I write in response to Kate Patrick’s article, “Talk money to me: Get a savings account,” in the March 9 edition of the Collegian.

Patrick said, “If you want to save for retirement effectively and have cash on hand in an emergency, open a savings account.”

I agree that a savings account is a good vehicle to stash cash for a rainy day or a near-term goal like a car or vacation.

But to save for retirement, college students have a far superior option: a Roth IRA.

A Roth IRA (individual retirement account) has two huge advantages. One, the money can only be withdrawn with a penalty, eliminating the temptation to cheat.

Two, for college students, the money will be saved completely tax-free. In theory, contributions to a Roth IRA are taxable, but if you are in the 0 percent tax bracket, as students are, you contribute without paying tax. Earnings in the account grow without being taxed. Money withdrawn in retirement has never been taxed at all, an enormous advantage.

Then there is the hidden benefit: all those years of compound earnings. Contribute annually in your youth, and the money will compound to a staggering amount by the time you are ready to pull it out. Bring up one of those compound interest calculators on your phone and play around with some numbers. You’ll see what I mean.

One possible obstacle is the minimum investment some institutions require to open the account. But shop around: TD Ameritrade offers a no minimum, no commission Roth IRA. Invest in the Vanguard Total Stock Market Index ETF through your TD Ameritrade account, and your expenses will be razor thin. You are investing for the very long term – it’s probably 45 years until you retire. So a stock market index fund will serve you well.

You’ll thank me later.



Barbara Watson

  • disqus_odKVC5cL1k

    Remember to contribute to an IRA, you have to have earned income. Otherwise good advice.