So your a 20 year old college student, you're fortunate enough to be on a full scholarship to college or your parents are picking up the tab for college. Congratulations, your a part of the small population of college students without a pile of debt.
Being in this situation certainly entitles you to some nice benefits while you are in college, but how can you get these benefits to pay off in the long term?
The answer is the ROTH IRA. Often you see a group of 60 year old's talking about how they manage their 401(k)'s, 403(b)'s, IRA's and ROTH IRA's, it can often be a confusing jumble of information for someone that is not studying finance. All of the acronym's mentioned previously are different retirement plans.
401(k)'s are retirement contributions taken out of you paycheck before you pay your taxes. 401(k) stands for a section of the tax code that allows your employer to do this. 401(k) accounts are TAX DEFFERED, meaning withdrawals from them when you get old and gray are taxed (although usually at a low tax rate because you will be retired).
403(b)'s are the same as 401(k) plan's only they are for government employees such as teachers, policeman and firemen.
IRA(standing for Individual retirement account) are similar to 401(k) plans because they are taken out of your paycheck before taxes, but are not matched by your employer.
ROTH IRA's (standing for the Senator William Roth who created them) are the same as IRA's, only the money you use is after you pay your taxes and the money your earn in the account grows tax free.
College students that are working a minimum wage job likely are paying little to nothing for taxes, with everyone earning under $9,350/year paying no income taxes(at 20 hours/week and $8.99/ hour your pre-income will be $9,350)and if you are earning under $34,000/year you will be taxed at just 15%.
Since your tax liability is so low in college, it makes a lot of sense to contribute to a ROTH IRA. This would extend the benefits you have right now (with school paid for) extend into your retirement.
