The Most Awesome Thing Ever!!

Ok, so maybe that's a little overboard. But, in the financial world, a Roth IRA is the most awesome thing ever. A Roth IRA is an individual retirement account that you fund with after-tax money. The current amount that you are allowed to fund is $5,000 per year. So what's so great about this thing?? Because Roth IRAs are funded after-tax (you have already paid the taxes on your income), when you take the money out when you retire, the money is taken out is not taxed. Because our government has a progressive tax structure (lower income pays a lower tax rate than higher income which pays a higher tax rate) and we are in our mid-20s, hopefully earning the least amount of money in our career, this becomes a no-brainer. Your current tax rate is somewhere between 15% and 25%, however, when you're older your tax rate could be 38% or higher (depending on who becomes president between now and then). That means the cost to you is 15% now, but could be 38% later. I say pay the taxes now and reap the benefits later.

So why doesn't everybody do this? One is that you have to be under a certain income (I believe it's $100k). Second is that you cannot take the money out until 59 1/2 years old. If you take out the money before then, then you will be major penalties. So, even if you can only put in $200 a month or whatever, set up an account with any brokerage firm (T. Rowe Price, Fidelity, Scottstrade, etc).

Best of luck and keep saving!

B-Squared