When I was 15, my sister pulled some strings and helped me get my first job as the junior life guard for the municipal pool in Elroy, WI (population 1,389). I thought it was the most important thing I had done up to that day. I earned $2,000 for the summer and spent every last dollar on Calvin Klein jeans, Loves Baby Soft perfume, a new K-TEL record album and other very important things.

Now you couldn’t have talked me out of spending that money on what I deemed was important, but what if my parents would have been in the position (and Roth IRAs were around) to give me an equal amount to put away in a Roth IRA?  In 5 years at 7% I would have had $2,805.  Now what if this same pattern had happened for my entire high school lifeguarding career? My parent’s $8,000 investment would have been worth $10,167 when I was 20. What you may not know is I could have used that for qualified higher education expenses.

Suppose I didn’t actually use it for college because I got so many scholarships? What if I had waited until 30 and used it for my first home. That same $8,000 investment could help me with the $20,000 I might have needed for my first home down payment.

Lastly, what if I didn’t use it for my home and I waited until 65 and used it for retirement? The same $8,000 that my parents contributed to the Roth IRA would give me over $200,000 at retirement. Did I mention that this distribution would be tax-free?

Roth IRAs are one of the most underutilized tools for saving and the magic to magnifying the effect is time.  If you have a kid or grandkid, consider incentivizing them to work by giving them the gift that multiplies.

My 14-year-old daughter started her first part-time job at Namaste North Yoga and Organic Bakery this weekend, I am sure she will be spending every last dime on lululemon leggings and other important things, but I am already saving for the deposit I plan to make for her first Roth this year.

Laura Bruce, CFP®, ChFC®
Director, APCM Wealth Management for Individuals

7/13/16