Smart Gifts, Bright Start For New Grads

Want to help your new grad get a great start on life? A Roth IRA could be the perfect gift.

A devoted grandfather recently wrote to journalist Kim Lankford of Kiplinger Personal Finance magazine asking for advice on choosing the perfect, and generous, gift for his granddaughter as she graduates from college. His goal?  To help her build a solid base for her financial future.

Kim brought us into the conversation, so we suggested helping the granddaughter fund a Roth IRA contribution.

The new grad can stash up to $5,500 a year in a Roth as long as she earns that much from a job, and the money she actually uses to fund the account can be the grandfather’s gift, explained Kim in her column.

“Starting his granddaughter on the savings habit early can make a huge difference in her future,” we told Kim.

In fact, you’ll be astonished to learn how those annual Roth contributions can build into some pretty impressive numbers over time.

If our new grad contributes $5,500 every year to a Roth starting at age 22, then bumps up annual contributions to $6,500 at age 50, when she becomes eligible for catch-up contributions, she’ll accumulate $1.5 million in tax-free money by age 65 (assuming a return of 7% per year).

And, with a Roth, she can withdraw contributions without taxes or penalties at any time if she needs the money for, say, a house down payment, reminds Kim. All withdrawals, including earnings, are totally tax-free after age 59½.

Here’s some other great grad ideas we shared with Kim:

  • You can give your grad a boost by helping them pay down student loans.
  • Or, treat them to a “professional-start package,” to help cover a professional wardrobe, travel costs for job interviews, their first apartment’s security deposit, or car payments.

Want to read the full Kiplinger’s article?You can find it here.

About Mari Adam

Mari Adam, Certified Financial Planner™ and President of Adam Financial Associates Inc, has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!

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