Do you want to retire a millionaire?
You can retire into wealth, and never have to worry about another dime again by simply being financially educated.
So, I’m going to lay some knowledge on you.
The Roth individual retirement account (IRA) is a simple, yet powerful to achieve millionaire status through retirement.
The Roth IRA is a retirement account that has interest gains which are tax free. If you’re not excited about that, look down at the chart that I provided. Excited yet?
This means that if your Roth Ira is worth 1 million dollars by the time you retire at 59 ½ or later, it’s worth 1 million dollars.
The government won’t be taking any of that money.
Alternatively, if you had created a traditional IRA, you would be taxed on your million dollars once you pull it out. However, the traditional does come with different benefits such as a tax-deduction each time you put money into it.
Let’s talk about how the Roth IRA works.
In order to open a Roth IRA, you must have some form of income. Said income must also be less than $116,000 if filing single, $183,000 if filing jointly. These numbers are the minimum you can make to maximize your contribution. These number are subject to change as time moves on.
The maximum amount of money you can put into the account is $5,500 a year. If that number seem slightly big, then break it down. 5,500 / 12 (months) = $458 a month approximately. 458 / 4 (weeks) = $114.5 a week.
If $114.5 a week seems tough to hit, I recommend reading my other financial posts for some ideas on how to free up some of that money. I fully believe that you can hit that number though. People are generally more capable than what they think they are.
Even if you aren’t able to make the $114.5 a week, as long as you put something into the account, then you’re already a step ahead of 99% of the population.
So now you may be thinking, where does this money go and how does it grow into a potential million dollars?
Well, your money goes into a few different investment vehicles called securities. Securities is a fancy term for any financial vehicle such as a common stock, bonds, etc. Typically, the money you put into a Roth IRA will go into stocks and bonds.
Over time, the value of the securities should increase. From this increase in value, compounding interest comes into play. That $5,500 you put in becomes $6,050 the next year (Math: $5,500 x .1 (10% return on your investment) = $550; $550 + $5,500 = $6,050 total the following year). The same thing occurs the next year thus increasing you your account even further.
Take a look at the earnings for my personal calculations from the bankrate.com Roth IRA calculator.
By the time I retire, I will have put $242k into my retirement account. However, that $242K is estimated be worth $3,948,477 by the time I’m 65 with a 10% average return on my money. Are you getting excited yet?
Again, these numbers are estimates based off of past performances of the markets. You may achieve an average return greater than or less than 10%.
However, I want to emphasize again that this money will be taken out tax-free after you are 59 ½ years old. There are other qualifying reasons to take out of your Roth IRA without being penalized by taxes if you need to tap into your account before 50 ½. You can find the qualifying reasons here.
Becoming a millionaire is not as hard as it may seem. All you need is a little bit of education and time.
Be smart and let your money do the heavy lifting toward financial freedom for you.