Roth IRAs: A Smart Investment Choice for Saving (and Growing) Funds for the Future

Banks Editorial Team · December 12, 2017

Over time, a Roth IRA account will continue to grow and grow and grow. This is great news if you’re in the hopes of contributing money over time and coming out with a higher figure for the future. Isn’t that what investment is all about?

 

How, then, exactly does a Roth IRA account keep accumulating funds?

 

Monthly Contributions

Monthly contributions, obviously, help contribute to the wealth of your individual retirement account. Each month you contribute a specific sum and these over time can create a solid foundation from which your account will continue to grow. If you’re looking to amp up your monthly contribution and strengthen your financial future, contacting your advisor and adjusting your contribution amount is always an option. Generally, there is a minimum donation of $50 per month.

 

Keep in mind, contributions to Roth IRA accounts are made with after-tax dollars, so any contributions you make, when you do finally withdraw the funds (…hopefully many years down the road), what you withdraw is tax-free. Other accounts like 401(k) plans and traditional IRA accounts have contributions that are made with pretax dollars, so when you’re ready to withdraw, you’ll still have to shell out some funds and pay income tax on what you’re taking out.

 

The Benefit of Interest

On the other hand, for savings to really grow, you get to account for interest, too. Compounding interest is a gift for investors. (Enjoy!) Even if you stop making monthly contributions, your Roth IRA can keep going and growing, thanks, in part, to compounding interest. Compound interest is the interest you earned on the prior years’ interest. Over time, you earn interest and each year, you keep earning more and more and more. See how it’s like the snowball effect?

 

Finding the Best Roth IRA

Finding a Roth IRA and getting started towards planning your retirement may be a no-brainer, but with all the different rates out there, how do you know you’re signing up with the best deal? What’s the best rate of return out there? Are some rates higher than others?

 

You know how your savings account has a specific interest rate? Well, in the world of Roth IRAs, the rate of return works in a different way. A rate of return isn’t set by outside forces like a bank or a firm. Instead, it comes from the return on investments within the Roth IRA itself.

 

Rates are determined by investments. What you (or your financial institution) invest in and how the market throughout the year affects those individual investments will determine your return. Your assets take into account the whole picture, if the market did well in a given year or not so well.

 

All About Fees

If you do have a Roth IRA retirement account with a specific financial institution, then you may be paying certain fees. If you are someone who needs direction and guidance in the world of investment, then these fees can seem nominal to help bridge the gap of what you know with what you’re trying to learn. But money is money. If you don’t want an institution eating up money that you could be investing yourself, then are you savvy enough to stand alone and invest by yourself? Most people prefer working alongside a financial planner, but ultimately the choice is yours.

 

Time to Get Started

Roth IRAs are an easy way to get started saving for retirement. Do you have a Roth IRA? If you don’t, what’s holding you back from opening one up?

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