One mistake that many young people make is thinking that they're too young to start saving for retirement. However, there are a lot of different options that make perfect sense for young people. A Roth account is one such product that you might consider, especially as a young adult.
Opening a Roth account is a brilliant way for young people to save up their retirement dollars. As they say, save a little bit now to take care of yourself later. Here are a few of the very best reasons that young people should start stacking away money into a Roth account right now.
1. Pay Less Taxes Upfront
With Roth accounts, you pay taxes on the amount that you contribute upfront. When you’re young and not making as much money in your career as you would be after several years of professional experience, this amount is usually low, so the tax responsibility isn’t too heavy. This is the only time that the Internal Revenue Service will take taxes, so no matter how much is contributed later on, additional amounts will be tax-free.
2. Keep Your Money
When you pay taxes on the amount that you initially contribute, this prevents the IRS from taking more of it later on. On the other hand, with traditional accounts, the taxes are deferred until retirement. Opening a traditional account means that you will have even more money coming out in retirement, when you’re likely going to be in a higher tax bracket.
3. Gain Experience with Financial Planning
If you’ve just started a new job, you may have the option of contributing to a 401(k)-retirement plan through your employer. This may be a good choice, but it may not. Talk to a financial representative at your bank or credit union to find out what a good option is for you. This allows you the opportunity to check out different products and gaining some valuable financial information for the future.
If your employer does offer a 401(k) match, talk to a finance professional about whether contributing up to your employer’s match and then rolling the remaining into an individual Roth account would be a smart move. There are a few ways that you can do this. Do your homework and talk to experienced professionals to find out what would work best for your situation.
4. Watch It Grow throughout the Years
One of the aspects of a Roth account that is most enjoyable is that when it’s opened as a young adult, you get to just sit back and watch your investment grow. For most recent college graduates, the tax rate is either zero or very low, so with a relatively minimal contribution, you have the benefit of watching your money grow as you gain more life experience. This can be immensely satisfying.
As a young adult, a Roth account can be one of the smartest ways to save up for retirement. Not only will you get to keep more of your money in your pocket, but you get the added benefit of making a plan and sticking to it early.