The Benefits of Starting a Roth IRA Early

May 8, 2008

According to a Callahan and Associates Web-based survey, individuals between the ages of 18 and 39 are most likely to open an Individual Retirement Account (IRA). These individuals recognize the importance of starting early to save for retirement.

IRA rules don’t have a minimum age requirement, so any young person who has earned income is eligible to open an IRA. Because earned income is the key to qualifying for a Roth, generally, a young adult or even a child would have to be working part time for an employer who collected taxes and reported the earnings to the IRS.

How big are the benefits of starting early? If a 19-year-old began contributing $1,500 each year to a Roth IRA, by age 68 he or she would have about $608,000, assuming an average annual return of 7%.

Money is taxed going into a Roth IRA and accrues interest until it can be withdrawn, completely tax-free, beginning at age 59 ½.  While that may be a long way off for young investors, certain withdrawals can be made earlier, including a $10,000 for a down payment on a first home.

For more information on a Roth IRA, contact First New York Federal Credit Union!

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