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This post is part of A Simplified Roadmap to Financial Freedom. Discover the full guide and past steps in the Your Money category.

Imagine this: you’ve got your 401(k) humming along, contributions are automatic, and you’re building serious momentum. Now it’s time to add the next investment vehicle to your roadmap: the Roth IRA (or Traditional IRA). IRA stands for Individual Retirement Account.

The Different Types of IRAs

For this post we will be looking at the Roth IRA. Before we zoom in on the Roth, let’s look at the main IRA options available:

1. Traditional IRA

• Contributions: Often tax-deductible (depending on income and access to a workplace retirement plan).
• Growth: Tax-deferred — you don’t pay until you withdraw.
• Withdrawals: Taxed as ordinary income.
• Best for: Those who want a tax break now and expect to be in a lower tax bracket later.

✨2. Roth IRA

• Contributions: After-tax (no deduction today).
• Growth: Tax-free.
• Withdrawals: Contributions can be pulled anytime, and earnings are tax- and penalty-free after age 59½ (and 5 years).
• Best for: People who value tax-free retirement income or expect higher taxes later.

3. SEP IRA

• For: Self-employed or small business owners.
• Employer-funded only (you contribute as “the employer” for yourself).
• Higher contribution limits than Traditional or Roth.

4. SIMPLE IRA

• For: Small businesses with ≤100 employees.
• Contributions: Both employee and employer.
• Simpler alternative to a 401(k).

5. Solo 401(k) / Solo IRA

• For: Self-employed with no employees (except spouse).
• You contribute as both “employee” and “employer,” which allows very high contributions.

👉 For this step in the roadmap, we’re focusing on the Roth IRA because it complements a traditional 401(k) and gives you tax-free withdrawals in retirement.

Why a Roth IRA?

Tax-Free Growth + Withdrawals – Once the money is in, it grows without taxes dragging it down. And when you take it out in retirement, it’s all yours, tax-free.

Avoid Higher Tax Brackets Later – Right now, you might be in a lower tax bracket than you’ll be in 20–30 years. By paying taxes now, you protect yourself from potentially higher taxes in the future.

Penalty-Free Use for Certain Life Events – While the goal is to let your Roth ride until retirement, there are unique benefits:

• You can always withdraw your contributions (not earnings) anytime without penalty.
• Up to $10,000 of earnings can be used for a first home purchase.
• You can also use it for qualified education expenses.
• Exceptions exist for disability or certain hardships.
• These features make the Roth flexible — though ideally, you’ll leave it untouched and let compounding do its work.

How to Get Started

Opening a Roth IRA is simple. Fidelity and Vanguard are two popular and trusted platforms. Most platforms will offer different options when enrolling and you have choices:

• Hands-off approach: Most providers offer a variety of funds, such as target-date funds. When you enroll, you’ll answer a few simple questions about your risk tolerance (conservative, moderate, or aggressive), and the platform will automatically set your investment strategy. Many platforms also offer online assistance if you’d like extra guidance, which is a benefit if you are unsure how to move forward. Once your strategy is set, everything runs automatically — unless you decide to make changes later.
• Hands-on approach: Later, you might explore index funds, ETFs, or customizing your portfolio. But that’s for another step.

💡 For full transparency: managed funds often have hidden fees that eat into your returns over time. Don’t stress about this now — you can adjust later. The key today is just to open the account, fund it, and get moving.

How Aggressive Should I Be?

The good news is you already have an emergency fund and little to no debt. That fund is sitting safely in a high-yield savings account or money market account, earning interest and giving you peace of mind. We built that foundation so you could sleep well at night, knowing life’s day-to-day problems won’t derail you.

With that safety net in place, it makes sense to start putting money toward your future self — and trust me, your future self will thank you for it. I used to feel nervous about taking risks too, so I decided to increase my emergency fund until I felt truly comfortable. Once I did, I had no hesitation about focusing on long-term growth for myself and my family.

And here’s another benefit: with a Roth IRA, you can always withdraw your contributions (not the earnings) if you truly need them. That flexibility makes investing feel less risky and gives you more confidence to take the step forward.

Fiduciary vs. Money Manager

When you’re seeking advice, knowing who to trust matters.

• Fiduciary: Legally required to act in your best interest. Paid transparently (flat fee or % of assets). Their success = your success.
• Money Manager (or broker): Only required to meet a “suitability standard.” That means recommendations just have to be okay, not the best. They may push products with higher commissions or hidden fees.

💡Key Takeaway: Fiduciaries must put you first. Non-fiduciaries don’t always.

💡 Side Note: If you’re new to this, don’t hesitate to ask for help when setting things up. Even if you’re not ready to commit to a fiduciary, you can still use the support services offered by your chosen platform. Freeing yourself financially is about reducing stress, so take advantage of the tools available — and pair them with a little of your own research.

If you’d like to dive deeper into the definitions and understanding, check out:

👉Investing for Dummies (I recommend this as a start to understand concepts then you can branch out into strategy based books)

Automatic Payments + Dollar Cost Averaging

The easiest way to fund your Roth is with automatic monthly contributions. This takes the stress and guesswork out of investing and locks you into a proven strategy called Dollar Cost Averaging (DCA) — investing the same amount on a consistent schedule, regardless of what the market is doing.

Here’s why it works:

• When prices are low, your set contribution buys more shares.
• When prices are high, it buys fewer shares.
• Over time, this smooths out the ups and downs and reduces the risk of trying to “time the market.”

But beyond the math, automatic investing has a powerful behavioral benefit. We’ve already talked about budgeting, and one of the biggest challenges for couples is deciding how to use shared funds. Disagreements often happen because it feels like one person is prioritizing the future while the other wants to enjoy the present.

That’s where automatic contributions become a game-changer. By maxing out your Roth through monthly drafts, you remove the argument entirely. You don’t have to debate whether money is going toward your future — it already is. And when you do want to spend on yourself or your family, there’s less guilt, because you know your 401(k) and Roth IRA are already working hard for your future self.

Automatic investing builds discipline, reduces friction in relationships, and frees you to enjoy today while still securing tomorrow.

What Consistency Looks Like

Let’s put numbers to it:

• Age: 28
• Contribution: $7,000/year (max Roth contribution under 50)
• Growth: 8% average annual return
• Years invested: 37 (until age 65)

By retirement, that single Roth IRA could grow to about $1.1 million.

Now, let’s combine it with your 401(k) example from Step 3 (10% contribution + 5% employer match = $9,863/year). Over the same time frame with the same 8% return, your 401(k) balance could reach about $2.09 million.

Add the Roth IRA on top, and together you’re looking at roughly $3.2 million by retirement — and that’s without even touching future raises or increases in contribution limits (based on a $65k salary).

Where You Stand Now

At this point in the roadmap, here’s what you’ve built:

• ✅ Six months of emergency savings
• ✅ Debt paid off (outside your mortgage or a reasonable car loan)
• ✅ Automatic 401(k) contributions rolling in
• ✅ A Roth IRA funding your future with tax-free growth

You now have two powerful investment vehicles working automatically. And the best part? You’re doing it without constant stress or second-guessing — because you’ve built systems that let your money grow in the background.

The next step will unlock your third investment vehicle, further diversifying your path to financial freedom.

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