🔍
Vanguard Roth IRA Explained For Beginners (Tax Free Millionaire) - YouTube
Channel: Josh Burns Tech
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- Do you want to know the easiest,
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most trusted and tax-free way
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to become a millionaire,
[4]
earning more of this?
[5]
- Yes,
[7]
that's awesome.
[9]
What?
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- If so then the YouTube algorithm
[11]
sent the right video to you.
[13]
This is one of the most simple,
[14]
hands-off ways
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to insanely grow your money over time,
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so you can have the option
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to relax on the beach later in life,
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leave tax free money to
the people you care about
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or ball out in your dream car.
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(car engine revving)
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- And that was just the beginning.
[28]
(car engine revving)
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- For me personally,
[33]
I doubt that I will ever fully retire.
[35]
I love working
[36]
and I can do my job from basically
[37]
anywhere in the world with the internet,
[39]
but that's besides the point.
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In this video,
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I'm gonna show you one of the easiest ways
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to become a millionaire
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and maximize your money in the long term,
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which is opening a Roth IRA.
[47]
Now, this is something that I
wish I would've learned about
[49]
a long time ago,
[50]
it's something they should
be teaching in school.
[52]
However, I just came across it
[54]
earlier this year at 30 years old
[56]
by doing my own research.
[57]
If you're subscribed to my channel,
[58]
then you know how insane my schedule is,
[60]
with freelance work on Upwork
[61]
and creating YouTube content.
[64]
(calm music)
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I simply don't have the time
[74]
to try to time the market.
[75]
I needed an investment strategy
[77]
that's really hands-off,
[78]
buck and maximize my earnings.
[79]
This is one of the reasons
why I love Roth IRA so much.
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I can contribute the
maximum amount per year
[85]
with dividends reinvested
and then just let it grow.
[87]
It's one of the easiest
and most hands-off ways
[89]
to become a millionaire.
[90]
I'm gonna tell you
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everything that you need to
know about Roth IRAs on Vanguard
[94]
and how to get started as well.
[96]
Again, I really wish
[97]
that I would've learned
about Roth IRAs years ago,
[100]
because as sooner that you
started investing in a Roth IRA,
[102]
the more money that you're gonna make.
[104]
But at least I can share
this knowledge with you.
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Do yourself a huge favor
and watch this entire video.
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I promise that it's gonna
provide a lot of value to you.
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All I ask in return
[112]
is to take a second and hit
the Like button on this video.
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That's plenty enough for me,
[116]
and I appreciate the support as well.
[117]
It really helps my channel's growth.
[119]
Thank you all so much.
[120]
And this video is not
sponsored by Vanguard.
[123]
There's plenty of
alternatives like Fidelity
[125]
who I actually had my 401k with.
[127]
So you can use any alternative to Vanguard
[129]
that works best for you,
[130]
but in this video, I'm
gonna be covering Vanguard
[132]
since I personally use them.
[134]
All right, so let's go ahead
and get into the video now.
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So what is a Roth IRA?
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It's basically an individual
retirement account
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that offers tax-free growth
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and tax-free withdrawals,
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as long as you wait until you're 59 1/2,
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and you've owned the account
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for at least five years or more,
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all the money that's in your Roth IRA
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is tax-free.
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So if you end up having over $1 million
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in your Roth IRA at 59 1/2,
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then it's 100% yours and not Uncle Sam's.
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So that's where the Roth comes into play.
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It means that you've already paid taxes
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on the money that you
contributed to the Roth IRA.
[164]
To simply explain it the Roth IRA
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is like a container or your account,
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and within that container or account
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are your investments.
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Like your indexes, your stocks and bonds.
[174]
The account or container
[175]
holds your investments.
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The Roth IRA is not the actual investment.
[179]
So you've probably heard of
a traditional IRA as well.
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And the main difference
between the traditional IRA
[184]
and a Roth IRA
[185]
is taxes.
[186]
All the tax benefits that
I'm describing in this video
[188]
are specific to Roth IRAs.
