So ladies and gents in this video, I'll be revealing to you the top 5 Roth IRA mistakes you may be making and teach you how to avoid them. This information here is so crucial for you to maximize your retirement savings account and for you to also save thousands if not hundreds of thousands of dollars. By the end of this video, you'll have the most valuable Insight on how to make the most out of your Roth IRA Investments and you'll be able to avoid any costly pitfalls and ultimately secure that comfortable retirement. So before we even get into the top five mistakes that many investors are making, let's first explain what a Roth IRA is and how it compares to the Alternatives.

So an IRA stands for individual retirement account and one of the primary benefits of using any retirement account, whether it be an IRA or a 401k is for the tax advantages that you get by using them. Now, there's going to be two main types of IRAs. It's traditional and Roth. So with a traditional IRA you can contribute or fund the account with pre-tax dollars, which just means you're you're funding the retirement account without paying taxes on that income just yet.

Now, the main reason why that's so good is because you're going to have more funds to invest with and you can also reduce your taxable income for that year. However, like all good things, there's always a bit of a catch. And the catch with this is that when you start taking withdrawals, later on, when you are finally retired, that's when you're gonna have to pay taxes on the investment gains and also on the principal contributions you are making throughout the years. A Roth IRA Works A little bit differently.

So this here is when you contribute post-tax dollars which means you have already paid taxes on that amount and given Uncle Sam is large and, uh, unfair cut. Unlike the last one, the big advantage of a Roth IRA is that your Investments do grow completely tax-free which means that you won't owe any taxes on the earnings. When you do decide, you want to withdraw that amount and buy that Dream Boat or the Dream House you wanted for so long. It's also very important to note that you can also withdraw your Roth IRA contributions at any time tax and penalty for you, which we'll discuss later if this is actually a good idea to do or not.

So first of all, if you're watching this video, I need to give props to you because a lot of people are not going to be planning for their retirement at this age. If you're watching this video in preparation of a Roth IRA I need to make a note that it's so important to take action now while you're still young. So your Investments have enough time to compound and allow you to live comfortably without you needing to work a job when you do turn 70 or 80 years old. So the first biggest Roth IRA mistake that you may be making is not understanding actually the full entirety of the Roth IRA rules.

Now with this, there's a lot of complications. There's a lot of confusing terminology, so let me make it really easy to understand here. So the first rule you need to know is that there is a contribution limit that you can put into the account every single year. If you exceed that contribution limit for the Roth IRA, you can actually result in you paying more tax penalties and additional fees.

Now for this year 2023, the maximum contribution limit for the Roth IRA is six thousand Five Hundred dollars if you're under the age of 50. And if you are above the age of 50, you're allowed to contribute an additional thousand dollars on top of that. So your contribution limit would be Seven Thousand Five Hundred dollars. I Think it's pretty easy for most people to be able to surpass the contribution limit if you have a whole year to fund it.

So make sure that if you are trying to routinely invest into that account that you do so accordingly with the limit amount. Now the second heads up you need to know is whether or not you actually qualify for the Roth IRA tax advantage because if you make a certain amount of money, you actually are not eligible for this type of tax benefiting savings. So if you earn over a hundred thirty eight thousand dollars a year individually or two hundred eighteen thousand dollars married filing jointly, you will not qualify for a Roth IRA I Actually did not know of this and I kept putting money into my Roth IRA a few years back when I was making over two hundred thousand dollars. So it was pretty much a bummer to hear that all the work I was doing didn't qualify for anything.

I Will say though, all is not lost because there are indeed some investment strategies to get around this and it's called a Back Door Roth IRA Where you pretty much all you do is contribute to a tradition National IRA and then you convert it to a Roth IRA Down the line. Now the third heads up that you need to know is that you can only contribute earned income to a Roth IRA. So what is earned income? This is pretty much any income received from a job or self-employment like wages, salaries, bonuses, and commissions. So contributions cannot be income from Investments under the table payments or passive income from dividends or rents.

It's also really important to note that every single year, the contribution and income limits are also subject to change based on inflation and any other factors like whoever is in office. But the current 6500 limit that we have for this year was actually different from last year was six thousand dollars. Now the second biggest Roth IRA Mistake that I see a lot of people making is just the fact that a lot of people end up getting impatient, they want their money back and they end up withdrawing or taking that money out way too early. While it's true that you can withdraw your contributions to a Roth IRA at any time without penalty.

since you're funding the account with after tax dollars, withdrawing any earnings or gains before you reach the ripe age of 59 and a half. By the way, it's a really interesting age that they picked. It can actually result in having some more consequences. So what ends up happening if you do pull it out earlier is that you would have to pay the standard income tax for those gains.

But you'd also be hit with a 10 penalty depending on your age and how long you've had the account. So just because the option for withdrawing your initial contributions is there, it doesn't always necessarily mean that you should actually do it. If you happen to be more on the younger side. you built up your Roth IRA At the age of 21, the power of compound interest is going to be substantial, but if you end up taking it out just way earlier before that, you can realize it can really work against you.

