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How To Build A $1 Million Dollar Roth IRA 馃搱 (Step By Step) - YouTube
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so if i told you i could show you
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exactly how to stash away
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a million dollars tax-free would you be
[6]
interested in finding out how to do that
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if the answer to that is yes you're
[10]
going to want to stick around
[12]
for the entire video today so what i'm
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going to be doing here is i'm going to
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be showing you guys step by step
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exactly how to build a 1 million
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roth ira retirement account which is
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essentially a type of retirement account
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that allows you to stash away your money
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and allow it to grow completely tax-free
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and not only that guys i'm gonna be
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showing you exactly how much money you
[36]
need to invest
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and we're gonna be going over the major
[39]
age groups ranging from 20
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to age 50 to show you guys step by step
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exactly how you two can do this as well
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but before that it is important to
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mention guys this is for entertainment
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purposes only
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and i am not a financial advisor and you
[55]
should always do your own due diligence
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before you begin
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investing in anything out there all
[60]
right so now let's go ahead and answer
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the question here of what
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actually is a roth ira most people out
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there have heard of the 401k
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and i often get people asking me is it
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the same thing
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are you allowed to have both so let's
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clear some of those things up now
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the 401k is a retirement plan that is
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set up by your employer
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and it allows you to contribute pre-tax
[84]
income so you're able to lower your
[86]
taxable income each year
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by contributing to the 401k and the
[92]
contribution limits
[93]
are significantly higher so with the
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401k
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you end up paying the tax bill at the
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very end after your money has grown
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for many years or many decades now the
[104]
roth ira
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on the other hand is something you set
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up on your own
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your employer doesn't set up the roth
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ira for you
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and you are able to have both a 401k
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and a roth ira with the roth ira however
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you're not contributing pre-tax money
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you're contributing money that you've
[123]
already paid taxes
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on and there's a huge advantage to this
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because after your money has grown
[129]
for many years or many decades well you
[133]
don't have to pay taxes on it
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because you paid taxes on the way in so
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my favorite analogy here for the roth
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ira
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versus the 401k is that the 401k gives
[144]
you the instant gratification
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of having a lower taxable income however
[149]
with the roth ira it is more of a
[152]
delayed gratification
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of you pay the price now of contributing
[156]
post-tax
[157]
income but then years later you can take
[160]
that money out
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tax-free so that is exactly why the roth
[164]
ira
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is this powerful tool that can literally
[167]
make you a tax-free millionaire
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and i'm gonna show you guys exactly how
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to do that in a little bit
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so just how much money can you
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contribute to a roth ira retirement
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account
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well the irs sets limitations on this
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and every couple of years
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they will raise the amount of money that
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you are allowed
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to contribute to your roth ira every
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single tax year
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so for 2019 and 2020
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that limit is six thousand dollars per
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year
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or seven thousand dollars per year if
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you are 50 or above
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and the only stipulation other than that
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is that this has to be earned
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income from a job or something like that
[206]
now there's also income limitations
[208]
where if you're making
[210]
above a certain amount of money you are
[212]
not allowed to directly contribute
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to a roth ira however there is a very
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simple workaround called the backdoor
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roth ira and i'll go ahead and put those
[222]
income limits up on the screen right now
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it's significantly higher than what most
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people are earning
[228]
but if you are somebody who makes above
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that dollar amount
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all you have to do is look up the
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backdoor roth ira
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strategy and this is not some kind of
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illegal trick it's a 100
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legal strategy that allows you to
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contribute to a roth ira
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even if you make above the income
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limitations
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all right so now let's answer the next
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question you probably have here which is
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when can you actually touch the money
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and start withdrawing money from the
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roth ira
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well the good thing is you're able to
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withdraw
