For college-bound students whose families need them to contribute to the bottom line, skip this article. Those students need to invest in themselves and their educations both financially and personally.
For students whose parents are able to cover college costs for them, a smart move would be to not waste their summer job earnings on pizza, beer, and iTunes. According to a recent New York Times article (“Summer Job? Time To Start a Roth IRA” by Ron Lieber 8/1/14) ‘… the boost that comes from opening a retirement savings account as a teenager instead of a few years after college can lead to hundreds of thousands of extra dollars after a half century of work.”
Initially, the account must be a custodial account if the student is under 18. The article highlights an ideal hypothetical situation where if a student were to contribute $5,500 annually starting at age 19, by age 67 the account would have accrued over $1 million. That is over 33% more than if the student started the same savings, but at age 25.
Families who are applying for financial aid should know that a student’s Roth is not part of the calculation. Industry insiders are not seeing an impact on financial aid awards.