Goose Your Nest Egg With A ROTH
By Tad Bougie
in Personal Finance
on October 9, 2024
How the "Other" IRA Could Help You In Retirement
Roth IRAs: The High-Class Hustle You’ve Been Ignoring
Alright, folks, let’s talk about something that may not come with a first-class seat, a champagne toast at 40,000 feet, or a villa upgrade at your favorite five-star resort, but it’s just as juicy for your long-term plans. I'm talking about the Roth IRA.
Now, I know what you’re thinking: "Why is this guy who normally tells me how to snag free trips to Bali going on about retirement accounts?" But here’s the deal: just like how I love gaming those loyalty programs for luxury travel, the Roth IRA is a bit of a sleeper pick in your long-term financial game. It’s like the first-class seat that everyone walks by, thinking it’s out of reach, but really, it’s just waiting for you to finesse your way in.
What’s the Roth IRA and Why Should You Care?
Let’s break it down. A Roth IRA is a tax-advantaged retirement account. It's the kind of account you open when you’re playing the long game, stacking your miles and points, but in dollars that are going to be worth a hell of a lot more when you’re done working. The "Roth" part means you contribute money that you’ve already paid taxes on. That’s right, the money goes in taxed. "What’s the point then?" you might ask. I’ll tell you why this is the ultimate flex.
The money you put into this bad boy grows tax-free. Not "tax-deferred" like your standard 401(k), but tax-free. You don’t have to bow down to Uncle Sam when you cash it out in retirement, as long as you follow a few simple rules. And no, this isn’t some trick that’ll get you audited faster than you can say "IRS." This is 100% legit.
How Do You Get In the Club?
There are rules. The Roth IRA isn’t an all-you-can-drink lounge pass where anyone with a pulse and a bank account can slide in. First, your income has to be under a certain threshold to contribute directly. In 2024, if you’re single, you can’t make more than $153,000 to contribute the full amount ($6,500 if you're under 50, $7,500 if you're over). Married? The limit bumps up to $228,000.
But here’s where it gets interesting. Even if your income is too high for a direct contribution, there’s a backdoor method. And no, this isn’t some sketchy tax-dodging tactic. It’s called a Backdoor Roth IRA, and it’s completely legit. You open a traditional IRA, make a non-deductible contribution (meaning you don’t take a tax break now), and then you convert it to a Roth IRA. It’s like a secret handshake into the VIP lounge when everyone else thinks you’re stuck outside with a regular 401(k).
Why Should You Love It?
I’m going to assume you’re not planning to work forever. Maybe you’ve got dreams of sipping Aperol Spritz in Santorini or hiking to Machu Picchu. The Roth IRA is your ticket to ensuring that when you’re finally ready to pack your bags for good, you’ve got enough in the bank to do it in style, without worrying about those pesky taxes eating up your retirement stash.
And here’s where the Roth really shines: withdrawals. When you’re ready to take that money out, after age 59 ½, the earnings come out tax-free. That’s right—no taxes on the gains. Your initial contributions? You can pull those out anytime without penalties or taxes. It’s like having a stash of miles you can dip into whenever you need without having to worry about blackout dates or penalties.
There’s no required minimum distribution (RMD) for Roth IRAs either. With traditional IRAs and 401(k)s, you have to start taking money out at age 73, whether you need it or not. Not so with a Roth. You could let that money sit and grow like your secret stash of points for that once-in-a-lifetime round-the-world trip, just waiting for you to make the big redemption when you’re ready.
Who's This For?
Let’s get real for a minute. If you’re the kind of person who spends more time thinking about your next vacation than your next paycheck, the Roth IRA is still for you. Why? Because future you is going to want to maintain that same level of bougie lifestyle when you’re done working.
If you’re young, or even if you’re in your mid-career stride, now’s the time to start thinking long-term. A Roth IRA is a smart play for anyone who believes that taxes are going up in the future (spoiler alert: they probably are), and you want to lock in today’s rates. It’s for the people who think strategically, whether about grabbing that premium seat upgrade or making sure they’ve got a fat retirement account waiting for them later.
One Last Thought on Cheaters
Look, there’s always going to be someone out there trying to game the system, cut corners, or find a loophole. And while I love a good hack as much as the next guy (if you’re not maximizing your 5x categories, you’re leaving points on the table), don’t try to be clever by attempting to mess with the tax code in ways that cross the line. The IRS doesn’t play games, and getting busted on a Roth IRA contribution because you didn’t follow the rules isn’t worth it.
Play the game by the rules, set up your Roth, and just sit back and watch your account grow like your stash of points. You’ll be thanking yourself down the line when your retirement is as first-class as your next trip to Bora Bora.
