With summer ending, many young individuals are reflecting on their experiences from summer jobs or internships, including their first paychecks. This period of earning and learning is not only exciting for newfound independence, but we believe it is also an ideal time to consider opening a Roth IRA and contributing a portion of their summer earnings. Starting retirement savings early can be a valuable learning experience, instilling principles of saving, investing, and long-term wealth cultivation.

A Roth IRA offers a unique blend of tax advantages and flexibility, which, in our opinion, makes it an excellent choice for young savers. Here are a few key benefits:

• Tax-free growth: Contributions to a Roth IRA are made with after-tax dollars, so your child won’t pay taxes (and perhaps penalties) until they make withdrawals.
• Penalty-free withdrawals of contributions at any time: Your child can withdraw up to the amount of their total contributions at any time, for any reason, without paying taxes or penalties.
• Early withdrawals of earnings: If your child withdraws amounts that exceed their contributions before age 59½ or before the account has been open for five years, they may face taxes and a 10% early withdrawal penalty on the earnings portion of the withdrawal.
• Exceptions to early withdrawal penalties: Your child can withdraw funds before age 59½ or before the account has been open for five years for several reasons (you may avoid penalties but not taxes on any earnings), including:
  • Qualified higher education expenses 🎓
  • First-time home purchase (up to a $10,000 lifetime limit)
  • Disability ♿
  • Certain emergency expenses 🏥
  • Health insurance premiums during periods of unemployment 🩺

The flexibility and withdrawal options of a Roth IRA make it an attractive choice for young savers who might need access to their money in the future while still providing a powerful tool for building long-term wealth.

As summer ends, consider the benefits of a Roth IRA for your young savers and help them take a significant step toward securing their financial future.

Let us know how we can help! We are more than happy to meet with your kids to help kickstart their financial journey and get them excited about saving and investing for their future!

 

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Myles Zueger and not necessarily those of Raymond James. Every investor’s situation is unique, and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and investors may incur a profit or a loss. Changes in tax laws or regulations may occur at any time and could substantially impact your situation. While familiar with the tax provisions of the issues presented herein, Raymond James Financial Advisors are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Investments mentioned may not be suitable for all investors.