Roth IRA: Become a Tax Free Millionaire With $12 a Day

So, I realized that saying you could become a millionaire completely tax-free by investing just $12 a day sounds completely far-fetched. 

But I promise you, if you read this article all the way through, give it a chance, it's all going to make complete sense. 

This is really one of those articles that you shouldn't click out of. 

I mean, this could be the 10 minutes or so that help set you on the path to ballin out really hard later in life, enabling you to ride into the sunset and go eat sushi all day on the beach or watch MrBeast videos on YouTube because you're a millionaire and you don't need a job anymore. 

No joke, this is the stuff that should be taught in schools but isn't for some reason. 

The sooner you start doing this, the more money you're going to end up making. 

In fact, waiting just one extra year to do this could potentially cost you tens of thousands of dollars in the future. 

So, go ahead and read this entire article, and I promise you it's all going to make sense. 

Now, here's what I'm talking about, and that is you already know by the title of this, which is setting up a Roth IRA. 

Because it's easy to get kind of confused about what this is and how to make money from it, I'm going to break it down and explain it as simply as I possibly can.

What Is A Roth IRA?

A Roth IRA stands for individual retirement accounts. 

Think of it this way: just like you can open up a bank account with a checking and a savings account, imagine opening up a Roth IRA with your investments. 

Setting up one of these accounts is extremely easy, and I'll show you exactly how to do that very shortly. 

Now, to break it down a little further, when I say Roth IRA, we know what IRA stands for, but the Roth part means that you've already paid taxes on whatever money you contribute or deposit into that account.

Let's say, for instance, you get a paycheck every week of $560. 

Chances are, taxes have already been taken out of the amount you receive. 

This is what's called after-tax money or post-tax money—the amount you have left over after paying your taxes. 

The money you put in a Roth account is just the money you have left over because you've already paid taxes on it.

How Does The Roth IRA Work？

Here's how the Roth IRA works: you can open one of these accounts and contribute up to $7,000 per year if you're under the age of 50. 

If you're over 50, you can contribute up to $8,000 per year. 

The massive advantage is that all the money you deposit into this account can grow entirely tax-free. 

If you invest $2,000 into this account and it eventually grows to $10,000, in any other scenario, you'd end up paying taxes on the profit. 

But in a Roth IRA, you can have all your profits completely tax-free after the age of 59 and a half.

For example, if you contribute $400 per month into a Roth IRA starting at the age of eighteen and average a 7% return, by the time you're 59 and a half, you will have about $1.2 million completely tax-free, all from investing just $100 per week.

Even more remarkable, if you contribute the maximum of $7,000 per year beginning at the age of 18 and average a 7% return, by the time you're 65 years old, you will have about $2.3 million completely tax-free from a $7,000 per year investment, which works out to be $583 per month.

Withdrawing Without Penalty

One of the other huge advantages is that you can withdraw any money you contribute to that account at any point without paying any penalty or additional taxes. 

For example, if you invest $2,000 into a Roth IRA and it grows to $5,000, you can take out your original $2,000 investment at any time without penalty or additional taxes, even before the age of 59 and a half. 

This is why opening one of these accounts is an absolute no-brainer.

Even in the worst-case scenario, if you need to get your money back, simply pull it out. 

The best time to start and open up one of these accounts is now when you're young because you have the power of compound interest working on your side. 

This means your money has more time to grow and make you more money. 

The sooner you start, the more you're going to end up making.

Consider this: if you deposit just $1,000 into a Roth IRA and invest it starting at the age of eighteen at a 7% average return, by the time you're sixty, that $1,000 will have grown to $16,000.

However, if you invest that same $1,000 at the same return but instead of starting at eighteen, you start at nineteen, by the time you're sixty, that $1,000 will be worth just under $15,000. 

Starting out just one year later means you've lost out on doubling your initial investment in the future. 

This is exactly why you need to start doing this as soon as you can.

For Those With A Low Tax Bracket

The other massive advantage of doing this when you're young, as I mentioned earlier, is that you invest with post-tax money. 

Taxes have already been taken out of whatever money you invest in this account. 

When you're young, you're likely not making much money, so you're in a low tax bracket, which means you have more money left over after taxes to invest with. 

As you get older and make more money, you'll be in a higher tax bracket, which means you'll have less money left over to invest after paying higher taxes. 

This strategy is really ideal for people under 35 years old who aren't making a ton of money yet, so they're not in a very high tax bracket. 

Take advantage of this now while most of your money is not going off into taxes.

How To Open A Roth IRA?

Now, here's exactly how you can go about doing this and how it works. 

You can go online to open a Roth IRA account through websites like Vanguard, Fidelity, or Charles Schwab. 

There are really dozens of accounts out there; it's up to you to choose whichever one you want. 

I personally recommend either Vanguard or Fidelity, but the choice is entirely yours. 

