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Roth IRA Decision

August 4th, 2014 at 09:17 pm

A few days ago my mother sent me an article from the New York Times (I believe) about how you should open a Roth IRA as young and as soon as possible. Since then she's been really pushing me to do research on it and strongly consider opening one. I have, but the whole world of investing money and retirement accounts truly baffles me.

I'm 21 and have only ever had part-time and summer jobs. I currently have only a few expenses, although once I graduate college this year I'll have about $20,000 in student loan debt. I have no credit card debt and plan on keeping it that way. My savings account is low, mostly because I'm still recovering from my study abroad trip, but nearly all of it will go towards utilities and groceries and school expenses this coming year--my parents are awesome and will pay my rent and public transport pass. I don't have an emergency fund, but I am lucky enough to have a family that will help me out in case of a true emergency.

I already know I won't be able to max out my contributions, so my goal would be at least $1000 for this year. From the research I've done, Sharebuilder allows you to open with any amount but tends to have more fees, while Vanguard has a $1000 minimum but is better on the fees front.

I would love some input on this, since I know many of you have Roths. Is it worth it for me to open one at all? Would the no-minimum Sharebuilder be a good starting point until I get the hang of this stuff, or should I save up the rest of this year to open the Vanguard? Anything I'm totally neglecting to consider?

8 Responses to “Roth IRA Decision”

  1. BuckyBadger Says:

    I would scrape together $1,000. As soon as you have it, open a Roth IRA at Vanguard and put everything in a Target Retirement Fund with a date of 2060. This will give you 90% stocks and 10% bonds and you'll never need to touch it. Once you have the account started you can put in smaller amounts of money.

    Even if you never add to this, it'll still be a good idea. If you can add even a little bit - $50 or so a month - you'll be happy that you did.

    Vanguard is really the best option, and Target Date fund is the absolutely perfect choice for you.

  2. creditcardfree Says:

    I would suggest an index fund at Vanguard...I personally have most of my retirement account in the S&P 500 Index fund. I don't think you need to be in bonds at age 21. Just my opinion.

    I also would save up the $1000. Make your goal year end or at least by April 15 2015 to count for 2014. No one needs to pay excess fees!

  3. scfr Says:

    I agree with BuckyBadger that a Target Date fund at Vanguard would be a great choice for you. (If you go with Vanguard, with $1K your choices will be limited to a Target Date Fund or the STAR fund. Their other funds have higher minimums.) You would have until tax filing time 2015 to come up with the funds. You won't need to have the entire $1K by the end of the year.

    But before opening a Roth, if I were in your shoes, I would stop and consider if reducing student loan debt would be an option. In other words, is taking LESS in student loans an option, rather than funding a Roth? The less debt you have when you graduate, the better shape you'll be in.

  4. MonkeyMama Says:

    I am with scfr. Our goal in college was to graduate debt-free. Also, living in a very expensive region, most of the money we saved age 16-23 went towards down payment on first home. My parents did encourage me to put $1,000 into a IRA at some point, but it never really did much. I don't feel that really did anything for me and looking back I am so glad we made "no debt" and "house down payment" a priority. This means that we have made retirement savings a fairly large priority since the day we graduated college (and were actually making real money). For that, I am not really big on encouraging teens and college students to worry about saving for retirement.

    Well, let me put it this way. I don't even know if I could have saved up $1,000 during one year in college, working like 5 jobs, but when I graduated I started making $20k more per year and just saved my entire raise. Looking back, I am glad I did not have unnecessary stress with my low income college situation. Any loss for not contributing to retirement was easily made up in year 1 post college. NO matter how I slice it I don't think that utilizing an IRA more in college would have given me any edge.

    It might be different if you have more parental help and were not accruing student loan debt. It's fine advice for people with money.

    Agreed with the others - I would stick with Vanguard. Target retirement date funds are an excellent place to start.

  5. NJDebbie Says:

    Can you send me the link to the article so that I can send it to my sons?

  6. Miz Pat Says:

    I have Vanguard too and they are excellent. Although you will have a substantial debt, I think putting money into the Roth IRA will be more beneficial. Its true that putting money into retirement savings while very young is exactly the right time to do it because of the many years of accrued interest.

  7. Learningtomoney Says:

    For those interested in the article, you can read it here.

    Thank you everyone for all of your input! I think I'm going to work on saving towards the minimum, do a little more research on the Target vs. Star options, and then decide if I want to start paying off my loans or start a Roth. As of right now I'm definitely leaning towards the Roth--I have mostly subsidized loans and I pay off the interest I do earn every month to keep it as low as possible, and I'm aiming to be rid of at least half of my debt after one year from graduation. And I think I would like to start on some retirement savings in the meantime Smile

  8. scfr Says:

    Good plan!

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