By: Nedda Besharat
Investing is not so easy! When you hear the word investing what comes to mind? I immediately think of stock markets and bonds and complicated graphs that explain business trends… That sounds very complicated if you ask me. But thankfully, there is a much easier way for teenagers to start investing early: with an IRA. IRA stands for “Individual Retirement Account” and it allows one to save money for retirement (hence the name). However, there are two IRAs: a Roth IRA and a Traditional IRA. Traditional IRAs and Roth IRAs have significant differences which ultimately concludes to one being better than the other. Through examining the advantages and disadvantages of each account, you will find out there is a clear winner.
It seems like such an early time to begin investing, however, the earlier we start growing our money, the more money we will make! According to Business Insider, your investment total will double in your future if you invest in a Roth IRA account as a teenager. To qualify for a Roth IRA account, your income has to be less than or equal to $117,000 a year. As high school students, making $117,000 is significantly out of our range. Now that you qualify, you are able to keep your money in a Roth IRA for as long as you desire which makes it easier to pass money down to your heir and/or continue to grow your money (NerdWallet). On the other hand, Traditional IRAs require one to remove their money at no later age than 70 ½ years. Clearly, Roth IRAs allow for more flexibility than Traditional IRAs, which is a notable advantage.A key difference between a Roth IRA and a Traditional IRA is that, “With a Roth IRA, you don’t get an upfront tax break like you do with a traditional IRA. Instead, your contributions and earnings grow tax-free forever” (Investopedia). Although at first consideration, a Traditional IRA might be better because of the annual tax-returns, you will most likely be spending your tax returns on unnecessary “wants.” The Roth IRA positively forces you to leave your tax earnings for when you really need it to support yourself: after retirement. According to NerdWallet, “...you will eventually have to face that tax burden in retirement, which means unless you really need that upfront tax break, it’s hard to go wrong with a Roth IRA.” Meaning, a Roth IRA is beneficial no matter how and when you use it since you can simply let your money grow without interfering. Being a full-time high school student with all of our extracurriculars barely gives us enough time to sleep at night. That is why it might not be the best idea to make investments in the stock market at such a young age as it is very time consuming. Instead, investing in a Roth IRA will allow you to grow your money for your future to give you the opportunity to live your best, worry-free life.
Works Cited
Daugherty, Greg. “Can Teenagers Invest in Roth IRAs?” Investopedia, Investopedia, 30 Sept. 2019, www.investopedia.com/can-teenagers-invest-in-roth-iras-4770663.Dayana, and Forbes. “Roth vs Traditional IRA: Which Is Right For You? - Nerdwallet.” NerdWallet, NerdWallet, 23 Aug. 2019, www.nerdwallet.com/article/investing/roth-or-traditional-ira-account.
Loudenback, Tanza. “This Chart Should Convince Every Teen to Start Saving for Retirement.” Business Insider, Business Insider, 21 June 2018, www.businessinsider.com/why-teens-should-be-saving-money-roth-ira-2017-3.
Managers, Jazz Wealth. “Roth IRA Explained | A Simple Explanation of the Roth IRA.” YouTube, YouTube, 27 Mar. 2017, www.youtube.com/watch?v=-PQc42Rfw0A.
This piece is really awesome since it really gives us an insight as to how we can benefit our future without really having to do much. I'm guilty of thinking that there's not much as I can do as a teenager, but after reading this article I feel a little empowerment among my future.
ReplyDeleteThis post does a really great job of simplifying and explaining something that would take me hours of research to understand. It is a great way to inform people so that they can make better financial decisions in their future, and gives a sense of urgency that makes me feel like I should be doing much more now than I have been doing in order to properly finance my future.
ReplyDeleteI agree that it is never too early to start investing your money. Investing is an easy way to make money without doing anything. However, one thing I would like to know before opening a Roth IRA account is if there are any fees. If there are fees, how large are they? Despite the fact that there may or may not be fees to open a Roth IRA, the benefits that you receive from this type of account far exceeds any expense. You not only make money, but the nature of the Roth IRA forces you to save your money. While the IRA's annual tax returns could be nice if you are in need of some quick cash, being forced to save up your money in the account ensures monetary growth and formulates smart money-saving habits. This is a smart economic decision for teenagers, and it is something I will definitely look into.
ReplyDeleteThis topic is very relevant to the material we are currently learning and reading about in class at the moment. There's a lot of things that teenagers can do in the present to prepare themselves for a financially stable and maybe even abundant future. Opening a Roth IRA account is one of the many ways teens can get their foot in the doorway. Not many people my age are aware of all the ways they can begin to save and invest. The best thing to do right now is to educate ourselves enough about ways we could start.
ReplyDeleteI like that you recognized that learning about investments can be kind of daunting, especially to many young people who haven't had much experience with finance. I really appreciated that you simplified the main points on the differences between a Traditional IRA and a Roth IRA, because the comparison really helped me to understand the difference between the two!
ReplyDeleteI thought it was very beneficial for you to compare both IRA's, so that we could see the difference in both type of accounts. I agree that it is way too young for teens to be in the stock market because it is true that it takes time to research and track the stock market. I like how you also included what was better for kids our age.
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