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your contributions at any point in time
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and that is simply the money that you
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use to fund your roth ira so let's say
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for example
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you put five thousand dollars into a
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roth ira
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every single year for 10 years that
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means you have contributed
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50 000 well you are allowed
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to withdraw fifty thousand dollars at
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any point in time
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from the roth ira tax free and penalty
[288]
free
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you just cannot touch the earnings
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because if you do
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that is when you will pay taxes and
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penalties now as far as withdrawing the
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earnings from the roth ira
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you can begin doing that tax-free and
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penalty-free
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as long as you are age 59 and a half or
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older
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and you have had that roth ira
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retirement account
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for five years or more so what should
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you invest your roth ira
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in well what most people are going to
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follow is a strategy of investing in
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something called an index fund
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which allows you to have diversified
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exposure
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to the entire stock market as well as
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the entire bond market
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and so most people who follow this
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passive investing strategy
[330]
are investing in both bond etfs as well
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as stock etfs
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because the stocks are going to be
[337]
higher risk higher potential return
[340]
while the bonds are going to be lower
[341]
risk lower potential return
[344]
and obviously as you get closer to
[346]
retirement age
[347]
you don't want as much risk in your
[349]
portfolio so
[350]
since a roth ira is a retirement
[353]
investment it's a very long-term
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investment
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and that is why most people will just
[357]
put their money in low fee etfs
[359]
but you can put your money in whatever
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you want to later on in this video i'm
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going to show you guys an
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option for a completely fee-free roth
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ira retirement account
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that lets you invest in whatever you
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want to so if you want to invest in etfs
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you can do that on this platform
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or if you want to invest that money in
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individual stocks
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you can do that with the roth ira as
[380]
well
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now for the examples we're going to be
[382]
going over in this video
[384]
we're going to be looking at two etfs
[386]
offered by vanguard
[388]
one is going to be a bond etf and the
[391]
other is going to be a stock etf giving
[393]
you
[394]
diversified exposure to the stock market
[397]
and to the bond market and the whole
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idea behind these etfs is that you're
[401]
paying as little in fees as possible
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and rather than trying to beat the
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market you just own the entire market
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and you do well when the market does
[410]
well as a whole
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and most people are more successful
[414]
following this strategy
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than investing in mutual funds or
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actively picking stocks
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so the stock etf we're going to be using
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is called vt
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and it is offered by vanguard and this
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is the total world stock etf
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which is going to give you a small piece
[430]
of ownership of
[432]
all of the publicly traded companies in
[433]
the world now for the bond etf it's
[436]
going to be bnd
[438]
offered by vanguard as well which is the
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total bond market etf which is going to
[442]
give you a piece
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of all of the us investment grade bonds
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and investment grade simply means that
[449]
credit rating agencies
[451]
have deemed these bonds investment
[453]
worthy
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so it doesn't hold any junk bonds all
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right so now let's answer the question
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of where do you actually open up a roth
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ira
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and to be honest with you guys i know it
[464]
may sound like a complicated subject
[466]
but it is extremely simple and i'm going
[468]
to give you guys my favorite option
[470]
right now which is
[471]
m1 finance now for full transparency
[474]
here guys
[475]
i am affiliated with m1 finance so i do
[478]
earn a commission if you decide to
[480]
sign up under my link which i do
[482]
certainly appreciate as it allows me to
[484]
make more videos like this
[486]
and it just helps support my channel now
[488]
the main reason why i like m1 finance is
[491]
because they are
[492]
commission free and fee free which means
[494]
you do not pay any commissions
[497]
for trading stocks or etfs on the
[499]
platform
[500]
and you pay zero dollars nothing in fees
[503]
to m1 finance
[504]
for setting up and hosting your roth ira
[507]
not only that the minimum to get started
[509]
is extremely
[510]
low which is just 500 now beyond that
[514]
the other reason why i like
[515]
m1 finance is because they have
[517]
pre-built portfolios
[519]
that you can invest in so with m1
[521]
finance you're not stuck
[523]
choosing your investments and building a
[525]
portfolio from scratch
[526]
you can simply invest in some of these
[529]
pre-built portfolios
[530]
and what i'm going to use later on for
[532]
these examples is basic stock
[534]
and bond portfolios and these are coming
[537]
right from the m1 finance app
[539]
and they're completely free to invest in
[542]
and i know the whole process of opening
[544]
up a brokerage account can be a little
[546]
bit intimidating at first and that is
[548]
why i put together
[549]
a completely free 30 minute video
[551]
training
[552]
showing you guys step by step how to get
[555]
started and open up
[556]
an account with m1 finance so if you're
[559]
ready to get started guys
[560]
the link is down in the description
[562]
below or if you're looking for a little
[564]
bit of hand holding
[565]
that free training link is in the
[567]
description below as well
[569]
all right so now we're going to run
[570]
through the numbers and i'm going to
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show you guys exactly how you can build
[574]
a 1 million dollar roth ira by the age
[577]
of 60.
