For a college student, thinking about retirement is the last thing on their mind. At their current stage, their main focus is on completing classes, reading textbooks, and finishing homework to turn that tassel from left to right. But it is never too early to think about retirement. Setting up a Roth IRA could be the solution to give a college student a head start in building their wealth for the future.
Can Roth IRA be Used for College?
First, what is a Roth IRA? It is a brokerage account where you pay taxes on your contributions now, and it grows tax-free. How will this work for a college student? If that college student starts making contributions while they fall under the lower tax bracket, their savings could grow exponentially by the time they are in the career they are studying for. Anyone making income is eligible to open a Roth IRA.
Alysia Ball, Client Services Agent at Preferred Trust Company, saw her daughter begin college earlier this year. She was asked, “What is your daughter’s general knowledge of Roth IRAs?” Alysia stated, “Although I work for an SDIRA custodian and have explained the benefits of long-term saving and retirement planning, she may not fully grasp the importance yet. At 18, she is still in the early stages of adulthood, focused on college and typical priorities for someone her age—such as spending discretionary income on clothes, shoes, and personal interests.”
While Alysia’s daughter is still growing into adulthood, it is important to remember that no contribution is too small for college students and their parents. Putting in small payments weekly or monthly can result in a strong financial foundation for that student’s future. You can use a Roth IRA calculator to have a better understanding of how much your contributions will grow.
Benefits of a Roth IRA For College
As mentioned before, a college student can start building their wealth while working on their education, no matter how small. Alysia states, “I believe it is crucial for young students to learn about Roth IRAs and the importance of saving for retirement early in life… Building this awareness at a young age empowers students to develop healthy financial habits that will allow them to live comfortably in retirement.”
Alysia emphasizes this point; according to the TIAA Institute, 20% of young adults (ages 18-24) are saving or thinking about retirement.
Compared to a traditional IRA, Roth IRA contributions come from after-tax money, grow tax-free, and allow tax-free withdrawals after the age of 59½. If you are looking to see if you or your child is ready to open an IRA, you can schedule a free consultation with Preferred Trust Company. Do your own due diligence to ensure which IRA custodian is for you.
Downsides of Roth IRA For College
There are downsides to college students looking into opening a Roth IRA. There are contribution limits to how much you can put into your Roth IRA annually. As of 2025, individuals under the age of 80 cannot contribute more than $7000 annually. Another downside that students need to be aware of is that they should not withdraw any earnings until the age of retirement. It is important to be aware that this is not like a checking account, where you can put funds in and take funds out. Withdrawing early can result in taxes and penalties.
Alysia said, “It is essential that they understand the long-term purpose of the account and the consequences of withdrawing funds before retirement. Without proper guidance, they may be tempted to treat the account as regular savings rather than a long-term investment vehicle. Educating young adults on the importance of leaving their funds untouched until retirement age is critical to ensuring they receive the full benefit of having a Roth IRA.”
Utilizing a Roth IRA for College Savings: The Smart Way
A Roth IRA for college students can be a beneficial tool for those looking for a secure retirement. For young adults, retirement is nowhere near their priority in college. Focus on your academics and what you want to do with your future, but keep the idea of contributing to your retirement in mind.
Alysia has some final advice for college students and parents: “Please make sure to thoroughly explore your options and do your own homework on saving for retirement.
A Roth IRA may not be the ideal fit for everyone, but it is important to review all available retirement savings vehicles before making a decision. Planning for retirement early is essential, and utilizing a Roth IRA can offer significant advantages. A Roth IRA provides flexibility to invest in a wide range of assets, including stocks, bonds, mutual funds, and alternative investments, which can help diversify your portfolio and potentially increase your retirement income over time.”
