MONEY TALK$

How many college students dream about what their career, house, neighborhood, spouse, children, and lives will be like after they graduate and get off the ground? I know I do. How many dream about retirement? If you don’t, maybe you should.

Now is the time to start planning your finances for your later years. According to an article in the Jan. 2, 2000 edition of the Philadelphia Inquirer, people should start investing in a Roth Individual Retirement Account (Roth IRA) as early as age 18.

What is a Roth IRA? It’s a tax-free account designated solely for retirement savings. Any contributions made to a Roth IRA may be taken out tax-free at any time. Any earnings that the account has accrued cannot be withdrawn until you have reached age 59, unless you choose to pay income tax on the withdrawal and face a possible 10 percent early distribution penalty. This type of account is meant to be a long-term account. So if you plan to withdraw any earnings, the Roth IRA may not be for you. If it is, now is the time to start investing.

The government allows an individual with income to invest up to $2,000 per year between all IRAs. If you have five IRAs, you can only invest a total of $2,000 between all five.

The Philadelphia Inquirer printed this scenario: Let’s say you have an extra $2,000 every year. A $2,000 per year contribution from ages 18 through 24 with a 12 percent annual return will become $1,567,501 by age 65. That doesn’t include contributions after age 21. At age 26 though, you would have to invest $2,000 per year until age sixty-five, and the total will only be $1,532,501. The $35,000 difference doesn’t seem like much, but would you rather contribute $8,000 or $78,000 by age 65? $2,000 per year sure does add up. If you begin to invest while you’re in your early twenties, you’ll contribute less and earn more in the long run than if you wait five years.

It’s difficult for college students to come up with an extra $2,000 per year, but Thomas Abrams, a licensed agent at Mutual Funds of New York, says that as long as you have $2,000 invested in an IRA by age 24, you should be secure until you have the funds to contribute more.

To open a retirement account, I suggest contacting a registered representative or financial adviser at a local mutual fund company. The process is easy. The representative or adviser will give you a form to complete to open the account. Then, all you have to do is write a check and decide which funds you will invest in. Your adviser will give you more information about the funds and assist you in understanding the terminology.