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Lesko Financial: The Right Gift for Graduation

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Bryanna: It’s graduation season for colleges and high schools. Greg Lesko of Lesko financial has a suggestion for a gift that won’t be forgotten once the summer is through.

Greg: Many parents and grandparents give cash to graduating students in their families and it’s one gift that’s always appreciated. But you can have a lasting impact on a college or high school graduate’s life by giving a contribution to a retirement account like the after-tax roth i.r.a. Giving “class of 2018” students a head-start on retirement could set them on a lifetime course of building wealth and creating a solid financial future. 

Bryanna: What are the benefits of gifting a retirement account?   

Greg: The biggest one is that time is on their side. The earlier someone begins saving, the more time the money has to grow through compounding. For example: if you contributed a thousand dollars a year for five years to an 18-year old’s i.r.a., assuming an 6% average annual return, by age 65, that $5,000 has grown to over $65,000. With a 9% average return that $5,000 grows to over $210,000. More importantly, you’re encouraging your graduate to invest money instead of spending it. 

Bryanna: Any drawbacks to this gift?   

Greg: Not really, but irs rules do apply. Keep in mind that i.r.a. contributions can be made only in years in which the recipient has earned income. One other issue is that retirement seems a long way off to someone just finishing high school or college. But that’s when it’s a good time to go online and find a compound interest calendar to show your graduate how this gift could put them on the path to becoming very, very wealthy.