Investment & Increasing Wealth with a Roth IRA
My name's Robert Bonavito, New Jersey Forensic Accountant. This video is part of a series of videos where I discuss forensic accounting topics for educational purposes only.
At least once or twice a year, I'll have somebody come into my office, sit down, and just start talking to me about money they're concerned about or investing. And I'll ask about their background and a lot of times, they worked as a custodial or a low-lying manager, something like that. And they say to me, "Well, listen, I have this chunk of money that I've been saving my whole life." And I'll look at it and it's, like, $5 or $6 million. And I talk to them and I said, "Listen," I said, "You had three kids. You put three kids through college. Your wife didn't work and you had this one job working at this company in this position here, and you made a good living, but not a lot of money." I said, "How did you save so much money?" And they always tell me the same thing, basically. They invest it on a schedule and they invest it early, and they invest it in low-cost vehicles.
And today, I'm going to talk to you about basically what these people have done to become wealthy. It's not hedge funds, it's not investing with some guru on Wall Street, it's simple investing. The best vehicle that I've seen used is the Roth IRA. The Roth IRA is something anybody can use. There's some situations, so you may want to check it out with your accountant, but basically, most people can use a Roth IRA and invest in it.
And the reason Roth IRA is the best vehicle I've seen is it has three key components. It's tax advantaged, what that means is, you could put money into the Roth IRA and you could take it out tax-free. The only thing that's taxed if you take it out before your retirement is the growth on that. So if you put $5,000 in, and let's say you need $5,000 in a couple years, you can pull the $5,000 dollars, no taxes. If that $5,000 grew to $8,000, the $3,000 of interest or dividends or capital gains, that you will be taxed on. But, if you retire, it's all tax-free, so it's tax advantaged. It's low cost, there's no cost really for a Roth IRA, especially if you put it in an indexed fund that has very low cost. You'll be cost advantaged, and it's easy to do.
The one guy I had come to my office, he told me that what he did was, when he was 18 years old, this is a long time ago, he put $5,000 in this Roth IRA for 11 years. Okay, so he stopped...I think he said he stopped when he was 30 years old, so he started when he was 19. In his account in front of me, he had $5,400,000 and he only put in $5,000 for eleven years. Do the math, it works, and that's why it's so important to save early. Make sure you...You don't have to have great funds or great...you don't have to be a stock picker. You need low-cost index funds and this will work not once in awhile, but it will work every time. If you have any questions about this, feel free to give me an email.