The $65,000 Roth IRA Mistake To Avoid

One of my favorite retirement accounts is a Roth IRA for many different reasons. A Roth IRA is a type of individual retirement account that allows individuals to make after-tax contributions to the account, and to withdraw the contributions and earnings tax-free after a qualifying period. In this video, I'll go through 10 of the most common mistakes I see investors make.

Check Out My Recommendations (It helps support the channel):

A non-working spouse can open a Roth IRA if their partner has taxable income and they are married and file their taxes jointly. In 2023, the contribution limit is $6,500 for those under the age of 50 and $7,500 for those 50 and older.

Maxing out your Roth IRA every year is extremely important. Since you cannot go back to retroactively contribute money for previous years, you should try to contribute up to the limit every year. You have up until the tax deadline (of the following year) to contribute to the current year.

I've seen a lot of people forget to invest money once they deposit it into their Roth IRA. This is a big mistake a lot of people make because this is how they're expecting to grow their money for retirement. It helps if you have automatic investing set up for your account so you can avoid this issue.

Withdrawals from a Roth IRA before age 59 1/2 are generally subject to taxes and penalties unless they meet certain exceptions. Some of the most common exceptions include being able to withdraw your contributions. Another is for first-home buyers where you can withdraw up to $10,000 for the purchase without incurring taxes or penalties. There are a few others and there are restrictions with each one so do your own research on this one.

Maxing out your Roth IRA before your Taxable Brokerage account is very important. A Roth IRA is exempt from taxes while the money is growing and when you withdraw it. With a taxable investment account, you have to pay taxes on the dividend distributions, while it's growing, and when you withdraw any gains from the account. From a tax perspective, it makes sense to make sure you've contributed up the max within your Roth IRA before investing in your taxable account.

Understanding your personal risk tolerance is very important so you don't invest in a way that doesn't suit your personality and long-term goals. Since money with a Roth IRA is never taxed, you want this account to get as large as possible. This could cause some investors to take on more risk than they normally would try to get this account to grow very large. It's not worth it so make sure to understand how much risk is right for you.

You have to be under a certain income limit to be able to contribute to a Roth IRA. I list out what those look like in the video. If you happen to be above them then you can still contribute to a Roth IRA through something called a Backdoor Roth IRA. Make sure to understand the tax consequences before doing this.

Affiliate Disclaimer: Some of the above may be affiliate links. Support the channel by signing up or purchasing through those links at no additional cost to you. I appreciate you for helping me keep this channel running.

Disclaimer: This video is for entertainment purposes only. Everyone's situation is different so do your own research before making any decisions with your money. If you need help then contact a Certified Financial Fiduciary before trying anything that is mentioned in this video. I prefer a Fiduciary financial advisor that charges an hourly fee as opposed to an ongoing fee based on a % of your portfolio.

[JarradMorrow]

Check Out My Recommendations (It helps support the channel):

[stevendiaz]

Im 40 and just graduated from accounting and im starting. Its not where you start but where you finish

[tblade_org]

Thanks for the information. I am 23 and just opened my Roth IRA yesterday.

[JOESUBA]

I am 52 and just started my Roth IRA! I know I am behind the ball but I will do the best I can to get my life in order! This is great

[GodwillhandleIT]

I want to tell you that in the past years I've watched the youtubers which you described in your videos and it wasn't until I watched your video today that it actually made sense, what you are saying is the RIGHT thing to do. I've subscribed to your channel, thank you for the insight.

[OmarJano]

I just opened a Roth IRA account and this video was just the thing I needed! Thanks!

[nationsquid]

You explained this so well. Thank you!!

[BermudaBrian]

I just found your channel and LOVE you info. It has helped me A LOT. With this video, I had opened a Brokerage Account w/ Fidelity and was days away from investing in the Brokerage AND Roth IRA.... Luckily, i watch the video and am going strictly with the Roth IRA. Appreciate the help!

[_Renee]

Dude, thank you for sharing! I have so much to learn.

[DebtPRZ]

This is a GREAT video. More people to need to know this information. I can’t emphasize enough just important of a topic this is. Good job, @Jarrad Morrow!

[Tris-Mimi]

Just discovered your channel, will need to listen and learn! ( I made almost every mistake you mentioned here… )

[BadPhD]

Preach it brother! I love how you don't beat around the bush and tell people how dumb it is to withdraw from a retirement account before they are retired. Money in before retirement, money out after, period.

[Anon]

#10 - I am not 100% sure about the penalties myself but my understanding is that if you contribute more than you are allowed to in a given year, you must withdraw to the limit as well as any gains you obtained from it. The gains will be taxed at the current year's rate and a penalty will also be added for withdrawing before the allowed time/age.

[nikumimito]

38 and just opened retirement accounts late last year for the first time in my life. I maxed out my Roth IRA for 2023 just 2 days ago, I definitely plan to always max that and my 401k from now on.

[NikkiBeDoingStuff]

Thank you! This was very helpful. It looks like I’m on the right track.

[sammyiboi]

good video Jarrad. This covered all the foundational pieces of Roth IRAs. During the video, I kept thinking, "I hope Jarrad won't forget to talk about <TOPIC>" and boom, you cover it a few seconds later. The biggest one was splitting a single year's contributions among multiple Roth IRA accounts. I was like, "Phew, he mentions this AND does not recommend it! :)" Awesome!

[JohnnyMastro]

As a Canadian, we don't have to invest the year of, in order to make use of the contribution room. in a TFSA (tax free savings account), the contribution room is carried forward and no timeline to invest is set :) There is also no penalty for us to withdraw all of our money (if need be!), even if it surpasses our initial contrition amount! All money withdrawn in a year will be available in contribution room the following year! To make things better, Canadians can use the TFSA for life! I just noticed to many differences between a TFSA and a Roth IRA! Great content and info!

[insomnia]

One of the few people on YouTube with some sense 👍🏾

[TheMotionBboy]

Amazing video, good sir!!! Instant like and subscribe. Here’s one little known fact that no one ever talks about when it comes to a Roth. Whenever you re do this video, please add the “Married Filing Separately” condition of the Roth. I got married last year and my accountant broke the uncomfortable news to me. 😩😩😩

[caquanw]

Had no idea about the investing part as well. Thought contributing was investing. Thanks for the info.