Best option for retirement fund for teenager?

[cajunmom]

Sorry, my subject line is kind of a mess.

Long story short, our newly graduated 18 yr old daughter is deferring college for at least a year due to various reasons. She's just working and occasionally volunteering at a cat rescue. She has minimal bills (car insurance and gas) so she's sitting on a lot of money that she doesn't have an immediate need for. Anyway, we want to help her get a retirement fund started...there's really no reason for her not to and she'll be glad she did. She doesn't have an option through her job and there's just so much information out there that it's hard to decide what's best. 

She's young, so she could do something that has maybe a higher risk, but we obviously don't want something with a lot of added fees. She likely won't be interested in learning too much about the whole process and will just make deposits and not move money around, if that makes sense. Anyone have any suggestions?

[sadlebred]

A ROTH IRA and put it in a Target Date fund. Easy peasy.

[dragon's breath]

Roth IRA with Vanguard or Fidelity, total stock market (VTSAX or FZROX). I'm not a fan of target date funds myself, but there are worse ways to go about it.

Highly recommend The Simple Path to Wealth by JL Collins. Or, his stock series online jlcollinsnh.com/stock-series/ He wrote it for his daughter, so it's easy to follow and has good info.

ETA: Minimum to open VTSAX is $3k, or she could get VTI (but that has to be bought in full shares).  I don't think Fidelity has any fees or minimums for FZROX, it's kind of like a loss leader in a grocery ad-- gets you in the door with the hope you'll purchase something else eventually.  My son and I both use Vanguard.

[scm1011]

Agree with a total market fund in a Roth IRA. I wish my parents had guided me to do that when I was 18!

[RockNVoll]

Ditto the Roth IRA advice. Vanguard or Fidelity are good options and I'd probably choose an index ETF rather than mutual fund. Minimums are probably lower and the fees are often lower, too. I'd go with an S&P 500 or total stock market index ETF.

Great advice you're giving her, by the way! Starting early almost guarantees her great growth over time if she can keep it invested.

[clairebear]

I would also suggest a Vanguard Roth IRA with VTSAX. I opened a IRA when I was 23 and started with a targeted retirement fund. However returns weren't that great and I've swapped over to VTSAX and been much, much happier. 

[tripleshot]

Can 16 year olds open Roth IRAs too? DS will be getting a job in a few months and I want him to start saving, but wasn’t sure if it was possible since he’s a minor.

[AdaraMarie]

Yes I think a roth would be great. I would recommended looking in to sofi. I have mine there and it is very much geared for college age people with webinars and career coaching and college stuff. They do push their own loans too, so you would have to be aware of that.
I set mine up to have my pay deposit into a Money account and then automatically tranfer some to the Roth every month. It is managed by them for "free?" and I can set the risk level I want it to be at. It seems to perform similarly to my vanguard target date 401k.

[AdaraMarie]

Oct 11, 2021 16:20:58 GMT -5 AdaraMarie said:

Yes I think a roth would be great. I would recommended looking in to sofi. I have mine there and it is very much geared for college age people with webinars and career coaching and college stuff. They do push their own loans too, so you would have to be aware of that.
I set mine up to have my pay deposit into a Money account and then automatically tranfer some to the Roth every month. It is managed by them for "free?" and I can set the risk level I want it to be at. It seems to perform similarly to my vanguard target date 401k.

ETA: My understanding level is also pretty low and when I looked earlier this year they had the lowest/no fees for a hands off account.

[dragon's breath]

Oct 11, 2021 16:12:15 GMT -5 tripleshot said:

Can 16 year olds open Roth IRAs too? DS will be getting a job in a few months and I want him to start saving, but wasn’t sure if it was possible since he’s a minor.

Yes, but it will need to be a custodial account until he turns 18.  Basically just needs a parent to sign off on it (since a minor can't enter any kind of contract).  When he turns 18, it should automatically change to just him on the account.

[Wallflower]

I'm going to go a slightly different direction here.

Yes, a retirement account is a good idea and I don't want to discourage that and Roth is the way to go. But building an emergency fund is also critical and this is a good time to teach that, as well.

Kuddos to you! My parents never spent any time teaching financial things to us; I definitely learned by failing first.