[190]
So most of you probably get
a paycheck from an employer
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more than likely
[193]
taxes are taken out of each
paycheck that you receive,
[196]
and if you're also a freelancer like me,
[198]
then hopefully you're paying
your estimated quarterly taxes
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all throughout the year
to avoid penalties.
[203]
No one likes IRS penalties.
[205]
Anyways, since taxes are already
taken out of your paycheck
[207]
what's left over of it
[208]
that gets deposited into your bank account
[210]
is called after tax money.
[212]
So if you decide to
contribute to a Roth IRA
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with money that you've
made from your employer,
[216]
then you've likely
already paid taxes on it.
[218]
You can also pass on your
Roth IRA to your beneficiaries
[221]
and their withdrawals are still tax-free.
[223]
So something happens to
you after 59 1/2 years old,
[226]
you don't have time to
ball it in that Lambo,
[229]
you can still leave your Roth IRA
[231]
to the people that you
care about the most.
[232]
Personally, I wanna build a life
[234]
of financial wealth for
myself and my fiance
[236]
that will last after I'm gone.
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And I'm gonna show you
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exactly how to open a
Roth IRA in Vanguard,
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so you can do this as well.
[243]
There's no age limit to
investing in a Roth IRA.
[246]
You can put money in your account
[247]
for as many years as you want,
[248]
as long as you have income that qualifies.
[250]
So each year
[251]
you can contribute or deposit up to $6,000
[254]
into your Roth IRA
[256]
if you're under the age of 50.
[257]
After 50 years old,
[259]
then you can contribute up to $7,000.
[262]
Your eligibility to
contribute to a Roth IRA
[264]
is based on your income level.
[266]
If you file taxes as a single person,
[268]
your modified adjusted gross income
[270]
must be under $137,000
for the tax year of 2019
[275]
and under $139,000 for the tax year 2020
[279]
to contribute to a Roth IRA.
[281]
If you're married and file jointly,
[283]
your modified adjusted gross income
[285]
must be under $203,000
for the tax year of 2019
[289]
and $206,000 for the tax year of 2020.
[293]
I have great freelance career on Upwork
[295]
as many of you know who are
subscribed to my channel.
[297]
I'm very fortunate to have
tons of amazing clients,
[300]
and because of that, I see the
income limits for a Roth IRA.
[303]
However,
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if you make more than the income limits,
[305]
then you can still
contribute to a Roth IRA
[308]
by doing something called
a backdoor Roth IRA.
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It's actually very simple to do,
[313]
and I'm gonna explain it
more later in the video.
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But again, very simple to do,
[316]
and most of you can probably figure it out
[318]
by just Googling backdoor Roth IRA.
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I'm also gonna throw a link
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down in the description of the video
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to a YouTube video that I watched
[324]
whenever I did the
backdoor Roth IRA myself.
[327]
It was extremely helpful,
[328]
easy to follow
[329]
and to completely cover
the process as well.
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Before I show you how to open a Roth IRA,
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I'm gonna show you the most important part
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which is compound interest.
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This is how you grow your
money with a Roth IRA.
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Obviously the money that you contribute
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or deposit into your
Roth IRA matters a lot.
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However, the power of compound interest
[345]
is what builds your wealth.
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Your Roth IRA has two
main funding sources,
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which are your contributions
and your earnings.
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The earnings from dividends
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and the power of compounding interest
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is what makes you a millionaire.
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Even you can't make the
full contribution each year,
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your account will still grow.
[360]
Whenever you open your Roth IRA,
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whether that's on Vanguard, Fidelity
[364]
or another investment company,
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just make sure
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to select the option to
reinvest the dividends.
[369]
Whenever your investments
[369]
over the money that you
deposit into your account
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or in a dividend or interest
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that money is applied
to your account balance.
[376]
How much your account
or your container earns
[378]
depends on the investments
that it contains.
[380]
Those investments
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put your money to work,
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allowing you to grow
and compound over time,
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with dividends reinvested
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they're added to your Roth IRA balance.
[389]
And then you are on interest
on top of those dividends.
