April 2018 Monthly Insight: Encourage Your Young Loved Ones to Save Early with a Roth IRA

Posted By Michelle Waymire on Apr 4, 2018


“I love the Roth IRA. Tax-free income in retirement is a truly great deal.” -Suze Orman

You’re no stranger to the power of compounding interest—but you still might be surprised at the astounding impact it can have on young investors’ financial futures. That’s why we want to share an important piece of advice with you today: tell the young people in your life to open up a Roth IRA, if they haven’t already.

Why a Roth IRA?

While the Roth IRA is a powerful tool for clients of any age, it has particularly strong benefits for younger generations. Young people often have lower incomes, making the tax deduction received for contributing to a traditional IRA or 401(k) of minimal value. More importantly, they have a longer lifetime during which their Roth IRA contributions can compound tax-free. Now that tax rates have dropped under the Tax Cuts and Jobs Act of 2017, there’s even more incentive to pay taxes at the lower rate!

Starting Early Makes a Huge Difference

Thanks to the power of compounding interest, 30-year-olds contributing $5,000 per year for only 10 years could expect to have $396,181.05 in their Roth IRA at age 65.[1]

For the recent college graduates in your life, the benefits are even greater. A 22-year-old who contributes $5,000 per year for only 10 years could expect to have $667,217.08 in his or her Roth IRA at age 65.[2]

You could even start earlier by matching your child’s earned taxable income in a Roth IRA, since there are no age limits on contributions.

Where Do You Come In?

You work hard to ensure that the young people in your life have healthy and fruitful lives—which includes retirement. You can help support their retirement goals with the following actions:

  1. Encourage them to start saving for retirement if they haven’t already.
  2. Help them open up a Roth IRA, where relevant.
  3. Consider giving them the gift of a sound retirement through a one-time or recurring contribution, or by matching their contributions of after-tax income (the deadline for 2017 contributions is April 17, 2018!)

In addition, we would love to send you a customized projection of a hypothetical Roth IRA balance at age 65 for you to share with your children, grandchildren, or other younger loved ones based on their own circumstances: age, contribution amount and timing, and projected retirement age. You can request your Roth IRA analysis by visiting our specialty website, which is designed around the financial needs of young people: www.youngandscrappy.com/roth.

As always, we thank you for the trust you place in us. We are honored to serve you and the people you hold dear.

[1] Assumes a 7% annual rate of return and 0.25% fee ratio on the investments.

[2] Assumes a 7% annual rate of return and 0.25% fee ratio on the investments.

DISCLOSURES: The information provided in this letter is for general informational purposes only and should not be considered an individualized recommendation of any particular security, strategy or investment product, and should not be construed as investment, legal, or tax advice. The Nalls Sherbakoff Group, LLC makes no warranties with regard to the information or results obtained by third parties and its use and disclaim any liability arising out of, or reliance on the information. These indexes reflect investments for a limited period of time and do not reflect performance in different economic or market cycles and are not intended to reflect the actual outcomes of any client of The Nalls Sherbakoff Group, LLC. Past performance does not guarantee future results.