Roth IRA vs Traditional IRA: What the f*ck is the difference?

Let’s skip the personal stories about why I’m writing about this and just get right to the point. And first, you need to know what an IRA is at the most basic level.

Individual retirement accounts (IRAs) are tax-advantaged vehicles designed for long-term savings and investment — to build a nest egg for one’s post-career life. (Investopedia)

One of the main differences between a Roth IRA and a Traditional IRA is the timing of when you want to owe the government (taxes).

If you have a Roth IRA, you can start withdrawing without penalty when your IRA account is at least 5 years old and you are at least 59 1/2 years old. The best part? When you start collecting $$$ from your Roth IRA in retirement, you won’t have to pay any taxes.

  • The most you can add to your Roth IRA is $6,000 per year (as of May 2021). And there are a couple of income restriction limits — get the most accurate info here.

A Traditional IRA, you can also start withdrawing without penalty when you’re at least 59 1/2. But the IRS will start requiring you to withdraw at age 72. When you start collecting from a Traditional IRA though, you will have to pay taxes. One cool thing about this IRA (vs a Roth) is that it can lower your adjusted income for that contribution year. For some, it can help them go into a lower tax bracket and receive other deductions and tax benefits they otherwise would not have received.

  • The most you can add to your Traditional IRA is $6,000 per year (as of May 2021). Get the most accurate info here.

For the best-explained version of this topic, consider checking out this article.

And if you’re learning this for the first time, it’s ok to read the same articles over and over until it starts to click. Give yourself a chance here, you deserve this.

Please excuse the headline — I’m actually very frustrated that we’re not all ingrained with THIS kind of information. Once your investment vehicles are set up (your IRAs, for example), it’s as effortless as stockpiling money away in a dusty old savings account. It’s so easy. Saving money never made anyone wealthy. Just saving money doesn’t help you have the retirement you want. You need to have compound interest on your side.

We should all be investing

We should all be investing — bottom line. Whether it’s $5,000, $500, $50, or $5 per month, we should all be putting some money away to start building our war chest.

I can’t legally suggest that you, personally, should invest in anything. I just think that we as a population should be investing more.

I don’t know why we weren’t taught this in school. And I’m talking about middle school — it’s mind-boggling that we weren’t taught this as early as we could comprehend interest rates. It’s even more infuriating that we refuse to teach our children this.

This is my own personal opinion and not advice: I believe our country’s taxes will be higher when I retire. I also plan to be in a different income bracket. I would prefer to be taxed now — so I’ve been primarily investing in a Roth IRA for the last few years. My investing habits should be stronger, but I’ve begun building the habit of always investing a specific % of my income. This way it becomes part of me and I’ll be investing without doing anything extra. Do what you want with this information.

I didn’t even know financial literacy was a thing until 5 years ago. I was 24. I wish I would have gotten started sooner. (And I didn’t really start until I was 27.) If you feel I am misleading with this article, please DM me on Twitter. It’ll be the fastest way to get in touch with me. At the same time, if you have any questions about IRAs or investing, please feel free to also shoot me a message. If I don’t feel confident in my answer, I know where to point you. 🙂

If you’ve been thinking about investing and just haven’t taken that first leap yet:

One year from now, you’re gonna wish you started today.

10 years from now… it’ll really hurt.

30 years? Oh boy.

If you want to make today your Day 1 of investing in your future, you just need to do one thing: add yourself to this email list. Jennifer demystifies the stock market for new investors and teaches simple ways to manage personal finances and make long-term investing a priority.

  • Add yourself to that email list and just started learning today. Start building the habit of being the person who enjoys learning more about this stuff. The money-earning capability will come naturally if you can do that. Personally, I love seeing my money go to work for me.

Most Americans want to retire by 67, a 2020 TD Ameritrade report finds. But are they on track?

The report, which surveyed 2,000 U.S. adults ages 40–79 with at least $25,000 in investable assets, finds many Americans may have a ways to go, even those approaching their golden years. Nearly two-thirds of 40-somethings have less than $100,000 in retirement savings and 28% of those in their sixties have less than $50,000. Read more about this on CNBC.

  • If you invested $20 a month into the S&P 500 for the next 30 years, your Roth IRA could be worth ⬇️
$20 a month into the S&P 500 for the next 30 years
  • If you cranked it up to $100 a month for 30 years, you’re now looking at something like ⬇️
$100 a month into the S&P 500 for the next 30 years
  • Too many people have car payments north of $500 a month, but if you started tossing that into a Roth IRA for the next 30 years, you could be looking at a half-million dollars ⬇️
$500 a month into the S&P 500 for the next 30 years

Stop valuing vanity and status over freedom.

You’ll never win.

Just start.

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