Roth IRA? good?

[Xcobra]

Hello. I am 21 years old and I think it is good to start with retirement early. I have a part-time job that maybe pays 600-700 a month. I just want something that can take small payments monthly (maybe 50-100 bucks?) and just affordable. I am a college student (full-time) and will be graduating in May 09. I think I'll be ok after college since I'll probably end up working in the city. Any suggestions on reliable broker, etc.? Thanks guys!

EDIT: forgot to add that I also have savings totaling $3000 earning 3.25%...I want to get better on my return

 

[imported_Lothar]

Vanguard.

 

[cliftonite]

Yes it is a very good idea to start one now. The money over 40 years will add up.

 

[Special K]

Originally posted by: Lothar
Vanguard.

Seconded. Since you do not have a large amount to invest, I would recommend putting all of your money into their latest Target Retirement fund. If you don't meet the minimum for that, then I believe they will let you invest in their STAR fund via monthly direct deposits.

 

[Xcobra]

what about fees?

 

[Special K]

Originally posted by: Xcobra
what about fees?

Vanguard has some of the lowest expense ratios in the entire mutual fund industry. Do not hire a broker to invest your money - it is highly unlikely that you will come out ahead after they subtract their fees and comissions from your investment.

 

[Torghn]

Vanguard, Fidelity, or T.Row (USAA if you qualify). I use Vanguard and USAA both are great, "fees" will very based on the fund you choose, but I think the targeted retirement fund is a good place to start.

 

[Xcobra]

cool, thanks for the fast replies, i will look into vanguard...

 

[Special K]

Originally posted by: Xcobra
cool, thanks for the fast replies, i will look into vanguard...

Also look here for investing advice, I learned quite a bit from this board and their recommended books:

diehards

 

[Xcobra]

what about investment types? should I worry about what to choose?

 

[Special K]

Originally posted by: Xcobra
what about investment types? should I worry about what to choose?

What do you mean types? For your small amount to invest, I said the target retirement fund with the latest target date would be your best bet.

 

[Xcobra]

Just asking since I am filling out the app online for Vanguard.

 

[LuckyTaxi]

question, is an IRA like a 401k where let's say you contribute $100/month, can you allocate the $100 towards different funds (yes I know about the fees but let's say you choose a no-load fund)?

 

[Special K]

Originally posted by: LuckyTaxi
question, is an IRA like a 401k where let's say you contribute $100/month, can you allocate the $100 towards different funds (yes I know about the fees but let's say you choose a no-load fund)?

The funds at Vanguard have a minimum purchase amount. I think the cheapest ones are $3000. This means you need at least that much to buy into the fund. Once you have bought into the fund, I believe you can add to your position in any increment you want.

I think they have one called the Vanguard STAR that allows you to direct deposit small amounts per month. Once your total account balance exceeds the minimum purchase price of another fund, then you can transfer into it.

 

[Xcobra]

so i should go for target retirement fund?

 

[Special K]

Originally posted by: Xcobra
so i should go for target retirement fund?

Check to see if it has a minimum investment amount. If you meet that amount, then go ahead. If not, then you will either need to wait until you have enough saved up to buy into it, or I think they have the Vanguard STAR fund that allows you to invest smaller amounts via direct deposit.

Check their website to verify.

 

[Xcobra]

Oh I get it, well I do have 3000 saved up like I said BUT that is ALL I have, and want to keep some of it in case of emergency. Should I just go ahead and use? Can I withdraw money freely once the account has been set up?

 

[Special K]

Originally posted by: Xcobra
Oh I get it, well I do have 3000 saved up like I said BUT that is ALL I have, and want to keep some of it in case of emergency. Should I just go ahead and use? Can I withdraw money freely once the account has been set up?

In a Roth IRA you can withdraw your contributions at any time, but not any money earned beyond that.

I would personally save up until you have your emergency fund in place and can buy into the fund without touching the emergency fund, but that is just me. Some people use their Roth IRA as a source of emergency money.

 

[imported_Lothar]

You have 2 weeks to come up with $4,000.

 

[Xcobra]

Originally posted by: Lothar
You have 2 weeks to come up with $4,000.

what do you mean?

Also, which of the Target Retirement Funds should I choose, how do you know which one is their most recent one (the numbering?)?

 

[Special K]

Originally posted by: Lothar
You have 2 weeks to come up with $4,000.

Just to clarify, what Lothar is saying is that you technically have until April 15th to make your 2007 Roth IRA contribution of $4000. I believe the limit is increased to $5000/year starting in 2008.

 

[Special K]

Originally posted by: Xcobra

Originally posted by: Lothar
You have 2 weeks to come up with $4,000.

what do you mean?

Also, which of the Target Retirement Funds should I choose, how do you know which one is their most recent one (the numbering?)?

Here is the list:

link

You want the target retirement 2050 fund. It has the latest target date, which means it will be invested the most aggressively. It will be the most volatile, but since you are so young, this shouldn't be a big concern for you at this point.

The fund managers will automatically rebalance it as the years go by, and will gradually increase the % of bonds the fund holds.

 

[Xcobra]

Thanks Special K! Also what is so special about putting the max allowed to your IRA, why not less?

 

[Special K]

Originally posted by: Xcobra
Thanks Special K! Also what is so special about putting the max allowed to your IRA, why not less?

You are limited to how much you can contribute to your Roth IRA each year. Once the deadline for a particular year has passed, you have lost your opportunity to contribute to your Roth IRA for that year. You cannot make up lost contributions. So if you don't contribute anything for the 2007 year, whose deadline is April 15th, then you cannot make that contribution later - you will still be limited to contributing $5000 for 2008, not $9000.

 

[Xcobra]

ahh I see. Well I am a bit tight with money right now and I want to keep some cushion in terms of emergency funds. So I think I will wait and save up some more and then open up my account. At least I have an idea where to start. I appreciate the responses guys! thanks!