What Is A Roth IRA And Why Should I Have One

Post By: Admin / USA Frugal Club

For every investor, a dollar bill is yet another opportunity to multiply their wealth. Because of this mentality, when they start saving money for retirement, they have several options. Interestingly enough, many Americans rely on an employer-sponsored retirement program called the 401(k).
Once the person’s job ends, the 401(k) is transferred into the individual’s retirement account. This is done for two reasons:
To manage the person’s portfolio a lot more efficiently To maintain and continue the tax benefits previously enjoyed in the 401(k) plan But what several people don’t know is that the 401(k) has a loophole. Since you’re using the 401(k), you miss the opportunity to take full advantage of Roth savings.
 
Why is this important?
The existing landscape and regulations surrounding retirement savings provide you several advantages for setting up a Roth IRA. But before we understand its benefits – let’s first start on ground zero. 

What Is A Roth IRA?

A Roth IRA (Individual Retirement Account) is a way of making your money grow free of tax. Not only is it growing tax-free, but the retirement withdrawals you make don’t have any deductions, too. The contribution limit for a Roth IRA in 2020 was $6,000 for adjusted gross incomes lower than $139,000, and if you’re older than 50, you can contribute an additional $$1,000.
 
In 2021, the contribution limit has remained the same ($6,000)for adjusted gross incomes lower than $140,000. 

- Annual Fee

Another prominent reason people are doubtful about getting a credit card is the annual fee that they have to pay. Even though some debit cards don’t have a fee, almost every credit card has one. Depending on the credit card you decide to get, the fee can range from $25 - $1,200. A general rule of thumb is that a higher annual fee usually results in increased perks.
But then again, different cards have different features.

With that said, if you can manage to stay disciplined with your transactions, there are several benefits you can avail by getting a credit card. To ensure you enjoy them to the fullest, you’re going to have to follow some important tips. 

- Bill Payment Frequency

Generally, people pay the bill for their credit once a month. For people who can manage to restrict themselves to a budget, this strategy can be feasible. But if you think you’ll exceed the limit, try paying the bill more than once.
This will mean that money will leave your account sooner, and you’ll have a clearer picture easily. This will also keep a low balance in your account, which will decrease credit utilization.
Why is this important?

Credit utilization is one of the most vital factors that determine a person’s credit score!  

- Track What You Spend

Cash leaves your wallet and is hard to trace if you don’t have a receipt. On the other hand, however, credit cards leave a trail you can easily follow. This way, you can have a record of how much you’ve spent on what.

Always make sure you’re on track!  

The Bottom Line

Getting a credit card can be a decision that will make you consider several factors beforehand. If you’re still wondering, “should I be using a credit card?” refer to the tips above to make an informed decision.