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Second Most Common Fear to Overcome

The 2nd most common fear that I hear is the complexity of opening a Roth IRA. This is understandable since if you have a 401(k), the creation of the account was performed by your Human Resources department. But really opening a Roth IRA, it’s as easy as opening a regular brokerage account… Any large financial company (and most of small one too), would love to have you create a Roth IRA with them! Brokerage, mutual fund, banks, practically any financial institution would love for you to open a Roth IRA account with them, so this should not be a fear, just go and try it. Most financial companies even have you print off the forms via the internet and mail them in or let you open an account online.

Unusual Benefits Of a Roth IRA

The following is how I view a Roth IRA, my view is personal and I don’t recommend this approach, since a Roth IRA is a retirement instrument. That said, it works for me!

1.) Emergency Fund – An emergency to me isn’t a sale at a local store that can’t be passed up or a new set of tires. And emergency to me is something horrible that may or may not happen in my lifetime. Since I consider an emergency something drastic, I have no qualms using the contributions to my Roth IRA as a stealth emergency fund. I hope that my other money sources can handle minor emergencies, but if I need it, I will use it. The earnings portion (what is left after I take out my contributions) within the account I will not withdrawal until other options have been tried first.

2.) Dividend Tax Shield – I use my Roth IRA as a dividend tax shield, by this I mean that I buy stocks that yield a dividend because the dividend won’t be taxed in the Roth IRA! Personally, I think this make a Roth IRA the perfect dividend tax shield or tax safe haven! Where else can you have dividends that aren’t taxed? Yes, this is a brilliant instrument for avoiding taxes on dividends! Since the tax rate on dividends currently is relatively low, I haven’t used my Roth IRA too much for a dividend tax shield, but in the future when the dividend tax rates rise, I will be definitely use my Roth IRA for that purpose!

I’m not going to talk about the other typical benefits (like college, house buying and inheritance benefits) in the article, those are fairly well-known though.

I will conclude my analysis of the unusual Roth IRA benefits by stating that the Roth IRA is a gift for the middle class that should not be ignored. Often times, when we have something great in our area we never use it. It’ funny because others think we are so fortunate to live so close to or have such a great treasure. What they don’t realize is that very often we don’t take advantage of such treasures. Please don’t let the opportunity to create and fund a Roth IRA slip by and become an unused treasure! It’s one of the best things that the government has created for the middle class (thanks Senator William Roth, rest in peace).

So if you qualify, are you taking advantage of one of the greatest government loopholes for the middle classes with respect to saving and growing money?

MR