Personal Finance News Saturday 6/23

Phil's Personal Finance Tip of the Day:

Young Investors, Start With a Roth
By CAROLYN T. GEER/The Wall Street Journal

After my last column, on why young adults should start saving early if they hope to retire comfortably, some of you asked about how the money might be invested.

Cheryl McKinney of Sacramento, Calif., is typical. She is the mother of two young adults starting careers—one a full-time videogame designer with access to a 401(k) retirement plan at work, the other a geographer in search of full-time employment while working part-time jobs, none of which offers a 401(k).

Last year, Ms. McKinney gave each of her children $2,000 and helped them set up Roth individual retirement accounts. The contributions were allowed because each made at least that amount from working that year.

"I left it to each to choose an investment for the $2,000, but neither has made any progress on deciding where to put the money, so it looks like a bit more leadership from Mom is in order," Ms. McKinney writes.

First, kudos to Ms. McKinney for starting out each child with a Roth. "I think it is absolutely the investment vehicle for young adults," says Barbara Taylor, a financial adviser with ING Financial Partners.

With a Roth, contributions are made after-tax, but withdrawals—including earnings—are tax-free if you follow certain rules. Single workers making less than $125,000 can contribute, though only those making less than $110,000 can contribute the max—$5,000 this year.

Since a young investor has many years until retirement and is likely to be in a higher tax bracket then, the investment gains inside a Roth should easily outstrip the upfront tax costs. (This is less certain the older you are and the higher your tax bracket when you contribute.)

To read the entire article from The Wal lStreet Journal:
http://online.wsj.com/article/SB10001424052702303703004577475043593994160.html?mod=WSJ_PersonalFinance_PF16

Inspirational Quotes@Inspire_Us from Twitter:
The will to succeed is important, but what's more important is the will to prepare. -Bobby Knight