No matter what your age is, young or old, there is always a benefit to opening (and funding) a Roth IRA if you’re able.
Back in the days when I worked retail, I had a coworker who was of a certain influence on me, as he was very oriented towards financial matters.
Some of his ideas weren’t all that great to be honest—he was the one who turned me on to tax liens, and he had an unfortunate fondness for Rich Dad, Poor Dad—but in one area he definitely schooled me.
And that was the importance of opening and funding a Roth IRA.
I was in my early 20’s at the time, not exactly focused on retirement. Nonetheless, his argument about the importance of getting started early, and with an account that you controlled, was compelling to me, and I heartily signed up.
I’ve since touted the wonders of the Roth IRA for years now. But another aspect that’s interesting is that a Roth IRA has benefits throughout your entire life, and because of that, there’s no wrong time in life to open one if you have the opportunity, whether you’re a grandchild or a grandparent.
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Quick recap
A Roth IRA is a tax-advantaged account geared toward retirement. While money isn’t deposited “pre-tax” like in a 401(k), once in the account the money grows tax free, with no capital gains taxes when you withdraw.
This means that you can take advantage of the amazing returns you get in the stock market but tax free.
There are other benefits to the Roth, but these are table stakes. It’s basically an easy way to earn lots of money for your future self.
Teenagers
We tend to think of 18 as being the age at which financial matters really come into your own, but that isn’t the case for a Roth IRA.
There is no minimum age for opening a Roth IRA. The only requirement is that you have earned income. So if you are 13 and you have a paper route (or whatever job a 13 year old gets these days) and if you pay taxes on your earnings, that almost certainly counts as earned income.
Now, an adult may want to set up the account for the teen, but the teen can indeed start contributing money. And if that money is invested in a low-cost index fund, they could have over 50 years of earning time before retirement. Think about that. And then set one up for the teen in your life!
Working age
A Roth IRA is a massive benefit to anyone who is of working age.
This is an account that you control, and that isn’t tied to any job you have. You fund it with your own money.
Even if you have a 401(k) with your job, you still have the ability to separately contribute to an IRA, and it grows tax-free forever.
Now that Roth 401(k)s are a thing, that doesn’t lessen the appeal of the Roth IRA, even though the tax treatment is the same. You can contribute to both. And when you leave your job, you can roll the Roth 401(k) over to your own Roth IRA.
Also, if all this wasn’t good enough, you can withdraw your earnings at any time without penalty, and if you ever want to buy a home, you can withdraw money for buying your first home. I don’t recommend doing either of these things, but it’s good to know that they are options.
Post-retirement
If the goal of a Roth IRA is to allow you to have more money for retirement, then why would you want to open (or fund) a Roth IRA when you’re at or beyond retirement age?
The first and foremost reason, is that you can. And I don’t mean that flippantly. A Roth IRA can be opened at any age and funded at any age. Again, all you need is earned income of some sort.
The tax advantages of a Roth IRA don’t end when you reach retirement age, but the penalties for early withdrawal do. So you can have your money grow faster and better with a Roth IRA than with a standard brokerage account.
Also, unlike with the 401(k) or even the Traditional IRA, there are no Required Minimum Distributions (RMD) with your Roth IRA. This means that if you don’t need the money, you don’t have to withdraw it. You can even keep it there and pass it on to your kinds or the recipient of your choice.
And a Roth IRA is also useful if you wish to convert your pre-tax investment money. This is especially good if you’re in a lower tax bracket (as can happen in retirement) as it’ll save you money on taxes, especially if you convert over a longer period of time. And then, if taxes rise, it doesn’t matter as you’ve already paid them.
Roth at any age
As you can see, a Roth IRA is valuable no matter what age you are, and you can set one up whenever you want. Just make sure that you have earned income if you want to contribute, and also make sure that you invest the money wisely. But that’s a different topic.
