- So in this video we're gonna be talking about the easiest way
to become a millionaire, and that is through the
use of a tool called the Roth IRA. Now, I know a lot of you guys are already familiar with
this investment vehicle, but I'm hoping for those of you that are completely new to it to explain to you guys
how powerful this is and why this is in my
opinion the easiest way to generate a massive amount
of wealth for yourself. But before I get into that, I want to explain the concept here of the fast lane path to
becoming a millionaire versus the slow lane path. And I think a lot of people
who watch these videos about how to become a millionaire are always looking for
that fast lane path. And, in my opinion, the fast lane path for becoming a millionaire
is starting your own business or having some kind of
investment in yourself, and I have absolutely
no problem with that. I've invested in myself, I've
started my own online business and so I totally get that strategy of the fast lane life and if
that's something you want to do you have the fast lane path
to becoming a millionaire, I think you should
totally follow that path. But if you are interested in a slower path to becoming a millionaire,
which is through long-term investing, that is exactly what I'm going to teach you in this video. So there are three
different components here involved with this process. Number one is a fee free Roth IRA. I'm gonna give you guys
an option at the end here of a fee free Roth IRA. Number two, the second piece of this is regular contributions to this account, where you're contributing
money on a weekly or monthly or yearly basis. And then number three is simply time, allowing your money to have time to grow, I'm sure a lot of us are familiar with compound interest
which is where you're able to earn interest on your interest, and that is how billionaires
like Warren Buffet have generated massive amounts
of wealth for themselves, is because of that compounding effect and earning interest on the interest that you've already earned. So first of all let's go ahead and answer the question here of what is a Roth IRA. A Roth IRA is a type of IRA which is an individual retirement account, and most people confuse
it with the 401(k). They say, well, I already have a 401(k), so why would I need this Roth IRA? Well, the 401(k) is a
an employer-sponsored retirement plan, and not all people are offered a 401(k) based on your job. A lot of people in the service industry are not offered 401(k)s
because they are not technically employed by anybody, they're just getting
paid for their services. So not everybody has
this option for a 401(k), those things can be loaded with fees and they may not actually be
the best investment for you. Now, with that 401(k) you are
putting away money tax-free, you're taking money that
you haven't paid tax on and you're shelling it into your 401(k) and then when you've
reached retirement age and begin to draw from that account, you're paying taxes down the road. So it's basically like
a tax-deferred account, you're gonna pay taxes later
when you're taking money out. The Roth IRA, on the hand,
is completely different. with the Roth IRA, you're taking money, you're taking your post-tax income, money you've already paid taxes on, putting it into this account, but the beauty is that when
you draw from this account once you've reached retirement age, you're paying no taxes on that. So basically with the
Roth IRA you're paying a small amount of taxes
now to avoid taxes later, versus the 401(k) where you're avoiding a small amount of tax today and paying a large tax bill down the road. Now the important thing to remember here is that because this is an IRA, this is retirement account, it is meant for retirement savings, and the age for withdrawal
at this point is 59 1/2 for any earnings from the Roth IRA. So basically any contributions you make into a Roth IRA, you can withdraw without paying any taxes or penalties, but if you take out any of the earnings from a Roth IRA, you're gonna pay taxes as well as a penalty. So if you decide to put
money into a Roth IRA, this isn't the kind of thing
where you're gonna change your mind two years from now
and empty out that account, otherwise you're going to pay taxes and penalties on the
earnings or the interest that you earned from that account, not the amount that you
originally contributed. And on the other hand, if you were to dip into a 401(k) early,
you're going to pay taxes and you're gonna have a penalty on any amount that you withdraw because that's money that you
haven't already paid taxes on. So the amazing thing about the Roth IRA is that it essentially allows you to pay zero taxes on potentially decades of compounding interest
based on when you start. A 20-year-old could
basically have their money compounding for the next 40 years, earning interest on
interest every single year, paying absolutely no taxes on that income through the use of the Roth IRA. And a lot of people make this mistake of investing through a taxable account and they don't realize that
you can direct a Roth IRA and put whatever you want into that. You can hold individual stocks,
