College Graduates: The Benefits of Starting an IRA in Your Early Twenties
As you graduate from college and begin your career in the real world, you have to start making adult decisions. You may not have considered the importance of retirement planning (after all, that’s a long way off), but now is the time to start building a foundation for your golden years. By understanding the value of an IRA and the advantages of opening one, you can make informed decisions about your future and ensure a retirement that is plentiful and prosperous.
What is an IRA?
Before you dive into the world of IRAs, it’s important to understand what they mean and how they are used in the everyday world. Quite simply, an IRA is an “Individual Retirement Account.” Savings are deposited into these accounts and typically applied to different growth accounts like mutual funds, stocks, and bonds. Over time, these accounts grow and act as a savings for retirement.
When looking to open an IRA, it’s important to know your options and the different types of accounts that are available. Some may have tax deductions that can help you now while others do not offer the extra savings until later in life. For example, a traditional IRA will afford you an immediate tax break while a Roth IRA provides long-term tax breaks.
IRA Savings & Early Retirement
One of the many benefits of opening an IRA account is having the ability to retire early. Once an IRA account is opened, you cannot cash out the full amount until you reach the age of 60. By starting an IRA account in your early 20s, you will have around 40 years to contribute to the account. By browsing through IRA account options, you can find programs that reward long-term users and will help you accumulate the most money for retirement.
By the time you reach the age of 60, you will likely have enough to retire on. You can use this early retirement money to pay off a home, travel, and live out some of your dreams. The average retirement age is currently around 63 years old. This gives you the benefit of retiring early and having extra years to enjoy your freedom.
Career Options & IRA Accounts
In many ways, a 401(k) is similar to an IRA account. However, a 401(k) account is typically linked to a specific employer that you work for. When you graduate from college, your lifelong career may not be set in stone. You may pursue internships, temporary jobs, or part-time jobs while you further your education with graduate studies. If this is the case, you can keep everything organized and in one single account by opening an IRA.
No matter where your career takes you, the IRA account is for you individually. This allows you to explore career paths without having to open up multiple 401(k) accounts or worry about transfer fees.
Early Money-Saving Opportunities With IRA Accounts
Graduating from college doesn’t necessarily mean you’re going to settle down right away. As you situate yourself into adulthood, you may not immediately have to worry about the extra costs associated with mortgages, car payments, or raising children. The extra financial freedom gives you ample opportunity to contribute to an IRA account and start saving while you can still afford it.
When you’re under the age of 50, you have the option of contributing up to $5,500 a year. So, for example, from the age of 23 until you turn 30, you can contribute up to $38,500 total into your account. This has great growth potential through different IRA companies. By comparing features and using a savings calculator, you can estimate how much will be in the account by the time you’re ready to retire.
Now that you understand more about the benefits of opening an IRA account, you can check out some of the best account options and bank comparison reviews.
Want to learn more about IRA accounts and compare banks? Check out our Top 5 IRA comparisons!