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Why the Roth IRA is one of my favorite investment accounts!

Updated: Nov 13, 2024

A Roth IRA is a type of retirement account. Contributions to a Roth IRA are made with after-tax dollars, meaning you invest with your paycheck. For starters, anyone with an income can open a Roth IRA with any of the major brokers such as Fidelity, Vanguard, Schwab, etc. Parents can also set up a custodial Roth IRA for children who receive income.


One cool benefit is that non-working or stay-at-home spouses can also open a Roth IRA. The maximum contribution this year (2024) is $7000, which can be made in one transaction or several transactions over the course of the year. You can set up automatic withdrawals from your checking or savings account to your Roth account monthly (If you meet the income limit).


One benefit of a Roth IRA is that you can invest in mutual funds, index ETFs, sector ETFs, REITs, and single stocks. Another powerful benefit is that all contributions can be withdrawn from a Roth IRA, leaving the gains. This means a Roth IRA can serve as an emergency fund in your early wealth-building years (low-income).


At age 59 and 1/2, you can begin withdrawals from a Roth IRA if the account has been opened for at least 5 years. You can also choose to withdraw all the funds from a Roth IRA at age 59 and 1/2 if you need it.


The only drawback is that high-income earners who make more than $146,000 as single filers or $230,000 as a married couple, have to use the back-door method. This method requires you to open another account called the traditional IRA, which is used as a pass-through account (You simply open a traditional IRA account at the same broker you hold your Roth IRA, you then deposit $7000, and once the cash settles, you immediately roll it into Roth IRA. This is essentially the back-door method.


That's it folks, let me know if you like the Roth IRA as much as I do.

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