I’m a millennial, so I’m no stranger to my fair share of think pieces on self-love and self-care. While I’m not wont to pair financial products with words like “love,” and especially not with the word “radical,” I do want to think for a moment about “radical” and its use to mean far-reaching and affecting the fundamental nature of something. When we use radical to mean an act that will fundamentally change the course of your life, opening a Roth IRA is one of the most radical ways you can love yourself.
Before I dive into what makes these accounts so special, a few basics.
One, I’m not your financial planner, and this isn’t financial advice. Got it? Good. Two, I know well that there are millions upon millions of Americans who are unable to meet their day to day needs. If you’re in that situation, I don’t fault you for a moment for prioritizing the costs of the moment rather than the needs of the distant future. Survival is the most fundamental act of self-care. If you have any ability to save at all, though, if you have any small voice in the back of your mind that says this could be possible for you, I’d ask you to please love your future self enough to invest in her.
Three, well… what’s a Roth IRA? A Roth IRA is a retirement savings account that (almost) anyone can open, offers tax-free growth on your money, and allows you to withdraw your money tax-free after age 59 1/2.
Roth IRA accounts aren’t tied to your job. There isn’t a complicated process involved to open the account. To contribute to a Roth IRA, you’ll need to have earned at least as much income as you put into the account each year, and you can’t contribute more than $5,500 a year unless you’re nearing retirement age – those 50+ can contribute $6,500 to catch up on their savings. There are a few other restrictions tied to exactly how much income you can earn to take advantage of this great deal (though even then, there’s flexibility), but don’t get bogged down in them. For the most part, the average American can utilize this incredible savings vehicle quickly and easily and might just change the course of her life in the process.
Here are 10 reasons why saving in a Roth IRA is jaw-droppingly awesome:
- Roth IRA’s are easy to open. If there’s one thing I’d like you to take away from this piece, it’s that investing in the stock market doesn’t have as many barriers as you think. Setting up my Roth IRA took me a total of 10 minutes, and I did it from the comfort of my home, i.e. in my pajamas. If you have the computer skills to complete an online shopping order, you can open a Roth IRA online. My venue of choice was Vanguard for their low fees.
- Roth IRA’s let you own a share of the market. Roth IRA’s allow you to put your money into index funds. An index fund is a portfolio designed to track or match sections of the market or the market as a whole. For example, the S&P 500 index is one of the most common, and investing in this index fund gives you a small piece of the 500 largest American companies. With index funds, you’re not actively trading different stocks, you’re matching the market. Since 86% of actively managed funds didn’t beat the market in 2014, and we see that pattern time and time again, I’d much rather put my money in index funds, trust the strength of the market through any storm, and enjoy the longterm gains.
- Roth IRA’s allow you to access your principle. This might be my favorite perk of a Roth IRA. When you place your money in a Roth, it’s. still. your. money. You can withdraw the principle (the amount you yourself put in) at any time without penalty. There are even some situations (like being a first time homebuyer) that qualify you to access your interest before retirement as well. While I don’t recommend that you use a Roth as an emergency fund – it’s much better for your future to allow the money to grow – I personally take an enormous amount of comfort in the fact my money is still there for me if I need it.
- Roth IRA’s give you tax free growth. This is why you put your money in a Roth IRA. You were already taxed on your cash when you earned it. The government does not come for it again AND you aren’t taxed on your money’s growth within the Roth IRA account. You’ll be able to withdraw with ease in retirement and enjoy all the fruits of your labor… plus its tax-free interest.
- Roth IRA’s require just a small initial investment. I cannot stress enough that a Roth IRA is an incredible option for those who think that retirement savings isn’t for them. You can, and deserve, to retire with dignity.
I’m most familiar with Vanguard, so to speak to their process first, Vanguard allows you to open a Roth IRA with a $1,000 contribution. While $1,000 is decidedly large sum to save for many Americans, you don’t need to have that $1000 today. What you do need to do is prioritize having $1,000 on a timeline that’s manageable for you. For some, that’ll be a few months, for some a year, for some longer. Making the decision to set aside that money for yourself is frightening and overwhelming, but it’s love. Anything as powerful as love is terrifying.
If $1,000 dollars is an insurmountable obstacle, and for some it will be, there are other options. A little internet sleuthing led me to T. Rowe Price, which allows you to open a Roth IRA with a $50 a month contribution rather than Vanguard’s initial investment. I can’t speak to T. Rowe Price’s fees, and as a Vanguard fan I’m prone to prefer saving $1,000 to start a Vanguard account, but the plan proves there are options out there that make retirement savings possible with the smallest of initial investments .
- Roth IRA’s benefit your heirs. Let’s jump from money to everyone’s second favorite topic: death. While it might not be polite to talk about, we will all die someday, and we all want our loved ones to be as taken care of as possible when we do. A Roth IRA will allow your heirs to withdraw funds without tax.
- Roth IRA’s offer the chance to diversify. The next two points are more critical for those who already have their feet wet in the world of personal finance and investing. Because Roth IRA’s aren’t tied to your job, you’re able to take your investment into your own hands and diversify your retirement strategy. Whether that be by choosing different funds than in a plan you have through work or by adding an account to your portfolio that uses after-tax money rather than your pre-tax work contributions, a Roth IRA gives you autonomy and options.
- Roth IRA’s allow spousal contributions. This is another benefit that may seem niche but is hugely impactful (and a personal favorite.) If you’re married, a Roth IRA allows your spouse to contribute to a Roth IRA in your name with their earned income, even if you don’t work yourself. Why’s this important? Because currently women are twice as likely as men to be in poverty in retirement. There’s a host of factors behind the trend, but the fact that women work on average 12 fewer years than men in their lifetime, often due to childrearing duties at home, is largely at play. Roth IRA’s allow your family to recognize a stay at home parent’s contributions to the family by investing in their retirement.
- Roth IRA’s might just make you a millionaire. Let’s get back to the fun stuff. Let’s imagine that you’re a 25 year old reading this piece. You have your first salaried job, and you’re ready to make one of the biggest adult decisions of your life. You decide to open a Roth IRA today, and from here on out, you contribute $5,000 a year until age 65, and you average an 8% return each year. My friend, you’re going to retire with $1.4 million, and you’re not going to pay an additional cent of taxes on it.
- Roth IRA’s are not intimidating. It all comes back to this. The vast majority of us do not have anyone to invest in ourselves but ourselves. You’ll need to figure this out, and the sooner you do, the more the magic of compound interest will work in your favor. Roth IRA’s allow you to quickly set up an account online, begin to fund your account with a manageable initial investment, and passively invest your money into index funds that match the market. You don’t need to know anything more about stocks themselves; even the people who are paid to manage stocks for a living don’t often beat the market. What you need is the bravery and self-love to take this step forward. You are in charge of your future, and you can act to make it as secure for yourself as possible.
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