Retirement Investment?

Question

I am currently 21 years old and entering my senior year of college. With my career on the horizon I would like to set up retirement funds asap. I know there are several out there (Rollover IRA, Roth IRA, Traditional IRA). I really don't know what any of these mean or what type of accounts are best for someone like me.

Answer 1

When you get a job, if the organization provides a matching retirement plan like a 401K then put in the same amount the organization is matching.  for example, if they match 5% you deposit 5% of your gross income.  Ideally, you should use 15% of your gross income towards retirement, the remaining 10% should be deposited into a Roth IRA which is an after tax retirement account.  This is a benefit because you will have more after tax money at the time of retirement.  The 401K money built up will have to be taxed because they take it before tax.

Answer 2

The polls are split on this one. Many people choose the Roth IRA when their salary (net income) is below the threshold. That figure was just raised in 2008 to $150,000  The benefit here is that the money you put into the fund are taxed but all of the income derived from the investments (over the next 45 years) is tax free!

Others choose the Traditional IRA to take advantage of the tax break for the dollars invested each year. Basically it becomes an analysis of the time value of money.

My opinion is to go with the Roth IRA until you hit the salary threshold and let that money grow. Then go to the traditional IRA.

The key is to make sure you are maxing out all your options between a 401K, IRA, and planned savings.

Tropper

www.dontdiepoor.com

Answer 3

lets start at the begaining. An IRA is a form of retirement account. it is a form of investing, with that said there is no Guarantee rate of return but for calculation purposes figure 8% to be conservative.

there are only two types, a roth and a traditional. the rollover would be from a 401K which i'm guessing you don't have since you said career is on the horizon but if you do and want to roll it over it would be in to one of the other types.

It being a retirement account there can be penalties for removing the money prior to the age of retirement with a few exceptions (first house and some others).

The first is the standard IRA, which you put money into pre-tax. This is a great savings on your tax return because you are taking down your taxable income. In you are not in a high tax bracket it may not make a huge difference for you.

Also the money that is in you IRA will be taxed when it is taken out during your retirement.

The other type of IRA is the Roth IRA, which is all post-tax money so there is no effect on your tax return. In the Roth IRA the money you contribute and it's earning would not be taxed when you do with draw it during retirement. this is what i did when i set min up.

Now for places to get this all rolling, you can try Fidelity Smith Barney or Vanguard. I used Vanguard to set up one for myself and sister but I know the initial set up investment is a minimum of 3K but that have super low expense rates. Fidelity has a very easy to navigate site and lots of information so it would be a good resource. Smith Barney is also easy to use and has a wide variety of funds to pick from.

Lastly there is a limit to the amount you can add to your IRA (either type) and I think it is 5K this year so try to fund it as much as you can. It sounds like you are off to a great start. Hope I helped and Good Luck!!

Answer 4

If I were 21 and just starting out I would open a Roth IRA as soon as I had earned income (a job) and contribute the maximum amount each year. Your contributions to a Roth IRA are made with "after-tax" money (money on which you have already paid income taxes).  A Roth IRA  grows tax free and is still tax free when you retire and start taking money out.  

With a Traditional IRA, your contributions are made with "pre-tax" money (money on which you defer income taxes until you take money out when you ate retired- you pay income taxes on the money when you take it out).  

A Rollover IRA is when you have an IRA through an employer, leave that job and move the IRA money from the job into a new self-directed traditional IRA.  The old employer sponsored IRA is "rolled over" to the new IRA.  By the way NEVER leave 401(k), 403(b), 457, or IRA money with a previous employer.  Always move it to a self- directed IRA that YOU control.

  When you have a job, sign up for the 401(k), 403(b), or 457 program at your new employer.  Contribute the maximum amount each payday.

  If you open both the Roth IRA and a 401(k) and contribute the maximum each year then you will retire as a millionaire.