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Happy Birthday Roth IRA

Many people do not realize the value of a Roth IRA, says Donald Pearson, Pearson Capital, Inc.

It is now celebrating its 20th year of existence and is something all of us, if eligible, should own. Many of us today who are still working are holding a 401(k) type of investment and should be contributing, as the plan’s prospectus tells us to do. Many of these plans tell us if we contribute 6 percent pretax our employer will contribute another 3 percent into our account. This is really a no-brainer as we must secure all of the free money available to us. If your plan is one that says contribute more and receive more, this should be done to again maximize all the bonus money available.

Once this has been completed, the Roth then becomes another option. If you qualify, it should be included within your investment portfolio. If you are single and making less than $120,000, or married filing jointly, making $189,000 or less, this opportunity is available. Today so many people, both young and old, have done very little, or near nothing, trying to get started on the road to investing. Had you done a Roth for the past 20 years investing the maximum, you would have well over $200,000 saved already with an average return of 8 percent or more. The maximum that you can contribute is $5,500 under the age of 50 and $6,500 once you’ve passed 50.

A 401(k) ends once you leave your employer, as there are no more contributions coming from the company. This rolls over into a regular IRA. When the money is taken out, it is taxed as ordinary income, at your current tax rate. The reason the Roth becomes so attractive down the road is withdrawals after age 59 1/2 are tax free. So for those still working today who can have both with a contribution of $18,500, or over age 50 with $24,500, I would strongly suggest doing this. For those who are self-employed and do not have access to a 401(k) type of investment, a Roth is definitely a way to get yourself started down the road to prosperity.

Also, the average tax return is around $2,800 annually. This is the government giving you back your money which they use all year. You might consider changing your tax status and have that extra $60 a week added to a Roth you’ve opened with us or on your own, making those dollars work for you all year rather than doing nothing.

Source: Pearson Investment Letter, a publication of Pearson Capital, Inc. to clients with managed accounts,

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