In the past, I have been reluctant to open up a supplemental retirement account because I wanted to purchase some smart light bulbs or cool tech product instead. However, recently I decided it was time to stop being just a mindless consumer and start investing in my future self! Last month I decided to open up a Roth IRA account with Betterment. Betterment is an online investment company that uses an algorithm to automatically manage your investment portfolio.
Creating an account was very simple and painless. I just answered a few questions about my investment goals and afterwards I was able to open my account. As you can see in the picture below, Betterment recommends you pay off all of your high-interest debt first and I highly suggest you follow their advice. Knock that high-interest debt out of your financial life because it is dangerous to your financial health!
The main reason I decided to start with Betterment is because there was no minimum deposit required and the management fee (.25% per year) was waived for the first year. Since there was no minimum deposit required I set up a monthly auto-deposit of $54.17 per month to start. As you can see in the picture below, my contribution of $54.17 a month does not allow me to reach my current goal of $100,000 invested by the age of 55. I will increase my monthly auto-deposit after I finish paying my car note off ($3,000 left!).
A Roth IRA is a retirement account that is funded with after-tax dollars so your money grows tax free! As of 2017. the maximum amount you can contribute to a Roth IRA is $5,500, if you are under 50. For the 50 and over crowd the contribution limit is increased by a thousand bucks to $6500.
I decided to open a Roth IRA account after using Nerd Wallet’s Roth Ira vs. Traditional IRA calculator. After playing around with the numbers, it told me I would be better off investing in a Roth IRA, instead of a traditional IRA. To me, the main difference between the two accounts is when you pay taxes.
With the traditional IRA you pay taxes on the back end but the money you put in still grows tax-free. Also, the Roth IRA allows for more flexibility in that you can withdraw your contributions (not earnings) tax free in case of an emergency. However, I only recommend that as a last resort because you should have an emergency fund for emergencies! Another angle to consider is that the Roth IRA allows you to make contributions as long as you want to, unlike the traditional IRA, where you have to start withdrawing by the time you reach 70.5.
Run the numbers for yourself by clicking here to see whether investing in a Roth IRA versus a traditional IRA makes sense for you!
I’ll update you annually on how my experiment with Betterment goes. Since this is a long-term investment, a lot of research suggest you only look at your account once per year but I have been breaking that rule of thumb by checking my account once per week. Let me know what type of account you use for retirement savings in the comments sections! If you have used Betterment or any other robo-advisors, how has your experience been so far?
Roth IRA
http://www.rothira.com/invest-warren-buffett
For Savers Who Maximize IRA Contributions, the Roth Pays Off
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