What Would You Do With An Extra $5,000? Compounding Your Students' Interest In A Custodial Roth IRA

Jan 15, 2019
NGPF Fellows, Investing, Behavioral Finance, Retirement

The following blog post comes courtesy of NGPF Fellow, Brett Shifrin, of Gould Academy in Bethel, Maine.


Recently, a student captured the imagination of my class. It stemmed from a comparison of Money Market Deposit Account(MMDA) and Certificate of Deposits (CD).  It was suggested that one of these accounts could be very useful for graduation gifts this spring.

One of my students, Phil, asked,  “Mr. Shifrin, what would you do if you unexpectedly received $5,000?”  My response was what he and others expected, “Max out my. Roth IRA.”

Phil quickly replied, “ What would you recommend this seventeen-year-old senior do?”

After sharing the disclaimer that I am not qualified to give financial advice, I seized this learning opportunity.

As a group, we began eliminating any current needs such as saving for college, money for a new laptop for the fall, money for transportation needs, family needs, emergency fund, etc.  It was clear Phil wanted to learn how to invest this money.

This allowed me to delve into the benefits of a Custodial Roth IRA :

  • Investing - you can invest the lesser of $5500 or your maximum income earned;
  • Retirement - money taken out in retirement is tax-free;
  • Tax Advantage - you can always take out any money invested, but should keep it invested for at least five years to take full advantage of the tax benefits of a Roth IRA;
  • College - money can be used for qualified college expenses;
  • Housing - up to $10,000  can be used for a down payment on a house;
  • Roth IRA - becomes a Roth IRA at age 18 in most states.

Utilizing the Rule of 72 ( 72 divided by the interest rate equals the number of years a balance will double)  and the historical stock market return of seven to ten percent, we did the math to show how at age 67 Phil would have a sizable sum of money.


$5000 becomes  $160,000 at 7% a year                    (Low end of the historical average and a 10 year doubling period)


Balance in Account


Balance in Account














If he added $25 a month until age 67, he would have $288,090.87 in this account.

Do I believe my students opened a Custodial Roth IRA after class? No, but it might have reinforced my students' superpower: time and the ability to determine the time value of money.  Hopefully, this lesson will encourage each student to utilize this superpower in the future. 

You can learn more about Custodial Roth IRAs from:




About the Author

Laura Matchett

After graduating with an education degree and spending 7 years in an elementary classroom, Laura made the switch to the non-profit world and loves interacting with students, educators and business professionals across the country. She is passionate about all students having access to high quality education and views personal finance education as one way to ‘level the playing field’. When Laura is not locating or creating high quality educational resources, you can find her mountain biking or searching for the best ramen in town!