Why You Will Never Regret Opening A Roth IRA In College
If you’re in college you expect to make more money in the future than you’re making right now. Making more money means paying more taxes. When you retire a Roth IRA allows you to withdraw money without paying any taxes when you’re in that higher income bracket. This is exclusive to a Roth IRA retirement plan.
“A Roth IRA is an individual retirement account to which you contribute after-tax dollars and benefit from tax-free growth and tax-free withdrawals in retirement. This is a particularly valuable vehicle for young investors saving for retirement, as they can enjoy decades of tax-free compounding,” said Charles Kurtz, a representative at Vanguard (an investment management company).
You don’t pay capital gains taxes, you don’t pay dividends taxes, you don’t pay any taxes when you want to withdraw it (as long as you’re over the age of 59). You bite the bullet now when you’re in a lower bracket so you don’t pay the higher taxes in the future.
Most households choose either a 401K plan or a traditional IRA as their retirement plan. This plan doesn’t give you the pre-tax feature. Meaning you will have to pay even more taxes when you have your higher paying job.
You can contribute up to $6,000 a year. When you grow older as an investor your $6,000 can go up to thousands more due to compound interest. Depending on your knowledge of investing you can play the game more conservatively an invest in mutual funds, or if you’re confident in a specific company you can tryout stocks.
If you have a $1,000 you can open up a Roth IRA today by using a company such as Vanguard. There’s never a wrong time to plan for retirement, you could make more money in interest by starting one right now than waiting five years. You don’t even need to contribute the $6,000 maximum. Instead of paying for the Starbucks coffee why not make your coffee at home. Put the money you saved into this Roth IRA account.
If you are not experienced with investments, Kurtz recommends “Vanguard’s website has a wealth of tools and resources that can help clients select the investment options best suited to their needs and objectives. Of particulate note are index funds—both mutual funds and ETFs—as they provide broadly diversified, low-cost access to a variety of markets and specific market segments. 84% of Vanguard’s index mutual funds and ETFs have performed better than their peer-group averages over the last 10 years.”