Roths for Millenials
While eligible income earners can make Roth IRA contributions at any age, I want to focus on the potential benefits to the young. Think teenagers, college students with jobs, as well as working twenty and thirty year olds. Let’s call it the Roth Generation.
Eligibility depends on income. First, there must be earned income. Second, that income can’t be too high for full eligibility. (MAGI of $118,000 for single; $186,000 for joint)
Roth contributions can be withdrawn tax free at any time for any reason, but earnings are taxed and penalized 10% if withdrawn before age 59 ½. Clearly, the full benefit makes this a long term deal, but contribution withdrawals provide a cash safety net if needed.The annual contribution limit for the Roth Generation is the lesser of earned income or $5,500. If $3,000 is earned, $3,000 can be contributed. That contribution could be “out of pocket” or from gifts from parents, grandparents, etc. Those with workplace plans (e.g. 401(k)) can still contribute.
The future growth potential can be big for the Roth Generation. See above what $5,500/annually (beginning at age 20) could grow to by age 60 (I know it seems like a lifetime away because it is).
Time to get started Roth Generation!
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