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A young friend has $1000 that he wants to invest. He is 16 and worked in his Dad's business this summer. I want to suggest an IRA (based on Pixy's response, a Roth IRA), but I don't know his plans for the money. What if he is not like Justin and wants to use the money in ten years to start a business or buy a house. Should that $1000 be put in a regular brokerage account?

In my opinion, your young friend should follow the same advise as Justin (at least for the next 5 years or so), even if he might use the money in 10 years. One of the nice features of a Roth is that after you've had your contribution in there for 5 tax years, you can take those contributions (but not the earnings on them) out with no taxes or penalties. So basically, any contributions made in the next 5 years will be able to be removed in 10 years for whatever purpose you want with no penalties. That's $10,000 (or maybe more, if the contribution limits are changed) that he can take out to start a business. Furthermore, if he needs the money for a qualified first-time homebuyer expense, NONE of that money will be subject to a penalty.

The key, however, seems to be the 5-year holding period. Nothing can be taken out until it has been in there for 5 years. So if his time horizon is shorter, he might have to think more carefully about whether or not to contribute to a Roth. For example, if it's the 8th year, and he's planning to start a business (or buy a house)in a year or two, then any contributions to a Roth IRA will have to stay there a while.

For some more explanations about Roth distributions, go here:
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