How To Build A $1 Million Dollar Roth IRA 📈 (Step By Step) #Best Education Page #Online Earning

- So if I told you I could show you exactly

how to stash away $1 million tax free,

would you be interested in finding out how to do that?

If the answer to that is yes,

you're gonna wanna stick around for the entire video today.

So what I'm going to be doing here

is I'm going to be showing you guys step by step

exactly how to build a $1 million

Roth IRA retirement account,

which is essentially a type of retirement account

that allows you to stash away your money

and allow it to grow completely tax free.

And not only that guys,

I'm gonna be showing you exactly how much money

you need to invest and we're gonna be going over

the major age groups ranging from 20 to age 50

to show you guys step by step

exactly how you too can do this as well.

But before that, it is important to mention guys,

this is for entertainment purposes only

and I am not a financial advisor

and you should always do your own due diligence

before you begin investing in anything out there.

Alright, so now let's go ahead and answer the question here

of what actually is a Roth IRA?

Most people out there have heard of the 401(k)

and I often get people asking me,

is it the same thing or are you allowed to have both?

So let's clear some of those things up now.

The 401(k) is a retirement plan

that is set up by your employer

and it allows you to contribute pretax income.

So you're able to lower your taxable income each year

by contributing to the 401(k)

and the contribution limits are significantly higher.

So with the 401(k),

you end up paying the tax bill at the very end

after your money has grown for many years or many decades.

Now the Roth IRA on the other hand

is something you set up on your own.

Your employer doesn't set up the Roth IRA for you,

and you are able to have both a 401(k) and a Roth IRA.

With the Roth IRA however,

you're not contributing pretax money,

you're contributing money that you've already paid taxes on.

And there's a huge advantage to this

because after your money has grown

for many years or many decades,

well you don't have to pay taxes on it

because you paid taxes on the way in.

So my favorite analogy here for the Roth IRA

versus the 401(k) is that the 401(k) gives you

the instant gratification of having a lower taxable income.

However, with the Roth IRA,

it is more of a delayed gratification

of you pay the price now of contributing post-tax income,

but then years later you can take that money out tax free.

So that is exactly why the Roth IRA is this powerful tool

that can literally make you a tax-free millionaire.

And I'm gonna show you guys exactly

how to do that in a little bit.

So just how much money can you contribute

to a Roth IRA retirement account

while the IRS sets limitations on this

and every couple of years they will raise the amount

of money that you are allowed to contribute

to your Roth IRA every single tax year.

So for 2019 and 2020 that limit is $6,000 per year

or $7,000 per year if you are 50 or above.

And the only stipulation other than that

is that this has to be earned income

from a job or something like that.

Now there's also income limitations

where if you're making above a certain amount of money

you are not allowed to directly contribute to a Roth IRA.

However, there is a very simple work around

called the backdoor Roth IRA

and I'll go ahead and put those income limits

up on the screen right now.

It's significantly higher than what most people are earning,

but if you are somebody who makes above that dollar amount,

all you have to do is look up

the backdoor Roth IRA strategy.

And this is not some kind of illegal trick.

It's a 100% legal strategy that allows you to contribute

to a Roth IRA even if you make above the income limitations.

Alright, so now let's answer the next question

you probably have here,

which is when can you actually touch the money

and start withdrawing money from the Roth IRA?

Well, the good thing is you're able to withdraw

your contributions at any point in time

and that is simply the money that you use

to fund your Roth IRA.

So let's say for example,

you put $5,000 into a Roth IRA

every single year for 10 years.

That means you have contributed $50,000.

Well, you are allowed to withdraw $50,000

at any point in time

from the Roth IRA tax free and penalty free.

You just cannot touch the earnings because if you do

that is when you will pay taxes and penalties.

Now as far as withdrawing the earnings from the Roth IRA,

you can begin doing that tax free and penalty free

as long as you are age 59 and a half or older

and you have had that Roth IRA retirement account

for five years or more.

So what should you invest your Roth IRA in?

Well, what most people are going to follow is a strategy

of investing in something called an index fund,

which allows you to have diversified exposure

to the entire stock market

as well as the entire bond market.

And so most people who follow

this passive investing strategy

are investing in both bond ETFs as well as stock ETFs.

