Banner Featured by my Financial Mentor Tim Kim
My introduction to investing
The very first investment I learned of was the Roth IRA. Upon hearing about it through a friend, I decided look more into it. My knowledge of investing was slim to none at this point. I discovered that it was a great investment strategy that many utilize. To briefly sum it up, a Roth IRA is a retirement account that allows you to put taxed dollars (limited) into a mutual fund of your choice to grow tax free so that when you need to access it, you won’t have to worry about paying taxes!
Why invest in a Roth IRA?
The great thing about a Roth IRA is that you can withdraw your contributions tax free. A traditional IRA would be taxed at the rate of ordinary income at the time it is withdrawn, making a Roth IRA favorable to those who speculate an increase in taxes in the future. Any growth within your investment is also tax free, but if you want to pull that amount out before age 59½, you will be taxed on your earnings. You can withdraw contributions to invest in real estate ($10,000), for certain educational expenses, and/ or health insurance if you are unemployed! Contribution growth can range depending on the mutual fund:
Example: Vanguard Mid-Cap Index Fund Admiral Shares (VIMAX) has returned over an average annual return of 10% for investors since inception, 11/12/2011.
How much can I invest?
A Roth IRA allows you to invest a maximum amount of $5,500, post-tax, per year ($6,500/ year if over 50 by the end of the year) as long as your yearly modified adjusted gross income is less than $120,000 (single) or $186,000 (married) for the year 2018.
Where can I start investing?
Highly rated platforms most commonly used to create Roth IRA accounts include: Vanguard, Fidelity, and Charles Schwab (if you choose to enroll in Charles Schwab, and use code: REFER616QU you can earn $100 for opening a retirement account).
- Vanguard: Minimum to start is $1,000; most minimums for investments are $3,000.
- Fidelity: At least $2,500 is required to start.
- Charles Schwab: $1,000; $100 if you do direct deposit, which is a great idea.
Investing into a Roth IRA is one of the most popular ways to invest due to its tax-deferred growth. If you choose to invest, make sure to examine the mutual funds available to you: its history, current state and future potentials or lack thereof. Other than that, a Roth IRA is a simple, smart start to investing! Your thoughts are appreciated.