Want to make a smart financial move now that could help create a secure, financially stable retirement? Then you owe it to yourself to explore the intricacies of a Roth IRA.
These special retirement accounts differ from standard IRAs in one extremely important way: you fund them with after-tax dollars rather than pre-tax money.
That seemingly insignificant point makes a huge difference because once you retire, you pay zero tax on your withdrawals from the Roth.
On a traditional IRA, you are taxed as ordinary income rates on all withdrawals.
Of course, your tax bracket in retirement years is likely going to be lower than it is now.
Still, if you plan your Roth contributions correctly and earn a decent rate of return on the account between now and retirement, all the capital gains end up coming back to you not at a lower rate, but at a zero rate of taxation.
For people who contribute the maximum annual amount to their accounts, which is $6,000 now and $7,000 after you reach age 50, the arrangement is like getting free money.
Here’s how to take advantage of all that a Roth-IRA has to offer.
Reduce Your Monthly Cash Outflow
Many young professionals struggle to make their maximum contributions to retirement accounts.
One way to free up capital and put in the max every single year is to reduce monthly budget expenses.
Something as simple as a student loan refinancing move can do the trick.
If you have student loan obligations now, it makes sense to refinance through a private lender.
You can check out your rate estimate online in just a few minutes, and possibly be on the road to lower monthly payments, a better rate, and a longer repayment period.
Use that freed-up capital to enhance what you set aside for later years, especially when you decide to use the only tax-free way of saving for retirement, a Roth IRA.
Work with an Accountant
If you do not have a go-to accountant, consider paying a small consultation fee to a CPA for an investment review.
In an hour or less, it is possible to discover exactly how much you can save when you avoid traditional methods of long-term saving and opt for placing after-tax earnings into accounts.
Even if you opt-out of any advice that is given about where to invest your money now, you are still walking away with knowledge gained on options you could use in the future.
Do Not Overlook the Gold Roth Option
There is another version of IRAs that many people are not familiar with.
Informally, they’re called gold IRAs, but you need not fund them with gold. Other options include silver, platinum, and palladium.
It is necessary to work with a precious metals dealer or a broker to set up such an account, and you can convert your current IRA into a gold one at any time.
Gold IRAs are one of the many types of self-directed accounts that the tax authorities allow.
But they are the only ones that can hold physical precious metals, which are kept in a vault or storage facility by a government-approved provider.
If you prefer to hold hard assets rather than cash, stocks, or mutual funds in your IRA, then a gold IRA could meet your needs.