5 answers
Hannah
Student
Severna Park, Maryland
2
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Should I start a Roth IRA in college or when I get my first job?
#college-jobs #first-job
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5 answers
Kyle Upchurch
Program Management, Product Development
3
Answers
Austin, Texas
Updated
Kyle’s Answer
You should start a Roth IRA as soon as possible, if you have both (1) money that you can invest for the long-term for retirement and (2) earned income.
A Roth IRA is one of the most tax-efficient accounts available to investors. With a Roth IRA, contributions are not tax-deductible, but earnings can grow tax-free, and withdrawals are tax-free and penalty-free as long as you leave the money in your Roth IRA for at least 5 years AND you have reached age 59 1/2 (some exceptions apply).
In 2022, the contribution limit for anybody under the age of 50 is $6000. You must have "earned income" to contribute, so, if your earned income is less than $6000, your contribution limit would be your earned income.
A Roth IRA is easy to open at Fidelity, Schwab, etc.
Note that, for most people that have access to a 401(k) account with company matching, contributing to the 401(k) up to the level to get the maximum company match would typically be a higher priority than contributing to the Roth.
A Roth IRA is one of the most tax-efficient accounts available to investors. With a Roth IRA, contributions are not tax-deductible, but earnings can grow tax-free, and withdrawals are tax-free and penalty-free as long as you leave the money in your Roth IRA for at least 5 years AND you have reached age 59 1/2 (some exceptions apply).
In 2022, the contribution limit for anybody under the age of 50 is $6000. You must have "earned income" to contribute, so, if your earned income is less than $6000, your contribution limit would be your earned income.
A Roth IRA is easy to open at Fidelity, Schwab, etc.
Note that, for most people that have access to a 401(k) account with company matching, contributing to the 401(k) up to the level to get the maximum company match would typically be a higher priority than contributing to the Roth.
anahi diaz
54
Answers
Tempe, Arizona
Updated
anahi’s Answer
Starting a Roth IRA (Individual Retirement Account) is a commendable financial decision, and the timing depends on your individual circumstances. Here are some considerations for deciding when to start a Roth IRA:
### Starting in College:
1. **Early Contributions:**
- Starting a Roth IRA in college allows you to make early contributions. The earlier you contribute, the more time your investments have to potentially grow due to the power of compounding.
2. **Flexibility:**
- College contributions can be more flexible since you might not have as many financial obligations. This flexibility can be an advantage in establishing good savings habits.
3. **Educational Benefits:**
- Learning about investing and retirement savings early on can provide valuable financial education. It sets the foundation for making informed financial decisions in the future.
4. **Tax-Free Withdrawals:**
- Contributions to a Roth IRA are made with after-tax dollars, and qualified withdrawals in retirement are tax-free. Starting early allows you to benefit from tax-free growth.
### Starting with Your First Job:
1. **Stable Income:**
- Having a stable income from your first job can make it easier to contribute consistently to your Roth IRA. It ensures you have a steady source of funds for retirement savings.
2. **Employer Retirement Plans:**
- Some employers offer retirement savings plans with employer matching. It's advisable to take full advantage of any employer match before contributing to an individual Roth IRA.
3. **Financial Stability:**
- Starting a Roth IRA when you have a stable income and a clearer understanding of your financial situation can make it easier to contribute meaningful amounts.
4. **Emergency Fund First:**
- Ensure you have established an emergency fund before contributing to a Roth IRA. Having savings for unexpected expenses helps avoid tapping into your retirement savings prematurely.
### General Tips:
- **Consistency is Key:**
- Whether you start in college or with your first job, the key is consistency. Regular contributions over time can have a significant impact on your retirement savings.
- **Maximize Contributions:**
- Contribute as much as you can, up to the annual contribution limit. This maximizes the potential benefits of tax-free growth.
- **Invest for the Long Term:**
- Consider a diversified, long-term investment strategy. The goal is to grow your investments over time, taking advantage of compounding.
Ultimately, the decision to start a Roth IRA in college or with your first job depends on your financial situation and goals. Starting early offers benefits, but if your financial situation is more stable with your first job, that can be a good time to begin as well. Consulting with a financial advisor can provide personalized guidance based on your specific circumstances.
### Starting in College:
1. **Early Contributions:**
- Starting a Roth IRA in college allows you to make early contributions. The earlier you contribute, the more time your investments have to potentially grow due to the power of compounding.
2. **Flexibility:**
- College contributions can be more flexible since you might not have as many financial obligations. This flexibility can be an advantage in establishing good savings habits.
3. **Educational Benefits:**
- Learning about investing and retirement savings early on can provide valuable financial education. It sets the foundation for making informed financial decisions in the future.
