Roth IRA: Seriously consider opening a Roth IRA, in which your pre-tax dollars grow tax-free. Technically, this is a type of retirement account, but it’s a good idea for anyone to open one even if you’re not necessarily planning for retirement because there are ways you can still use the money before you retire. Here are the basics:

  • You can contribute up to $6000 per year (provided you fall within the income limits)
  • You can withdraw up to the amount you’ve contributed anytime, tax-free and penalty-free
  • You can withdraw up to $10,000 (contributions + unearned income) to purchase a home without penalty or tax as long as your account is at least 5 years old
  • Anyone with earned income in the US can open a Roth IRA
  • You can contribute for the previous year up until April of the following year

On your online brokerage accounts, you can open a Roth IRA, transfer up to $6000 per year into your account, and elect your investments. Let’s say you put the money into a mutual fund that gives 8% returns each year. After 40 years, assuming you contribute the full $6000/year and don’t take anything out, you’ll be able to withdraw over $1.6 MILLION tax-free. (See this Roth IRA simulation.) Assuming the tax rate of your unearned income is 15%, that means you would have an extra $216K to spend in retirement. Read more about Roth IRAs here.


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