So, You Don't Have a Roth IRA?

Roth IRAs are the Best

Let me give you the best piece of financial advice you’ll ever get: open a Roth IRA. Trust me if you do just this one thing; you’ll be setting your future self up for success.

How To Do It

The Easy Way

So if you wanted to do this a bit “easier” but also at a little cost, I’d recommend going to Wealthfront, and opening a Roth IRA there.

1. Go to Wealthfront

2. Set up the Roth IRA account

3. Link a bank account

4. Put some money in the Roth IRA.

The good thing is that Wealthfront will automatically invest any contributions you make, and can even help you track your progress to your retirement goals.

Wealthfront charges a very tiny fee—less than what you’d pay for a couple of coffees each year—and it takes care of all the hard work for you. I’ve had my Wealthfront account for 5 years, and I’ve paid $340.01.

The Hard Way

If you say, "I can manage this on my own." Which, hey, you can, I’d go to E*Trade.

1. Go to E*Trade

2. Set up the Roth IRA account

3. Link a bank account

4. Put some money in the Roth IRA

5. Use that money to purchase some Index Funds

   1. There are a lot of thoughts about WHAT should be purchased, but given you’re just starting, I recommend something easy, which is index funds. Index funds are a simple way to invest in a large mix of stocks at once, spreading your risk and increasing your chances for steady growth over time.

      1. SCHB - 75%

      2. SCHF - 20%

      3. SCHZ - 5%

   2. If you have some better things to invest in, go for it. Just be skeptical of stock tips from friends, news articles, all of it. Index funds are the move for amatuer investors.

When Should I NOT use a Roth IRA

• When you have $0 earned income

• You already have a significant amount saved in other retirement accounts, such as a 401(k), and don’t need the tax-free benefits a Roth IRA offers.

• You’ll need the money right away

• Your employer offers a 401k match (if so, use the employer 401k match as much as you can, and THEN get a Roth IRA)

What are the benefits of a Roth IRA

• Tax-Free Growth: Investment gains (interest, dividends, capital gains) grow tax-free.

• Tax-Free Withdrawals: Qualified withdrawals in retirement are tax-free (after age 59½ and the account has been open for 5 years).

• Flexibility on Contributions: Contributions (not earnings) can be withdrawn at any time, penalty- and tax-free, making it a flexible option for emergencies.

• No Required Minimum Distributions (RMDs): Unlike traditional IRAs, Roth IRAs don’t require withdrawals starting at age 73, allowing tax-free growth for life.

• Tax Diversification in Retirement: Having tax-free income from a Roth IRA can complement taxable income from other retirement accounts.

• No Age Limit on Contributions: As long as you have earned income, you can continue contributing regardless of age.

• Lower Taxes in Retirement: If you expect to be in a higher tax bracket in the future, paying taxes now at a lower rate can save money in the long run.

• Inheritance Benefits: Roth IRAs can be passed on to heirs, who can also enjoy tax-free withdrawals under certain conditions.

I’m skeptical

It sounds complicated: It kinda is. In a way. But really once you set it up, you’ll find you don’t really need to do anything.

What if I need that Money: Only invest what you can comfortably leave untouched for a few years. But remember, your contributions (not earnings) can be withdrawn at any time without penalties.

I’m afraid of losing my money: The only way to 100% lose your money is to sell a stock at a loss. And when looking at an index fund portfolio like I laid out above, on a long enough timeline, it’s extremely unlikely you’ll lose your money.

It stresses me out seeing stock go down: Oh yeah, don’t watch them. My wife hates it, she doesn’t look. That’s fine. She set it up, it’s working, all good.

Anything else that freaks you out? Tell me in the comments.

Setting up a Roth IRA is one of the easiest, smartest ways to secure your financial future. It may seem like a small step now, but trust me—your future self will thank you.

P.S. my Roth IRA is very much part of the detailed financial view of my life I’ve kept for years.