5 Ways Young Adults Can Become Millionaires: Levine, Johnson

Consider and utilize Roth accounts.

Buckingham’s Levine noted the importance of maximizing tax-wise investing.

While one investing choice doesn’t necessarily apply to everyone and every situation, young adults in general would do well to put their earnings into Roth IRAs or 401(k) accounts, which offer tax and other advantages, according to Levine, Buckingham’s chief planning officer.

With traditional IRAs and 401(k)s, employees save on taxes when they put money in but must pay years later when they withdraw from their retirement accounts, he noted. In contrast, Roth IRAs and 401(k)s provide no up-front tax savings but allow individuals to withdraw funds tax-free.

Young people as a general rule probably have the easiest decision on this choice, as their income is lower now and a tax deduction wouldn’t be worth as much to them, Levine explained.

Assuming their income rises, their tax rate will likely rise, giving them a higher tax rate later when they need the money, he said.

A Roth retirement account, therefore, is generally a superior option, as it allows taxation at the current rate, not a higher future one, he said, noting that it essentially is a pre-payment on a future tax liability.

Roth IRAs offer another important advantage. With a Roth IRA, a young person can change their mind without any tax consequences, Levine said.

Any contribution can be withdrawn at any time for any reason 100% tax- and penalty-free — regardless of age or how long the money has been in the account, he explained.

This should eliminate any fear about possibly needing the money before retirement, Levine said. He advised talking with a financial advisor or tax professional because not everyone’s situation is the same, but for most young people the Roth account is the way to go, he said

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