Whitney & The Roth: How Whitney Houston’s Song Titles Can Teach You Everything You Need to Know About the Roth IRA

I’m excited to be taking part in The Roth IRA movement organized by Jeff at Good Financial Cents. Essentially, Jeff has encouraged his fellow bloggers to dedicate an entire day to the Roth IRA and I couldn’t be happier to share some information about what I consider to be a key ingredient in retirement planning. 
 
It’s undeniable that Whitney Houston was an amazing vocalist. It’s also undeniable that a Roth IRA is an amazing, must-have investment. By following a few simple rules, you can build a financial legacy that rivals the musical legacy Houston left behind in the wake of her untimely passing. With a few adaptations, Houston’s songs can teach you everything you need to know about a Roth IRA…

Greatest Investment of All (originally Greatest Love of All)
The beauty of the Roth IRA is that it’s the best investment vehicle you can utilize to build a solid financial future in terms of tax-advantaged retirement savings. Perks of the Roth IRA include:

  • The account grows tax-free because it’s funded with after-tax income
  • Your post-retirement age (59.5+ years old) distributions are free from federal income taxes
  • You can invest in a 401K, 403b, etc. AND a Roth IRA
  • You always have access to your contributions
    • You can withdraw any of your contributions (not the gains) at any time without penalty
  • If your account has been open & funded for more than 5 years, you can withdraw up to $10K of your gains to put towards the purchase of your first home (you can still withdraw your contributions on top of this)

 

Saving All My Money for You (originally Saving all My Love for You)
Here are some tips for making a Roth IRA work for you:

  • Open your account as early as possible
    • A person who opens a Roth at age 25 and maxes it out every year until 65 will save approximately $1.4 million (assuming the historical 8% rate of return prevails)
  • Automate your monthly investments
  • Establish (and maintain) an emergency fund outside of the Roth–don’t take $$ out of your Roth IRA until retirement if at all possible.

 

I Will Always Fund You (originally I Will Always Love You)
As with all of the “gifts” bestowed upon us by the government, the Roth IRA does come with a few strings attached. They include:

  •  Contribution caps
    • If you’re younger than 50, you can contribute up to $5K/year
    • If you’re 50 or older, you can contribute up to $6K/year
  • Income caps
    • Singles cannot contribute to a Roth IRA at all if they make over $125K/year.
    • Singles cannot contribute the full $5K if they make over $110K/year (contribution limits are “phased” according to a few algorithms)
    • Married couples cannot contribute if their combined income is over $183K/year and phased out contributions kick in if their income is $173K
  • Distribution caps
    • Your account must be opened and funded for five years before you can begin to withdraw gains regardless of your age (remember, you can always withdraw your contributions)
      • If you open a Roth IRA when you’re 80, you can’t withdraw any gains two years later unless you’re willing to pay a 10% penalty

 

I Wanna Invest with Somebody (originally I Wanna Dance with Somebody)
Roth investment options are virtually endless (you can invest in stocks, bonds, real estate, etc.). Here are some ways to open your account today:

  • Use your tax return as an initial investment
  • Some companies only require investments as little as $50/month if you sign up for auto-debit
  • Stick to no-load funds with low expense ratios if you’ll be investing in mutual funds
  • Some of the more popular companies are T. Rowe Price, TIAA Cref, and TradeKing (external links)

 

Do You Have a Roth IRA? 
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Jen

Freelancer; reformed spendaholic; risk taker; adventure seeker; world traveler; rose smeller; debt destroyer. My mission is to inspire others to live a healthy, balanced life one cent at a time.

Comments

Whitney & The Roth: How Whitney Houston’s Song Titles Can Teach You Everything You Need to Know About the Roth IRA17 Commentshttp%3A%2F%2Fwww.thehappyhomeowner.net%2F2012%2F03%2Fwhitney-roth-how-whitney-houstons-song.htmlWhitney+%26+The+Roth%3A+How+Whitney+Houston%27s+Song+Titles+Can+Teach+You+Everything+You+Need+to+Know+About+the+Roth+IRA2012-03-27+08%3A42%3A00Jenhttp%3A%2F%2Fwww.thehappyhomeowner.net%2F2012%2F03%2F27%2Fwhitney-the-roth-how-whitney-houstons-song-titles-can-teach-you-everything-you-need-to-know-about-the-roth-ira.html

  1. I am so happy you posted this.. I have been trying to find out more information about Roth IRAs & how to open an account to start saving. I am still confused on that part ( the opening) and all the rules that go with it. But from what I hear and have been reading the sooner I open an account the better. thank youxoxoJessica

  2. I love the way you use Whitney Houston most popular recordings to teach readers about the Roth IRA. It's very clever, and should reach a lot more people. Needless to say, you've done an exceptional job at explaining the benefits of the Roth IRA, and in a way that even Roth IRA dummies like me can understand. God bless you and your fellow PF bloggers for taking part in this movement.

  3. Got a good educational laugh out of this one. So creative you are.We don't have any such retirement vehicle where I live but I think once you put something into retirement, you are on the right path.

  4. Too funny. I've really been enjoying reading all of these Roth IRA movement posts. Roth's are a great investment tool, that I believe are way under-utilized because a lot of people don't understand them.

  5. I have 2 Roth IRA's right now… **blushes**But in all seriousness, I opened my first Roth IRA 5 years ago when I was 20. It was the easiest way for my mimimum way, 3 part time job college girl to put some funds away without having an employer to give me a plan.That first year I got $4k stocked away (thanks to that lovely rule that lets you keep putting money in for the year before up to the end of March)… then the following 3 years I got to add $5k when they bumped up the level and I got a better full time job. I took these first 4 years to really find out about investing. I took some risks, stayed conservative at times, found out about fees… and then lost a bunch of money in the crash. I didn't pull out completely but I did change funds. I tossed more money in until I made a few hundread over my initial investment and transfered the Roth to a CD/Savings Roth IRA @ ING because I learned I didn't like my investment choices at the old carrier (and in the transfer I learned about more fees from selling funds I hadn't held for 3 months…). So I broke even.At the very tail end of last year I opened a Roth IRA at Vanguard and I maxed that puppy out. I plan to transfer part of my liquid assessts in my first Roth IRA to my new vanguard Roth IRA over the next few years now that I learned my investment style and approach (have to wait for the CD's to mature to move those). The key is to start young though. I'll be 26 in a few months and i'll already have 24k in my combined roths without this years contributions.

  6. You're welcome! I'd suggest going to one of the bigger sites and reading about their process. If you're interested in a set-it-and-forget-it option (this is what I consider managed funds to be and what I use at T.Rowe Price for my Roth), it's actually very easy to open your account.You just have to have a job that brings in steady income, a bank account, and your SS # essentially. If you enroll in their auto-debit program, most waive the initial deposit requirement, so you could open a Roth with as little as $25! I did everything online and I think it took me about 15-20 minutes. Good luck & let me know if you'd like more info as I'm very happy to help. Good for you for realizing the value of this investment option!!!

  7. I agree; it boggles my mind how many people don't understand them so much that all I want to do is tell anyone who will listen about how great they are…haha! These posts were all awesome; I'm so happy that Jeff put this together.

  8. I wanna invest with somebody – too cute! It is important to invest at a young age so that you can retire comfortable especially as the end of social security looms ahead. It is important to start early so that you are able to afford healthcare and a healthy lifestyle.

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