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This video is based on a mistake I see way too many people make. I recently discovered that a close friend had made this mistake – and for the last 15 years he thought his money was growing in his Roth IRA, but really it was just sitting in cash.

Here’s the mistake people make:
They’ll open a Roth IRA, fund it, and then assume that they’ve completed all the steps. The critical forgotten step is that once you fund your Roth IRA, you actually need to decide what to invest the money in (i.e., stocks, ETFs, mutual funds). If not, your money will just sit there collecting minimal interest.

Assumptions made for this video:
You start at 18 years old
You contribute $6 a day (aka $2190 per year)
Expected rate of return: 8%
Retirement age: 65
At retirement your Roth IRA balance would be $1,071,199

Now at that point, you’d only actually have contributed $102,930 (so all the rest is the growth aka power of compounding interest)

That’s why the other person sees that they only have $102,000 in their account, because it was basically just sitting as cash in their Roth IRA since they never actually took the final critical step of picking what to invest it in.

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Don’t Make This Critical Mistake When It Comes to Your Roth IRA! 🤯

When it comes to retirement planning, the Roth Individual retirement account (IRA) is a popular choice for many individuals. It offers unique advantages, such as tax-free withdrawals in retirement, making it an attractive option for long-term savings. However, there is one critical mistake that many people make when it comes to their Roth IRA – and it can have significant consequences on their financial future.

The mistake in question is failing to contribute to a Roth IRA early and consistently. Many individuals delay starting their Roth IRA contributions, thinking they have plenty of time before retirement. However, this mindset can be detrimental to their long-term financial goals.

The power of compound interest is often underestimated. By starting early and regularly contributing to a Roth IRA, you allow your investments to grow exponentially over time. Every dollar you contribute has the potential to multiply with compound interest, leading to substantial tax-free earnings in retirement.

Let’s take a hypothetical scenario to illustrate the impact of early contributions to a Roth IRA. Say two individuals, John and Sarah, both plan to retire at age 65. John starts contributing $5,000 per year to his Roth IRA at age 25, while Sarah delays her contributions until age 35. Assuming an average annual return of 7%, by the time they reach retirement age, John’s Roth IRA would have grown to approximately $1.33 million, while Sarah’s would only reach around $646,000.

The numbers speak for themselves. By delaying her contributions by just ten years, Sarah missed out on nearly half a million dollars in potential retirement savings. This example showcases the importance of starting early and consistently contributing to your Roth IRA.

Additionally, another critical aspect people often overlook is maximizing their annual contributions. The maximum annual contribution limit for a Roth IRA in 2022 is $6,000 (or $7,000 if you are age 50 or older). Failing to contribute the maximum amount can be a missed opportunity to maximize tax-free growth and secure a comfortable retirement.

Another common mistake is viewing a Roth IRA as a short-term investment vehicle. Unlike a traditional IRA, where contributions are tax-deductible, a Roth IRA is funded with after-tax dollars. This means that your contributions have already been taxed, but the growth and withdrawals in retirement are tax-free. By treating your Roth IRA as a long-term investment, you can fully benefit from its tax advantages.

In conclusion, when it comes to your Roth IRA, don’t make the critical mistake of delaying or sporadically contributing to your account. Start as early as possible, consistently contribute, and maximize your annual contributions to ensure you are taking full advantage of the power of compound interest and the tax-free growth potential. Remember, your Roth IRA is a long-term investment, and neglecting it now could significantly impact your financial security in retirement.