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The Roth IRA was designed for and is typically thought of as just a retirement account, however its many features make it the Swiss army knife of investment accounts. The tax advantages are well documented. When you invest in a Roth IRA, you fund it with money you have already paid taxes on (after-tax). That money grows tax free and when you take it out after age 59 1/2, it all comes out completely tax free. For 2019 and 2020, the contribution limit for those under 50 years of age is $6,000 per year. Those over 50 can contribute an extra $1,000. Due to income limits, those with higher incomes may not be eligible to contribute to a Roth IRA. You should check with your tax advisor to make sure you are eligible to contribute to a Roth.

One of the great benefits of a Roth is that any contributions you have made can be withdrawn at any time, tax and penalty free. This opens up a world of possibilities in one’s financial plan, particularly with young adults entering the work force. In terms of a savings cadence, college grads should place priority on contributing to their company’s 401(k) up to the company match and ideally into a Roth 401(k) if offered. Having all of their extra money go into their 401(k) may not be the best option since you lose a lot of flexibility in accessing the money in the future. Next, they should have about one months’ worth of bills set aside in a savings account. After those bases are covered, the Roth IRA is the perfect next step for a young adult.