Getting More From Your Money: Part 3

For all intents and purposes the Roth IRA works just like a regular savings account, but earns a lot more money!

At my financial institution the Roth IRA consistently earns 2 to 3 to more times the interest of a regular savings account. So that $1000 is earning me $30+ a year rather than the $10 or less of my savings account. To be clear, there is great potential for no risk investment here in the Roth IRA.

The only catch to the great deal of the Roth IRA is that you can't contribute/deposit more than $5000 a year to it, and the interest earned cannot be withdrawn before you are 59 1/2 (at least not without penalty). That's not bad huh? So you can put in your money and take it out at anytime with no problem. You've already paid taxes on all money going in and so that's your money, free and clear. The interest, however, is not yet 'yours'. As with any account, interest earned must be claimed as income and taxes paid accordingly. As an IRA the interest in the Roth is not taxed until it is withdrawn. So if you don't withdraw that earned interest until you're 59 1/2 or older then you pay interest as usual. If, however, you withdraw the interest early then you must claim it as interest for that year and pay a 10% penalty tax on top of that. That's the only penalty. So of that $30+ I earned, if I were to withdraw it early the only penalty I'd pay would be $3 and that still leaves me nearly $20 richer than if I had kept the same $1000 in my regular savings account!!

How great is that!? Ideally, yes, it's for retirement, but the Roth IRA does offer a venue for your money that will allow it to grow quicker with very few (and very unintimidating) catches. Now, a few notes.

1. Some institutions only allow term IRA deposits and often have a sizeable minimum balance. This is not a requirement of an IRA, but rather a requirement of certain institutions. All you need to do is find an institution that offers regular Roth IRA savings accounts with no minimum balance. That's what we offer where I work.

2. There is generally a minimum starting fee. Where I work it is a one time $10 fee. So I pay $10 to start it, earn $30+ and am still ahead of where a regular savings puts me. Far ahead.

3. Find out about service charges. Again, extra charges are not native to IRAs, so if the particular institution wants to impose extra charges, just find another institution.



That's it. It's easy to set up. It will earn you a lot of extra money. So why aren't you already out the door to get one for yourself?