Should you consider an IRA for your high school or college graduate?

Over the next few weeks, millions of high school and college students will be graduating all across the country.  While many parents and grandparents gift cash, what about an IRA contribution for your new graduate?  An IRA will have lasting impact on the young graduate’s life and while people at every age can benefit from an IRA, younger adults stand to benefit the most.

Without a clear understanding of the benefits of IRAs, many Americans are missing out on a simple way to save for retirement, according to the 2017 TIAA IRA Survey 

Twenty-eight percent of Americans without an IRA say they don’t know enough about them, and 17 percent think IRAs are too complicated.  91 percent of current IRA contributors say they are confident about their retirement savings – compared to 64 percent of those not contributing to an IRA.

Dan Keady, Chief Financial Planning Strategist at TIAA shared with Fox Business offered these tips on the advantages of grandparents and parents gifting IRA's to their children and grandchildren:

•By giving an IRA contribution as a graduation gift, you will help your child or grandchild get an early start on saving for retirement. Over time, an IRA contribution will likely have greater and more lasting value than a new tablet, smartphone or other gifts. Compound interest is most powerful for the young who have a long time to let the savings grow.

•For example, look what could happen if you contribute $1,000 to an IRA in your 25-year-old child or grandchild’s name each year for the next five years. Assuming the gifts remain invested at a 6% average annual return, by the time they reach age 65, the $5,000 that money could grow to $43,327.181.

•If retirement seems like a lifetime away for your child or grandchild, remember that an IRA can be more than just a retirement account. There are two primary types of IRAs, Roth and Traditional. With a Traditional and Roth IRA, while subject to limits and rules, you can withdraw your assets to help with a home down payment or educational funding.

•Keep in mind, however that by law, contributions can be made to an IRA only in years in which the recipient received earned income.