[578]
and as i'm sure you guys could guess if
[580]
you know anything about investing
[582]
the sooner you start investing and
[584]
contributing
[585]
to this roth ira the better because that
[588]
is how compound interest
[590]
works at the end of the day the longer
[592]
you allow your money to grow
[594]
the more growth you see with that money
[596]
and with the growth of your money from
[598]
investing
[599]
it's going to be exponential growth not
[601]
linear growth
[602]
so if you're a young person watching
[604]
this video you're going to want to pay
[606]
attention because this can
[607]
literally turn you into a tax-free
[610]
millionaire
[611]
and the other thing i want to mention
[612]
here guys is that you have to remember
[614]
that returns are never guaranteed with
[616]
the stock market
[617]
we're going to be looking at 10 years of
[619]
historical data
[620]
when we're doing our estimated
[622]
annualized returns here
[624]
but do keep in mind you're not going to
[625]
see that return every single year
[627]
because the stock market has times where
[630]
it's going up
[631]
and other times where it's going down
[632]
called bull markets and bear markets
[635]
but if you're a long-term investor
[637]
historically speaking
[639]
these returns are what you may expect
[642]
when you get closer to retirement you
[644]
want to invest more of your money in
[645]
bonds
[646]
and less in stocks in order to have less
[649]
risk in your portfolio and this is
[651]
something called your portfolio
[653]
allocation now as far as what percentage
[656]
of your money goes in stocks
[657]
and bonds we're going to be using a
[659]
helpful table i found on financial
[662]
samurai
[662]
and i will go ahead and link up to that
[664]
down in the description below
[666]
it'll tell you more about these
[667]
allocations and why these percentages
[670]
are the way that they are typically
[672]
every five years
[674]
you're going to want to adjust these
[675]
allocations because
[677]
what a 20 year old invests in is going
[679]
to be a lot different than what a 45
[681]
year old invests in
[683]
but that is where something called a tdf
[686]
or
[686]
target date fund comes in handy and i'm
[689]
going to show you guys
[690]
exactly how you can invest in this tdf
[693]
completely
[694]
free through a brokerage called m1
[696]
finance
[697]
but a target date retirement fund is
[699]
going to automatically adjust your
[701]
allocations
[702]
as you get closer to retirement so all
[705]
you have to do
[706]
is put in the year that you're looking
[708]
to retire
[709]
and they are going to automatically
[711]
adjust your allocations
[713]
as you get closer to that retirement
[715]
date all right guys so if you started
[717]
following this strategy at age
[719]
20 according to that chart you would
[721]
have a hundred percent of your money
[723]
invested in stocks and zero percent in
[726]
bonds
[726]
because you have so much time to allow
[728]
your money to grow
[729]
you can take on more risk so we're going
[732]
to assume you have 100
[733]
of your money invested in stocks in that
[736]
vanguard
[737]
total stock market etf and over the last
[740]
10 years
[740]
the annualized return from that has been
[743]
eight point eight one percent
[745]
so if you simply invested two hundred
[747]
sixty dollars per month
[749]
or three thousand one hundred twenty
[752]
dollars per year
[753]
from age twenty to age sixty at that
[756]
return
[757]
you would have a portfolio worth one
[759]
million
[760]
one thousand nine hundred forty nine
[762]
dollars and fifty two
[763]
cents so you don't even need to max out
[765]
your roth ira
[767]
at this eight point eight one percent
[769]
return in order to build up a one
[771]
million dollar portfolio
[773]
and obviously guys if you did max out
[776]
that contribution
[777]
this would be a multi-million dollar
[779]
roth ira
[780]
not just a one million dollar roth ira
[783]
next up let's assume you started at age
[785]
30
[786]
well according to that table from
[787]
financial samurai
[789]
you would have 70 percent of your money
[791]
in stocks and 30
[793]
in bonds and if you had that 70 30 split
[796]
