All Financial Wisdom

Start a Roth IRA now!

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Some advice I have recently come across is that everyone that is eligible should start a Roth IRA ASAP, even if you put in just the minimum amount.  This is because of the five-year-rule.

A roth IRA is an account for after-tax money.  The cash you place in these style accounts, are not taxed when withdrawn.  However, there are penalties that need to be avoided.

When to Withdraw from a Roth IRA

  • Withdrawing interest or earnings of those contributions can only be withdrawn tax and penalty free by:
    • Having the Roth IRA account longer than 5 years and being 59 1/2 years of age.
    • Having the Roth IRA account longer than 5 years and spending the funds (up to $10,000) on your first house purchase.
    • Having the Roth IRA account longer than 5 years and having had suffered a disability.
  • Withdrawing from your Roth IRA for college expenses is penalty free, but not tax free.  Income tax would still apply.

Knowing of these possibilities, you can plan for future expenses by saving into your retirement accounts.  This should be quite attractive to young adults, like myself, since we can put money aside for our post-profrossional degrees and our first house.

If you haven't opened a Roth IRA account yet, most places do not require a minimum deposit to open an account.  From what I have seen, Scottrade.com and Vanguard.com are great places to start.  Scottrade offers $7 trades (the cheapest I've seen) and Vanguard has no commission on their ETF and mutual funds.

4 Comments

  1. Howto$tuffYourPig

    July 10, 2015 at 5:55 pm

    Roth IRA’s are the best! Great post!

  2. MarkD

    July 10, 2015 at 6:54 pm

    Roth’s are only the best if you have maxed out your employer offered 401k first. See this: https://www.yourmoneypage.com/retire/retireroth401k.php

  3. Howto$tuffYourPig

    July 11, 2015 at 8:17 pm

    Not everyone has an employer plan, I do agree that employer 401k plans should be maxed out up to the match, however, the remaining funds should be diverted to a Roth IRA. Just my personal opinion.

    • liberty1100

      July 11, 2015 at 9:42 pm

      Very good point, but even $100 now opens an new opportunity down the road that is rather flexible and unique.

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