So if you're constantly funding the account just to take the money back out, please make sure you know that you're not going to be getting no compound interest. Amazement. You're going to be working against that. you're going to be hit with a penalty.

Most reasons why people would actually take out the Roth IRA early is because they need that money. And if you don't have an emergency fund or a safety net, this is actually one thing that you need to start before even getting into the Roth. IRA No matter what type of investment you're trying to do, whether it's retirement or for short-term goals, you should always have at least in my opinion, six months worth of expenses saved up so that you can invest and grow your portfolio. And if anything ever does happen, you can pick yourself back up without having to sell any position.

Now the third: Roth IRA Mistake that I've seen a lot of people make and it's a bit more. Grim But it's still very important to note is that a lot of people have failed to set up account beneficiaries. Now naming the beneficiary is something that is considered to be optional for most brokerages, but it should always be done. It's a simple and quick process, but if anything ever does happen to you, knock on wood and nothing's gonna happen to the Jungi Family.

We're all gonna be all right. But if something does happen, you wouldn't have to have your family members or your loved ones trying to fight these brokerages or fight the government for the money that you wish you had. Go to them, even for me. I Never thought you know I'd have a near life to death experience but I almost did get randomly stabbed outside of my apartment if I didn't have any beneficiaries set up.

I Think what would really upset me the most is just the fact that my family would not be taken care of after my long passing had gone. So I Know a lot of people don't tend to think about these things, but make sure that you do take advantage of it whenever you see list of beneficiary do that. It takes a simple bit of time. Think about maybe your parents, another loved one, a spouse, your wife, your husband whoever it is and make sure you do that.

Now the fourth Roth IRA Mistake that a lot of people are making is actually paying unnecessary fees. Now having a Roth IRA isn't always free and there's costs including maintenance transaction fees and expense ratios that can quickly add up. If you plan on having a Roth IRA you'll know that you're going to have it for like 40 to 50 years and those fees can add up dramatically and they could definitely reduce the size of what your investment gains could look like by the time you hit your age of when you can pull that money out. So a lot of Roth IRA providers would either charge most people a monthly or an annual accountant's maintenance fee which is often called a custodial fee and this could range from anywhere from 25 to even a hundred dollars per year.

Now the second fee most providers are going to charge you is a transaction fee or a commission fee. and transaction fees are gonna vary greatly. It just depends on how much you're trading, but they typically range between a dollar to even twenty dollars per trade If you plan on trading frequently within your Roth IRA account, which is what a lot of people can do. You don't have to just buy a dividend stock or a low growth index and hold it forever.

You can actually trade within that account, but if you do happen to go that route, you may notice that you're going to be paying a lot more fees. so this year is not a sponsored video. I'd Recommend you guys to always do your own research. But I personally recommend I Trust Capital because they allow you to invest in not even just a stock, but it's also cryptocurrencies, different markets like precious metals and they also have some of the lowest fees within the market.

Personally, for me, the areas of where I want to invest is not like the safe growth dividend stocks I actually want to invest in more Emerging Markets where I can get the highest Roi and if I'm thinking from the timeline of 30 to even 40 year years from now I'd want to place my bet on crypto and if I can get that tax free I take full advantage of it. So this is just one platform that I recommend, but there are a ton of other great Services too that I'll list down below in the description for you guys to check out. Going into the fifth mistake, this actually segues pretty well and this is not choosing the right investment. So ladies and gents, you may not have to go with full emerging Tech markets, but you should also be avoiding things like penny stocks or low cap stocks or cryptocurrencies too.

I'm not sure if you guys ever heard of this crazy story, but it is nuts. Peter Thiel was reported to have funded a Roth IRA with less than two thousand dollars in 1999 and he grew it to over five billion dollars by the end of 2019 by purchasing 1.7 million founder shares of PayPal for .001 per share. Now it's absolutely insane just how much money I was able to make. But the craziest part from that is the fact that he was able to withdraw it completely tax-free within the next few years as he's able to reach that retirement age and that is because of the benefits that you get within the whole Raw Ira world.

Now don't get me wrong with some of these penny stocks, there are people who always end up getting lucky and they end up retiring very, very well. But I always do recommend that even just the power of compound interest where you're still adding to it annually, that alone is gonna end up being something. so it really just depends on what your end goal is. Are you planning to retire yourself? Do you plan to retire your entire family? Do you want your kids to be set up with having good reflection and knowing what you want to do? You can then plan accordingly in what assets you want to invest in long term.

So if you guys did enjoy this video, be sure to drop a like down below and share this with a friend who needs to get started with their Roth IRA journey. And if you also want to learn more about how you set up investing or what you should do budgeting first, safety net first and then invest, what do you do, be sure to check out this video here on the ultimate guide on how to invest your money for the year of 2023. Thank you all so much again for watching like always. Have an amazing day or night wherever you guys are and I'll see you all soon! Peace.