FOREWORD

What this book will do for you,
and what it will not

In my 25 years of experience in the financial and tax business sector, I have found that the Roth IRA plan is a good way to invest for retirement.  A Roth IRA can help you build wealth with tax-free income, while allowing you to use it for emergency funds if needed. As long as some basic rules are followed, the money can be withdrawn without paying any taxes or penalties. Because of its flexibility, the Roth IRA allows you to save for emergencies, college or major purchases.  If you do not use it for those purposes, then it can potentially become your source of retirement with tax-free growth.  When looking at it this way, you can see the tremendous benefit of having a Roth IRA and continuing to add to it.  I wrote this book after 10 years of listening to too many of my clients questioning or declining my offer to set up a Roth IRA. This was due to the misconception that the Roth IRA is undesirable because taxes must be paid on it in advance.

I believe individuals create wealth not by how much they invest, when they invest or what they invest in, but simply by the behavior of the individuals who invest. It is the consistency of the savings that helps creates wealth.

I have noticed during my years of financial and tax advising that many individuals become financially wealthy even though they started with nothing, did not inherit a dime, did not finish college and, in some cases, did not even finish high school. I am not encouraging that because I do believe education is one of the most important investments anyone can make. Some never made more than $30,000 a year, and with that much income even managed to put their children through private colleges. Why have they created wealth? Because they are the ones who bought a $25 or $50 (it did not matter how much) bond or stock every paycheck or put that amount in a savings account. According to the U.S. Census Bureau, Housing and Household Economic Statistics Division Last Revised: July 14, 2008, only 8.5% of all households in the United States have $500,000 or more in assets. See Appendix A to understand how much investing $50 a month over a long period would do for you. Obviously, the amount of wealth created will be different depending on the amount invested, but they still created wealth. They are among a few of the American population who are considered financially independent.

I believe the Roth IRA gives our generation (after 1998) even greater incentives to create wealth than the previous generation, but only if we use the opportunities that the government is giving us via the tax-free growth of Roth IRA and the availability of systematic investing.

The benefit of consistent saving, no matter how small or large is simply to have money for the future.  I am writing this book to be a simple guide, much like a recipe, for understanding the Roth IRA and its benefits.  Why so simple? The American public doesn’t need another several hundred page financial planning book they can’t remember why they picked up in the first place when they’ve finished it (if they ever finish it)!

Since the first publication of this book I have received many positive comments about the simplicity of the book. Many people have said it has been refreshing to read and they have been able to understand it without going through pages and pages of material.  However, I do have a few critics that say it is too simple. They would have preferred me to add another hundred pages so they felt as if they got all the technical answers.  Sorry, this book is not for those individuals.  I personally feel there is no reason to write a 200 or 300 page book about such a simple concept as the saving benefits of a Roth IRA. 

The first edition of this book was called “Roth IRA: Exploding the Myths, to Convert or Not”.  I have decided to change the title for this edition because I feel now that the book is not only about Roth IRA’s, but it is about accumulating wealth by using the Roth IRA tax-free strategy. 

There are two other ways to save tax-free.  One is investing in municipal bonds; the other is buying whole or universal life insurance.  However, both of these strategies are limited in their investment options.  While life insurance is a way to save tax-free, it is really an insurance product, not an investment option. 

The Roth IRA gives you many investment options when building wealth.  In order to use the Roth IRA to build wealth, you need to learn some of the basic rules; that is the intention of this book.  I have also added some other tax-saving options at the end of the book.  The purpose of this is to help save you money by making you aware of some of the deductions or tax credits you could potentially use; giving you more money to add to your Roth IRA savings plan!

The following information is designed to help you implement this important step for your financial planning. Based on a study completed by American Century Investment Company, an article in the April 7, 2005 issue of Business Wire, reported that: “On a 10-question test taken by more than 800 investors, knowledge of some of the most basic investment concepts is poor. Only 2 percent of the investors surveyed answered all 10 questions correctly. On average, participants selected about half of the correct responses on the multiple-choice test, which was to individuals who have investments outside of a company retirement plan.” Do not worry if you are not included in these minimal percentages because you are not alone. I believe that the overall percentage of Americans who truly understand the Roth IRA and its benefits is similar to or even lower than the percentage reported in the study, especially with so many pundits discouraging the use of the Roth IRA. People are blinded by the tax they would have to pay up front, which results in them overlooking the many benefits of the Roth IRA.

So what are some of the myths that people have, which keep them from having a Roth IRA or converting to a Roth IRA?

1. Some believe it’s too good to be true.
2. Most think a Roth IRA is an investment.
3. Many think Roth IRA’s are only good for young people.
4. Others have told them that if they are over 60 years old, they are too old.
5. Some believe they cannot trust the government to keep its word.
6. Many think their taxes will go up.
7. A few think their taxes will go down.
8. Some say, “I don’t want the government to get any of my money now” (even though some individuals would pay no income tax at the time of conversion)!
9. Some say, “I don’t want to pay tax on it now!  If my kids pay more taxes on it, I don’t care; that’s their problem.”
10. Others have said, “I did a big spreadsheet; it doesn’t make sense to do a Roth IRA’s conversion.”
11. Many do not want to do a Roth IRA because they believe that it was their Roth IRA that lost money in the past (although they lost money because of how it was invested, not because it was set up as a Roth IRA).
12. Many do not want to tie up their money.
13. Some believe they have to pay tax on it (again).

In the following pages, I will explain the theory behind the Roth IRA, its contributions and limits, its benefits, its lingo and clarify these myths. For those of you who are looking for a more technical explanation of the Roth IRA, this is not for you. In order to start a Roth IRA you do not need to know all the rules, just the basics. When you buy a television, do you need to find out how it works technically or do you buy it because it works?

For those who cannot contribute to a Roth IRA or do a Roth IRA conversion, this book will help you learn more about an IRA or 401(k) plan, and how to make informed decisions about investing or choosing the right advisor.

In summary:

• I will explain to those of you who qualify for the Roth IRA plan, the tax benefits of contributing to this plan.
• I will remove the myths and confusion that surround the Roth IRA plan.
• I will convince you that a Roth IRA is a great way to help accumulate wealth for retirement.

• I will change your old perceptions of an IRA as tax deductible and tax deferred. And, I will explain why a Roth IRA almost seems at odds with what we have been taught about an IRA.
• I will give you enough information so you can make decisions about what is important, but not so much information that you feel paralyzed when it comes to making a decision. I will cover many subjects, but will try to make the explanations as simple and as brief as possible.