If you have dreams of becoming a millionaire, you shouldn't overlook the Roth IRA (individual retirement account). The contribution limits may be small compared to other accounts, but your investments can take your portfolio to the next level.
The Roth IRA allows you to contribute post-tax money toward your retirement goals now so you can unwrap tax-free rewards during retirement. It's a sweet deal if you expect your tax bill to skyrocket in the future. If you're ready to make the most of your account, don't skip these three tips.
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1. Start as early as possible
You can jump-start your retirement savings early if you have a Roth IRA. There are no age restrictions to contribute to a Roth IRA. However, you must have earned income if you want to contribute to the account. This makes it easy for an adult to open a custodial Roth IRA for a child as soon as they start making money.
The benefits of a Roth IRA can be sweeter if you start early. Here's how fast you can achieve $1 million using these assumptions:
- Age: 11
- Annual contribution: $6,000
- Investment rate of return: 8%
By the time you turn 46, you can have around $1.03 million in your account. However, early-withdrawal penalties will apply to the earnings in the account if you take money out before you reach 59 1/2.
If you missed out on early contributions to a Roth IRA, you still have time to pump up your portfolio. Let's say you start contributing to the account when you turn 30 and earn a higher rate of return.
- Age: 30
- Annual contribution: $6,000
- Investment rate of return: 10%
At age 61, you can have over $1 million in your account and you'll be able to withdraw every penny 100% tax-free.
The goal is to give yourself as much time as possible to reach your financial goals. The earlier you start, the easier it is to reach your million-dollar jackpot.
2. Don't forgo contributions
If you qualify to make direct contributions to a Roth IRA, take full advantage of this opportunity now. You won't be able to make direct contributions to a Roth IRA after your income shoots past the limit.
For 2022, you can contribute up to $6,000 to a Roth IRA if you're under 50. The IRS allows you to contribute an extra $1,000 after you turn 50.
Although maxing out your retirement account will give you more money to invest, it's not mandatory. Review your finances and determine what makes sense for you. The last thing you want to worry about is withdrawing from your account because you are not able to fund your short-term goals. But if you're in good financial shape, it doesn't hurt to take your contributions to the next level.
The key here is to take actions that can put you in a better financial position later and provide you with more options.
3. Invest your Roth IRA contributions wisely
If you want to get closer to a $1 million nest egg, you can't allow your contributions to relax in your account. You have to put your money to work by investing in high-quality assets that align with your goals and risk tolerance.
Here are some investment options you may have access to in your Roth IRA:
You can also look into a self-directed IRA if you want a wider selection of investment options such as real estate and cryptocurrency.
Although it's tempting to stick to one investment type and call it a day, it's important to diversify your portfolio. You don't want to depend on a few assets to help you reach your million-dollar treasure. The investments you choose for your Roth IRA can allow you to supercharge your portfolio and accumulate the profits and income you seek.
Don't let your Roth IRA go to waste
If a Roth IRA fits into your life plan, don't ignore it any longer. It can be key to funding your dream lifestyle in retirement without having to worry about taxes. Start as early as you can and let the power of compounding support you on your journey to a million-dollar Roth IRA. Even if you missed making contributions in your early years, you can still maximize your Roth IRA and unlock tax-free earnings during retirement.
Article From & Read More ( 3 Roth IRA Tips That Will Get You Closer to a $1 Million Nest Egg - The Motley Fool )https://ift.tt/5FKGsN1
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