Roth IRA: How College Students Can Save for Their Future
As a college student, you probably don’t have savings on your mind—let alone opening a Roth IRA. You have to juggle going to class, maintaining a social life and managing a tight budget. Putting any money away for the future is nowhere on your to-do list.
But if you put aside a small portion of cash from your summer job or paid internship into a Roth IRA, you can set your future self up for success. Here’s how…
What’s a Roth IRA?
A Roth IRA (individual retirement account) is the perfect savings option for the fast-paced lifestyle of a college student. To start saving, you just need a source of income from a job.
Any money you earn, you can freely put in and take out at any moment from the account without penalties. There are no penalties because the money that enters a Roth IRA is already taxed. That means if an unexpected emergency happens or a natural disaster hits, your funds are easily accessible.
However, Roth IRAs come with a few limitations. The interest generated is inaccessible without a fee. You’re also only able to put in as much money as you earn, and it’s limited to $5,500 a year.
What a Roth IRA Can Mean for a Student
As a student, you have the most coveted asset to a retirement plan—plenty of time. And the more time you have, the more you can save for retirement.
Roth IRAs grow savings through compounding interest. Compounding interest is the process of an initial sum growing each year to a new total sum that will then continue to grow into larger sums each successive year. That means if you put away $5,000, contributing an additional $1,600 annually, then by age 65 you will have saved $1,000,000 with an 8% compounding interest rate.
If you’re curious how much money you would need to contribute to a Roth IRA annually to reach a certain goal, there are online calculators to help.
Interested in a Roth IRA?
Remember, any money you put away in your Roth IRA will always be accessible. But the more money you contribute and the longer it’s committed to the IRA, the more interest you’ll gain. If you’re ready to start preparing for retirement, a Roth IRA may be the perfect answer to your long-term savings needs.