If you're under the age of 18 and watching this, you can still open a Roth IRA. 

You'll just need a parent to co-sign with you, and you'll also need some sort of earned income. 

The entire process should take you between ten and twenty minutes, and for the most part, you can do it all online.

Once you open this account, you then have the option to make investments within it. 

Just remember that the Roth IRA is not the investment itself; it's just the account. 

Similar to having a savings account or a brokerage account, within that brokerage account, you can have stocks. 

That's exactly how a Roth IRA works—it's just an account for you to invest your money in, and everything within that account grows completely tax-free.

What Investments To Make?

Now, in terms of what investments to make, I personally go with a broad index fund that follows the stock market. 

Historically, over the last century, we've seen an average of a seven percent annualized return with dividends reinvested, adjusted for inflation. 

Of course, every time I mention this and state that we should expect an average of a seven percent return, there's someone in the comments saying something like:

The stock market last year was down 5%, and you said I would get a 7% return. You're lying.

This is why I emphasize that over the long term, we should expect an average annualized return of about 7%. 

Some years might be lower, some might be negative, while others could be up 15% or 20%, and some might be down 10%. 

On average, we should see about a 7% return when reinvesting dividends, adjusted for inflation, over the long term—not over one, two, or three years.

What I Do Personally

For everyone wondering what I do personally, I invest in VOO, and a bit of QQQM. 

It's very simple for me; I invest, forget about it, and move on. 

You also have the chance to invest in individual stocks within the Roth IRA. 

This means that all you Microsoft, Amazon, Apple, Nvidia, and Tesla lovers out there can still invest in those stocks within the Roth IRA and potentially get a much higher return than the average 7%. 

This is also the best place to invest in dividend stocks because all your dividends will grow completely tax-free within that account.

The Rules For Roth IRA

But basically, the sooner you start doing this, the more money you're going to have in the long term. 

However, it's crucial to pay attention to this part because there are four rules you really have to abide by. 

Rule #1

The first one is that as of 2024, you're limited to the maximum contribution of seven thousand dollars per year; 

you cannot contribute more than this. 

Rule #2

The second thing is that once you take your money out of this account, you cannot just put it back in. 

Once the money is out, it's out. 

You're limited to putting only up to seven thousand dollars per year in this account if you're under the age of 50. 

So, if you pull twenty thousand dollars out of this account, you can't just say, 

"Let me put my twenty thousand dollars back." 

Nope, it doesn't work like that.

Rule #3

Now, the third rule is that if you take out any of your profits from that account before the age of fifty-nine and a half, you will have to pay a ten percent penalty on that money, plus pay taxes on whatever profit you make, and doing that defeats the entire purpose of opening up a Roth IRA to begin with. 

Rule #4

If you end up paying taxes on the money that you make, the fourth thing is that if you make more than a hundred and sixty one thousand dollars per year, your contributions begin to be phased out, which means that you can't contribute as much as if you make under a hundred and sixty one thousand dollars a year. 

So, this means you will have to do what's called a backdoor Roth IRA. 

Just in case you're making over a hundred sixty one grand a year, you can just go and Google this - what is the backdoor Roth IRA. 

It's straightforward to do, not gonna get into it, that would be too much explaining. 

Anyway, very simple, just Google Backdoor Roth IRA if you make over a hundred sixty one grand, and that's it.

So anyway, basically, if you could just follow these four rules, you could very well be on your way to becoming a tax-free millionaire from just a very small annual investment, especially if you want to be a tax-free millionaire with just twelve dollars a day. 

Here's exactly how you can do that.

Just $12 A Day

$12 a day obviously works out to be $360 per month or $4320 a year. 

Invest that amount consistently over 41 years at an average rate of return of seven percent, and that is going to be worth 1 million twenty four thousand dollars completely tax-free.

Even if this is literally your only investment and you just invest $360 per month consistently, you're going to be setting yourself up for a pretty comfortable retirement, completely tax-free. 

For probably 99% of you watching this right now, this is all something you could pretty much do immediately, like right now, as soon as you're done subscribing to my newsletter if you haven't subscribed already. 

This is literally something you can do in the next like 10 to 20 minutes.

Keep in mind I have absolutely zero financial interest in you opening up an account.

I don't get paid any money if you open up a Roth IRA account.

I don't get any percentage of that.

I have no way of making money from you opening up a Roth IRA account.

This is simply something that I wish I had done when I was like 16, 17, or 18 years old that I didn't do because I had no idea it existed.

I had no one telling me I should go and do this.

This was stuff that was never taught in schools, and I kind of figured this out on my own when I was like 21, 22.

I stumbled across this, the best decision I've ever done, and then I'm like, no one tells you this stuff.

So this is the information that I wish I could have known when I was much younger.

With that said, thank you so much for reading. Make sure to share this if you enjoyed it and thank you for reading! Cheers!

- Ivan