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The Power Of Compounding Interest With Self-Directed IRAs

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Roth IRA accounts are something special. Remember when your grandparents would tell you to take a coffee can and put all of your spare change into it? Before long, your money would grow. An IRA is very much the same; it grows year after year. To show you the simple, quiet power of compounding interest, I pose a question. If I offered you $100 per day for 30 days, would you take it? No hidden agenda; I’m simply giving away money. What if I offered you another 30-day option? This time, I give you one dollar on the first day, two dollars on the second day, four dollars on the third day…and each day the amount would double. With the $100 per day model, you would end up with $3,000 at the end of 30 days. Sound good? With the other example, you would end up with $536,870,912. I would rather be a multimillionaire after 30 days. How about you?

This is the power of compounding interest. With an IRA account, you invest in it— regularly. It doesn’t matter how much— it can be $25 or $50 per month. What matters is when you invest in it. The earlier you begin the better; you’ll have more money by the time you take it out. Roth IRAs can be tax-free if done correctly. Almost every single investment in which you earn a return is subject to this tax in the United States. Since a Roth IRA is a retirement account that is funded with post-tax dollars, you are not subject to capital-gains tax when making your investments. The catch is you can’t touch it until you turn 59½ without a penalty. At that time, you’ll have a nest egg built up. Not only have you been investing every single month for years, but the account has gained interest—often at a higher interest rate than other types of investment accounts, like a typical savings account.

You have to be patient. Patience is key when it comes to IRA accounts. It takes a while to start seeing a healthy retirement account in there, but the more you have, the more you’ll end up with. The less you have it in it at any given time, the more time it will take to start gaining momentum. It is a snowball effect—the bigger the snowball, the faster it goes downhill. As it goes, it picks up speed and more snow. When it comes to retirement accounts, bigger is always better. Don’t go at it alone. iPlanGroup is well-versed in IRA accounts, and can help you set it up right the first time. The earlier you start investing, the better your retirement can be!