You’ve started your Emergency Fund, so you can be free of financial worry. You don’t have any high-interest debt. With a foundation in place, you’re excited to start building your financial future.
- Open your Roth IRA.
This is an excellent option for beginning investors to start investing for retirement.
- Max out your contributions to your Roth IRA whenever you can.
Currently the annual contribution limit for Roth IRAs is $5,500, or $6,500 if you are over age 50. There might be some years when it is easier than others to contribute the full amount, so always do what you can. Everything counts: it’s far better to make sure your money can grow and work for you than to keep your savings in cash. One way to make this easy for yourself is to set up an auto-transfer so that a certain amount comes out of each paycheck and goes straight into your investment account.
- Leave it alone!
You should leave your contributions in your retirement accounts invested over your whole career. There are multiple reasons for this. First, there are restrictions on when and how you can take a withdrawal from a retirement account (called a “distribution”). Unless it is a qualified IRA distribution, you may be subject to penalties, taxes, or fees. You might as well be stealing money from your future self – don’t do it! Second, the true power of investing comes from leaving your money invested for the long term. If you take money out early, not only will you pay for doing so, but you then interrupt the potential of your money to keep growing. In terms of your investing journey, it’s like putting the brakes on. You’ll slow down your progress. Just remember: the money that you contribute to your retirement accounts is money that you are prepared to invest and then leave for a long time course, so it can grow to its full potential.