4. **Tax-Free Withdrawals:**
- Contributions to a Roth IRA are made with after-tax dollars, and qualified withdrawals in retirement are tax-free. Starting early allows you to benefit from tax-free growth.
### Starting with Your First Job:
1. **Stable Income:**
- Having a stable income from your first job can make it easier to contribute consistently to your Roth IRA. It ensures you have a steady source of funds for retirement savings.
2. **Employer Retirement Plans:**
- Some employers offer retirement savings plans with employer matching. It's advisable to take full advantage of any employer match before contributing to an individual Roth IRA.
3. **Financial Stability:**
- Starting a Roth IRA when you have a stable income and a clearer understanding of your financial situation can make it easier to contribute meaningful amounts.
4. **Emergency Fund First:**
- Ensure you have established an emergency fund before contributing to a Roth IRA. Having savings for unexpected expenses helps avoid tapping into your retirement savings prematurely.
### General Tips:
- **Consistency is Key:**
- Whether you start in college or with your first job, the key is consistency. Regular contributions over time can have a significant impact on your retirement savings.
- **Maximize Contributions:**
- Contribute as much as you can, up to the annual contribution limit. This maximizes the potential benefits of tax-free growth.
- **Invest for the Long Term:**
- Consider a diversified, long-term investment strategy. The goal is to grow your investments over time, taking advantage of compounding.
Ultimately, the decision to start a Roth IRA in college or with your first job depends on your financial situation and goals. Starting early offers benefits, but if your financial situation is more stable with your first job, that can be a good time to begin as well. Consulting with a financial advisor can provide personalized guidance based on your specific circumstances.
James Constantine Frangos
Consultant Dietitian & Software Developer since 1972 => Nutrition Education => Health & Longevity => Self-Actualization.
6183
Answers
Gold Coast, Queensland, Australia
Updated
James Constantine’s Answer
Hey there, Hannah!
Kicking off a Roth IRA (Individual Retirement Account) is a savvy financial step that can pave the way for your future financial prosperity. The best time to begin a Roth IRA, be it during your college years or when you land your first job, hinges on your unique financial circumstances and objectives. Here are some crucial factors to ponder on:
1. Income and Tax Considerations: To be eligible for a Roth IRA, you need to have an income. So, if you're earning from a part-time job or an internship during college, you might qualify to contribute to a Roth IRA. But, if your college income is on the lower side and you expect it to jump once you kick-start your full-time career, it could be wiser to hold off until your income is higher to fully benefit from the tax perks of a Roth IRA.
2. Time Horizon: One of the prime benefits of launching a Roth IRA early is leveraging the magic of compound returns over time. By investing in a Roth IRA during college, you give your investments more time to flourish tax-free, potentially boosting your retirement nest egg. Conversely, if you foresee needing the funds for immediate expenses post-graduation or if you have high-interest debts to settle, it might be more sensible to tackle those financial priorities before diving into a retirement account.
3. Financial Goals and Responsibilities: Take a good look at your overall financial landscape and objectives. If you're grappling with student loans or other financial commitments, it might be more judicious to handle those first before setting aside funds for a retirement account. Plus, if your employer offers a 401(k) with matching contributions, it might be more advantageous to prioritize that over initiating a Roth IRA.
4. Education and Understanding: Before making any retirement account decisions, it's crucial to arm yourself with knowledge about the different types of retirement accounts out there, their tax ramifications, contribution limits, and investment options. Grasping these elements will aid you in making a well-informed decision about when to kick off a Roth IRA.
In a nutshell, the decision to start a Roth IRA during college or when you secure your first job is dependent on your personal situation. It's vital to weigh factors like income, time horizon, financial goals, and understanding of retirement accounts before making this call.
Top 3 Authoritative Reference Publications or Domain Names:
Investopedia
IRS.gov
The Motley Fool
May you be showered with blessings!
James Constantine.
Kicking off a Roth IRA (Individual Retirement Account) is a savvy financial step that can pave the way for your future financial prosperity. The best time to begin a Roth IRA, be it during your college years or when you land your first job, hinges on your unique financial circumstances and objectives. Here are some crucial factors to ponder on:
1. Income and Tax Considerations: To be eligible for a Roth IRA, you need to have an income. So, if you're earning from a part-time job or an internship during college, you might qualify to contribute to a Roth IRA. But, if your college income is on the lower side and you expect it to jump once you kick-start your full-time career, it could be wiser to hold off until your income is higher to fully benefit from the tax perks of a Roth IRA.
