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Opening Roth IRA
Posted on 12/17/18 at 4:51 pm
Posted on 12/17/18 at 4:51 pm
Im a college student currently with a good PT job/internship that I work a decent amount at. I want to open a Roth IRA and start contributing a little. Any advice on who to open it with, investing advice, or just advice on IRA's in general?
TIA.
TIA.
2
Posted on 12/17/18 at 5:00 pm to Wes225
Vanguard Index 500 or Vanguard Total Stock Market Index - not a lot of difference in them. Start with one of these in a Roth IRA. Don't worry about the amount. Just put in whatever you are comfortable with. Contribute every pay day or monthly.
I've got three children and I started an IRA for each of them while they were working part time in high school. The earlier you start the better.
I've got three children and I started an IRA for each of them while they were working part time in high school. The earlier you start the better.
Posted on 12/17/18 at 5:24 pm to Wes225
One feature of a Roth that some overlook is that it's a great place to get your emergency fund started because you can pull out up to what you've put in with no penalty at all.
Say you contribute $500 this year and $600 in 2019, and over that time you earned $100 in interest so you have $1200 at the end of 2019. You can pull out up to $1100 with no penalty at all if you need to. If you had put it in a savings account instead your $100 interest would be subject to income tax. But in a Roth all gains are tax free.
If you go this route be sure to keep whatever portion you consider emergency funds invested very conservatively - you don't want a market turndown to hit right when an emergency happens. When I say "conservatively" I really mean short term bond funds or the like instead of stocks. Once you build up enough to take care of your e-fund needs you can start investing in stocks instead.
Say you contribute $500 this year and $600 in 2019, and over that time you earned $100 in interest so you have $1200 at the end of 2019. You can pull out up to $1100 with no penalty at all if you need to. If you had put it in a savings account instead your $100 interest would be subject to income tax. But in a Roth all gains are tax free.
If you go this route be sure to keep whatever portion you consider emergency funds invested very conservatively - you don't want a market turndown to hit right when an emergency happens. When I say "conservatively" I really mean short term bond funds or the like instead of stocks. Once you build up enough to take care of your e-fund needs you can start investing in stocks instead.
Posted on 12/17/18 at 8:51 pm to foshizzle
Why all the downvotes for using Roth as starter emergency fund? Most young adults I've talked with about starting a Roth are more concerned about having money available for an emergency. I wouldn't recommend pulling cash from Roth unless it's a true emergency. But if that's what's stopping someone from getting started why not keep emergency fund in Roth where they might also be less likely to withdraw it for trivial things short of emergencies.
Posted on 12/17/18 at 8:55 pm to TorchtheFlyingTiger
quote:
Why all the downvotes for using Roth as starter emergency fund?
Because if he put $500 in it 2 weeks ago he'd have about $450 dollars today
Posted on 12/17/18 at 9:08 pm to TorchtheFlyingTiger
It’s worth noting that you would be subject to a 10% early withdrawal penalty, if the roth is less than 5 years old.
Posted on 12/17/18 at 9:10 pm to Mingo Was His NameO
quote:
if he put $500 in it 2 weeks ago he'd have about $450 dollars today
Not if it was invested in a short term bond fund as reccomended.
This post was edited on 12/17/18 at 9:11 pm
Posted on 12/17/18 at 9:20 pm to HotDamn
Correct me if I'm wrong. Doesn't the 5 year rule only apply to conversions and earnings? I've always understood regular contributions were always tax and penalty free. I searched quickly and didn't find anything to the contrary.
Posted on 12/17/18 at 9:21 pm to TorchtheFlyingTiger
quote:
Not if it was invested in a short term bond fund as reccomended.
Then what's the material difference in putting it in a 2% savings account?
Posted on 12/17/18 at 9:23 pm to TorchtheFlyingTiger
Had to refresh my understanding with a quick search. You’re right, no early withdrawal fee on contributions. Score another for the Roth.
Posted on 12/17/18 at 9:38 pm to Mingo Was His NameO
The benefit would be getting the process started and establishing the habit of regularly contributing. Get started early before life events intervene and lifstyke creep sets in. Personal finance is more psychology than a math problem.
Posted on 12/17/18 at 9:45 pm to PlanoPrivateer
So I could just contribute monthly and Vanguard takes care of the investments or do I choose my investments with this one? I don't have a great understanding of the stock market at the moment.
Posted on 12/18/18 at 6:15 am to Wes225
quote:
So I could just contribute monthly and Vanguard takes care of the investments or do I choose my investments with this one? I don't have a great understanding of the stock market at the moment
Ok, I'm going to stop you here. Before you invest in a Roth, get a better understanding of what you're buying.
Rule #1: NEVER invest in anything you don't understand.
Posted on 12/18/18 at 8:28 am to Mingo Was His NameO
quote:Because if you miss a Roth contribution it’s gone forever. I don’t understand this argument at all. Why would you ever NOT max your Roth in order to fill a taxable account first?
Then what's the material difference in putting it in a 2% savings account?
Assuming you plan to contribute to a Roth, I realize it doesn’t make sense for certain tax brackets.
This post was edited on 12/18/18 at 8:28 am
Posted on 12/18/18 at 8:31 am to jimbeam
quote:
I don’t understand this argument at all. Why would you ever NOT max your Roth in order to fill a taxable account first?
quote:
Im a college student currently with a good PT job/internship that I work a decent amount at. I want to open a Roth IRA and start contributing a little
I agree in your sense, but that's not what we're talking about. If I was the OP and I had a little extra scratch I'd just put it in a high yield savings account. It's very commendable that he wants to start saving early, but I just don't think a Roth is the most practical option at this point. He could very well need to dip into some of that money pretty soon. Moving expenses, deposits on a new place, etc, etc
Posted on 12/18/18 at 12:36 pm to Mingo Was His NameO
quote:
I just don't think a Roth is the most practical option at this point. He could very well need to dip into some of that money pretty soon.
He can fund a money market account in the Roth, avoid any potential gains, and still remain liquid. The online savings account will provide taxable gains at no discernible increase in liquidity.
Posted on 12/18/18 at 12:48 pm to Mingo Was His NameO
Vanguard MM is around 1.7% right now.
Posted on 12/18/18 at 6:26 pm to TorchtheFlyingTiger
quote:
Most young adults I've talked with about starting a Roth are more concerned about having money available for an emergency.
My thoughts exactly.
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