Roth IRA: Who said money doesn’t grow on trees?

May 12, 2009 · 6 comments

We have all heard it before, “Money doesn’t grow on trees”. You know what I say to that? Heck yes it does! Young people of the world, I would like to introduce you to the Roth IRA.

What it is:

A way to get awesomely rich with minimal effort. The Roth IRA is most effective for younger people. Definition of young: 20 something, but don’t get me wrong, it’s NEVER too late. Compound interest is your best friend. If you don’t know what that means, don’t worry about it. It basically means your money grows at a crazy quick rate. If you got the discipline to save a little bit of that cash, you STRONGLY need to consider throwing it in to a Roth IRA. The Roth allows you to make contributions with your after tax money (the money you actually get in your paychecks). It then grows tax free for the next umpteen years (until you retire basically) and you get to pull out all the profits without having to pay anyone a dime.

Why is this so cool?

The Roth is epic, because of the tax benefits. If you are young, hopefully your income will only go up from here! If you take all your hard earned cash and put it in a Roth (maximum of $5,000 annually) you will have paid taxes on that amount equal to your current tax rate (probably between 15% to 25%). This is cool for one reason. Chances are you will be making more money when you near retirement and will be in a way higher tax bracket (30% and beyond). When you do retire you get to take all that money out…tax free. Meaning you just saved yourself from having to pay Uncle Sam a crapload of cash. Keeping YOUR money for yourself is what it’s all about.

How it works:

Sticking to the title of this post, the Roth IRA is the closest you will come to “money growing on trees.” You take your seeds (your current savings), bury it deep down in some soil (the bank or company of your choice), and water that sucker each and every year (annual contributions). When you plant a tree, you can’t expect a freaking redwood to be in your yard the next day. The Roth IRA is no different. You gotta be patient and keep feeding it the maxmimum contribution each year. After a good twenty to forty years of adding to your Roth that baby weed you had growing is going to be a full blown beast of a tree. But unlike the redwood, the Roth wont take 200 years to be cool.

I think it’s time for you to make a contribution to your Roth IRA garden. The choice to do it tomorrow could cost ya’ a good chunk of change. The earlier the better suckas. Do it! No seriously, go freakin’ do it!