Roth IRA Explained

Consider a Roth IRA as a graduation gift this summer.

Yep, that’s right, a Roth IRA. Most college graduates probably aren’t thinking about retirement right now, in fact they’re just looking forward a relaxing summer followed by their first paycheck. However, as a responsible adult (ha!) you may consider giving that graduate a Roth IRA and get them started on saving for their future.

Earned Income. The rule with contributions is that a person has to earn as much “earned income” in order to contribute that to their Roth IRA. The dollar they earn doesn’t necessarily have to be the dollar they contribute so as long as your graduate will be earning money, you can probably open a Roth IRA on their behalf. If the graduate has a job, chances are he or she will have sufficient earned income to cover your Roth IRA contribution (the $5,000 contribution limit for this year).

Another side benefit of this gift is that it helps the graduate recognize the importance of retirement and lets them know about the Roth IRA, if they don’t know about it already.