25 Oct I’m a college student with income. Should I invest in a Roth IRA?

Q. I’m a college student in a program that combines paid work and classes. I expect to make about $20,000 a year from the work portion. My college bills are covered so I’m thinking of an IRA. Should I do a Roth, and should it be for the full amount or should I save in a different kind of account?
— Getting started

A. Congrats on getting an early start on savings.

You’ll really benefit from compounding over time, so good for you.

Before considering investing in an IRA, it would be prudent to have an emergency fund account, said Victor Cannillo, founder of Baron Financial Group in Fair Lawn.

“You may want to consider putting a portion of your income into an emergency fund, like a savings account, for example,” he said. “That way, if any emergency expenses were to arise, you can take the money from there versus tapping into a retirement-type account.”

He said you should consider what would be the optimal amount for you to put aside. A very general guideline would be three to six months’ worth of expenses, Cannillo said.

In terms of an IRA, Cannillo said a Roth is a good option for young investors.

“A Roth IRA is usually best for someone who is in a lower tax-bracket,” he said. “The idea is that you want to pay taxes in the lowest bracket possible. So if you are making a lower income than you may in the future, you would want to pay taxes now, using a Roth.

The Roth contribution limit for 2024 is $7,000 for those under age 50, he said.

“Also, consider reaching out to a financial planner to help you with your financial-planning journey,” he said. “There are advisors that could help you on an as-needed basis.”

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This story was originally published in October 2024.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.