2. Time Horizon: One of the prime benefits of launching a Roth IRA early is leveraging the magic of compound returns over time. By investing in a Roth IRA during college, you give your investments more time to flourish tax-free, potentially boosting your retirement nest egg. Conversely, if you foresee needing the funds for immediate expenses post-graduation or if you have high-interest debts to settle, it might be more sensible to tackle those financial priorities before diving into a retirement account.
3. Financial Goals and Responsibilities: Take a good look at your overall financial landscape and objectives. If you're grappling with student loans or other financial commitments, it might be more judicious to handle those first before setting aside funds for a retirement account. Plus, if your employer offers a 401(k) with matching contributions, it might be more advantageous to prioritize that over initiating a Roth IRA.
4. Education and Understanding: Before making any retirement account decisions, it's crucial to arm yourself with knowledge about the different types of retirement accounts out there, their tax ramifications, contribution limits, and investment options. Grasping these elements will aid you in making a well-informed decision about when to kick off a Roth IRA.
In a nutshell, the decision to start a Roth IRA during college or when you secure your first job is dependent on your personal situation. It's vital to weigh factors like income, time horizon, financial goals, and understanding of retirement accounts before making this call.
Top 3 Authoritative Reference Publications or Domain Names:
Investopedia
IRS.gov
The Motley Fool
May you be showered with blessings!
James Constantine.
Dhairya Dalal
AI Research Scientist @ Posh Technologies
104
Answers
Boston, Massachusetts
Updated
Dhairya’s Answer
Hi Hannah,
Great question and good job being proactive with your finances. It's always a good idea to start saving early and a Roth IRA is great long term savings vehicle.
If you have money saved up today, it's not a bad idea to put away a portion into a Roth IRA. Just be careful that its money you won't require near future (e.g. bills or emergencies). Once you put money into a Roth IRA, you won't be able withdraw make withdrawals until the account matures around retirement age (currently 59 for Roth IRA). Technically you can withdraw funds earlier, but it'll be expensive as you'll pay penalty on top of the taxes for funds you've withdrawn.
If you want to be less risk averse, you can wait till you have a job and put save a portion of your paycheck to the Roth IRA. This way you'll be a steadier stream of income and more flexibility in how you save.
In general though, the earlier you start a Roth IRA, the better because of the compound interest effects.
Also here's my general strategy for finances which maybe helpful. I have four accounts.
- The first is my checking account, which my paychecks get direct deposited to. I like to keep enough money in here that I can pay bills for the next 2 -3 months (rent, electricity, and groceries). That usually accounts for about 50 % of my paycheck.
- The second is hight yield savings account. This is a different bank than my checking account, and the money in here I never touch. The interest rate on this account is about 1.5% and its main purpose to be emergency cash reserves. If I lose my job, or get injured and anything happens, this account will protect me. I usually deposit about 30% goes my paycheck here.
- The third is a Roth IRA and my companies 401k. 10% of my paycheck is automatically deposited to the 401k. And I try contribute the max allowed to the Roth IRA each year.
- The last is more riskier investment account. About 10% of my paycheck goes into an ETF funds managed by a robot (e.g. Wealthfront, Betterment, etc) that track the index. In general passive investing has shown to be very effective in the long run and generally a conservative strategy. However, in the short term the volatility of the market can have a direct impact on the funds. So I'm careful to put money here only after I saved cash for bill and my rainy day found.
Dhairya recommends the following next steps:
Bill Simonson CIC AFIS
Underwriting - Property & Casualty Insurance
24
Answers
Palm Coast, Florida
Updated
Bill’s Answer
The sooner you can start saving money for your retirement / future, the better off you will be. Keep in mind the Rule of 7 that states: the amount of time required to double your money can be estimated by dividing 72 by your rate of return. For example: If you invest money at a 10% return, you will double your money every 7.2 years. ... If you invest at a 7% return, you will double your money every 10.2 years.
If a 25-year-old who invests $100 a month in a Roth IRA for 40 years and earns a 12% average annual return. When that person retires at age 65, their investment will be worth just over $1 million.
However, if you start investing $100 per month at age 35, though, you’d only have around $300,000 by the time you reach age 65. “Those 10 years just cost you $700,000,”.
As you can see, the sooner you start investing...any amount of money, the better off you'll be down the road.
Good luck on your future financial success.
If a 25-year-old who invests $100 a month in a Roth IRA for 40 years and earns a 12% average annual return. When that person retires at age 65, their investment will be worth just over $1 million.
However, if you start investing $100 per month at age 35, though, you’d only have around $300,000 by the time you reach age 65. “Those 10 years just cost you $700,000,”.
As you can see, the sooner you start investing...any amount of money, the better off you'll be down the road.
Good luck on your future financial success.