You’ve heard us say before that you should be contributing to a Roth IRA, but what exactly is a Roth?! What’s so great about a Roth and is it better than a traditional IRA? In this Bestie episode, we revisit all the many reasons we’re such huge fans and why it is that you should be investing within a Roth IRA if you qualify. And one of the key reasons we wanted to get this episode back on your radar is because you still have time to make your contributions for last year! You have until May 17th before that window closes so make sure you make your 2020 contributions now!
Additional links from this episode:
- Open a Roth IRA with Vanguard, Fidelity, or our new favorite app M1. (and NOT the Robinhood app like we mistakenly mentioned!)
- If you wanted to check out Joel’s recent splurge, here’s a link to his bone conduction headphones which are awesome if you’re commuting to work and want to be aware of your surroundings!
- And with this being a Bestie episode from a couple years ago, we wanted to point out that the income limits for contributing to a Roth IRA have increased to 140k if you’re single (where the phase out begins at 125k) and 208k if you’re married (with the phase out beginning at 198k). Full IRS guidance here.
- Here’s a new blog we wrote discussing the differences between Roth IRA and Traditional IRA (most folks fair better with a Roth! But sometimes the traditional IRA makes sense).
- And as great as they are, Roths aren’t the most tax advantaged accounts out there, that title belongs to the triple tax advantaged HSA!
During this episode we enjoyed a Superior BarleyLime by tripelroot – a big thanks to Heather for donating this delicious beer to the show! And please help us to spread the word by letting friends and family know about How to Money! Hit the share button, subscribe if you’re not already a regular listener, and give us a quick review in Apple Podcasts or wherever you get your podcasts. Help us to change the conversation around personal finance and get more people doing smart things with their money!
Best friends out!
For Roth IRA, are contributions subject to penalties and tax if I withdraw just the contributions before 5 years of opening the account?
Nope! Contributions may be withdrawn from a Roth at any point.
Thank you!
Hi Matt,
I have been listening to your show for quite some time now and it has helped me organize my personal finance A LOT! I have a question about traditional IRA. I have an inherited traditional IRA and am wondering if I should convert it to Roth IRA, as I anticipate that my tax bracket will go up pre-retirement. My question is when and how. Should I convert now or right before the bracket goes up? Should I convert all at once or in small chunks over time? Thanks!
The tldr is yes, do a Roth conversion now! But if you’d like to hear a more thorough answer, we’d love for you to submit a listener question: https://www.howtomoney.com/contact/
Hey Guys. I created a Roth IRA Brokerage account with Vanguard and put a lump sum of about 3k into it, since savings rates are so low right now. I kept the funds in there for about 3 months, but didn’t notice any change in returns or dividends so I thought I hadn’t taken all the necessary steps. In one of the episodes, you guys mentioned that you have your Vanguard funds in a Total Stock-market Index fund. I found this resource in their investment funds section, and thought it seemed to be what you were referring to: (https://investor.vanguard.com/mutual-funds/profile/overview/vtsax). Was I correct in that assumption? I ask because I know the big selling point with ROTH IRAs is that you can take out what you put in when you need it, but whenever I look at withdrawing/selling any amount, it asserts that there will be a fee for anyone under 59.5 yr of age.
And if, as I presume, I did this incorrectly, would it be worth it to take the penalty and move things into the right place?
Thanks for all the great advice over the years, guys!
-long time listener, couple times caller
Hey Corey- congrats on getting some money into your Roth IRA! Just make sure it’s money that you’re planning to leave in there for the long-haul.
For your specific situation, it sounds like you have money in your account, but that it’s just sitting there as cash. And so you’ll want to use those funds, which should automatically be swept into a ‘money market’ fund, to purchase whatever funds you’d like- for instance VTSAX or VOO which is my favorite. You won’t need to take money out of your Roth in order to do that.
But it is also true, that you can withdraw any contributions to your Roth IRA without tax or penalty.