I recently read an article about putting $2,000 into a long-term investment account every year from 19 years to 26 years old. Assuming a 12% return, by the time you're 65, you would have around $2,000,000. As a college student without taxable income, I cannot open a roth account. Any suggestions as to how I can achieve this goal and what type of account to open?


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    what do you mean no taxable income? Do you have a job during the summer? or do you have an on campus job? – mhoran_psprep Dec 12 '16 at 11:12
  • You don't need taxable income to open an IRA through a financial agency or bank, just the funds themselves (via gift, cash, or savings). I would also recheck your assumed earning rate as 12% is astounding high for any sort of conservative or moderate fund. – Aias Dec 12 '16 at 19:12
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    I will pay you $2 million dollars right now if you tell me where I can consistently get a 12% return. No need to wait for 45 years. – Five Bagger Dec 12 '16 at 21:10

Great question and great of you to be paying attention to this. Right now having the ability to save $2K per year might seem very out of reach. However with the right career path and by paying attention to personal finance saving 2K per month will become possible sooner than you may think.

As a student you are already investing in your future, by building your greatest wealth building tool: your income. Right now concentrate on that. If you have extra money throw it in a boring old savings account and don't touch it other than emergencies. An emergency is defined as something that will preclude you from completing your education. It is not paying for the latest xbox game/skateboard/once in a lifetime trip.

An important precursor to investing is having an emergency fund that sits in a boring old savings account earning almost nothing. Think of it as an insurance policy that prevents you from liquidating your investments in case of and emergency. Emergencies often come during economic downturns. If you have to liquidate your investment to cover these times then you will lock in negative returns.

Once you are done with school, moved into a place of your own, and have your first job you will have a nice start on your emergency fund. Then you can start investing. Doing it in the right order you will be amazed how quickly your savings can accumulate.

I'd be shooting for that 2 million by the time you are 40, not 65.


Where is the money coming from?

If you already have the money (inheritance, gifts or similar) sitting in your account, you can just buy e.g. index funds from Vanguard, Robinhood or other low-cost brokerages. But first you should estimate how much money you need for your studies - it is a bit of a gamble to invest money that you'll need to withdraw in a few years time. Even though the average return may be quite high (12% sounds like an overestimate, more commonly quoted figure is 7%), over short timespans your stocks will go up and down randomly.

Once you actually have a job and have income from it, then the 401k and IRA and similar retirement accounts start to make sense. There is no need to have all your savings in the same account, so you can start saving now already.

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