Brennan Schlagbaum, CPA

Brennan Schlagbaum, CPA



Roth IRA's can make you a tax-free millionaire. But only 6.6% of Americans own one. Here's everything you need to know about the Roth IRA: (and why you should have one)

What's a Roth IRA? A Roth IRA is an "Individual Retirement Account." Unlike a 401(k) where your employer provides it for you, you must open this account yourself. My favorite brokers to open a Roth IRA with are: - Fidelity - Vanguard - Charles Schwab

How does a Roth IRA work? You contribute money you already paid taxes on. (Net earned income) Then you invest the money you contributed. A common misconception is that the Roth IRA is an investment. Not true. It's the account. And you buy investments WITHIN the account.

What makes the Roth IRA special? Two things. - Tax-free growth - Tax-free withdrawals You can buy and sell stocks in a Roth IRA as you please without getting taxed. And you can withdraw the money you made without paying taxes as well. But there's a catch...

Roth IRA Rules: 1. There are income limits for high earners 2. Tax-free withdrawals occur after age 59 1/2 3. Annual contribution limit of $6,500 (in 2023) 4. The account must have been open for 5+ years Let's break them down...

Rule 1: Roth IRA Income limits 2022: Single: $144,000 Married filing jointly: $214,000 2023: Single: $153,000 Married filing jointly: $228,000 If you make more than those amounts, you cannot contribute to a Roth IRA at all. But there's an exception...

Exception 1: Backdoor Roth IRA When you contribute to a Trad. IRA then convert the money to a Roth IRA. How to do it: - Open Trad. IRA - Contribute money - Don't invest money - Convert to Roth IRA - Invest the money Consult a professional before attempting.

Rule 2: Tax-Free withdrawals You can't withdraw gains tax-free until age 59 1/2. If you withdraw gains before age 59 1/2 you will incur penalties. But you can withdraw CONTRIBUTIONS without any penalty or taxes. But there are exceptions...

Exception 2: Early withdrawal You can avoid penalties (not taxes) if you withdraw for the following reasons: - Disability/death - Education expenses - Birth/Adoption expenses - Health insurance if unemployed - Unreimbursed medical expenses - First-time home purchase ($10k max)

Rule 3: Annual Contribution Limit Contribution limits for 2022 are $6,000/year. For 2023 it's $6,500/year. But if you're age 50 or over, there's an exception...

Exception 3: Annual Contribution Limits Individuals who are age 50 and over are allowed to contribute more money to a Roth IRA than the average person. For 2022 you can contribute up to $7,000/year. For 2023 you can contribute up to $7,500/year.

Rule 4: Account age Your Roth IRA must have been opened for at least 5 years before you can withdraw from it without penalty. This is in addition to the age requirement of 59 1/2 AND includes contributions. But the same exceptions for Rule 2 apply to this one as well.

Should you open a Roth IRA? A good rule of thumb is if you expect your tax bracket to be higher in the future then you should open a Roth IRA. This way you pay taxes now (when your bracket is lower) and no taxes later (when your bracket is higher).

How to become a tax-free millionaire: - $500/month in a Roth IRA for 31 years. (2022) - $540/month in a Roth IRA for 30 years. (2023) That's ~$1.1 million dollars tax-free.

I hope this helps you understand Roth IRAs on a deeper level. If you enjoyed this thread, please: ✅ SHARE ✅ SAVE ✅ RETWEET There are many people out there that would benefit from this knowledge. Thank you for your support! 🙏 Sincerely, Brennan

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