Want To Invest Money Like Rich People? Here Are 3 Accounts They Use
According to a recent Charles Schwab survey, Americans believe it takes a net worth of $2.2 million to be considered wealthy — “But among the 48% of Americans who feel wealthy today, the average net worth is $560,000.” In this current landscape of inflation, rising housing costs, and job instability in many industries, it may not seem like saving or investing is a viable option.
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However, with the right planning accompanied by smart financial decisions, it can happen. Most millionaires in the U.S. come from “families at or below middle-income level,” according to a Ramsey Solutions survey with over 10,000 millionaire participants.
“The overwhelming majority (79%) of millionaires in the U.S. did not receive any inheritance at all from their parents or other family members. While 1 in 5 millionaires (21%) received some inheritance, only 3% received an inheritance of $1 million or more,” the survey claimed. If your goal is to reach the millionaire status, here are three ways the rich make their money grow that average investors can enact, too.
Use Roth IRAs To Enjoy Tax Advantages
A Roth IRA is an attractive retirement account — when certain requirements are met, you can withdraw tax-free, keeping more of what you earn. “Roth IRAs do have income limits, but that doesn’t mean wealthy people and high earners don’t use them,” per Business Insider.
“A backdoor Roth IRA can turn a traditional IRA into an account with the tax benefits of a Roth IRA, transferring the funds from one type of account to another. While there may be taxes involved on any growth as you transfer the accounts, this method offers the opportunity for those earning above the income limit to contribute to a Roth IRA,” Business Insider detailed.
Learn More: 5 Ways To Become a Millionaire in Your 50s
Rich People Use Employer’s 401(k) to Build Wealth
A 401(k) account is one of the top ways people save up for retirement, including millionaires. Eight out of 10 millionaires invested in their company’s 401(k) plan, per the Ramsey Solutions survey. “That simple step was a key to their financial success.”
The Wealthy Use Brokerage Accounts
With a brokerage account, you can buy and sell various investments like stocks, mutual funds, bonds, and more. It is a good option for people who want to retire early because there aren’t limitations of reaching a certain age or meeting specific requirements to withdraw tax-free (at least in the case of certain retirement investments) like other investment accounts.
“Retirement [brokerage] accounts are tax deferred, meaning you pay no taxes on any earnings within the account. Instead, you may owe taxes when you withdraw the money from the account. Nonretirement brokerage accounts – also called taxable brokerage accounts — don’t have the same tax-deferred advantage. In these accounts, ‘investment earnings and capital gains are taxable income to the account owner in the calendar year when they happen,’ said Jeff Craig, senior wealth advisor and a principal of The Colony Group,” as detailed by U.S. News & World Report.
Millionaires use brokerage accounts for low-cost index funds. “Buying and holding index funds in a brokerage account, it’s possible to keep and grow wealth over the long term,” according to Business Insider.
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