You may be thinking what if my child decides not to go to college? Maybe your child may join the military or start his/her own business. Maybe your child may work for a year to save for college. Any one of these scenarios or dozens more could happen. Your good intentions may not pan out because your child may have a different plan. That’s ok. Save anyway, but here’s how.
Get into the habit of saving. You can save money in your bank’s savings or money market accounts. One of the best methods for saving is through a Roth IRA. You will receive a higher return on investment with a Roth than you would with a regular savings account.
Why Use a Roth IRA? One of the benefits of a Roth IRA is that your money grows tax-deferred. Why not grow your money tax-deferred? The return on investment is higher than a regular savings or money market account. Another benefit is that if needed, you can make eligible withdrawals from the Roth IRA without penalty.
What is a Roth IRA?
There is a ton of information out there about the Roth IRA. I’ll be sharing that information! Get the information that you need and open a Roth soon. When you’re young and in a lower tax bracket, a Roth IRA is a great asset. It’s a long-term investment, but when needed, you can withdraw from it. The rest of us should have a retirement plan with our employer, especially if our employer offers a match contribution. Then, we should be saving in a Roth IRA.
How Much Can I Contribute?
Contribute the maximum to take the best advantage of a Roth. Create auto deposit so that you are contributing regularly. Need to see some numbers? For example, if you’re 20 years old and invest $5,500 in your Roth. At 65 years old, this contribution will turn into almost $486,000. If you’re 30 years old, $5,500, at 65, turns into around $126,000. Time does matters. If you’re 40 years old, $5,500, at 65, turns into around $40,000.
Using the bankrate.com calculator and maximizing your contribution,
- Age 25: Your total contribution at age 65 will be $235,000. Your total investment will be around $1,284,100.
- Age 35: Your total contribution at age 65 will be $180,000. Your total investment will be around $624,657.
- Age 45: Your total contribution at age 65 will be $125,000. Your total investment will be around $289,430.
Wait! Stay with me! If you’re 30 or 40 years old, you probably have an employer retirement plan like a 401(k). Open a Roth IRA and contribute monthly. You can have both accounts open and contribute to both. Remember the 401(k) is saving pre-tax dollars and the Roth IRA is saving after-tax dollars.
The goal is to save and save as much as you can. Take control of your life. Save for things you want to buy, for a new house, for vacations, for a new car. If you are using loans and credit cards to buy stuff, you’re no longer in control of your life. What’s your Money Plan?
Stay tuned for my next blog. Please share my blog with your friends.