you can hold index funds, it doesn't necessarily have
to be just a mutual fund that you're investing
in through the Roth IRA, all you are doing is making the decision of I don't want to pay
taxes on this income, and so you are basically putting it in that tax sheltered account and growing that money for
yourself later on in life. So how much can you
contribute to a Roth IRA? Well, if you are under 50 years old, you can contribute, as
of the current tax laws, $5,500 per year, and if you are 50 and up they allow you to have a catch up period where you can contribute
another $1,000 on top of that or $6,500 per year. So now the burning question you have is, how do you become a tax-free millionaire following this strategy? So let's say for example you
contributed $5,500 per year, you maxed out your Roth IRA contribution from age 20 to age 60. Now, I know a lot of people
are gonna stop me right there and say, where am I gonna get $5,500? And the first thing I want to tell you is a lot of people get a tax refund at the end of the year,
and for most people that is anywhere from two to $3,000. So if you committed to putting
that into your Roth IRA as opposed to spending it on a vacation or just dumping it into
your checking account and God knows where it goes, that could be a way that you find a large amount of the
money that's gonna go into that Roth IRA is just by
putting your tax refund aside and allowing that money to grow tax-free. But let's say you find a way
to maximize your contribution every year, at an 8% return, which is basically the average return from the stock market
over the last 100 years, well, over those 40 years, you will have contributed $219,840, but how much money have earned through compound interest
at that 8% return? You've earned $1,203,934.63. So your total there, after those 40 years is just about 1.4 million dollars, $1,423,774.63, and how much did you pay in taxes? Zero. You didn't pay any money in taxes because you already paid taxes on the money that you contributed. Now, let's compare that on the other hand to somebody who followed
the exact same strategy, had the same contribution,
the same 8% compounded return, but they did this through
a taxable account. They will have to pay
long-term capital gains tax on that $1,203,934.63, and based on the current tax laws, for most people that's going to be a 15% long-term capital gains tax rate. They would have a tax bill of $180,590.19 so this is the price people pay by making this mistake of not investing through a Roth IRA and investing
through a taxable account, that right there could be a
potentially $200,000 mistake by not investing through a Roth IRA and keeping yourself tax sheltered. And this right here is a way
that you can allow yourself to become a tax-free millionaire by maximizing your contributions
to a Roth IRA each year. Now, like anything out there, there are some pros and
cons to the Roth IRA, so let's go ahead and talk
about what those are now. First of all, the pros,
number one you can grow your money tax-free
because you're paying taxes on the way in, that is
the most desirable feature of the Roth IRA for most people. Number two, one of my favorite reasons for looking at a Roth IRA,
is that you can lock in your tax today. And a lot of people don't
necessarily know what this means, but do you think that taxes
are going to be higher in the future, the same, or lower? If you think that taxes
are going to be higher in the future by any chance, and based on our national debt there is a good chance
that taxes will be higher, you can lock in that tax rate today by paying taxes now and
not paying taxes later. Through the 401(k), you're
waiting to pay taxes in some cases 20, 30, or
40 years down the road and you have absolutely no idea what the tax structure
is going to look like at that point in time. And then the third pro is the fact that you can withdraw
contributions penalty free, so if anything happens down the road and you need to pull out some money, you can pull out your contributions without paying a penalty and
you've already paid taxes on that money, versus money in a 401(k), if you have to draw
from that, you're going to have to pay taxes and you're gonna have to pay some kind of penalty,
which I believe is around 10%. It is a nasty bill, not something that you want to have to do. What are the cons of a Roth IRA? Number one, you have
to pay taxes up front, and for some people, they
like having their money invested without paying taxes, they'd rather pay that tax bill later. Number two, the maximum
contribution is low, $5,500 per year, you're not gonna be able to grow a Roth IRA to 10s or
hundreds of millions of dollars unless you're really good
at investing that money and allocating it. And then number three,
there are income limitations with the Roth IRA. If you make over a certain dollar amount you are not allowed to open one, but if you are in that situation you need to look up something called a backdoor Roth IRA, through a conversion of a different type of retirement account
you can open a Roth IRA, it's called the backdoor Roth, check that one out on Google. So that is how you can
