As soon as you reach 59 1/2 and have checked the box on the five-year rule, you’ll be eligible to withdraw every penny in your Roth IRA 100% tax-free. You can think of it as a retirement bonus that you’ll earn for paying your tax bill upfront and being patient during the growth process.
As you grow older, your Roth IRA has the potential to grow with you thanks to the power of compound interest. Let’s say you’re 23 years old, contribute $6,000 every year for the next 40 years, and invest in high-quality assets. As long as you’re not tempted to touch any of your contributions, you can achieve millionaire status by 60 if you’re earning a 7% return. Because your money is tucked away inside a Roth IRA, you’ll be able to use every dollar earned any way you want without worrying about taxes.
Turn to your Roth IRA during the tough times
If you’re ever in a jam, you can count on your Roth IRA to save the day. This account can double as your retirement fund and emergency savings fund when money is tight, though it’s best to keep your money growing in your account to take advantage of the power of compounding.
Let’s say you contribute $6,000 and need to withdraw it five years later. You can go into your account and grab your contribution without any taxes or penalties. But be careful when it comes to touching the earnings in your account. This could sound off the IRS alarm if you haven’t met the withdrawal eligibility requirements.