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My son is a freshman in college and we are trying to decide if he should take some of his regular savings and place them in an IRA. My husband says that our son "needs" his money. I say, we should have him put some away in the IRA. any thoughts?
Unless your son is also working (has earned income), he is not eligible to contribute to an IRA. If he is working (for instance part-time), he cannot contribute more to the IRA than he actually earns at the job. In other words if he has a part-time job at which he only earns $2700 for the year, he could not put more than $2700 into an IRA for that year, even though that $2700 is less than the normal allowed maximum. IRAs cannot be contributed to by people who have no earned income (interest and dividends are not considered earned income by the IRS).
Leave his savings where it is. If you want to help him open an IRA, provide the money to put there as a gift. Re-allocating his monies isn't going to make him rich when his income is virtually non-existent; it'll just make him have to work longer hours while going to college to make ends meet (a lose-lose situation as he'll be distracted from his studies).
Hmm... I would say put it in the IRA. The earlier the better. Unless he has "absolute" need to spend that money, it should rather go into an IRA. You see all those graphs where someone invested from ages 20-30 makes a million faster than someone who invested ages 30-40. The earlier the start the more you have and the less you have to put in, in the future...
thanks. my kid has had things pretty cushy! we cover a lot, just because we can. He has been good about saving, so that is why we don't mind helping. He has always been responsible..even while he is at college, he has a campus job and has stayed within his own budget. he already has his summer job lined up and will be going back to the place he worked last summer. They did say that they would not have 40 hours a week for him, but he is also going to help out at his former high school with the football camp, and the head coach said that it is a paid position too! I think if he puts in 1000 to 1500 it would be a good start. thanks for the comments.
Hmm... I would say put it in the IRA. The earlier the better. Unless he has "absolute" need to spend that money, it should rather go into an IRA. You see all those graphs where someone invested from ages 20-30 makes a million faster than someone who invested ages 30-40. The earlier the start the more you have and the less you have to put in, in the future...
Well said. Even a small, token amount with minimal contributions will grow. I say go for it.
Well said. Even a small, token amount with minimal contributions will grow. I say go for it.
Not in this economy.
I sense the OP made up their mind before posting and was just looking to feel good about the decision already made. Realistically in this economy, and for the son's specific situation - reallocating his money isn't a bright idea.
Not only is the IRA going to lose value over the upcoming year, but the money will be tied up and unavailable to use. Additionally (as if those reasons weren't enough), he already knows that he will not be getting 40 hours a week this summer at his job (as implied he has had in the past), and he works part-time during the school year. I feel pretty strongly about the following statement: If the work isn't directly related to his future profession or getting into a good graduate program, it is only serving as a distraction from his studies. He would be better off obtaining directly-relevant unpaid internships or assistantships. Working for minimum or just above minimum wage doing something that only facilitates making a few bucks is a waste of time; it's not character building (no examples of this young man being irresponsible have been given), and especially since it has been inferred that the parents can afford to finance everything for him anyway, it is a poor family judgement call.
This comes from both my heart and my mind... I've been there, done that, and if mom and dad don't want to pay for all living expenses, then the student should take out loans or ideally land a job which is resume-building for current skill growth and future aspirations.
In the situation described, it just sounds like mom and dad don't want to front the IRA money themselves but love the idea of forcing some of his savings into one. The premise (and yes I've seen the graphs I suspect the OP has) is that compounded interest will add up more significantly the earlier the saving begins. The main issue at hand right now is that no one's IRA is going to make money this year. Not with the stock market's performance, not with the massive levels of inflation we are seeing (and will see), and not with an overall faltering economy. No, for this snapshot in time, cash is king, and tying up this young man's savings in a retirement account isn't going to accomplish anything positive for him this year except provide more pressures to re-save enough cash to live on.
Of course there are a ton of other story details we don't know, and variables which will impact the OP decision, but I just feel like rationality needs to play a major role in this decision. $1500 or $2500 may not be a lot of money to decent wage earning adults, but to a college student, allocating such an amount of cash into something untouchable for 30+ years, well that represents probably over a month of labor (if that money isn't just gifted their direction). Since a student's job is to officially get an education and prepare to obtain a decent annual wage and comfortable lifestyle, why would you in the middle of that, cut into their savings like that? If they want to do it and have seen all the trends and read about the economy, then sure, support them, in fact encourage it. But if the parent is making the decision for them (as this situation seems to represent), wow, that is definitely being assertive. I hope this young man feels ok with the decision. I hope also that at the end of the year when the IRA statement indicates no gains, mom and dad realize that sometimes financial planners don't give the best advice, and sometimes having cash on hand rather than in a 401k or IRA (especially in a down economy) can be very valuable indeed.
mbuszu,
I think you are taking quite a few liberties with judging me and my original question. My son is working at school as part of the "loan" that he is getting. that is what the work-study program is. He is working at an Engineering firm this summer, as he did last summer. this is providing him with a variety of experiences so that he can decide what field he would really like to enter. and believe me, it is not minimum wage. and whether or not I can "front" the money is beside the point. We had talked about it while he was home on break. He is interested, i just didn't know if it was worth bothering with at this time. We all realize that returns aren't that high, we were just looking at options for better interest over the long haul. Encouraging young adults to plan for their future, when they really won't miss the cash right now, seems smarter than having them wait when they have a lot more expenses to be responsible for and can't put money away. Passing character judgements on someone who is just making a simple inquiry, is not what the original post was about.
The golden rule of investing, it isn't how much you invest it is how LONG it is in there. If he can afford to start an IRA, don't forget to look at the ROTH IRA too, go for it. With the economy slipping it might make sense to put it into something less volatile right now and then move it later too.
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