The 5 Minute Guide to Roth IRAs (Video)
19 comments
Tax season is here and the last date to invest in a Roth IRA is April 15th.
This is my first video on FF and it’s a simple introduction to Roths. We’ll explore what a Roth is, why everyone should have one, hosting options, and some personal stuff you should consider before opening your Roth.
If you have some time, please leave a comment below to let me know what you think of the video post.
Enjoy!
[If you can't view the video, click here to go to the page]
[:20] - Who needs a Roth IRA?
[:30] - Contribution and withdrawal specifics
[1:16] - What do you invest in?
[1:45] - How much can you invest each year in a Roth?
[2:14] - Where to host your Roth?
[2:30] - Easiest option for Roth: Target Date Retirement Fund
[3:45] – Important things to consider before opening a Roth
[4:54] – Last day to invest in a Roth for 2009: April 15th, 2010
Here are the companies I mentioned for hosting your Roth:
Mutual Fund Companies
Discount Brokerages
Like I mentioned in the video, the earlier you open a Roth and start investing yearly, the more money you’ll have when you retire because you’ll take advantage of compound interest.
Check out this post for a detailed look at why it’s so important to start young and how a 25 year old who starts early and invests just $1 per day can come out with over $100,000: Your Money Wants to Give You More Money: A Look at Compound Interest
Feel free to leave a comment below!
Did I miss any important details? Have any questions?
Last, did you guys like the video format? What could I improve on? Would you like to see more video posts?
Thanks and get to opening up your Roth!
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Hi, I'm Austin Morgan. I live in Japan, teach English, and write about personal finance. I hope you enjoy FF and feel free to 
Very solid information and advice, Austin. Great job on the first video too. We actually started our first Roth last year at tax time. Not many people realize you have until April 15th. Nice pointing that out.
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Hey Austin, thnx for your video.
Unfortunately, I am 100% against Roth, and there are about 100+ comments that will also tell you why in “Be A Sloth, Don’t Roth”.
Don’t get tricked. But if you do, know that the people of America thank you for your support! :)
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Austin Reply:
January 27th, 2010 at 9:45 pm
I read your post and you bring up some valid points.
I’m confused though because it appears your post is mentioning why a Roth conversion is the wrong choice. My video has nothing to do with conversions and is just attempting to inform 18-30 year olds that they should start investing for their retirement.
Do you not think a Roth is good initial retirement investment for someone in this age range?
[Reply]
Conversion and contribution to a ROTH over a traditional IRA is one and the same.
Yes, investing and saving is better than not investing and saving for your retirement, but just don’t do so with a ROTH. However, if you really trust you will have 30-50X your average income accumulated when your retire, and you trust the gov’t, more power to you and others.
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Austin Reply:
January 27th, 2010 at 10:01 pm
Thanks for clarifying.
I’m curious, what would you tell a college student to do to invest for their retirement?
I also don’t think 30-50x my average income is a bad assumption for retirement which is 40-45 years away. My income right now is $37,000 so 40 times that is $1.5 million. That’s more than doable in my eyes.
You’re a little more experienced w/ taxes and such but I don’t really try to predict what the government is going to do. Maybe later on I’ll be more into this, but at this stage in my life it’s just not a concern.
On another note, have you been to Japan?
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Financial Samurai Reply:
January 27th, 2010 at 10:15 pm
Having a strong belief that you will achieve is great, and is half the battle. You will hopefully make more a year the longer you work too.
Don’t have to predict at all what the gov’t will do. If you give someone money now in hopes they will reward you 40 years from now, you are a dream client.
The most important thing you can do is keep on thinking why things are there and keep on making your readers question and not take things as given.
Everybody will argue why so and so is the best thing to do and defend their position for doingn so. It’s the introduction of the contra that allows people to really flourish.
Japan is great. Been there many times. Lived there for several years too. Kobe is my favorite, and I often visit friends in Tokyo (Meiguro, Shinjuku, and Saitaman). If you get a change, go to Shigakogen for the hot springs and skiing/snowboarding! Maybe even invest in some property in Sapporo!
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Austin Reply:
January 28th, 2010 at 8:35 am
I think there’s a lot of speculation going on w/ your theories and I think it takes away from the bigger picture: America’s young people are not learning about money.
The video is for people who haven’t opened any sort of retirement account before. Worrying about maybe taxes in 40 years will just discourage them from actually saving in the first place. They can speculate all they want later on, but if they do now they’re much less likely to get started.