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You see?
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This is the power of compounding.
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You have interest earning
interest on top of interest
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and the cycle keeps going.
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That's how your account keeps growing,
[400]
even if something happens
and you can contribute.
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So let me show you this
and give you an example
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on a compound interest calculator.
[406]
This was personally the best way
[408]
that I learned about compound interest.
[409]
So there's tons of compound
interest calculators online.
[413]
You literally just have to Google
[414]
compound interest calculator
and tons will show up.
[417]
However, I really liked
the one by NerdWallet.
[420]
Again, the sooner that you
start investing in a Roth IRA,
[423]
the more money that you will make.
[425]
Let's first use myself as an example.
[427]
I opened my account this
year with the full $6,000,
[430]
using one of the safest and
most reliable funds, VT Sachs.
[434]
If you're unfamiliar with VT Sachs,
[436]
it's an index fund
[437]
comprising of some of the
largest companies in the world,
[440]
such as Microsoft,
Apple, Amazon, Facebook,
[443]
you get the picture.
[444]
Instead of investing all your
money into a single company
[447]
hoping that nothing ever
bad happens to them,
[450]
with VT Sachs, your money is distributed
[452]
across tons of large companies.
[454]
So you're basically investing
in the overall economy.
[457]
VT Sachs does have a
$3,000 minimum investment,
[460]
so you'll need at least $3,000 upfront.
[463]
It also has a 0.04% expense ratio,
[467]
which is really good.
[468]
It's an overall great index fund.
[470]
So let's go ahead and get
back to compound interest.
[472]
Again, I'm investing the
full $6,000 per year,
[475]
that's gonna be over 33 years,
[477]
which would put me at 63
[481]
with an 8% return on average
[484]
and compounded annually.
[486]
Then by the time I turned 63 years old,
[489]
I'll have over $1
million dollars tax-free.
[491]
Again, after I turn 59 1/2,
[494]
I can withdraw anything
that I want from the account
[496]
without paying taxes or penalties.
[498]
Look at my principal,
[499]
which is how much money that
I contributed or deposited
[502]
over the 33 years
[504]
compared to how much interest I gained.
[506]
I put in $204,000 of
the money that I earned,
[509]
and I gained over $800,000
[512]
in compound interest.
[514]
Over $800,000 tax-free
is absolutely insane
[517]
for something that involves
such minimal investing effort.
[521]
Again, the sooner you start the better.
[523]
Let's say right now you're 21 years old.
[525]
You can contribute the
full $6,000 per year,
[528]
but you can do 4,500.
[530]
There's a lot of side
hustles that you can pick up
[532]
to bring in $86 per week.
[534]
So 21 years old, and we're
gonna invest $4,500 per year,
[538]
and we're gonna do that over 39 years
[541]
with an average 8% return.
[543]
Then by the time you turn 59 1/2
[545]
going on to 60 years old,
[547]
you will have over $1.2 million tax-free
[550]
gaining over $1 million
in compound interest.
[554]
You invested $1,500 less than me per year
[557]
and reached $1.2 million by 59 1/2
[560]
versus me reaching $1
million at 63 years old
[564]
and contributing the $6,000 max.
[566]
What I want you to take
away from compound interest
[568]
is to start investing in a
Roth IRA as soon as possible
[572]
and invest where you can.
[573]
You can always increase
your contributions over time
[576]
as your income sources rise.
[578]
You can also withdraw your principal
[579]
or your contributions at any time
[581]
without paying taxes or penalties.
[583]
I don't recommend doing this,
[584]
because the whole point of a Roth IRA
[586]
is to invest your money
[587]
and then let it grow term.
[589]
However,
[589]
life can definitely throw
unexpected things your way,
[591]
so if you ever need to
withdraw your principal
[593]
or the amount you invested,
[595]
then you can without
paying taxes or penalties.
[598]
So let's say I deposit $3,000
[600]
into a Roth IRA choosing
VT Sachs as investment.
[603]
I can take out
[604]
or withdraw that initial
$3,000 investment at any time
[608]
without paying taxes or penalties.
