Compound growth is such a beautiful thing when you let time work on your side. Saving $6,500 a year might not seem like it could make you a millionaire. But keep investing this amount consistently and future you will be sitting on a seven figure account.
There will be some people that say in 30 years, $1.2 million in our example won’t even be able to buy a gumball thanks to inflation! Well, we did the math. Taking inflation into account, the portfolio would be worth just under $800,000 in today’s dollars. Still not too shabby!
Roth IRAs are a type of retirement account where you can invest your money and get tax benefits. There is a max that can be contributed to a Roth IRA each year. It’s currently at $6,500 in 2023. This number is increased by the IRS every couple years about.
The downside is there are income limits. If you make over $153,000 single or $228,000 married filing jointly, the IRS doesn’t allow you to make contributions into a Roth IRA. (there are phase out income levels below this).
If your income is above the limit, consider doing a backdoor Roth IRA! It’s a (legal) loophole where you contribute *after-tax* money into a traditional IRA and then convert it to a Roth IRA.
HOWEVER, be careful when doing this because you may be subject to the “pro-rata” rule. This means that if you have untaxed money in a traditional IRA, you are not able to ONLY convert the new after-tax money. A proportion of the untaxed money will also be converted into a Roth IRA, which you’ll then have to pay tax on.
p.s. to learn about Roth IRAs and other important investment topics, we are having a free investing webinar next Tuesday! Our bio contains more details!
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.
-Vivi & Shane
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