of these two vanguard
[797]
etfs over the last 10 years the
[800]
annualized return
[801]
has been 7.23 percent so let's assume
[805]
you maxed out your roth ira contribution
[807]
from age 30 to age 50
[809]
at 6 000 per year then from age 50 to 60
[813]
you invested that full seven thousand
[815]
dollars per year
[816]
well based on that seven point two three
[818]
percent return
[819]
your ira would be worth six hundred
[822]
twenty three thousand
[823]
five hundred seventy eight dollars and
[825]
eighty nine cents
[827]
so obviously guys based on the current
[829]
contribution levels
[830]
it's not really possible to build a
[833]
million dollar roth ira
[835]
investing passively you know above the
[837]
age
[838]
30 but still to have over half a million
[840]
dollars is nothing to shake a stick at
[843]
now let's assume you start at age 40 and
[845]
based on that table
[846]
you would want to have 60 percent of
[848]
your money in stocks and
[850]
40 percent in bonds well over the last
[852]
10 years
[853]
based on those two etfs that has been an
[856]
annualized return
[857]
of 6.69 percent so again
[860]
we're going to assume you max out your
[862]
roth ira contributions
[864]
including the additional 1 000 per year
[868]
from age 50 to 60. so if you went ahead
[871]
and did that
[872]
your portfolio based on that 6.69
[875]
return would be worth 257
[879]
618 and 86 cents so just over a quarter
[883]
of a million
[884]
dollars and then finally let's assume
[886]
you started this at
[887]
age 50 based on that table you would
[889]
want to have half of your money in
[891]
stocks
[892]
and half of your money in bonds and over
[894]
the last 10 years
[896]
based on those two funds that has had an
[898]
annualized return
[900]
of 6.16 per year so let's assume for
[903]
those 10 years
[904]
you contributed the maximum that you
[906]
could which is 7 000
[909]
per year that means after those 10 years
[911]
by age 60
[912]
you would have a roth ira value of 92
[917]
961 dollars and 25
[919]
cents now obviously guys there are a few
[922]
things we are not factoring into these
[924]
calculations
[925]
number one we haven't factored in
[927]
inflation here
[928]
and then number two obviously as you get
[930]
older these
[931]
allocations are going to change but this
[934]
just gives you a general idea
[936]
of how much money you need to invest in
[938]
your 20s
[940]
in order to build a million dollar roth
[942]
ira
[943]
or it shows you by age 30 40 and 50
[946]
how much you can have by maxing out your
[948]
roth ira contributions
[950]
and the other thing that we haven't
[951]
factored in here that's impossible for
[953]
us to tell
[955]
is whether or not the irs will raise
[957]
these contribution limits
[959]
as time goes forward and as they raise
[961]
those contribution limits
[963]
this allows you to funnel more money
[965]
into your roth ira
[967]
so anyways guys at the end of the day
[969]
here the truth is if you're looking to
[971]
build up a 1 million dollar roth ira
[974]
because of the contribution limits you
[976]
really have no choice but to start as a
[978]
young person
[980]
so if you're somebody who's in their 20s
[982]
watching this video
[984]
time is on your side and it's entirely
[986]
possible
[987]
to build a million dollar roth ira for
[990]
yourself
[990]
but even if you're an older person you
[992]
know don't get discouraged
[994]
because you still have the ability here
[996]
to set aside some money for yourself and
[998]
allow it to grow
[999]
completely tax-free so if you guys want
[1002]
to go ahead and get started with a
[1003]
completely
[1004]
fee-free roth ira the link is down in
[1007]
the description below to get started
[1008]
with m1 finance
[1010]
as well as the link for that 30 minute
[1012]
video training which will show you guys
[1014]
step by step
[1015]
how to get started but thank you guys so
[1017]
much for watching this video i hope you
[1018]
enjoyed it
[1020]
if you're interested in seeing more
[1021]
videos just like this make sure you
[1023]
subscribe and hit that bell
[1025]
for notifications and i hope to see you
[1027]
guys in the next video
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