Maybe they’ll lose $20,000 when they’re 65, but isn’t that better than postponing retirement savings by 10 years as a 21 year old because they’re worrying too much about what the government may or may not do?
[Reply]
BTW, forgot to mention that it’s nice you outline the basics of contribution. And if there is any group that I find it OK to contribute, it is the college/early 20’s crowd.
That said, if you believe you will have a liquid net worth less than $5 million bucks when you retire, you’re better off just doing a traditional, b/c up to $2 mil is a 15% effective tax rate, and around 5 mil is a 25% effective tax rate.
50X your average $100,000/yr salary is 5 mil… so ask yourself if you think you’ll average 100K in your life, which is reasonable, and also ask whether you’ll be able to save 50X that in capital.
It’s cool though either way, b/c ROTH users help pay for America’s spending now, which non ROTH users and americans overall should appreciate.
[Reply]
Hi Austin,
Well done with the video. I thought you presented everything really well. I’m impressed: you sounded natural in front of the camera; perfectly paced and the content was clear (It’s a lot harder than it looks to talk well to camera!)
Being in the UK I don’t have access to a Roth IRA -but we actually have something even better! (Any UK readers of yours might be interested in this)
Our Stocks and Shares ISAs (individual savings accounts) work like Roths in that you put in post-tax money but the thresholds are higher than your $5k -currently we can put in £7200 a year, soon to be over £10k (from April 2010). That’s about $16k. Pretty cool huh?
The bonus (but potential downside too) is that its not restricted to retirement so you can take the money out at any time without penalty. if you do take the money out though, you can’t put it back in (you can only put up to the threshold in any one tax year).
Thanks for teaching me about US Roths and keep up the great work.
Adam
PS:
Japan’s amazing isn’t it?! Have you ever been to the mountains?
I love that you had the guts to get up and head off to Japan. I only taught English in a Tokyo school for one afternoon and the kids kept on telling me say what I later found out to be rude words -(thankfully I didn’t take the bait!).
[Reply]
Austin Reply:
January 31st, 2010 at 12:32 pm
Hey Adam –
Thanks for the comment and welcome to the PF blogosphere! Are you going to have some posts up soon?
Thanks for the intro to UK savings. Maybe a guest post from you is in the works…?
Japan is really nice. I’ve been here 6 months and I just signed on for another year so I’ll be here at least until July 2011. When did you visit?
Thanks again!
[Reply]
Hi Austin, thanks for getting back to me so quickly.
I visited Japan in autumn 2005 (on a singing tour) and although I was only there for two weeks I found it an unforgetable place. I was fortunate to visit Nara, Kyoto and Tokyo. Great to hear you will be able to spend more time there in the coming year and a half.
Thanks for the welcome to the pf blogosphere. I’m pleased to be here! Magical Penny site launches tomorrow so I’m obvious excited. Guest posting in the coming months sounds great so I’ll be in touch.
Adam
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Great video, especially for your first. Very natural and at-ease.
A question for those of us abroad, or rather a request for clarification: I was of the belief that foreign-earned income which qualifies for the foreign-earned income exclusion cannot be used for a Roth IRA. You make no direct reference to this. Can you clarify at all?
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Austin Reply:
February 24th, 2010 at 8:36 am
That’s right, Jack. You can’t invest in a Roth in America if you don’t have any U.S. income. I don’t believe I said I did this, but I’m sorry if that was unclear.
I’ll tackle how to save for retirement if you’re temporarily abroad in a post soon.
Thanks for the question!
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Hi Austin,
I have a question, I work am a German citizen and I work in the USA since 2008 but I might go back to Germany in 2011, after three years. I would like to invest in an Roth IRA, but I am not sure if this is allowed by the US Gouvernment if I live in Germany for the rest of my life till I retire (maybe I come back, but I don’t know yet.) COuld you answer this question !? Am I allowed to contribute money to an Roth IRA if I life in Germany !? Thanks for your help. Thomas
[Reply]
Austin Reply:
March 11th, 2010 at 2:04 pm
Great question, Thomas.
You can contribute money to a Roth IRA in America as long as you are receiving income in America. For the tax years you are in America, go ahead and contribute to your Roth, but once you move back to Germany you will no longer be able to contribute to the Roth, assuming you won’t have any American income.
I hope this helps and answers your question. Please consult other options before making your decision. Thanks!
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