Yes, $3,000 will become $82,000 over 49 years! What’s more, when she withdraws that sum for expenses during retirement, it will be completely tax free. Roth IRA contributions are made with after-tax money, but Judy didn’t earn enough to pay taxes. Qualified withdrawals from Roth IRAs are tax-free, so Judy’s contributions and earnings will completely escape Uncle Sam’s grasp!  Worried about college financial aid? Don’t—money in a Roth IRA is not counted in the financial aid calculation.

Before we give Judy too much credit, you need to understand that Judy was fortunate. Her grandfather bequeathed her the $3,000 she contributed to her Roth IRA, leaving her with her summer earnings to fund her expenses throughout the upcoming school year. Talk about a gift that keeps on giving! 

Judy has two great role models in her older brothers. Her hard working 24-year-old brother has been an avid saver since he started working summers at age 16. He now has $22,000 saved up, $15,000 is in his Roth IRA, and, at 7%, by the time he’s 65 that $15,000 will grow to $240,000! Even Judy’s free-spirited, world-traveling 26-year-old brother has managed to squirrel away $5,000 in his Roth IRA, which, at 7%, will grow to $70,000 by the time he’s 65 (we hope he doesn’t withdraw it to start the first US-based agave farm—his current dream).

While I think my kids are quite clever, the real geniuses of this equation are time and the principle of compounded growth. Starting early is key. If Judy were to start saving at age 26 instead of 16, her $3,000 would only be worth approximately $42,000 by age 65. The ten-year delay would cost her $40,000—almost half of the $82,000 nest egg she will have amassed by starting at age 16! If she started saving at age 36 the $3,000 would only be worth $21,000 by her age 65—yikes!

Time is literally money, and the earlier you start saving the better. Judy’s grandfather’s gift enabled her to leverage the time value of money significantly magnifying its value. If you have a young child or grandchild who has earned income, consider the outsized effect your help could have on their retirement savings. Helping them to open and take advantage of a Roth IRA is the healthy way to “super-size it” in 2019.