Let's discuss the 5 most common mistakes when it comes down to the Roth IRA and investments in it. A Roth IRA is an individual retirement account where your gains are Tax Free.

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Timestamps:
0:00 - Start
1:22 - Roth IRA vs Traditional
2:30 - Skipping out on a Roth IRA
5:14 - Know your Contribution
6:59 - Withdrawing Early
8:20 - Speculative Investments
9:52 - Overcontributing

Mistake #1 - Skipping out on a Roth IRA
A Roth IRA is really flexible, in that you can carry it with you wherever you go, and since the earnings are tax free, and traditional 401ks arent, it's less flexible in that regard.

Also with a Roth IRA, you can choose WHATEVER you want to invest in. Versus in a 401k - you have to go with whatever funds or investments that your employer has chosen through their 401k provider, which typically are mutual funds with higher expense ratios (fees).

Mistake #2 - Know your Contribution
So in order to have a Roth IRA, it's worth mentioning that you need what's called Earned Income.

If you earn over $140,000 a year individually, you can't contribute to a Roth IRA. as a couple, if that's more than $208,000 together, you can't contribute.

You can contribute up to $6000 a year, $7000 if you're older than 50.

Mistake #3 - Withdrawing Early
When it comes to a Roth IRA, you can actually withdraw any direct contributions you make to your Roth IRA at anytime without any penalties.

However, earnings - or the profit you make on your investments within your Roth IRA follow a different type of rule - and often result in a 10% penalty.

Mistake #4 - Speculative Investments
This mistake is one that many people might make because of their dreams of getting rich quickly. If you're a frequent watcher of my channel, you'll know that i prefer a lower risk, get rich slow type of mentality.

When it comes to your retirement account, these are funds that you ultimately don't want to be taking too much unnecessary risk with, because of the power of compound returns, we know that as long as we're contributing to our retirement account, and even earning the average return of the S&P 500 of 7-8% will make us a million dollars by the time we retire.

Mistake #5 - Overcontributing
So this is a mistake that might happen to you if you have more than one IRA - yes you can have more than one IRA, the contribution limit of a Roth IRA is $6000 a year in 2021, and that's across all the IRA's you have.

If you accidentally contribute past the $6000 limit, youll be taxed at 6% per year until you correct it.

So if you find yourself in a situation where you actually contribute too much, what you want to do before you file your tax return is to take out any of the excess contribution + the earnings on it out of the account.
https://www.irs.gov/retirement-plans/...

That's actually one of the more rare mistakes when it comes to Roth IRAs, but it can cost you a lot because if you aren't cognizant of it, you'll owe a 6% penalty on it EVERY single year that the mistake is in there.

That's why it's important to always check on your Roth IRA periodically, especially if you have more than a few, and always track how much you contribute to it.

▶️ My name is Humphrey Yang, I've built multiple businesses and am passionate about Personal Finance. If you're trying to build a solid foundation of financial literacy, learn to invest, or become financially free - then I'm here for you! This channel cover topics like getting out of debt, managing money, building credit, multiple income sources, passive income, etc.

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