You Need To Know This BEFORE Opening A Roth IRA

rothas are powerful accounts they help you save for retirement and become tax-free millionaires where the money you put in grows tax-free and you're able to take it out without paying any of that to the government in the future it is a great way to save for your future but there are some things you need to know before you open a Rother a if you are thinking about opening one of these accounts let's talk about some of the things you need to know before you get started first you need to know all of the rules about who can actually open one of these accounts Roth IRAs are individual retirement accounts and they do have a lot of rules about who can contribute what they can contribute and how much so before you open one you need to know basically if you're eligible to even open one of these accounts every year there are limits on the amount of money that you can earn in order to qualify to contribute to this account you have to earn less than these limits that are set in order to contribute and if you don't there are ways around that there are contribution limits for both single earners and married couples so check those they change every single year speaking of rules get to know all the rules about the account Beyond just if you're eligible to contribute these accounts have a lot of specific rules and laws attached to them so you need to know basically what is okay and what you are able to do with your money once it's in there so you'll want to get into research mode with your Roth array and learn all of the different rules about these accounts There are rules about when you can withdraw your money both when you are at retirement age 59 and a half and also before that there are some special circumstances where you can pull out your money you want to make sure that you're doing everything about the book because there will be consequences if you're not the government actually makes this really easy on the IRS website there are a lot of really easy to understand documents that will help you understand these accounts just read through them so that you know what you can do with your money what rules exist and how you can follow them next you need to know your personal tax situation so Roth arrays are amazing because you put in money that you've already paid taxes on the money grows inside of the account and then when you're eligible to pull it out you get to take that money out without paying taxes is on it again this allows you to grow that money tax-free and it's a huge benefit but your personal tax situation might not benefit from this as much as contributing to something where you're putting money in before taxes and then paying taxes when you take it out it really does depend on your personal tax situation how much money you are earning now how much money you expect to earn when you're retired and whether you're paying taxes now or in the future that is up to you to determine so you're going to want to take some time and learn about the pros and cons of contributing to a Roth array versus a 401k take some time to determine which one takes priority because maybe the Roth array is not the account that you want to contribute the most to right now it really depends on your personal situation and no one on the internet can tell you what that is so definitely look at your tax situation before you open a Roth array and contribute to it make sure that it is the right account for you and the one you want to prioritize next you're going to want to know how much you can contribute for the year every single year the amount that you can contribute to a Roth array changes the max amount will go up over time but it does not go up every year and you're going to want to know before you open your account how much you can contribute for that year so as an example in 2022 the max amount you could put in a Roth array was six thousand dollars in 2023 the max amount is six thousand five hundred so it went up the year before you could not contribute as much as the next year this is something that changes all the time so whenever you're opening up your account make sure you know the rules for how much you can put in that year and also if it's early enough in the year if you can contribute for last year if you are contributing before tax time you can often contribute for the last year so you could put in for example that six thousand dollars if you're contributing in March you could put in six thousand dollars for 2022 and then put in 6500 for 2023 which is amazing and definitely make sure you know the rules and when you can put in that money and how much you can contribute next you're going to want to know where to open an account I have a video on this with my personal favorites but you're going to want to make sure you choose a brokerage that is solid and you know that they are are going to have good customer service access to good funds inside of their accounts and anything else that you might need so I have a couple personal favorites like Vanguard and Fidelity and M1 Finance but there are others that are great as well you can open an account at the place where you have your 401k if you're happy with that so just for ease of use or you might want to try something new doing a little bit of research into these brokerages where you can open a Roth array is going to help you make that decision and actually get started next you're going to want to know your contribution plan so this is basically up to you and it really depends on how much money you earn how you save how you want to contribute to this account it's not 100 necessary to know this before you open an account but it is really something I would recommend just so you feel more confident about opening this account and putting money in up front so you might decide to take the amount that you can put in per year and divide it by 12 and then contribute every single month that amount or maybe you decide to take that amount and divide it by 26 for your bi-weekly paychecks or you divide it by 52 so you contribute a certain amount every week or maybe you try out a Rother a challenge with a random amount every single week or bi-weekly so that you're able to put in the full amount for the Year by following one of these plans just having that plan in place before you get started will make you feel more confident and it will make you more likely to actually max out this account and get the most benefit out of it the next thing you're going to want to know is what to invest in and this is something that you can work on over time but before you open your account I highly recommend you pick at least one or two Investments so that you are not letting your money just sit in there without having access to an investment that will help your money grow you will want to do some research because you want to choose these Investments wisely you want to make sure that you're taking some risk so your money will grow but you also don't want to take so much risk that your money disappears or that you're uncomfortable with the investment that you've made because if you panic and sell everything and lose your money that's not really going to give you any benefit to using this account so make sure you take time up front to decide what investments you're comfortable with and want to use inside your Roth array a Roth array is not an investment in itself it's just a tie type of account you have to pick the Investments inside of your account so before you open one take a little bit of time research some index funds or whatever you want to invest in and decide what your money is actually going to be invested in inside of your account the next thing I think you should know before you open a Roth array is who your beneficiary is going to be no one likes to think about dying but it does happen and you want to have a beneficiary set in your account when you open your account you can set this in your settings and just have someone that you are going to make sure your money goes to in case of your unfortunate passing so this actually is something that will change probably over time when I open my Rother a years ago it was actually my brother I put my brother as my beneficiary in case something happened to me I was going to have the money go to him now of course it's my husband so that has changed over time but having a beneficiary set will save a lot of headaches in case anything does happen to you which isn't Fun to think about but it is important to know before you open this account because you should designate a beneficiary those are it for what you need to know before you open an account but this bonus tip is really really important and honestly something that you should do and that is to learn what the account you open can do how it works how you contribute money how you invest in something you need to make sure that you understand how the brokerage that you selected actually works with the account that you have so when you are contributing money to your account you need to make sure that it's actually getting invested with rotheras unfortunately something that has sometimes happened to people is that they put money into the Roth array but they don't select an investment if your money is not earning anything it is losing its value and that is the opposite of what you want to happen in your Roth ra so you need to make sure you understand your specific account and how it works with contributing money and actually investing that money take a little bit of time when you first open your account to look at how these things work inside your brokerage it's a little bit different from every brokerage so you'll have to learn how it works on yours and there are a lot of YouTube tutorials on how to actually contribute money and how to invest in specific things inside that account just look for tutorials that are about the actual nuts and bolts of here put your money here click this click that and then most brokerages also have a lot of frequently asked questions and tutorials and step-by-step instructions so read up on those know how your account works that is a huge thing that you're going to want to do so that you don't make the mistake of not having your money go to the right place or having a mistake that will cost you tens of thousands of dollars over the years that's everything you need to know before you open the Roth array I highly recommend these accounts and I've actually made a ton of different videos on them definitely check out this next one it is something that you're not going to want to miss I'll see you over there

Channel: Pennies Not Perfection

Views: 209,129

Keywords: roth ira, roth ira investing, roth ira explained

Id: UkPLPEsRmJI

Length: 8min 39sec (519 seconds)

Published: Mon Dec 19 2022