📈Roth
Should you open a Roth IRA? It depends, but probably... yes.
We’re running it back. If this looks a little familiar, it’s because we’re reaching back into the archives (cuz we have those now) to update this piece on Roth IRAs.
One, because Roth IRAs are awesome and are worth talking about again and again. And two, we’re busy. Alex has a 10-month old and Ian has a boat. That finance life.
And three, if someone forwarded this to you, do us a favor and subscribe. Thanks!
A lot of time is spent on how to invest your money. This stock or that fund, etc.
The truth is simpler. Where you invest your money has far more impact on your outcomes than how you invest. How to choose between a brokerage account (like Robinhood), your 401(k) at work, a Roth IRA, or a Traditional IRA? It can get confusing, so we’re here to simplify:
Summary: You should be shoving money into a Roth IRA.
What is a Roth IRA? It’s an individual retirement account that allows qualified withdrawals on a tax-free basis, provided certain conditions are met. Tax-free? 100 points for Gryffindor.
How’s that work? You contribute to a Roth using money you already paid taxes on. The government can be a real bastard about taxes, but they won’t tax you twice (usually).
Since you already paid taxes on Roth IRA contributions, you can take it out after five years without paying any taxes or penalties. Which is awesome, particularly as life happens.
Buying your first house? Take the money out
Medical bills? Â Take the money out
Last minute all-inclusive, girls/boys trip that you absolutely can’t miss trip to Cabo? TAKE THE MONEY OUT!
In the last case, please don’t, but the point is, that if you need to, you can. The tax law lets you use a Roth to save money for retirement while also letting you take out whatever you put in with no penalty.Â
That’s different from your 401(k). No taxes on the way into a 401(k) means you pay taxes on the way out.
We are screaming from the rooftops: take advantage of the Roth while you still qualify and before you get that corner office (is this still a thing with WFH?).Â
You might read that and think: putting money in a retirement account means I can’t use it until retirement. I don’t like that.
Here’s the deal with a brokerage account: can you add an unlimited amount of money to it? Yes. Can you turn that money into cash in hand without penalties? Also yes. Can you invest in whatever you want without any restrictions? Also also yes.
However, unless you buy and hold forever and always, the money you make will also be:
Don’t believe us? Look at what taxes did to the guy who won the lottery:
What's the Upside?
Abysmal interest rates and decades-high inflation force us to invest in something other than a savings account. A brokerage account is a good option, but it comes with tax considerations that retirement accounts like 401(k)s and Roth IRAs don’t.
Do what you have to get to the match in your 401(k) (if your employer offers it – not everyone does), then do your best to max out the Roth IRA each year, if you’re eligible.
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For Your Weekend
Read:
What It Takes to Climb the World’s Most Forbidding Cliffs by William Finnegan (The New Yorker)
Caldwell’s limits have fascinated the climbing world for decades. He has very likely free-climbed more routes on El Capitan than anyone else, and has been featured on the cover of Climbing magazine an unseemly number of times. This small but intense community made him famous young and has not let him go. It pays his bills, relishes his struggles, celebrates his suffering, gilds his image, and assumes, in its opaque way, that he will continue to climb at the highest level and will not fall.
Vin Scully, Forever by Bryan Curtis (The Ringer)
All announcers yearn for adoration. Scully, who died Tuesday at 94, achieved something much more—he became a collective memory for generations of sports fans.
Chuckle:
