Saving money has never been easy for most people, but putting money away for retirement has become more important than ever before. Money out of sight in an investment vehicle is safe and secure, and will allow you to relax as you keep working for now before you actually are ready to retire. Roth IRAs are personal retirement investment plans, and they have the potential to yield money for you that you’ll use later once you finally retire. But you can lose money in a Roth IRA, and need to tread carefully when expecting this type of financial plan to bring large amounts of passive income for you in the end.
Then how would you actually lose money in a Roth IRA? You can lose money if you get a penalty for early withdrawal, experience negative market fluctuations, or have not waited long enough for the money to compound.
Roth IRAs are meant to be set up and left alone. That is how they are able to grow money for you. Building your wealth is a slow and steady race, not a sprint to the finish line towards retirement. You need to understand how it all works, to avoid losing money with a tool that you expected to bring you great gains.
Of course, there are times that life happens and you need to withdrawal money from your Roth IRA. There can be as much as a 10% penalty fee attached to early withdrawals, but there are some exceptions. If you lose your job in the pandemic, need money to pay for your insurance premiums or experience another type of hardship, you can withdraw money on a hardship case exception.
Negative or downward market fluctuations are another reason that you might be losing money in your Roth IRA at this point. If the markets are taking a downturn, you and everyone else participating in the markets will experience some losses. Staying to play longer may not always be the best solution either, as with any market strategy, you need to know when to “fold ‘em.” Of course, the best advice in this area is to diversify your portfolio, just in case your Roth IRA starts trending downwards.
Generally speaking, if you are going to need any of the money that you have set aside for your retirement into the Roth IRA, then you should not tie it down that way beforehand. The Roth IRA is meant to be a long game, not a punt. If you are going to need the money for anything that might come up, then don’t invest in the Roth IRA, but make other arrangements instead.
Finally, you’ll need your money to sit in the Roth IRA long enough to compound for your investment. You can expect that over a short amount of time, you will lose a little and gain a little on the exchange. But over a long time, such as a few decades, you’ll definitely see your investment grow in long jumps, and the result will be highly satisfying for sure. Roth IRAs can be a great vehicle and tool to save money for retirement.
