ptmoney.com.

[00:06:04] [SPEAKER_00]: And I'll be right back with my commentary.

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[00:07:10] [SPEAKER_00]: I think investing in any account, whether it's a tax-advantaged retirement vehicle or an after-tax brokerage,

[00:07:17] [SPEAKER_00]: can be challenging because we first need to get over the mental hurdle

[00:07:21] [SPEAKER_00]: that we're going to make some of our money inaccessible for a while.

[00:07:26] [SPEAKER_00]: Most of us aren't day traders in it for the short-term gain.

[00:07:29] [SPEAKER_00]: We're investing for the long run, over a long time horizon for financial stability in the future.

[00:07:35] [SPEAKER_00]: Having good financial footing for short-term needs makes it much easier to invest for the future,

[00:07:42] [SPEAKER_00]: and this could look like a well-funded emergency fund or cash reserves,

[00:07:46] [SPEAKER_00]: as well as having a low debt burden and solid gap between your income and expenses.

[00:07:52] [SPEAKER_00]: Like Philip, I'm also a huge fan of Roth IRAs.

[00:07:56] [SPEAKER_00]: Another benefit not mentioned in this article is that there are no minimum distribution requirements at age 72.

[00:08:02] [SPEAKER_00]: But when you're contributing to your IRA each year,

[00:08:06] [SPEAKER_00]: you'll need to decide if you're going to contribute to a Roth IRA or traditional IRA.

[00:08:10] [SPEAKER_00]: When deciding on traditional versus Roth, review the income limits for both

[00:08:16] [SPEAKER_00]: and perhaps consider that it's beneficial to have a mix of pre-tax and after-tax retirement accounts

[00:08:21] [SPEAKER_00]: to give you options later.

[00:08:23] [SPEAKER_00]: So if you're already contributing to a pre-tax account like a 401k,

[00:08:27] [SPEAKER_00]: choosing a Roth for your IRA could make sense.

[00:08:30] [SPEAKER_00]: The best advice I've heard on traditional versus Roth is to not let the decision paralyze you.

[00:08:38] [SPEAKER_00]: Either one is so much better than not contributing at all.

[00:08:42] [SPEAKER_00]: And that's a wrap for another Monday show.

[00:08:44] [SPEAKER_00]: Have a great rest of your day and start to your week,

[00:08:47] [SPEAKER_00]: and I'll be back tomorrow where your optimal life awaits.

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