<p>D will be a college sophmore this year. She has worked part time for the last couple of years, but this is the first summer she’ll be making a more substantial salary. With her birthday coming up, H and I are thinking about starting a retirement savings account for her, perhaps investing in a green mutual fund. Since we both work/ed for the federal government, we aren’t familiar with other options. </p>
<p>The idea would be to open an account with a small initial contribution, and suggest she contribute part of her “long term savings” (about a third of her summer salary) to the fund.</p>
<p>I imagine there’s no current tax advantage for her and it would be money she couldn’t access without penalty, but at least some of her grad school will be covered by savings we don’t have to use for her undergrad expense. On the other hand, it seems desirable to have such a fund which would have a long time to grow before she retires.</p>
<p>Anyone have any experience with this…does it even make sense?</p>
<p>Personally, I’d consider encouraging her to start an emergency fund to be more appropriate. Sure, she’s still a student, but once she gets out into the real world saving up 6 months of living expenses could be tough, and having the start of an emergency fund would be nice. </p>
<p>Starting out on your own is expensive, so keeping her savings liquid for now seems like it would make sense.</p>
<p>Of course, that all depends on how much money she already has saved and how much of the money she’s earning this summer needs to go towards her current living expenses.</p>
<p>DS worked 25 hours per week for the last two years of HS. He is not much of a spender and had quite a bit saved up. He opened up an IRA with $3000 last summer. He has just finished his first year of college and is working 40 hours a week until he goes back to school, making approximately $6,000. I will advise him to invest another $2,000 in the IRA, and keep the rest liquid for expenses. IMO, now is the time to start IRA’s, since once graduation comes and they’re out in the real world, money will be tight for a few years to come.</p>
<p>Do your kids a favor and show them how investing in these early years is the best thing they can do for their lifetime. For 2008 they can invest $5000. So put in their current age, retirement age at 65,$5000 contribution with 0% additional increases at 8%. And voila…</p>
<p>Here’s another strong vote for the Roth IRA as opposed to a traditional IRA. Investing green is great but with such a long time horizon before retirement you should make sure the fund is suitably aggressive. With the stockmarket in a tailspin right now and possibly a bad summer ahead, this year may be a great time to start a Roth IRA in an aggressive mutual fund. There are several pretty good funds out there.</p>
<p>Roth.
I’ve been moving his unspent UGMA to Roth in the years when he had summer income. Some in a cash in a 50% in discount broker, and some in 50% in a variety of MF with Dollar Cost Averaging. He is going to take care of us when we get older and will not have to worry about retirement funding when his kid(s) hit college. </p>
<p>Also doing a 529 in his name because he gets a state tax credit where he does not on a Roth. His kids are going to be OK too.</p>
<p>He taken over the taxes this year. Had him do scenarios. I think the light came on. He call us last night and wanted to know how much should be withheld - ans is:</p>
<p>Let me add in my support for a Roth IRA instead of traditional for this situation. A regular IRA gives very little, if any tax advantage for a person making this little. So you might as well invest in something that will earn tax deferred and in the end, be tax free. Why would you want to save the tax on the amount now when you are in the lowest tax bracket only to be taxed later when, hopefully, you would be in a much higher tax bracket?</p>