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ROTH IRAs for College Students: Why You Need One

Updated: Mar 25

Affiliate Marketing Disclosure

Most students enter their college years as teenagers and leave as adults. Graduation symbolizes the transition to that next step, to the beginning of a career and pursuing one's passions.

But college can also be a great opportunity to set your self up financially for the rest of your life. And while this may not seem feasible, given the high cost of college and the magnitude of student loan debt across the country, college can indeed be a time that sets you up to thrive financially.

Starting to think about retirement even before you start your career can position you to spend more time in life with your family, focused on your hobbies, and doing what you love.

I was a college student with a ROTH IRA - actually, I started my freshman year with this retirement account already established. Here is why I think that you need to do the same.

What is a ROTH IRA?

A ROTH IRA is a type of individual retirement account that is tax-advantaged. Used by millions of Americans nationwide, ROTH IRAs allow you to make contributions on a post-tax basis, meaning that college students in particular may be able to experience decades of tax free growth. Better yet, these contributions, and the growth of your investments, may be withdrawn tax-free so long as:

  1. You are at least 59.5 years old at the time you begin taking distributions

  2. Your withdrawals must occur after a mandatory five year holding period

There are a couple of ways in which you may be able to get around there rules, though. Exceptions may be made to help fund the purchase of your first home, college expenses, and birth/adoption.

In 2022, you can contribute $6,000 in your IRA. In 2023, this figure will increase to $6,500.

Why college students should fund ROTH IRAs

College students nationwide should use some of their earnings from summer jobs, internships, and side hustles to begin funding and investing in a retirement account. Here's why.

Compound interest rewards those that start saving early. Consider a hypothetical college student that opens a ROTH at age 22 as a senior in college. This student begins contributing $5,000 a year, until age 65. In those next 43 years, assuming an average 9% rate of return, will leave you with an estimated balance of over $2.2 million. Don't believe us? Check it out for yourself, courtesy of Moneychimp's compound interest calculator.

Unfortunately, those that don't start early are unlikely to enjoy the level of financial flexibility. For comparison sake, somebody that waits until age 30 to start thinking about retirement, makes the same $5,000 in contributions, and earns the same 9%, will be left with a balance of less than $1.1 million.

In other words, forgoing retirement contributions in your 20s could cost you over $1 million come retirement time at age 65.

My experience

I opened my ROTH IRA my senior year of high school, when I was a pool maintenance technician, cleaning swimming pools all across Rhode Island and Southeastern Massachusetts.

I opened mine with Fidelity Investments once I had the required minimum contribution required. I think it was $1,000 or so at the time, but many financial services firms now allow you to open these accounts without immediately funding them.

I discovered pretty quickly that I was really passionate about preparing for retirement. Not because I am living my life away by any stretch, but because I want to spend as much time as possible enjoying life as it comes, rather than stressing about money.

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About Nathan Zarcaro

Nathan Zarcaro is the founder of The Student Debt Destroyer and is passionate about personal finance related causes.  A 2018 graduate of Providence College's Liberal Arts Honors Program, Nathan studied Finance, and worked for one of the world's largest asset management firms before starting his own consulting practice.  In his free time, Nathan enjoys playing golf and traveling with his wife Brigid.

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