Thursday, September
9 2010
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Thursday, September
9 2010
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Announcing a new acquisition!!
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What's New at Forte for the year 2009 August 2009 - Why Every College Freshman Should Start a Roth IRA By Forte News Department At no time since the Great Depression have college
students worried more about money. Tuition continues to rise, financing sources
continue to contract. So why should a student worry about finding money for, of
all things, retirement? Because even a few dollars a week put toward a Roth
IRA can reap enormous benefits over the 40-50 years of a career lifetime that
today’s average college student will complete after graduation. Take the
example of an 18-year-old who contributes $5,000 each year of school until she
graduates. Assume that $20,000 grows at 7.5 percent a year until age 65 – that
would mean more than a half million dollars from that initial four-year
investment without adding another dime. Consider what would happen if she added more. There are a few considerations before a student
starts to accumulate funds for the IRA.
First, students should try and avoid or extinguish as much debt –
particularly high-rate credit card debt – as possible. Then, it’s time to establish an emergency
fund of 3-6 months of living expenses to make sure that a student can continue
to afford the basics at school if an unexpected problem occurs. Certainly $5,000 a year sounds like an enormous
amount of outside money for today’s student to gather, but it’s not
impossible. Here’s some information
about Roth IRAs and ideas for students to find the money to fund them. The
basics of Roth IRAs: It’s good to start with describing the difference
between a traditional IRA and a Roth IRA and why Roths might be a better choice
for the average student. Traditional IRAs allow investors to save money
tax-deferred with deductible contributions until they’re ready to begin
withdrawals anytime between age 59 ˝ and 70 ˝.
Roth IRAs don’t allow tax-deductible contributions, but they allow
tax-free withdrawal of funds with no mandatory distribution age and allow these
assets to pass to heirs tax-free as well. If someone leaves their savings in
the Roth for at least five years and waits until they're 59 1/2 to take
withdrawals, they'll never pay taxes on the gains. For someone in their late
teens and early 20s, that offers the potential for significant earnings over
decades with great tax consequences later. Getting
started is easy: Some banks, brokerages and mutual fund companies
will let an investor open a Roth IRA for as little as $50 and $25 a month
afterward. It’s a good idea to check around for the lowest minimum amounts that
can get a student in the game so they can plan to increase those contributions
as their income goes up over time.
Also, some institutions offer cash bonuses for starting an account. Go
with the best deal and start by putting that bonus right into the account. It’s
wise to get advice first: Every student’s financial situation is
different. One of the best gifts a student can get is an early visit –
accompanied by their parents – to a financial advisor such as a Certified
Financial Planner™ professional. A
planner trained in working with students can certainly talk about this IRA
idea, but also provide a broader viewpoint on a student’s overall goals and
challenges. While starting an early IRA is a great idea for everyone, students
may also need to know how to find scholarships and grants and smart ideas for
borrowing to stay in school. A good planner is a one-stop source of advice for
all those issues unique to the student’s situation. Plan
to invest a set percentage from the student’s vacation, part-time or work/study
paychecks: People who save in excess of 10 percent of their
earnings are much better positioned for retirement than anyone else. Remarkably
few people set that goal. One of the benefits of the IRA idea is it gets
students committing early to the 10 percent figure every time they deposit a
paycheck. It’s a habit that will help them build a good life. Get
relatives to contribute: If a student regularly gets gifts of money
from relatives, it might not be a bad idea to mention the IRA idea to those
relatives. Adults like to help kids who
are smart with money, and if the student can commit to this savings plan rather
than blowing it at the mall, they might feel considerably better about the
money they give away. At a minimum, the
student should earmark a set amount of “found” money like birthday and holiday
gift money toward a Roth IRA in excess of the 10 percent figure. August 2009 — This column is produced
by the Financial Planning Association, the membership organization for the
financial planning community, and is provided by David W. Henion, CPA, a local
member of FPA. | ||||||||||||||
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