The ‘twenties’ is the time when you start your professional life and work on building a lustrous career. It won’t be a surprise that every young adult would be totally focused on climbing the next rung of the corporate ladder. Apart from that, as a young adult, you should seriously think about investing your hard earned money for the security of your future. As a young investor, you will be surrounded by a number of investment options like 401K, insurance policies, mutual funds, etc., but would Roth a IRA be the best investment strategy for you. Let us see why.
- Why Should You Consider Roth IRA in your Twenties?
If you are a twenty-something millennial, then Roth IRA would be a great investment vehicle for you. You can contribute money that is already taxed, which means that when you withdraw from this fund later in life (after the age of 50 ½), you won’t have to pay any taxes on the withdrawals. Investing in Roth IRA makes sense as you still haven’t reached your highest earning years and will normally be in a lower tax bracket. This means that when you put away earnings in a Roth IRA now, you will be paying lower taxes as compared to a time when you will fall in the higher tax bracket. The earlier you have money in the Roth account, the longer will these assets have the time to grow tax-free. The Rule of 72 (compound interest rule) will really come into play.
A Roth IRA will benefit you the most if you are self directed and can invest in non-traditional investments as well as traditional investments. Alternative investments can be real estate, tax liens, private companies, money lending, precious metals and much more. 97% of Americans never consider the “alternative world”. They are “financially illiterate” and follow their trusted advisors. However most advisors either are not aware of alternative investments or are forbidden to tell you because their broker dealer only has traditional investment options.
- What are the benefits of Roth IRA?
The biggest advantage of having a Roth IRA account is the tax advantages it offers. Your money grows tax-deferred and changes to TAX FREE at age 59 ½.
Retirement options, Roth IRAs don’t have minimum required distributions (MRDs). This allows you to pass on more inheritance to your heirs.
It offers young investors several options in terms of how to allocate their funds. For maximum return a combination of alternative investments and traditional investments is advised.
It’ll protect you against tax rate hikes.
So, start young and focus on retirement planning as well. Sowing the seeds now will reap you great benefits as you grow older.
Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He brings over 30 years of diverse experience as a financial advisor. Rick takes great pride in giving honest and very experienced advice. Rick can readily converse with business owners and people looking to take control of their retirement accounts.