IRAs and Roth IRAs
Want to know one of the smartest moves you can make for your future? It’s not buying crypto. It’s not chasing hot stocks. It’s opening an IRA—especially a Roth IRA.
Your Secret Weapon for Financial Freedom
IRA stands for Individual Retirement Account. It’s a special kind of account that lets you invest money for your future—and get major tax benefits while doing it. Here’s the big idea:
- You put money into an IRA.
- You invest that money in things like stocks, bonds, or index funds.
- Over time, your money grows—and when you’re older, you get to use it.
The government created IRAs to reward people who plan ahead. And trust us: the earlier you start, the bigger the reward.
Two Main Types of IRAs
| Type | How It Works |
|---|---|
| Traditional IRA | You may get a tax break now, but you pay taxes later when you withdraw the money in retirement. |
| Roth IRA | You pay taxes now, but your money grows tax-free—and you can withdraw it tax-free later. |
We focus especially on Roth IRAs because they’re one of the best deals young people can get.
Why Roth IRAs Are a Power Move for Young Adults
Here’s why Roth IRAs are such a game-changer if you’re young:
- You’re probably in a low tax bracket now. Pay the taxes today when they’re cheap—and skip them later when your money could be way bigger.
- Your money grows tax-free.
No taxes on your investments growing over decades? Yes, please. - You have decades of compound growth ahead.
The earlier you start, the more insane your total could get.
Example:
If you invest $6,000 at age 20 in a Roth IRA and earn an average 7% return, that one-time investment could grow to nearly $90,000 by age 65—without adding another penny.
Imagine doing that every year.
How a Roth IRA Works (Step-by-Step)
- Earn Income: You need a job or some form of earned income (even a part-time or summer job counts).
- Open a Roth IRA Account: You can open one through companies like Vanguard, Fidelity, Schwab, or many others.
- Contribute: For 2025, the maximum you can contribute is $7,000 per year (if you’re under 50).
- Invest: The money inside your Roth IRA doesn’t grow just by sitting there—you invest it. Most people choose diversified investments like index funds or ETFs.
- Let It Grow: The magic happens over decades. Patience is your superpower.
Why Start a Roth IRA in Your Teens or Twenties?
Time is your advantage. The earlier you start, the more powerful compound interest becomes. Waiting even a few years can cost you hundreds of thousands of dollars in potential growth. (Yes, really.)
Plus, Roth IRAs are super flexible:
- You can withdraw your contributions (not earnings) anytime, without penalties.
- They can help you with buying a first home, education costs, or emergencies—under specific rules.
Flexibility + tax-free growth = major win!
Important Reminders
IRAs are investment accounts, not investments by themselves. You have to choose investments inside your IRA.
There are income limits for contributing to a Roth IRA. If you make a lot of money later in life, you might not qualify anymore. That’s why starting early is even more valuable.
Investing always carries risk. The value of your account can go up and down. That’s normal—and that’s why we focus on long-term thinking, not short-term hype.
Other IRAs You Should Know About
While Roth IRAs are usually the MVP for young investors, they aren’t the only game in town.
Depending on your situation, a few other IRA options could also be part of your early financial strategy.
Here’s what you should know:
Traditional IRA
A traditional IRA is an account where you might get a tax break today—but you pay taxes later when you take the money out in retirement.
SEP IRA (Simplified Employee Pension)
A SEP IRA is an IRA designed for self-employed people (freelancers, gig workers, entrepreneurs).
SIMPLE IRA (Savings Incentive Match Plan for Employees)
A SIMPLE IRA is an IRA set up by small businesses to help employees save for retirement.
401(k): Your Work-Sponsored Superpower
A 401(k) is a retirement savings account offered by for-profit employers.
403(b): The Teacher’s 401(k)
A 403(b) works almost exactly like a 401(k), but it’s designed for public school employees, nonprofit workers, and some hospital workers.
457(b): Fast-Track Retirement for Government Workers
A 457(b) is for employees of state and local governments, and some nonprofit organizations.