It’s that time of year again when goal setting takes center stage. As you reflect on your career, health, and lifestyle goals, don’t overlook the power of retirement planning. It might not be the most delightful goal to pursue in 2022, but the rewards can set you up for a financially secure retirement.
One way to crush your long-term goals is to put money into tax-efficient retirement accounts, like a Roth IRA (Individual Retirement Account). It’s a rock star retirement account for a reason. You can pay your tax bill up front in exchange for tax-free growth and withdrawals once you meet the eligibility requirements. If you accumulate $ 1 million in your account, you can withdraw 100% of the money without sharing your income with the IRS.
Getting started early is essential to achieving your long-term retirement goals. Here are four things you can do in 2022 to reach your Roth IRA goals.
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1. Define your intentions
Let’s face it: saving money can seem like a trivial task if you don’t know why you are doing it. This is why it is important to define your intentions. If you are considering contributing to a Roth IRA, identify your long-term goals and determine how this account can get you to the finish line.
Here are some questions to ask yourself to get started on the road to success in 2022:
- What are your long term plans?
- How much money will you need to reach your goals?
- If I contribute the maximum amount to a Roth IRA, how soon can I reach my goals?
Also, it is important to work now to achieve these goals because the Roth IRA may not be a benefit that you can easily access forever. For example, if your income exceeds the threshold, you will not be able to contribute directly to a Roth IRA.
2. Determine your contribution frequency
There are limits to how much you can contribute to a Roth IRA. For 2022, the maximum amount you can contribute is $ 6,000 if you are under 50. You will be entitled to a special catch-up contribution of $ 1,000 after 50 years.
Before you start putting money into your account, set a contribution goal. Let’s say you are feeling ambitious and want to maximize your Roth IRA with $ 6,000. The good news is, you don’t have to contribute $ 6,000 at a time. You can divide the total expected contribution amount by the number of months you plan to contribute.
If you want to contribute $ 6,000 over a 12 month period, that means you can contribute $ 500 each month. Divide your contribution goal into weekly or monthly amounts to make the goal more achievable. Additionally, if you get a bonus on the job or unexpected income during the year, consider directing the money toward your Roth IRA goals if you’ve already taken care of your debts and emergency savings.
3. Automate your savings
It’s time to make your life easier in 2022. One way to do that is to automate your success. Instead of manually transferring money from your checking account to your Roth IRA, set up recurring deposits. This allows you to achieve your Roth IRA goal without even thinking about it.
If you are spending a lot, it may be a good idea to open a separate account exclusively for your savings goal. This way, you don’t mix your pocket money with your investment money. This also ensures that you will always have money in your bank account to fund your Roth IRA goals.
4. Invest your money
Now that you have a plan to fund your account, to maximize your success, invest the money in your account to make it grow. If you don’t, your Roth IRA becomes a glorified savings account, limiting your potential for wealth building.
Think about your age, goals, and risk tolerance to determine the best investments for you. You can look for exchange-traded funds (ETFs), growth stocks, or even dividend-paying stocks if you want to earn extra income from your investments. Next, consider an averaging dollar cost strategy to avoid a shock if the price of your stocks drops after you buy them.
Roth IRA 2022 Success Plan
This is the year to prepare yourself for success, both now and for the next 40 years.
Let’s say you regularly contribute $ 6,000 to a Roth IRA and earn an average annual return of 7% over 40 years. Your total contributions would be $ 240,000, but your investments will be worth over $ 1 million. By taking action now, you can easily prepare for a nice amount of tax-free income during retirement.
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