If you qualify, these can be excellent ways to self-manage your money and avoid as many fees and taxes as possible. For this scenario, I'm going to look at the Roth IRA for a person with 30 years to go before retirement.
I want to create a scenario here so that it may help you when you're trying to gauge your own situation. Let's assume our worker is single and will retire at age 59-1/2, the age at which you can start withdrawing from your Roth IRA without penalty or tax.
Let's also assume our individual in this example is 30 years old, giving her nearly 30 years to save. For our scenario, we'll say she makes $50,000 per year through her 30s, $60,000 through her 40s and $70,000 through her 50s.
While this may not be an overwhelming amount of money, this individual can make the money go very far by saving as little as 15% of it along the way.The first thing to remember is rather simple: Everyone is different. I chose a single, 30-year-old working adult because I'm focusing on individual retirement accounts. Plus, it's the most basic way to do this example. If you're married, the rules are slightly different. Depending on the income, the couple may or may not qualify for IRA contributions, which is also determined by how they file their taxes (individually or jointly). The tax rates could be different on the income, again depending on the filing. So while everyone's scenario might be different, the general philosophy of this article will remain the same: saving. So sticking with our example, I'm going to show how much money our individual will have after taxes are applied. I will assume she receives no tax refund or falls under any other "special" circumstances. Also, while the current 2013 tax rate would charge our individual 25% on her income, I will remove 28%, in an attempt to account for potential increases in the future.