Finance: Roth IRA – MyCliffsNotes.com

Why didn’t anyone tell you this?!

Roth IRA vs. broker account
While Roth IRA contributions are not tax-deductible, it is a tax-free income on growth earnings when you take it out in retirement. Most of us overlooked this benefit and didn’t take full tax advantage of what it had to offer. Shame!!! Check out the video article below to see how Peter Thiel grew his account to $5B tax-free! Roth IRA, traditional IRA and 401(k) are retirement accounts, designed for the average worker to save for retirement. However, by default, there are restrictions. For example, there are income limits for a Roth IRA (while there are no income limits for a traditional IRA). If you make way too much money, then automatically, you are not qualified to contribute to a Roth IRA. For year 2023, if you make over $138K a year, you are automatically disqualified to contribute to a Roth IRA. Also, the maximum contribution for 2023 is $6,500 for a Roth IRA or a traditional IRA account or the combination of the two. For more information regarding IRA retirement accounts, follow this link (irs.gov). A Roth IRA account functions similarly to that of a brokerage/investment account. In essence, you fund it with your after-tax dollars. For example, after-tax dollars are usually money from your bank account. The advantage with a Roth IRA account is you don’t have to pay taxes again on capital gains. Conversely, you do have to pay taxes on capital gains with your brokerage account. To recap, your contributions to both the Roth or a brokerage account is from your after-tax money (generally, money from your bank account). Growth earnings made from a Roth account is tax-free; and earnings from a brokerage account will be taxed. In fact, you do not get a tax break at all with a brokerage account. However, you do get a tax break with a retirement account (like, Roth IRA, traditional IRA or 401(k), etc). That being said, you should max out all tax advantage accounts (namely, Roth IRA (preferred), Traditional IRA, and 401(k)), before putting any money into your brokerage account. Most people reinvest their money anyway. So if your time horizon is way out there, and you don’t need the money until you are 59.5 years old, then this is a perfect condition to have a retirement account, even if it’s locked in until 59.5. Of course, there are loopholes if you need to access your money before that. And one of the loopholes is to borrow from your 401(k) account. This is interestingly enough how the rich access their money, by borrowing against their assets, like, stock portfolio. (using their assets as collateral for a loan). Restrictions: • Maximum contribution limits for a Roth IRA or a traditional IRA or the two combined is around $6K for 2022. • IRA age limit: For 2020 and later, there is no age limit. You can continue to contribute, as long as, you have earned income, regardless of your age. See more information from the irs.gov website below: “For 2020 and later, there is no age limit on making regular contributions to traditional or Roth IRAs.” • For a penalty-free withdrawal, you would need to be at least 59.5 years of age. But that’s okay, since most people would reinvest their money anyway; it’s money making you more money. So let’s put it to work.

Roth IRA vs. broker account

While Roth IRA contributions are not tax-deductible, it is a tax-free income on growth earnings when you take it out in retirement. Most of us overlooked this benefit and didn’t take full tax advantage of what it had to offer. Shame!!! Check out the video article below to see how Peter Thiel grew his account to $5B tax-free!

Roth IRA, traditional IRA and 401(k) are retirement accounts, designed for the average worker to save for retirement. However, by default, there are restrictions. For example, there are income limits for a Roth IRA (while there are no income limits for a traditional IRA). If you make way too much money, then automatically, you are not qualified to contribute to a Roth IRA. For year 2023, if you make over $138K a year, you are automatically disqualified to contribute to a Roth IRA. Also, the maximum contribution for 2023 is $6,500 for a Roth IRA or a traditional IRA account or the combination of the two. For more information regarding IRA retirement accounts, follow this link (irs.gov).

A Roth IRA account functions similarly to that of a brokerage/investment account. In essence, you fund it with your after-tax dollars. For example, after-tax dollars are usually money from your bank account. The advantage with a Roth IRA account is you don’t have to pay taxes again on capital gains. Conversely, you do have to pay taxes on capital gains with your brokerage account.

To recap, your contributions to both the Roth or a brokerage account is from your after-tax money (generally, money from your bank account). Growth earnings made from a Roth account is tax-free; and earnings from a brokerage account will be taxed. In fact, you do not get a tax break at all with a brokerage account. However, you do get a tax break with a retirement account (like, Roth IRA, traditional IRA or 401(k), etc). That being said, you should max out all tax advantage accounts (namely, Roth IRA (preferred), Traditional IRA, and 401(k)), before putting any money into your brokerage account.

Most people reinvest their money anyway. So if your time horizon is way out there, and you don’t need the money until you are 59.5 years old, then this is a perfect condition to have a retirement account, even if it’s locked in until 59.5. Of course, there are loopholes if you need to access your money before that. And one of the loopholes is to borrow from your 401(k) account. This is interestingly enough how the rich access their money, by borrowing against their assets, like, stock portfolio. (using their assets as collateral for a loan).

Restrictions:
• Maximum contribution limits for a Roth IRA or a traditional IRA or the two combined is around $6K for 2022.

• IRA age limit: For 2020 and later, there is no age limit. You can continue to contribute, as long as, you have earned income, regardless of your age. See more information from the irs.gov website below:
“For 2020 and later, there is no age limit on making regular contributions to traditional or Roth IRAs.”

• For a penalty-free withdrawal, you would need to be at least 59.5 years of age. But that’s okay, since most people would reinvest their money anyway; it’s money making you more money. So let’s put it to work.

Here’s an awesome article on Peter Thiel whom took advantage of the Roth IRA. How Peter Thiel amassed $5 Billion in a Roth IRA, started in 1999 with just $1700! Wow!!!

Billionaire Peter Thiel used a Roth IRA to shelter billions from taxes…
CNBC Television

COMPARISION: Roth IRA, 401(k)…
	Roth IRA	Traditional IRA	401(k)	Traditional Brokerage
Tax Deferred/Deductible	No	Yes	Yes	No
Tax On Capital Gains	No	Yes	Yes	Yes
Maximum Contributions	$6,500*	$6,500*	$22,500**	No limits
Self-Directed	Yes	Yes	No	Yes
Age Required for Penalty-Free Withdrawals	59.5	59.5	59.5	None

* For 2023, the maximum contribution for either IRA is $6,500 or $7,500 if you’re age 50 or older. ** For 2023, the maximum contribution for the 401(k) is $22,500