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Roth IRA
Image By Kienma Prince

In this article, we’re talking about a really hot topic which is the Roth IRA. Of course, it sounds a little bit crazy but at $10 a day, you can become a millionaire by the time you retire. If you read this article until the end, you’re going to figure out what this is all about, how it works, why it’s so advantageous to start one, and if done correctly how it’s gonna make you a lot of money by the time you retire.

The question I get the most is something like this “hey Prince, I’m 21 years old I have two thousand dollars to invest, and I’m not sure what to invest it in. What would you do if you were me?” 

Well, this is my answer to you guys. If you want to be successful in life, and later have the financial security and the cushion to do whatever you want, then keep reading this article. By the end of it, trust me it’s going to make sense to you guys. I promise that the Roth IRA is not as difficult as it sounds. 

What Is A Roth IRA

Roth IRA stands for Roth individual retirement account. It’s a special type of account that you set up just for your retirement. The Roth portion of this piece is just named after a Delaware senator back in the 90s. He pioneered this account for the greater good of everybody. 

The biggest advantage that you have by investing within a Roth IRA is that your earnings in your profits grow tax-free. Yes, you read that right, tax-free. This means that when you retire, and you would draw all the profits and the earnings from this account, you don’t pay any taxes on it. 

There’s a famous saying that in the world or life there are two things that are unavoidable death and taxes. well, in this case, you can avoid some taxes if you have it in a Roth 

How It Works

This is a pretty magical account, and let me detail exactly how it’s gonna work. The way the Roth IRA works is after you open an account, I’ll reveal to you guys how to open an account later in this article. But, after you open an account the way that it differs from a traditional IRA, for example, is that in a traditional IRA you’re contributing pre-tax dollars and you’re going to be taxed later. 

In a Roth IRA, you’re contributing after-tax dollars. That’s basically, money that you’ve already paid taxes on. But in turn, you’re not going to be paying any taxes later on in life.

A Practical Example

To explain it better, here’s a practical example. Let’s say you’re 22 years old, and you just graduated from college. And you served your first job which for example, is a customer service job at a video game company like Facebook video game company. By the way, games run on Facebook. So, you’re a customer support representative making $35,000 a year. That means your tax bracket when you were 22 years old should be the 12% federal tax bracket.

That means the money that you’re making at the age of 22 was not taxed heavily, you’re taking most of it home. But by the time you retire when you’re 65, 67, 70, or whatever it may be, I assume that your tax bracket will probably be way higher than 12%. You’ll probably be making more money, hopefully, you’ll probably have more skills, your salary will be higher, and your tax bracket is going to be higher as well. 

If you have any earnings or any profit in stocks, or in types of investments that you’re going to withdraw later, if it’s not in a Roth IRA, you’re going to be paying taxes at your ordinary income rates. That’s a 35 or 37 % income rate if you’re in that higher tax bracket. 

The idea of the Roth IRA is that you take a little bit of a hit early on in life, but later on you’re not going to pay as much in taxes. When you’re young and your tax rate is relatively low, you want to be contributing to the Roth IRA. The reason is that later when you’re hopefully balling out at the age of 65, you and your tax rate are super high, that when you do withdraw your profits in your earnings, you’re not going to be taxed at such high rates.

How To Make Millions With $10 Per Day

Alright, now that you understand the tax advantages of the Roth IRA, let me explain to you how you’re gonna make a million dollars just from ten dollars a day.

Contributing money to a Roth IRA is pretty simple once you have a Roth IRA open. All you have to do is transfer some money into it. That’s called a contribution. There are some limits to contributions, you can only contribute up to $6,000 per year into your Roth IRA under the age of 50. Over the age of 50, you’ll be able to contribute $7,000 a year to your Roth IRA. These are the rules as of 2020 till date according to the IRS

The reason why they have a $7,000 versus $6,000 for someone that’s over the age of 50 is a catch-up mechanism. They kind of want people if they are behind on their Roth IRA contributions, to have a little bit of an advantage. They can catch up a little bit by contributing a thousand more dollars per year.

But, do you even need to contribute $6,000 a year? The answer is no.

Related: 10 Investing Must-Do’s When You’re Young To Build Wealth

The Power Of Compounding

At $10 a day, you can become a millionaire if you start early enough. $10 a day is $3,650 a year, and I’m going to show you how compound interest can help you get to the millionaire ranks fast, by contributing $3,650 a year compounded annually. You’re going to take advantage of compound interest.

