Monday, May 6, 2013

Retirement Funds: I don't care if you're 12 - start one ASAP

Money and retirement go hand-in-hand.

Read this if: 

1) You have a job. 
2) You have had a job. 
3) You have enough money to save (that is, daily groceries/rental bills don't wipe you out). 


As soon as you get a job, you should get a 401(k) or a Roth IRA. 

The point of saving for retirement is not to do it when you're close to retirement. The earlier you start, the better off you'll be. Before we proceed, understand that doing this will not make you rich. It's also not something you "need" to do - any kind of savings is better than nothing and there is nothing wrong with having your money in a regular savings account. 

Personally, I have a Roth IRA. I like them because they have very simple rules and the company that I invest with has a wonderful website that makes me feel secure.

What a Roth IRA is: 

Think of it like a pot of money. The pot is invested in stuff. The amount of money in the pot grows as you put money in it, but also when other people put money in it. You can't add to much or the pot will explode. But like fine wine, a little goes a long way and the longer you keep it around, the better it becomes. (Right? Wine does that, right?) 

Here are the basic rules of a Roth: 

I hope I didn't lose you with the pot metaphor but this should clarify some: 

1) You can only put in money you make. 
2) You can only put in up to $5500 in 2013. (This limit changes sometimes). 
3) Let's say you put in $500 and it grows to $523.19. You can withdraw up to $500 dollars without a fee at any time. After retirement, you can withdraw the remaining without a fee. 
4) You can only contribute the money you earned in 2012 until April 15th of 2013. (So you always have until April 15th of the following year to contribute the full amount of the current year). 
5) No age limit to when you can open one, so open one for your baby, too, if it has earned income. 

While there are many benefits to having a retirement fund, especially the Roth IRA, the main benefit to me is: you don't pay taxes on the money you earn. Why? Because your income is already taxed! So think about it: if you earn $1000 in a Roth because you put in $10000 (just an example here guys...returns can be much more or less than that), that's $1000 you don't pay taxes on. 

Plan of Action: 

1) Open a Roth IRA and contribute however much you can. You don't HAVE TO contribute the full amount! 
2) Contact me with questions!


Photo credit: 401(K) 2013 via photopin cc


  1. What company did you chose to invest for your Roth IRA? I want to invest a lot but I have a hard time trusting that any of the same companies will be around (or consistently growing) for the next 45 years (about when I retire).

    1. Haha, I know what you mean. Vanguard and T. Rowe Price are very, very, very reputable companies, so those are my suggestions. T. Rowe Price has a lower minimum deposit than Vanguard, but Vanguard is known for low fees.

      Good luck, thanks for reading!

  2. Sorry Joan, but can you reexplain this "4) You can only contribute the money you earned in 2012 until April 15th of 2013. (So you always have until April 15th of the following year to contribute the full amount of the current year). " I didn't quite follow it completely.

    Also, could you do a post on IRAs in general and retirement plans too? I don't know too much about them.

    Also, for Roths, is it like a mutual fund then? It sounds similar - pool your and other people's monies together, invest in stuff, and return the gained worth. Isn't there a chance of the investments going bad and me losing some of my retirement money though? (I'm not well read on this, so not sure...)

    By the way, is there a minimum amount I have to invest to open/continue the account? And do I have to invest a certain amount every year?

    1. 1) Let's say you make $5000 in the year 2012, and the maximum contribution you can make to a Roth is $5000 a year. For some reason, when December 31, 2012 rolls around, you only have $4800 dollars to contribute to your Roth. You have until April 15, 2013 to make another $200 dollars and put it in the account.

      Let me know if it still doesn't make sense!

      2) Sure, I'll get into more specifics about what people do with Roths later.

      3) Think of a Roth like a bank account with some of your money in it. The money can be invested through stocks, mutual funds, etc., but it all qualifies as "retirement savings." Retirement savings have special benefits, which I cover in multiple posts/comments on the blog.

      4) When you open a Roth with a company (let's call it Company A), the company decides what the minimum deposit is. After that, it doesn't matter how much you put in, but I suggest maxing it out. You do not have to invest a certain amount a year, but there is a limit on how much you can invest per year.

      Hope that helps!