become a tax-free millionaire through the use of a Roth IRA. And as promised in the beginning, I'm going to share with you guys what, in my opinion, is a great option here for a fee-free Roth IRA, and
that is retirement accounts offered through M1 Finance. I'm gonna actually open
it up and show you guys exactly what that looks like, but I did want to mention
I'm going to include a link for M1 Finance down
below in the description. It is an affiliate link, you
guys don't have to use it if you don't want to, but understand that your use of that link certainly helps me out and
helps to support my channel and allows me to spread more videos and messages like this. So, first of all, why
do I like M1 Finance? It is not because I'm an affiliate, it has nothing to do with that. I think it is a great platform, especially for retirement accounts. Number one, the first reason why is that M1 finance doesn't
charge you a penny. There are zero fees
associated with investing through M1 Finance other than the fees that you're going to pay if you invest in some kind of ETF, and
you're gonna pay those fees regardless of the brokerage
that you go through. Number two, M1 Finance offers dozens of professionally built portfolios, and they offer you some
level of guidance here in terms of putting together
a well diversified portfolio, and I do not know of a single other free brokerage account out there that is offering this service
to people without charging. Number three, you can
have complete automation of your investment through M1 Finance. So if you wanted to
contribute $100 a week, $100 a month, whatever dollar
amount you want to contribute, so you can set that on a schedule and automatically be investing
into your taxable account or into your retirement
account through M1 Finance. Number four, very simple user interface, it is one of the best user experiences in my opinion of any
brokerage company out there. They have a really easy to follow app. And then number five, the
minimum to get started with a retirement account is just $500, so the barriers to
entry are not very high. So what I'm gonna do now is I'm gonna jump into my phone here and
I'm gonna show you guys exactly what this looks
like and how you can set up a fee-free Roth IRA with M1 Finance. So I'm gonna go ahead and show you guys what these retirement
portfolios look like. I already have an account
set up with M1 Finance, so I can't show you
guys that initial step, but it's very easy, you're
just gonna download the app, click sign up, and then you're going to select a Roth IRA, opening
up a retirement account. And once you go ahead
and open that account, that is when you can fund
it and begin investing in a portfolio. So what I want to show you guys is the retirement
portfolios that are offered through M1 Finance. And that's what I'm
gonna show you guys now by creating a new pie. So, what you're gonna do is
you're gonna go over here to expert pies and you
can see specifically they have a plan for retirement. So these pies are ideal for those who are planning their investing
strategy around retirement, focused on building wealth while young and maintaining their portfolio later on and desiring a portfolio
that automatically updates to align with their goals. So totally automated portfolio. So let's go ahead and click on that. And then all you're going to do is click right here and type in the year or select the year that
you plan on retiring. So let's say in my case
being about 25 years old, I'm turning 24 soon, that would mean I'm going to ideally
retire in about 40 years which would be around 2060. So I would just select 2060, and there are my options right there, 2060 conservative,
moderate, and aggressive, and those are all going to be
based on your risk tolerance. If you have a large tolerance for risk and you don't mind if
there is large fluctuations within your portfolio, you
might pick 2060 aggressive. If you don't have a lot of risk tolerance, you would pick conservative. And if you're somewhere in the middle, that would be the 2060 moderate portfolio. All you would do is select that portfolio, you can read more about
it and begin investing through M1 Finance. So if you click on that specifically you can get more information
on this portfolio, look at the return over the
last one year, three years, and five years, and see if this
is a good selection for you. But anyways guys, that's
gonna wrap up this video, this is an exact strategy
of how you can become a tax-free millionaire through
the use of the Roth IRA and you can invest in a Roth IRA fee free through M1 Finance. Like I said, I have a
link in the description, it's an affiliate link, if
you guys decide to sign up. But, again, you do not have to use that if you don't want to. But thank you guys so much
for watching this video. If you have any friends you
want to share this with, if they want to also become
a tax-free millionaire, feel free to share this with them as well. But if not, make sure you guys
hit that subscribe button, leave me a comment, if you're
following this strategy, and I will see you in the next video.