[609]
I don't have to be 59 1/2 years old
[612]
or worry about anything else.
[613]
If something comes up
and as a last resort,
[615]
I need to pull out my investment
[617]
or the money that I
deposited into my Roth IRA,
[619]
then I can.
[620]
The process of opening a Roth IRA
[622]
is extremely simple,
[623]
and it personally took
me less than 20 minutes.
[625]
There's tons of options online
[626]
where you can open Roth IRA accounts,
[628]
but again, the top two
that I would recommend
[630]
are Vanguard and Fidelity.
[632]
I personally use Vanguard
[633]
and my overall experience has been great.
[635]
Again, it's really important
[636]
to make sure that your
dividends are being reinvested.
[639]
This will help your money
grow a lot over time
[641]
due to compounding.
[642]
Simply Google open Roth IRA Vanguard.
[647]
I'm also gonna throw a link
[648]
in the description of this
video for you as well.
[651]
Whenever you open your Roth IRA account,
[653]
there's a few key things
that you need to do.
[655]
The first one is make
sure you open a Roth IRA
[658]
and not a traditional IRA,
[660]
select your funding method
[661]
or how you will find your investments.
[663]
The most common option is bank transfer.
[666]
Be sure to open a Roth IRA
[668]
and not a traditional IRA.
[670]
There's a lot of tax differences
between the two accounts,
[672]
and you can learn more
about that here as well.
[675]
You also need to pick your investment
[676]
or investments as well.
[678]
Again, the Roth IRA
[679]
is just the container that
holds your investments.
[682]
You have to make investments
within your account.
[684]
There's a lot of investment options,
[686]
but like most people,
[687]
I'll personally invest
in large index funds,
[689]
spreading my investment
[691]
across some of the largest
companies in the world.
[693]
It's one of the safest,
[694]
most reliable and
hands-off ways to invest,
[697]
which works best for me
and my financial goals.
[700]
So I personally invest in
VT Sachs within my Roth IRA.
[704]
Again, as I mentioned earlier,
[706]
this is a total stock market index fund.
[708]
It's designed to provide
investors with exposure
[711]
to the entire US equity market.
[713]
The best aspects of VT Sachs
include broad diversification
[717]
and low costs.
[718]
Again, the 0.04 expense
ratio is phenomenal.
[722]
Your money is really diversified,
[723]
so if one of the companies tanks,
[725]
then it doesn't matter,
[726]
because you're not solely
invested in one company.
[729]
It also has great average returns,
[731]
with a 7% return since inception.
[734]
It works For me because again,
[735]
I can invest my money,
[737]
let it grow and not worry about anything.
[739]
I can log in to check
my growth periodically,
[742]
and that's it.
[742]
If you're interested
in other funds as well,
[744]
other than VT Sachs,
[746]
then there's plenty of options.
[747]
You could also invest in individual stocks
[749]
within your Roth IRA as well.
[751]
Okay, now let's discuss
[752]
three really important considerations.
[755]
Number one,
[755]
your spouse can also
have their own account
[757]
that you can help contribute to.
[759]
Most people don't realize this,
[760]
but yes, your spouse can have their own
[762]
individual retirement account
[763]
and you can help contribute to it.
[764]
The key word there is individual.
[766]
There's no such thing
[767]
as a joint retirement account.
[769]
So if you're making way
more money than your spouse,
[771]
then you can help them contribute
up to that $6,000 maximum.
[774]
So I'm engaged right now,
[775]
and I'll be getting married next year.
[777]
After my fiance and I are married,
[778]
I'll definitely be helping
her open a Roth IRA
[781]
and max out her contributions as well.
[783]
Even spouses who don't work for pay
[785]
can contribute to a spousal IRA,
[787]
if they file taxes jointly
with a spouse who does.
[790]
There's a few rules
[791]
such as having to file taxes
married, filing jointly,
[794]
so be sure to look those up.
[795]
But if you have a spouse
that doesn't work,
[797]
they can likely still
contribute to a Roth IRA.
