How a Visit to the Dentist Made Me Think About Roth IRAs
Read Time / 2 Minutes
Theme / Financial Planning
I spent time in the dentist’s chair recently, and as I was staring at the ceiling, I thought about the parallel between my dentist visit and Roth IRA retirement accounts. It is not as much of a stretch as you think.
Not that I took bad care of my teeth when I was younger, but I could have done better, and now I’m literally paying for it. I visit the dentist quarterly for cleaning, and in between visits I now use an electric toothbrush, dental floss, and a water pick filled with hydrogen peroxide. Apparently, the toothbrush and floss clean the food from my teeth while the hydrogen peroxide fights bacteria and inflammation. The dentist has been encouraging me for several years to go beyond just using a manual toothbrush, but I didn’t take her seriously.
And that is where the Roth IRA parallel comes in. A Roth IRA (Individual Retirement Account) is a retirement account funded with after-tax dollars, but it has tax implications for withdrawals.
1. You are always able to withdraw what you’ve invested without penalty or taxes (since you already paid taxes when you invested).
2. You can withdraw the earnings without penalty or taxes if it is a qualified distribution. The general rule for a qualified distribution is that it has been five years since January 1 of the first year a Roth IRA contribution was first made, and you are at least 59.5 years old.
3. After 59.5, you are exempt from penalties, but there could be a tax on earnings if the Roth account has not yet met the five-year rule.
4. The planning lesson here is to open a Roth IRA to get the five-year clock started, because when you open your first Roth IRA it satisfies the five-year requirement for all future Roth IRAs.
5. A Roth IRA is like an employer-sponsored Roth, but with more flexibility. Therefore, it is wise to roll over your employer-sponsored Roth to a Roth IRA since Roth IRAs have less restrictions regarding the five-year rule.
If I had been more diligent in caring for my teeth earlier in life, then my teeth would be less expensive today. Likewise, the earlier you open a Roth IRA the better you’ll be prepared for your financial future by avoiding unnecessary penalties and taxes.
Proverbs 27:23 encourages us to “Know well the condition of your flocks and give attention to your herds.” Have you opened a Roth IRA to start your five-year clock? Taking care of your investment flock today can contribute to a prosperous herd in the future.
Doug Hanson, MBA
Wealth Advisor
208.697.3699
doug@christianwm.com
