Skys the limit: Roth IRA BeNEFITS

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Saving money is important, but investing is even more important. You want to reap the benefits of interest that works for you rather than against you. Interest works against people with debt because it continually adds up, but when people invest it grows and grows for the good! Let us share with you the Roth IRA Benefits and why we have one and you should too!

1. Tax benefits

Money grows tax-free PLUS withdrawals are tax-free too

Meaning you pay your taxes today rather than later when you retire (makes sense since your making an income now!) You pay taxes at your current tax rate.

Why we love this? 

We would rather pay taxes now because taxes are mostly likely rise and when we retire we do not want to pay taxes when we retire. 

What does this mean?

You need to discover if the tax benefit is there for you too, but more than likely it is! You would want your tax bracket to be lower than it would be when you retire, and since we do not know what taxes will be like in the future. More than likely though they will continue to increase year after year.

2. Allows for easier early withdrawals

Since the withdrawals are tax free it allows for an easier process to get your money before the retirement age.

Don’t withdraw more than you put in, and be sure to know what the 5 year rule is which we will talk about below.

Why we love this?

It gives us more options and freedom! We will not take out of our Roth IRA, but it is an option for us if we ever needed to. We want this money to be there for us when we retire and we are not making an income, but for now we will keep our money growing and growing.

What does this mean?

People can take their Roth IRA money out for first home buyers up to $10,000 maximum currently, qualified educational expenses, qualified birth or adoption expenses, and a few more. This is before the age of 59 1/2, but you most have your account open for the 5 year rule. You must know that this is the money that is the original money as well and not the growth money. For example is you have $10,000 in the account, but $3,000 is interest. You would only be able to take $7,000 to avoid the penalties, and the government put penalties in place to help you avoid taking money out of your retirement account.

3. Allows your investments to grow longer

With compound interest, your investments continue to double over time and while your interest is making more money than you are actually putting in. 

The limit is $6,000 this year in 2021 if you are under 50.

Here is the $6,000 each year. ($500 a month or $125 weekly)

Year 1: $6,319 (+$319)

Year 2: $12,975 (+$975)

Year 3: $19,984 (+$1,184)

Year 4: $27,366 (+$3,366)

Year 5: $35,141(+$5,141)

Why we love this?

Our money growing for us without us doing anything, but putting money in the account! Our money is working harder than we are currently, and this is good for the Lord! He wants us to be smart with our money and put it in places where it will invest and grow.

What does this mean?

If you are not already investing in a Roth IRA, what are you waiting for? You should be investing in a Roth IRA. It is not hard, and we even show you how to do it on our Instagram believeandbudget. We show you how to do it with Betterment and Betterment is so easy anyone can do it!

Things to Know

The 5 year rule

You must wait 5 years after you open your Roth IRA to withdraw your earnings tax free.  

How do this rule work?  The 5 years does not start how you think it would.  It is the first day of the tax year for which you made a contribution, so that means if you make a contribution for 2020 when you file your 2020 taxes during 2021, your tax year starts in 2020 and the 5 year rule will end Jan. 1, 2025 instead of Jan. 1 2026. That is good because it really like 4 years instead of 5 years! 

What if you want to get the money out before the 5 year rule?

You will be penalized, so just don’t. That is why it is there to save and invest! There are rules for penalty because they want to have people avoid that option. 

The only exceptions are a few such as first-time home buyers, medical expenses, and qualified higher education expenses.  However, we believe, it is in your best interest to leave the money in the Roth to allow it to grow for the future!  You will thank yourself! 

Maximum contributions

2021 – 

Under 50 years old – $6,000

Over 50 years old – $7,000

• Income Limit

2021 Tax Year

*these numbers are based on Modified Adjusted Gross Income (MAGI) *

Single Tax Filer 

• under $125k for full amount
• over $140k to not qualify 
• in the middle of $125k – $140k partial 

Married/ Filed Jointly 

• under $198k for full amount
• over $208k to not qualify
• in the middle of $198k – $208k partial  

There are ways around this income limit with backdoor Roth IRA and a double backdoor Roth IRA.  Please discuss with a financial adviser and a tax professional. 

The benefits of investing in a Roth IRA are huge, and one of things that we learned early. I did not know much about it before starting one. However, someone who knew more than me at the time told me to start, open one, and get investing so that is what I did. I am glad I did too! I did not wait and now our investments are growing and growing and are allowing us to live the dreams of our life. That can be the same for you too! You won’t know everything about investing on day one, but you can know the simple basics then you are golden. I know you learned a lot today and glad you took the time to read this because you are now know more than you did the day before. Continue to blossom and learn about investing!

Like if you learned one new thing about Roth IRA.

Like if you have or are going to open a Roth IRA.

Pin to share with a friend to encourage them to open a Roth IRA.

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