A word to the recent college grads: How to amass $300K towards your retirement (and not pay a single cent of taxes)

When I graduated from Harvard College more than ten years ago, investing for retirement was not anywhere near my top ten list of to-dos. As with most college grads, I was focused on building my career, preparing for grad school, hanging out with friends, and spending money on toys that I could not afford to buy in college. I was "too young" to think about the distant future - it was decades and decades away.

After spending the past eight years in the financial services and wealth management industry, the "decades and decades away" has a new meaning to me. The reason why it seems like it is not important is the very reason why it is the most important thing you should do.

The money that I could have socked away for the past ten years could have grown and compounded year after year. And it would have grown tax free. I conducted an informal survey of classmates and discovered that few of us took advantage of this... mostly because no one told us about it and we were too focused on other things. It is really unfortunate - it was tens of thousands of dollars left on the table. If you want to make the same mistake then stop reading here.

If you recently graduated from college and wonder what you should be doing with your money - most of you never think about this - the answer is obvious:

Open a Roth IRA and make the maximum allowed contributions each year.

For 2008, it is $5,000. I know it sounds like a lot of money and you would rather spend the money on a down payment for a new car, buy an iPhone, go on vacation with friends, or save the money for grad school. You can still do all that, but first protect the money from yourself and put it in a Roth IRA.

Here's why: Once you hit the income ceiling of $99,000 (as of 2008), the IRS limits your allowable contribution. Once you hit $114,ooo, you can forget it. You will hit that limit sooner than you think!

If you start to contribute this year and continue to do so for the next 15 to 18 years, you would have close to $310,000* in your IRA account. And you do not have to pay a single cent of taxes on this amount.

If you can afford to do this and don't do it - it is just STUPID - it is leaving tens of thousands of dollars that the government gives you for free on the table. I did it, please please don't repeat this mistake.

You can open an account for free at any brokerage firm - Fidelity, Schwab, etc. It takes twenty minutes. Go and do it!

*For 2008, the average salary of college grads is $46,000 according to SimplyHired. Assuming that your salary grows 2% annually over inflation (3.4% and growing), you will reach the limit in 15 or so years. If you invest in a well diversified equities portfolio, you should be able to achieve 10% annual return. With annual maximum contributions, your portfolio will reach over $300,000 by the time most other people just start to save for their retirement.