Roth IRA: How to be a TAX FREE MILLIONAIRE with $12 PER DAY

What's up you guys, it's Graham here. So I realized that this sounds completely far-fetched to say that you could become a millionaire completely tax-free by investing just 12 dollars a day, but I promise you guys, if you just watch this video all the way through, and give it a chance, and also smash that like button, it's all gonna make complete sense. This is really one of those videos that you shouldn't click out of either. I mean, this could really be the 11 minutes that help set you on the path to balling out really hard later in life.

To be able to drive your Lambo to your guts, and go and just eat avocado toast all day on the beach, or be able to watch like PewDiePie videos all day long on YouTube because you're a millionaire and you don't need no job anymore. And no joke, this is really the stuff that should be taught in schools that's not taught in schools for some reason, because the sooner you start doing this, the more money you're gonna end up making. In fact, the difference of waiting just one extra year to do this could potentially cost you tens of thousands of dollars in the future. So go ahead and watch this entire video, and I promise you it's all gonna make sense.

Now here's what I'm talking about, and that is you already know by the title of this, but I'm gonna amp it up a little bit. Drumroll! Setting up a Roth IRA. Because it's easy to get kind of confused of exactly what this is and how to make money from it, I'm gonna break it down and explain it as simply as they possibly can. A Roth IRA just stands for individual retirement accounts. Think of it this way: just like you can open up a bank account, and within that bank account, you can have like a checking account and a savings account, just imagine like you can open up a Roth IRA, and within that, you can have your investments.

Opening 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 bit further, when I mean Roth IRA, we know what IRA stands for, but the Roth part of that just means that you've already paid taxes on whatever money you contribute or deposit into that account.

So let's just say, for instance, that you get a paycheck every week of $1,500. Chances are, taxes have already been taken out of the amount that you receive. This is what's called after-tax money or also what's called post-tax money. This is just the amount you have left over after you pay your taxes. So basically, the money that you put in a Roth account is just the money that you had leftover because you've already paid taxes on it.

And here's how the Roth IRA works. You're able to open up one of these accounts and contribute up to $6,000 per year if you're under the age of 50. If you're over the age of 50, you can contribute up to $7,000 per year. Now, the massive advantage that you have of doing this is that all of the money that you deposit into this account can grow entirely tax-free. This means that if you invest a thousand dollars into this account and it eventually grows into ten thousand dollars, in basically any other scenario, if you were to sell, you'd end up paying taxes on whatever that profit would be. And taxes suck!

But in a Roth IRA, you can have all of your profits completely tax-free after the age of 59 and a half. Hopefully, you're watching this when you're young, and by that time that you're older, you're gonna have a ton of money waiting for you completely tax-free. For example, if you contribute four hundred dollars per month into a Roth IRA beginning at the age of eighteen, and you average a 7% return, by the time you're 59 and a half, you will have just about 1.2 million dollars completely tax-free. All of that from investing just one hundred dollars per week!

Even more remarkable than that, if you contribute the maximum of six thousand dollars per year beginning at the age of 18, and again averaging a 7% return, by the time you're 65 years old, you will have about 2.1 million dollars completely tax-free just from a $6,000 per year investment! That works out to be $500 per month, and I'll show you exactly how you can go and do that.

Also, one of the other huge advantages to doing this is that you can withdraw any money you contribute to that account at any point in time without paying any penalty on that money, and also without paying any additional taxes on that money. So for example, if you deposit and invest a thousand dollars into a Roth IRA, and all of a sudden it did really well, and it grows to $2,000, you can take out your original one thousand dollar investment at any point of time without any penalty, without paying any taxes, even before the age of 59 and a half.

This is really why opening up one of these accounts, to me, is an absolute no-brainer. Because even in the worst-case scenario, if you need to get your money back, simply just pull it out and there you go. The best time to really start and open up one of these accounts is now, when you're young. That's because you have the power of compound interest really working on your side. This means your money has more time to grow and make you more money, and that more money makes you more money, and that more money makes you more money, and then it's an entire snowball effect that keeps growing exponentially.

Just consider this: if you deposit just one thousand dollars 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 sixteen thousand dollars. However, if you invest that same $1,000 at that 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 fifteen thousand dollars. This means that 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. The other massive advantage of doing this when you're young, like I had mentioned earlier, is that you invest with post-tax money, meaning taxes have already been taken out of whatever money that you invest within this account. This means that when you're young, chances are you're not making that much money and because of that you're already in a very low tax bracket, which means you have more money left over after taxes that you can go and invest with.

