Why Young Optometrists Need to Open a Roth IRA Today

Open a Roth IRA Today 2 (1)

I expect you heard this advice from a family member, professor or mentor at the beginning of your career— start saving for retirement as early as possible. That means you and that means now.

It’s not that complicated, there are mind blowing rewards for starting early and you don’t have to be an investment guru to be successful.

A Roth IRA is the best retirement savings vehicle for the early stages of your career. Why… because you’re going to be a high wage earner which will eventually disqualify you from future contributions.

Based on IRS rules for 2015, you can no longer deposit money into a Roth account after your individual income reaches $131,000 a year or $193,000 for a married couple.

So if I’m guessing right—you may be able to contribute to a Roth IRA for 5-10 years before your income level forces you into another tax-deferred plan such as a traditional IRA or 401K plan.

So what happens to your Roth IRA after you can no longer contribute? Two great things.

You get to keep it and if you make sound investments, you get to watch it grow.

Let me walk you through a simple savings plan and show you the long term rewards.

I know you’re just getting started in your OD career and money is tight— but let’s say you can make a few sacrifices and set aside $100 a month. You save that amount for 6 years putting $7,200 in your account before your income level knocks you out of the program.

Before I go any further, let me emphasize this is just the beginning few years of your retirement savings plan. You need to set aside retirement money consistently and much more aggressively in future years.

Your $7,200 investment with a 7% annual return has already grown to $9,184.83. Now, you keep that money untouched a Roth IRA, adding no additional money over the next 40 years while continuing to average a 7% annual return on investment (that’s in-line with historic long-term gains for the stock market.)

Somewhere between the ages of 65-70 you decide withdraw your money for a dream vacation.

Well get ready to see the world because you’ll withdraw $137,538 TAX FREE.

Here’s a few beautiful facts about your Roth earnings:

  • Because you invested with post-tax dollars you won’t pay one cent of tax on that $100,000 of profit. If you would have followed the same savings program with a traditional IRA or 401K, you’d be on the hook for ordinary income taxes on the entire amount.
  • You can take out the money any time you want after age 59 ½ with no penalty. You can take all of it or part of it.
  • You are not forced to take minimum distributions at any age. With a traditional IRA or 401 K you must start withdrawing and pay taxes on a percentage of your savings after age 70 ½ or pay substantial penalties.

Now, let’s say you save like crazy early in your career and manage to make the maximum allowed contribution of $5,500 dollars annually for those first six years.

In 40 years— your initial $33,000 investment (now $42,097.12 with a 7% annual return) will grow to $630,381 TAX FREE.

I’d start off with a few stocks of high quality emerging companies that have a good chance of lasting the next 20-40 years. Go with best of breed, quality names that you recognize as industry leaders. As your other retirement accounts and overall wealth grows, I’d encourage you to speculate a little more in your Roth account.

Nothing wrong with setting aside a small percentage of your funds to try and score big on a few hot emerging companies.

Let’s take Netflix as an example. From 2010 to 2015 the stock price increased 350%. Remember, we’re talking about tax free profits in your Roth IRA.

If you’re deeply interested in the equity markets and want to make your own investment decisions you can open an on-line Roth IRA account at TD Ameritrade, E Trade or many others (although as your career progresses and you build more wealth, I highly recommend you hire an investment advisor.)

If, like most busy professionals, you don’t have the time or inclination to follow the markets daily and diligently research each of your investment ideas, then consider working with a Registered Investment Advisor (I happen to know one.) Send me an e-mail if you’d like to explore getting started.

Imagine how much future wealth you can build by making a few simple sacrifices now. How about something easy like skipping an expensive cup of coffee once or twice a week? Yes, it will cost you something to get started now— but it will cost you more if you don’t.

Dana Beards | Registered Investment Advisor | Desert Capital Management Group

Dana Beards is a Registered Investment Advisor with Desert Capital Management Group in Sacramento. Previously he worked in University and Student Relations for VSP and helped to establish and grow student business clubs at all the colleges of optometry. The clubs support and encourage optometry students who aspire to be small business owners. Dana continues to serve as Executive Director of Solution, a 501 C3 organization that support leaders of the student business clubs at all 21 US Colleges of Optometry. His email address is danabeards@outlook.com.

About Antonio Chirumbolo

Antonio Chirumbolo
Antonio Chirumbolo, OD, is Associate Director of Marketing at CovalentCareers. Antonio's focus is in the world of digital publications and healthcare marketing, with special attention on content creation, management, and development.


  1. Ryan Barlow

    Graduating with +$200k of debt. Trying to decide whether to ‘Dave Ramsey’ the debt to kick it in 6 ish years, or do something like REPAYE, pay the minimum and forget about it while I invest like mad instead, taking advantage of compound interest. This article makes me wonder, what if I combined the two – invest like mad for 5 years, and then sit back and kick the debt after that while my initial investment grows. I’ll have to do the math on that and see with which way I’d be more ahead in the end.

    • Rahul M. Gupta, O.D., F.A.A.O.

      What would be your investment plans, and how likely do you think it is the return on these investments will outpace the interest on your debt? Your decision will depend on your answer to this question, and this answer will depend upon your conception of the state of domestic and foreign economies.

    • Adam Cmejla

      Ryan, you’re correct that the best way to determine this is by looking at the math of the rate of return on your investments compared to the interest rate on your loans. I illustrate the benefit of saving early and starting the nest egg as soon as possible in my article posted here about saving for retirement first in lieu of paying down debt. My last article, which will be posted here in the near future, will address a variation of your question and philosophy.

      It really does come down to running the numbers through some financial planning software. There is no black and white answer. Congrats on having the discipline to ask the question and motivation to want to take action!

    • Joanna Daly

      Personally, we are doing the Dave Ramsey way, and we do not regret it at all. We’ve found that when we try to do too many things with our income, it’s like trying to chase 5 rabbits- they ALL get away. Instead, we are focusing on one debt at a time, attacking it like crazy, then focusing on the next one.

      Yes, “math-wise” it may make sense to invest while paying off debt, but we’re forgetting about the RISK factor. We still have 200k left of student loans, between me and my husband, and the possibility of getting injured and not being able to work or getting laid off is always looming in the back of our minds. But when we kick all this debt to the curb in a couple years, THEN we can aggressively put money into retirement. What a peace we’ll feel when we know that, even if something happened to us and we weren’t working, we wouldn’t be racking up interest on unpaid loan balances.

      My husband and I have decided together that we hate all kinds of debt, even “good debt” like student loans and mortgages. 6.8% on $200k is not fun math. Dave Ramsey once asked a caller “if you had a PAID FOR HOUSE, would you borrow money against it so you can invest? No, because there’s risk involved.” Not paying off your student loans so you can invest is the same concept.

      But some people are okay with keeping debt so they can invest, and you will have to decide that for yourself. Proverbs 22:7 says that “the borrower is slave to the lender” and I hate being enslaved by my student loans’ banks, so for me and my house, we will be getting rid of our debt first before any investing 🙂

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