So the continuation of Part II of Roth IRA, it is like a special savings account for your future, but way better than a normal one. You put in money you already paid taxes on (like from a job), and that money grows over time. When you’re older and ready to use it, you get to keep it all, no extra taxes when you take it out! It’s a smart way to build wealth without being a finance expert.
You might be thinking, “Why should I even care about retirement at 20?” Good question! But here’s the truth: the earlier you start saving, the more money you’ll have later, thanks to something called compound interest I explained in a previous article. That just means your money earns more money and then that money earns even more money. It’s like a snowball that keeps growing while rolling. Most people of your age ignore this stuff, but if you start now, then the future will be super grateful at you.
Starting a Roth IRA is easy. Step 1: earn some income (even from part-time jobs). Step 2: Open a Roth IRA online. Step 3: Add money (called contributions). Step 4: Invest that money in things like index funds or stocks. Step 5: Let it grow tax-free over the years. That’s it, just five simple steps to build long-term wealth without being rich or a money genius.
1. How Much Can You Put Into a Roth IRA?
If you are wondering how much money you can put into a Roth IRA, here’s the answer. For 2025, the Roth IRA contribution limit is 7,000 dollars if you are under the age of 50. That means you can add up to 7,000 dollars during the year as long as you earned at least that much from working. It could be from a part-time job, freelance work, or any job where you get a paycheck. You do not have to put in the full 7,000 dollars to get started. Even small amounts make a big difference over time. A lot of people think they need to be rich to use a Roth IRA, but that’s totally not true. Let’s say you can only save 50 dollars a month. That is 600 dollars a year. While that may seem small now, over the next 30 or 40 years, that money could grow into thousands thanks to something called compound interest.
This is where your money earns more money just by sitting and growing. Starting early and staying consistent is way more important than saving a lot all at once. So don’t stress if you can’t max it out. Just start with what you can.
Another great thing is that you do not have to make one big payment. You can add money anytime throughout the year. It can be weekly, monthly, or whenever you have a little extra. Some people even set up automatic transfers from their bank account so they do not forget. This makes saving feel easy and normal, like just another bill, except this one helps your future.
Think of it like building a money snowball. Even if you start small, it can roll into something big over time. The key is to just keep it going.
So if you are a 20-year-old asking how to start a Roth IRA, remember this: You can put in up to 7,000 dollars a year, but any amount is better than nothing. Even starting with 20 dollars a week is a powerful move. The sooner you start, the longer your money has to grow. Your future self will be so glad you took action now. This is one of the best ways young adults can build real wealth without needing to be financial experts.
2. What Are the Rules You Should Know?
I. Must Earn Income To Contribute.
Before you open a Roth IRA, there are a few simple rules you need to know. The first rule is that you must earn income or have a job to contribute money. That means you can only put money into a Roth IRA if you made money from a job. It could be a part-time job, summer work, freelance gigs, babysitting, or even working at a fast food place as I told in my earlier article and in this article. As long as it is real earned money, you can use it for your Roth IRA. If you didn’t make any income for the year, then you cannot contribute. So just remember, no job means no Roth IRA money.
II. Can Withdraw Contributions Anytime Without Penalties.
Another rule that’s super helpful is that you can take out the money you put in anytime without a penalty. This is one of the reasons why a Roth IRA is great for young people. Let’s say you put in 2,000 dollars over a couple of years. If something happens and you need that money, you can take out your original 2,000 dollars without paying a fine or extra taxes. Just be careful not to touch the earnings yet. But it’s good to know that your contributions are not locked away forever.
III. Earnings Must Stay Until 59½ to Avoid Penalties.
Now, here’s the part that trips up some people. While you can take out your contributions, you should leave the earnings in your account until you turn 59 and a half. If you take out the earnings early, you might have to pay taxes and a 10 percent penalty. Earnings are the money your investments make over time. So let’s say you put in 2,000 dollars and it grows to 3,000. That extra 1,000 is the earnings, and those are supposed to stay in the account until retirement. If you leave them alone, they grow tax-free, which is the big benefit of a Roth IRA. If you pass away before age 50 (or any age) and you have money in your Roth IRA, it doesn’t disappear. The money goes to your beneficiary account or to the person you listed on your account when you opened it. This could be a parent, sibling, spouse, or anyone you choose. That person will receive your Roth IRA, and the money stays tax-free in most cases.
IV. Keep it Super Simple (No Deep Legal Language).
Finally, do not worry if all this sounds new. The rules are actually pretty easy once you know them. You earn money, you put some into your Roth IRA, and you let it grow. You can always take out what you put in if you really need it, and the rest just keeps building. No complicated tax codes or confusing legal words. That is why this is one of the best savings tools for young adults. If you stick to the basics, your Roth IRA will be one of the smartest things you ever started in your 20s or at any early age.
3. What Happens If You Start at 20 vs. 30? (Fun Example)
Let’s say you start putting money into a Roth IRA at age 20. You invest just 200 dollars each month. That’s not a crazy amount, and you might even spend that much on food or clothes every month. Now imagine you do this every month until you’re 60 years old. If your money grows at about 7 percent per year (which is common when investing in index funds), you could end up with over 500,000 dollars. And remember, since it’s a Roth IRA, that money is tax-free when you take it out in retirement. You didn’t have to do anything fancy. Just invest early, stay consistent, and let time do the work.
Now let’s compare that to someone who waits until age 30 to start. They do the same thing — invest 200 dollars a month at the same 7 percent return. But because they started 10 years later, they only have 30 years to grow their money instead of 40. At age 60, they’d have around 250,000 dollars. That’s still pretty good, but it’s half the amount of the person who started at 20. That 10-year head start made a huge difference. This is the power of compound interest. The earlier you start, the more time your money has to grow.
Starting Young, Massive Advantage.
Starting young gives you a massive advantage when it comes to building wealth. Think of it like planting a tree as mentioned earlier. If you plant it at age 20, you give it lots of time to grow big and strong. But if you wait until 30, it still grows, but it will not be as tall or strong. In money terms, your early dollars have more years to earn interest. And then that interest earns more interest. This snowball effect is called compound growth. It’s the secret that helps your Roth IRA turn into a money-making machine.
Many people think they can wait until they’re older to start saving, but time is something you can’t get back. Even if you invest small amounts, starting early beats starting big later. It doeRsn’t matter if you’re not rich right now. Just saving what you can, like 50 or 100 dollars a month, can lead to big results when you give it enough time. That’s why opening a Roth IRA in your 20s is one of the smartest money moves you can make. Your future self will seriously thank you.
As I can end this debate and explanation of Roth IRA here, if you have any questions or suggestions for this debate or guide, you are free and welcome to comment below. Ciao!
