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Let’s walk through exactly what a Roth IRA is, how to set one up, and how to begin investing with $12.00 a day that can really make you a multi-millionaire. So first of all what is a Roth IRA. Well an IRA is an individual retirement account and the Roth part means that you are making pre-tax contributions. I know this can be a little confusing and I used to get confused about it myself but all this means is that you are investing with money that you have already paid taxes on and that is a really important distinction that we’ll talk about in a second.

This is such an amazing retirement vehicle that the government has currently capped your annual contributions at $6000 per year if you are under the age of 50 and $7000 a year if you’re 50 or older. So before we get into the step by step on how exactly to set one of these up, I want to show you exactly how powerful and effective a Roth IRA can be thanks to compound interest. Let’s say you started investing $10 a day at the age of 20 and you were able to get an 8% annual return averaged over a 40-year period of time and reinvested your dividends.

Now deciding between a Roth IRA and a traditional IRA is pretty simple in my opinion. If you think that you will be making more money in the future, then you want to be using a Roth IRA since your current tax bracket is likely lower than what you would have to pay down the road when withdrawing this money. However, if you’re watching this and you already make a pretty decent amount of money and don’t anticipate a substantial increase in income in the future, then a traditional IRA might be a better option since you might get a better tax break on this money by paying taxes in the future when you have less income. Well you can get a Roth IRA account from all kinds of places like Fidelity TD Ameritrade or SoFi which is my personal favorite and I’ll talk a little bit more about that in a second. So shop around at the different brokerages and figure out what is best for you but if you’re a younger individual like myself who wants a super streamline and easy to use the platform, then I highly recommend SoFi. Alright so now that you have in the account, what should you buy within your Roth IRA. Well again, I’m just a guy on the Internet and this is just my opinion, however, I would recommend getting a simple S&P 500 index fund such as VTSAX or VFIAX. Once you set up your account, make your deposit and start investing, it’s pretty passive from there on out.

This is something that you want to start immediately! From our previous example, if you waited until you were 19 instead of 18, your account would lose $223,392 by age 65 just from waiting one extra year. So in a nutshell, you want to put as much as you can in your Roth IRA and try to shoot for that $15 per day threshold. From there just automate your investments into S&P 500 index funds or whatever investment strategy you feel is best for you and then just sit back and be patient. Rome wasn’t built in a day, but by investing consistently with these tax advantages for 40 years, you really can become a tax-free millionaire.

Music From YouTube Audio Library
“Complicate Ya” by Otis McDonald

I am not a Certified Financial Planner®. The topics presented in this video are for entertainment purposes only. You, and you alone, are responsible for the financial decisions that you make….(read more)

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