Jeff Rose, Certified Financial Planner from GoodFinancialCents, started a Roth IRA Movement.
He shares his story of speaking to a group of youth that have never heard of this wonderful investing option and how he got over 140 bloggers to talk about it.
You can find links to ALL the posts at GoodFinancialCents.com (http://www.goodfinancialcents.com/roth-ira-account-movement)
Here are some of his favorites:
- House Of Rose (Jeff's Wife's blog) – I Opened my first IRA at age 22
- Money Infant – 99 problems but a ROTH ain't one
- ChaCha Chronicles – Roth IRA Movement (what the what?)
- Happy Homeowner – Whitney Houston song titles can teach you everything you need to know about the ROTH IRA
I also share my thoughts about ROTHs:
Saving for retirement is important
I was blessed to start saving a little bit into a 401k in my late 20's. (I wish there was a ROTH IRA option back then). It wasn't much but it was a start. I also didn't know anything about investments so I'm sure I could have done much better. Someone like Jeff Rose could help you select the types of mutual funds you need when deciding to save for your “golden years”. But it isn't just which mutual funds to pick, it's how you save the money too because taxation plays a huge part in how you save for retirement.
How saving for retirement works
Let's start with how a retirement account works. Any qualified retirement account is tax-favored, meaning there are tax breaks. Otherwise it would be a normal investment account and you'd put money that has already been taxed into an account and you would pay taxes on interest, dividends, and the growth when you take the money out.
What's really powerful about saving for retirement is the compounding effect. When your account receives interest payments or dividend you want to leave the money there. Let the growth in the account help to grow more money. The dollars grow pennies, when there are enough pennies that make up another dollar, the new dollar starts to grow pennies of it's own, and the cycle continues.
Taxes at the end
Most retirement accounts, 401k, 403b, Traditional IRAs, SIMPLE IRAs, etc, have a tax benefit at the beginning. That is to say you are allowed to deduct the amount of money you put into these accounts from your gross income, saving you from paying taxes on the money you put in. For example: You start saving $100 in a growth stock mutual fund at age 20. In 1 year you would have put away $1,200 and will deduct that from your taxable income. Let's pretend your income is $50,000. By saving $1,200 in IRAs or 401ks you would be taxed on $48,800, not $50,000.
I like to use the example of a Tree. You open an account. You don't pay taxes on the seed. You continue to water the little tree with non-taxed water so it will grow big and strong. You don't pay any taxes on the money (so long as you leave it in there) until you take it out at retirement. Many believe you will be in a lower tax-bracket at retirement and will pay lower taxes so they promote this as a good financial move. I am trying to make people wealthy enough be in the highest tax bracket – meaning they are filthy rich!
Taxes at the beginning
Now comes the ROTH (Roth IRA or Roth 401k). Here you have to pay taxes on the money you put in, or with our example you would pay taxes on the seed and the water.
Here's the beauty of the ROTH. That money has already been taxed. They can't tax it again! By paying taxes on the $100 a month, 12x a year, 480x in 40 years, you will have paid taxes on $48,000 and be able to pick from your $1.176million dollar tree anytime you want (in retirement) without paying another dime in income tax.
In most cases you can have the exact same investments in either a Traditional IRA or ROTH IRA, so it really comes down to fees and whether you want to pay taxes on the $48,000 seed or pay taxes on the $1.76million tree.
Wanna pay taxes like the rich?
Pay for the seed, not the tree!
Jeff Rose and others are sponsoring the #RothIRAMovement by teaming up with IRAMarket.com to give away $5,000 to one lucky winner.
Go to Facebook.com/IRAMarket before April 8, 2012 to enter your chance to win. Now THAT's a contest I'll enter!