[800]
The key takeaway here is
that this is an amazing way
[802]
to maximize your retirement.
[804]
Take the compounding interest
[805]
that we calculated earlier
[806]
in the video and then
multiply that by two.
[808]
You can easily double your retirement
[810]
and have over $2 million tax free,
[812]
if you have your spouse
open a Roth IRA as well.
[815]
Number two, depending on
how much money you earn,
[817]
your ability to contribute
to a Roth IRA is phased out.
[821]
This means that if you earn
over $124,000 per year single,
[825]
over $196,000 married filing jointly,
[828]
then you can contribute to a Roth IRA.
[831]
However, as I mentioned
earlier in the video,
[833]
if you exceed the income limit,
[834]
you can now do what's
called a Backdoor Roth IRA.
[837]
Basically, all you need to do
[838]
is open a traditional IRA
[840]
which has no income limits,
[842]
make your investment
to whatever you choose
[844]
such as VT Sachs, as an example,
[846]
then transfer your money into a Roth IRA
[849]
using a Roth conversion.
[850]
There's a form that you need to fill out
[852]
with your taxes as well,
[853]
which is called form 8606.
[856]
Again,
[857]
very simple to do.
[858]
Just Google Backdoor Roth IRA
[859]
or use the video
[860]
that I put in the description
of this video for you.
[863]
I found it to be very helpful
[864]
Andy covered everything
that I needed to know.
[866]
And number three,
[867]
you can only contribute
up to $6,000 per year
[869]
if you're under the age of 50.
[871]
This means that you can't
withdraw your money,
[873]
change your mind and
then try to put it back.
[875]
For example, let's say right now
[876]
you withdraw $10,000 from your Roth IRA,
[879]
which is money that you
contributed or deposited.
[882]
You can't change your mind after the fact
[884]
and decide to put the $10,000
back into your Roth IRA
[887]
due to the contribution limits per year.
[889]
Opening a Roth IRA
[890]
is of the easiest ways
to become a millionaire
[892]
and it requires very little work.
[894]
I really wish
[895]
that I would've learned
about this earlier in my 20s
[897]
'cause I definitely would
have taken advantage of it.
[899]
But either way,
[899]
by the time I'm a little over 60,
[901]
I'll have over $1 million
which is tax-free.
[903]
A lot of you like myself are self-made
[906]
and grew up in low income households.
[908]
Opening a Roth IRA
[909]
is one of the easiest ways
[910]
that you can build financial wealth,
[912]
not only for yourself,
but also for your family
[914]
and the legacy that you leave behind.
[916]
Everything that I know about Roth IRAs
[917]
was self-taught.
[918]
No one ever told me about them
[920]
or help to educate me on how
to save and invest my money.
[923]
I did my own research and self-learning,
[925]
and I recommend you do the same.
[926]
At the end of the day,
[927]
it's your financial decisions
[928]
and you need to educate
yourself as much as possible
[931]
before making any decisions.
[933]
I highly recommend that you start now.
[935]
Waiting just one year
[936]
could literally cost you
thousands of dollars.
[938]
If you can deposit the
full $6,000 per year,
[941]
then do what you can and
increase it over time
[943]
as your income increases.
[944]
Personally, I'm gonna be
maxing out my contributions
[947]
so that by 65, I'll have
over $1.2 million tax-free
[951]
with over $1 million
dollars of that in interest.
[954]
If you got value from this video
[955]
and you haven't hit the like button yet,
[957]
please do that now.
[958]
So start today
[959]
on a path to become a
tax-free millionaire.
[962]
On this end screen,
[963]
I recommend checking out these videos
[965]
and be sure to hit that
round subscribe button
[967]
for weekly tag videos
[969]
and hit that notification bell,
[971]
so you don't miss anything.
[972]
Thank you for watching,
[973]
and until next time.
[974]
♪ 98, yeah jungle and I chose man ♪
[977]
♪ I can feel the heat, yeah ♪
[978]
♪ I can feel the heat, man ♪
[980]
♪ I can feel the heat ♪
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