Because the stocks are going to be higher risk,

higher potential return,

while the bonds are going to be lower risk,

lower potential return

and obviously as you get closer to retirement age,

you don't want as much risk in your portfolio.

So since a Roth IRA is a retirement investment,

it's a very long-term investment.

And that is why most people

will just put their money in low-fee ETFs,

but you can put your money in whatever you want to.

Later on in this video I'm gonna show you guys an option

for a completely fee-free Roth IRA retirement account

that lets you invest in whatever you want to.

So if you want to invest in ETFs,

you can do that on this platform,

or if you want to invest that money in individual stocks,

you can do that with the Roth IRA as well.

Now for the examples we're going

to be going over in this video,

we're going to be looking at two ETFs offered by Vanguard.

One is going to be a bond ETF and the other is going

to be a stock ETF giving you diversified exposure

to the stock market and to the bond market.

And the whole idea behind these ETFs is that

you're paying as little in fees as possible

and rather than trying to beat the market,

you just own the entire market

and you do well when the market does well as a whole

and most people are more successful following this strategy,

than investing in mutual funds or actively picking stocks.

So the stock ETF we're going to be using is called VT

and it is offered by Vanguard

and this is the Total World Stock ETF,

which is going to give you a small piece of ownership

of all of the publicly traded companies in the world.

Now for the bond ETF,

it's going to be B and D offered by Vanguard as well,

which is the total bond market ETF,

which is going to give you a piece

of all of the US investment grade bonds.

And investment grade simply means that

credit rating agencies have deemed

these bonds investment worthy

so it doesn't hold any junk bonds.

Alright, so now let's answer the question

of where do you actually open up a Roth IRA?

And to be honest with you guys,

I know it may sound like a complicated subject,

but it is extremely simple.

And I'm gonna give you guys my favorite option right now,

which is M1 Finance.

Now for full transparency here guys,

I am affiliated with M1 Finance so I do earn a commission

if you decide to sign up under my link,

which I do certainly appreciate

as it allows me to make more videos like this

and it just helps support my channel.

Now the main reason why I like M1 Finance

is because they are commission free and fee free,

which means you do not pay any commissions

for trading stocks or ETFs on the platform and you pay $0.

Nothing in fees to M1 Finance for setting up

and hosting your Roth IRA.

Not only that, the minimum to get started is extremely low,

which is just $500.

Now beyond that, the other reason why I like M1 Finance

is because they have pre-built portfolios

that you can invest in.

So with M1 Finance, you're not stuck choosing

your investments and building a portfolio from scratch,

you can simply invest in some of these pre-built portfolios.

And what I'm gonna use later on for these examples

is basic stock and bond portfolios

and these are coming right from the M1 Finance app

and they're completely free to invest in.

And I know the whole process of opening up

a brokerage account can be a little bit intimidating

at first and that is why I put together

a completely free 30-minute video training

showing you guys step by step how to get started

and open up an account with M1 Finance.

So if you're ready to get started guys,

the link is down in the description below

or if you're looking for a little bit of handholding,

that free training link is in the description below as well.

Alright, so now we're gonna run through the numbers

and I'm gonna show you guys exactly

how you can build a $1 million Roth IRA by the age of 60.

And as I'm sure you guys could guess,

if you know anything about investing,

the sooner you start investing and contributing

to this Roth IRA the better

because that is how compound interest works

at the end of the day.

The longer you allow your money to grow,

the more growth you see with that money.

And with the growth of your money from investing,

it's going to be exponential growth, not linear growth.

So if you're a young person watching this video,

you're gonna wanna pay attention

because this can literally

turn you into a tax-free millionaire.

And the other thing I wanna mention here guys

is that you have to remember

that returns are never guaranteed with the stock market.

We're gonna be looking at 10 years of historical data

when we're doing our estimated annualized returns here,

but do keep in mind you're not gonna see

that return every single year

because the stock market has times where it's going up

and other times where it's going down

called bull markets and bear markets.

But if you're a long-term investor, historically speaking,

these returns are what you may expect.

When you get closer to retirement,

you want to invest more of your money in bonds

and less in stocks in order to have less risk

in your portfolio and this is something called

your portfolio allocation.

Now as far as what percentage of your money goes

in stocks and bonds,

we're going to be using a helpful table I found

on Financial Samurai and I will go ahead

and link up to that down in the description below.

