If you’re lucky enough to have the means to save for retirement, you may have at some point started a Roth IRA, a retirement savings account that anyone can save money in, provided they’re below a certain income threshold. Maybe you set some kind of default contribution to it at some point, but unless you were really paying attention to what it does, you probably haven’t given it a ton of thought since.
Many people know you can save money in these accounts, but fewer people know that money can be—needs to be!— invested from within the account in order to grow, by buying stocks, index funds, bonds, whatever your personal taste in “good investments” is. And, apparently, you can make a shitload of money—$5 billion to be exact!—by investing it correctly, a la cartoon super villain Peter Thiel.
On Thursday, ProPublica reported that Thiel grew his Roth IRA, with an initial investment of only $2,000, into a $5 billion fortune by making his retirement account into a “supercharged investment [vehicle] subsidized by American taxpayers” through a slick, heavily discounted purchase of his own founders’ share of PayPal stock in 1999 which turned into millions of non-taxable dollars within the year, a number that bloomed into the billions by 2020 thanks to a bunch of other sleights of hand too complicated to get into here.
Are you a financial titan and Silicon Valley insider like Peter Thiel? Probably not; if you don’t have early knowledge of a soon-to-be multimillion dollar investment opportunity that you can avail yourself of in a potentially unethical fashion, it’s somewhat harder to make a big score on a modest little Roth. But that doesn’t mean you should set and forget your Roth IRA contribution without also setting up investments for it, especially because investment earnings you make from it are yours, totally tax-free (once you retire).
The money you put in is (and maybe already has been) subject to typical income tax, but according to NerdWallet, “Roth IRAs are a smart savings tool for young people just starting out, because they’re likely to face higher income tax rates as they move along in their careers.” According to Investopedia, the kind of stocks you’d want to put your Roth IRA funds towards when you’re younger are either income-oriented or growth stocks—the former will regularly pay out dividends, swelling your Roth IRA pot, while the latter is a bet on soon-to-be-hot companies on the verge of blowing up a market with a buzzy new product or service.
One catch? There are lots of rules about taking money out of the account before you retire without getting a tax hit (not impossible, but tricky). Another catch? You’re participating in some full-throated capitalism, babyyyyy! Still, if you were curious enough to dip your toes into investing in January’s GameStop situation, it might be worth shopping around for a broker and seeing what, exactly, a Roth IRA can do for you. If you, like some of us, weren’t previously aware your Roth money is made to be invested, there are plenty of guides on how to get started.
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