These days, many Americans assume that saving for retirement is something that only older taxpayers should worry about. However, as I have explained before, you are never too young to begin planning for your future.
Earlier in the week, a college student working only part-time hours wrote into Money Magazine asking if they should start contributing to an IRA. Check out the authors answer below courtesy of CNN.com.
Yes, you almost certainly can. And if you can swing it, you probably should, since contributing to an IRA early in life can be an excellent way to lay the foundation for a more secure financial future.
That's true, by the way, not just for someone in your position, but for high school and college grads starting new jobs, not to mention students with summer gigs.
Although the rules governing IRA contributions can get a bit convoluted (as this IRS publication makes painfully clear), the gist is that as long as you have earned income, you can contribute as much as you make in a given year up to a maximum of $5,000. People 50 and older can do an extra $1,000 catch-up contribution, but that's not going to apply to many college students.
So, for example, if you earn $5,000 or more from your part-time work, you can salt away the max. If you're paid, say, $3,000, then you can contribute up to three grand.
Just to be clear, the dollars you contribute to an IRA don't have to be the same dollars you earn. Let's say, you earn $5,000, but after expenses manage to put only $2,500 into the IRA. If you can come up with an additional $2,500 from other sources, such as savings or a cash infusion from mom, dad or a kind relative, you can throw that money into your IRA account to get you to the $5,000 limit. Any parents looking to help their kids parlay a summer job into a leg up on their eventual retirement security may want to keep this in mind.