As you get older, chances are you're going to be making more money, and as you make more money, you're gonna be in a higher tax bracket, which means that you're gonna have less money left over to invest after paying much higher taxes than what you're paying right now. So this strategy is really ideal for people about under 35 years old who aren't making a ton of money yet; therefore, they're not in a very high tax bracket. So take advantage of this now while not most of your money is going off into taxes.

Now here's exactly how you can go about doing this and exactly how it works. You can go online and set up a Roth IRA account through websites like Vanguard, Fidelity, or Charles Schwab. There's really a dozen accounts out there; it's really up to you to choose whichever one you want. I personally recommend either Vanguard or Fidelity, but it's really totally up to you.

If you're watching this and you're under the age of 18, you can absolutely still open up a Roth IRA. You will just need a parent to co-sign with you, and you're also going to need some sort of earned income. The entire process should really take you between ten and twenty minutes, and for the most part you can do it all online. Then once you go and open up this account, you then have the option to make investments within that account. Just remember that the Roth IRA is not the investment itself; it is just the account, just like you have a savings account or a brokerage account, and 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. Now in terms of what investments to make, I personally just 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.

Now, of course, every single time I say this and I see we should expect to see an average of a seven percent return, there's someone in the comments saying something like, "But Graham, the stock market last year was down 6% and you said that I would get a 7% return! You're lying! The stock market doesn't go up 7% every year! Dislike! Unsub!" And this is why I say, over the long term, we should expect an average annualized return of about 7%. Some years are going to be lower than that; some years might be negative; some years might be up 15% or 20%; some years might be down 10%. On average, we should see about a 7% return when you reinvest the dividends adjusted for inflation over the long term—not over one year, or two years, or three years.

But for everyone that wants to know what I do personally, for me, it's just VTI, S&P 500. I think I say that right. But anyway, that’s basically just what I do, and I invest in that, I forget about it; it’s very simple stuff. And you'd also have the chance to invest in individual stocks as well within the Roth IRA. That means that all of you Facebook, Amazon, Apple, Netflix, and Tesla lovers out there can still invest in those stocks within the Roth IRA and potentially get way higher than an average 7% return.

This is also the best place to invest with dividend stocks because all of your dividends will grow completely tax-free within that account. But unfortunately, I'm very sorry, you cannot invest in Bitconnect in a Roth IRA. Sorry to break it to you, but basically the sooner you start doing this, the more money you're gonna have in the long term. However, it's really important that you pay attention to this part because there are four rules with doing this that you really have to abide by.

The first one is that as of 2019, you're limited to the maximum contribution of six thousand dollars per year. You cannot contribute more than this. The second thing is that once you go and take your money out of this account, you cannot go and just put it back in. Once the money is out, it's out. You're limited to putting only up to six thousand dollars per year in this account if you're under the age of 50. So that means if you go and pull twenty thousand dollars out of this account, you can't just be like, “Well, let me put my twenty thousand dollars back!” Nope, doesn't work like that.

Now, the third rule is that if you take out any of your profit 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. 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 twenty 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 twenty thousand dollars a year.

So this means you will have to do what's called a backdoor Roth IRA. Just if I chance off, you're making over a hundred twenty grand a year, you can just go and Google this: “What is the backdoor Roth IRA?” It's very simple to do! Not gonna get into it; that would be too much explaining. But anyway, very simple—just Google backdoor Roth IRA if you make over a hundred forty 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. Oh, and also the fifth rule is to check the link in the description because guess what? We officially got merch! We got dislike unsub hats, do epic hats, hoodies, t-shirts, everything else! So don't check that out—that's the only plug here.

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: $12 a day obviously works out to be three hundred and sixty dollars per month or four thousand three hundred and twenty dollars a year. Invest that amount consistently over 41 years, and an average rate of return of seven percent, and that is going to be worth 1 million sixty-one thousand and two hundred and twenty-nine dollars, completely tax-free!

Even if this is literally your only investment and you just invest three hundred and sixty dollars per month consistently, you're gonna be setting yourself up for a pretty comfortable retirement completely tax-free. And for probably 99% of you watching this right now, this is all something you could pretty much do immediately! Look, like right now, like as soon as you're done smashing that like button and subscribing to my channel if you haven't subscribed already. This is literally something you can do in the next like 10 to 20 minutes.

And 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 had 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 or 22. I stumbled across this; best decision I've ever done! And then I'm like, no one tells you this stuff!

So this is the video that's like that I wish I could have seen when I was much younger. So anyway, you guys, thank you so much for watching. I really appreciate it. As always, make sure to smash that like button, subscribe, smash that notification bell so YouTube notifies you anytime I post a video. Also, feel free to add me on Snapchat and Instagram. I post pretty much daily, so if you want to be a part of it there, feel free to add me there. Thank you for watching, and until next time!