It'll tell you more about these allocations

and why these percentages are the way that they are.

Typically every five years you're going to want

to adjust these allocations

because what a 20-year-old invests in

is gonna be a lot different

than what a 45-year-old invests in.

But that is where something called a TDF

or target date fund comes in handy

and I'm gonna show you guys exactly how you can invest

in this TDF completely free

through a brokerage called M1 Finance.

But a target date retirement fund

is going to automatically adjust your allocations

as you get closer to retirement.

So all you have to do is put in the year

that you're looking to retire

and they are going to automatically adjust

your allocations as you get closer to that retirement date.

Alright guys, so if you started following this strategy

at age 20 according to that chart,

you would have 100% of your money invested in stocks

and 0% in bonds because you have so much time

to allow your money to grow, you can take on more risk.

So we're going to assume you have 100%

of your money invested in stocks

in that Vanguard Total Stock Market ETF.

And over the last 10 years,

the annualized return from that has been 8.81%.

So if you simply invested $260 per month

or $3,120 per year from age 20 to age 60 at that return,

you would have a portfolio worth $1,001,949.52

so you don't even need to max out your Roth IRA

at this 8.81% return

in order to build up a $1 million portfolio.

And obviously guys, if you did max out that contribution,

this would be a multimillion dollar Roth IRA,

not just a $1 million Roth IRA.

Next up, let's assume you started at age 30.

Well according to that table from Financial Samurai,

you would have 70% of your money in stocks and 30% in bonds.

And if you had that 70 30 split

of these two Vanguard ETFs.

Over the last 10 years,

the annualized return has been 7.23%.

So let's assume you maxed out

your Roth IRA contribution from age 30

to age 50 at 6,000 per year.

Then from age 50 to 60

you invested that for $7,000 per year.

Well, based on that 7.23% return,

your IRA would be worth $623,578.89.

So obviously guys, based on the current contribution levels,

it's not really possible to build

a $1 million Roth IRA investing passively,

you know, above the age 30.

But still to have over half a million dollars

is nothing to shake a stick out.

Now let's assume you start at age 40

and based on that table you would wanna have 60%

of your money in stocks and 40% in bonds.

Well over the last 10 years based on those two ETFs

that has been an annualized return of 6.69%.

So again, we're going to assume you max out

your Roth IRA contributions including

the additional $1,000 per year from age 50 to 60.

So if you went ahead and did that,

your portfolio based on that 6.69% return

would be worth 257,618.86

so just over a quarter of a million dollars.

And then finally, let's assume

you started this at age 50.

Based on that table, you would wanna have

half of your money in stocks

and half of your money in bonds.

And over the last 10 years,

based on those two funds

that has had an annualized return of 6.16% per year.

So let's assume for those 10 years

you contributed the maximum that you could,

which is $7,000 per year.

That means after those 10 years,

by age 60 you would have a Roth IRA value of $92,961.25.

Now, obviously guys,

there are a few things we are not factoring

into these calculations.

Number one, we haven't factored in inflation here

and then number two, obviously as you get older,

these allocations are going to change.

But this just gives you a general idea

of how much money you need to invest in your twenties

in order to build a million dollar Roth IRA.

Or it shows you by age 30 40 and 50

how much you can have

by maxing out your Roth IRA contributions.

And the other thing that we haven't factored in here

that's impossible for us to tell is whether

or not the IRS will raise these contribution limits

as time goes forward.

And as they raise those contribution limits,

this allows you to follow more money into your Roth IRA.

So anyways guys, at the end of the day here,

the truth is if you're looking to build up

a $1 million Roth IRA, because of the contribution limits,

you really have no choice but to start as a young person.

So if you're somebody

who's in their 20s watching this video,

time is on your side and it's entirely possible

to build $1 million Roth IRA for yourself.

But even if you're an older person, you know,

don't get discouraged because you still have

the ability here to set aside some money for yourself

and allow it to grow completely tax free.

So if you guys wanna go ahead and get started

with a completely fee-free Roth IRA,

the link is down in the description below

to get started with M1 Finance,

as well as the link for that 30-minute video training,

which will show you guys step by step how to get started.

But thank you guys so much for watching this video.

I hope you enjoyed it.

If you're interested in seeing more videos just like this,

make sure you subscribe and hit that bell for notifications.

And I hope to see you guys in the next video.

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