I know that most young people don’t make very much money.  I also know that it’s hard to be a college student, at least financially.  Costs are up.  Aid is down.  Loans are expensive. I get it.  Seriously, I get it.

Having acknowledged all of that, I want to remind the young people about the biggest financial opportunity that is available to them.  It takes full advantage of the two greatest assets young people enjoy: time, and tax-free growth.

It’s called the Roth IRA.  You have probably heard of it.  But in case that term is not familiar to you, permit me a moment to outline the basic features of a Roth IRA.

Let me warn you up front: this might hurt.  I am not being facetious.  I know that if you don’t make much money, or don’t have a job at all right now, this is going to require sacrifice.  If you don’t have a job (say you are a full-time college student), you will need to get one.  If you are living on the money you are making, you will need to find a way to earn some more, or to spend less.  What I am convinced of is that the effort on your part will be completely and totally worth it.

You may contribute money each year, up to $5,500 or your earned income, whichever is less.  This is important: you have to EARN the money either through a job or from self-employment.  Investment income doesn’t count.  Gifts are not income. You put the money into a retirement account (the Roth IRA, named after a former Delaware senator) where it is invested in the usual assets: stocks, mutual funds, bonds, etc.  Then you leave it alone.

You put another $5,500 in next year, and the year after.  Lather, rinse, repeat. You do this until one of two things happens: either you reach retirement age or you make too much money to be able to make a contribution.  That limit is presently $114,000 per year if you’re single, and $181,000 per year if you’re married.   You have to be doing pretty well before you get shut out. Once you reach age 59 and 1/2, any withdrawals from the Roth IRA are TAX FREE.  (Yes, I know there are nitpicky exceptions, but I’m going to ignore them right now to emphasize the larger truth).  If you want all the glorious details, I suggest you curl up with a recent copy of IRS Publication 590.   Don’t wait for the movie to come out.

How much money are we talking here?  An 18 year old who contributes $5,500 per year for every year through age 30 (13 years) and then leaves the money alone until age 70 will have $3.9 million in his account. If he contributes through age 35, that number grows to just over $4.6 million.

All of that assumes an annualized return of 9%.  That is below the CRSP database annualized return of 9.9% for all US stocks from 1926 through 2013.

Yes, I know that inflation will mean those dollars will be worth less.  That’s why you have to put the money in stocks and leave it alone for decades: stocks are the one asset that has been proven to beat inflation over long periods of time.

Time is on your side, young people.  Use it!