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Teen Article: Early Birds and Money Worms


SLFCU Teen Member Invests in a No-hassle Future

Teen member Madison HogansSince I could form memories, I’ve known that money is important. Or rather, saving money for the future is important. My parents reinforced this early. Whenever I invested in my savings account, my parents would double the amount. I put in $50 in birthday money, and they matched it. I paid for my own things early on and learned why it was better to save up for one big thing (that I could enjoy for a long time) versus little things that I would soon tire of.

This was preparing me for the saving I would be doing later in life, like for my college and retirement. While you can pay for college with scholarships, loans, and grants, I haven’t yet seen a scholarship for retirement. So, this summer I made a big decision. With the proceeds from my first job, I decided to open a Roth IRA. An IRA is an individual retirement account, essentially a way for me to start saving for my retirement 50 or so years in the future. A Roth IRA is even better than a normal (or traditional) IRA when it comes to young people like me. Not only will I have more time to watch my money grow, but I also won’t have to pay taxes on it when I pull it out in the future. You never know how high taxes will go, so it’s better to pay them when you first deposit your contribution (especially as a 15-year-old worker with no tax liability for the year) versus when you withdraw your money as an adult. In most retirement accounts, when you pull money out, you have to pay taxes to the federal and state government, just to get the money that you earned and saved!

A Roth IRA provides you a shield from all of those taxes, allowing you to withdraw your money tax-free. The hard-earned dollars in your retirement account are yours, not Uncle Sam’s! There are three requirements to be met, though. First, with a Roth IRA, you pay taxes on your income before you deposit your money. Stated another way, you don’t get the tax deduction that you would get for a normal IRA when filing your taxes for that year. Second, the money you're pulling out has to be in there for at least 5 years. And finally, you have to be over 59-1/2 years old to withdraw your money. That way, your money is being used for important things, like paying for food, the mortgage on your house, or that well-earned vacation that you’ve been waiting to take!

And starting early is key to making the most of this investment. The earlier you start (like me, at age 15), the longer your money has time to do something called compounding. Essentially, it means that you earn money not only on your original contributions, but on the interest as well. Your money will rise exponentially, and if you give it more time to grow, you will have a lot more by the time you’re ready to retire. This benefit, and not being taxed, were the factors that made me go straight for this kind of retirement account.

When I think about spending now versus saving for later, the choice is painfully obvious to me. Saving, whether in my savings account or in my long-term Roth IRA, will really help me in the future and allow me the freedom to do what I want. And a no-hassle future seems pretty sweet to me!

SLFCU does not endorse any specific retirement account and advises meeting with a financial advisor to determine what kind of retirement account works best for you.

Teens Can Get $100

SLFCU members age 13-17 are invited to submit an article on a financial topic to be considered for publication in our Dollars & Sense newsletter and on our website. SLFCU will award teens $100 for published articles. Click here for details and to submit an article. SLFCU will review all submissions and respond within 30 days.

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