Compounding that $3,650 annually at an eight percent rate, you will get to a million $1.1 Million by the time 40 years is up. If you contributed the maximum every year, you’re going to have close to two million dollars ($1,808,034) adjusted for inflation.

If you noticed in the examples above, I assumed an 8% annual return. Let me guess, you’re probably wondering “hey Prince, where do I get an 8% annual return from?” 

Let’s find out.

What I’m going to tell you is that the S&P 500 broad index has averaged an annualized return of 10.5 % for the last 40 years according to Investopedia. Basically, with dividends reinvested, it’s been averaging 10.5 %.

Now, if you don’t know what an index fund is it’s just a financial vehicle, that is a collection of stocks. Instead of buying the whole S&P 500 index, you can just buy that index fund, and you can own a small percentage of each stock within the S&P 500. If you just invest in a broad index S&P 500 fund in your Roth IRA, as long as the market continues to average what it’s been averaging for the past 40 years, I don’t see why wouldn’t. You’ll be able to achieve even more than the eight percent earlier discussed in your Roth IRA, and become a millionaire just from contributing $10 a day.

Why It Should Be Tax-Free

Now, how important is the fact that it’s tax-free?

Well, it’s very important. Let’s look at an example if I invested $6,000, and I made $144,000 on that initial investment over 40 years. And I didn’t hold it on a Roth IRA account, well, I would be responsible for long-term capital gains on that profit. Those long-term capital gains could amount to over $35,000 in just taxes if I didn’t hold it in a Roth IRA account.

So, if I just held it in a normal brokerage account, I would owe those taxes, and I don’t like paying taxes, I don’t think you like paying taxes, I don’t think anybody likes paying taxes.

Where Open A Roth IRA Account

Alright, this thing sounds pretty great right. Where do you open one of these accounts? 

Well, I think Vanguard and Betterment, are easy-to-use websites. You can also use someplace like Fidelity and a ton of other places that have Roth IRA availability.

Note This

Now, I will say this. When you do start a Roth IRA, it is not the actual investment. The Roth IRA is not the investment. It is just simply the account in which you would put money, to buy an investment. Basically, you can transfer money into your Roth IRA, but you’re, in fact, if you’re not buying anything in that Roth IRA, nothing happens.

You actually have to transfer money from your say, your checking account into your Roth IRA, and after it’s in your Roth IRA, that’s when you go and buy let’s say, for example, the example we’ve been using today our broad index S&P 500 funds.

Benefit Of A Roth IRA

I do want to touch on some benefits that the Roth IRA actually has, one of the benefits is that you can withdraw any of your contributions at any time with no penalty. Let’s say you’ve invested $6,000 into your Roth IRA for the past ten years, so the total is $60,000 invested in a Roth IRA. Your contribution is not your profit, by the way, you’re able to withdraw that at any time with no penalty at all in case you need that money.

This is a retirement account, so if you do withdraw any of the money before the age of 59 and a half, you have to pay a 10% penalty and you’re taxed on the profit as ordinary income. DO NOT invest in a Roth IRA if you’re planning to use this money in the next 10 years, and you’re not even close to retirement.

Don’t get this mixed up with other investment strategies, that promise to get you rich in the next two hours. In general, I don’t believe in those at all. This is a more steady, slow, and consistent way to build a million dollars over a long period. It’s proven to work and it’s going to work if you just follow these steps.

How To Avoid The 10% Penalty

There are some methods to avoid that 10% penalty that the Roth IRA charges you if you would draw before the age of 59 and a half, and those are for some special situations.

1. First, you can avoid the penalty if the withdrawal is due to disability or financial hardship

2. You can withdraw up to ten thousand dollars of your profit if it’s for your first-time home purchase, which is pretty nice.

3. If you happen to pass away, and God forbid, I hope that nobody dies that’s reading this. But if you do happen to pass away, your beneficiary can withdraw all of your Roth IRA without any penalty.

4. Lastly, there are some income limits on the Roth IRA. If you make more than $137,000 a year individually, you cannot contribute to your Roth IRA. Now, if you are making that much money, you can still contribute to your company 401k or in some cases the traditional IRA.


I firmly believe that this is something you have to do right away, and it’s never too late to start one.

If you’ve read until this point of the article, it is necessary to start a Roth IRA in my opinion. This is something that you can do immediately, right away, and take control of your financial future.

Alright, guys, that was it. Thanks for reading this article and visiting my blog, I hope that this article was informative for you guys. I would love to see you guys in the comment section, please leave me a comment I love to hear from you also.

If you guys want, you can add me on Instagram or Facebook, and I’d love to hear from you guys there as well.

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