Buy a Roth IRA now or wait???

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bob_loblaw
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Joined: Mon Sep 22, 2008 6:23 pm
Location: NOLA

Buy a Roth IRA now or wait???

Post by bob_loblaw » Mon Sep 29, 2008 11:21 pm

I'm 26, no debt and finishing skool in 2 years. I currently have $5000 marinating in an online ETrade savings account @ 3.3%. I contribute the maximum amount matched by my employer to my 401k and am looking to start my first Roth IRA. Even though I'm young and have time to weather the storm, I was curious if it would be more beneficial to wait until the market settles or start investing in a tumultuous environment? Thanks for any advice.

Laura
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Joined: Mon Feb 19, 2007 7:40 pm

Invest now

Post by Laura » Tue Sep 30, 2008 5:38 am

Bob,

Investing now is the best option. No one can predict the future. Make sure you select an asset allocation that makes you comfortable. Volatility is normal (although these are abnormally volatile times). Also, make sure to blend your 401k and roth holdings into one unified portfolio. If you have a Target Retirement type fund in your 401k using a Target Retirement fund in your roth would be a great choice.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.

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BruceM
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Location: Manzanita, Oregon

Re: Buy a Roth IRA now or wait???

Post by BruceM » Tue Sep 30, 2008 11:31 am

bob_loblaw wrote:I'm 26, no debt and finishing skool in 2 years. I currently have $5000 marinating in an online ETrade savings account @ 3.3%. I contribute the maximum amount matched by my employer to my 401k and am looking to start my first Roth IRA. Even though I'm young and have time to weather the storm, I was curious if it would be more beneficial to wait until the market settles or start investing in a tumultuous environment? Thanks for any advice.
You're really talking about two different things.

Your concern about entering the marketplace with new investments in today's climate is one issue: whether to open and fund a Roth IRA is another. They really don't have anything to do with each other.

To open and fund a Roth IRA or not has to do with your retirement savings needs. The Roth or Traditional IRA is simply the tax favored vehicle for doing this that most use. But to answer your question I'd ask if you are saving a sufficient amount through your salary deferral into your employer sponsored 401(k) plus employer match, to meet your long term retirement need? If so, funding a Roth or TIRA is not necessary, although many would still encourage you to do so if you can afford to.

To invest in today's marketplace or hold your investment dollars on the sidelines in a money market or very short term bond fund, whether in a taxable account or a tax favored retirement plan, is a question no one knows the answer to....except to say that over the long term...and you have a long term in front of you....it will probably make little difference. From your standpoint, the most important factor is to start a regular savings plan into a diversified mix of asset classes.

BruceM

retiredjg
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Post by retiredjg » Tue Sep 30, 2008 1:34 pm

I like the idea of starting your Roth, after meeting your employer's match on the 401(k).

However, you did not mention an emergency fund. Do you have one? Also, when you finish school, will you have a need for a car? New clothes for a new job? Moving? Apartment deposit? It might be best not to tie that money up in a long term investment unless you know there will be money available for your transition.

One option is to go ahead with the Roth. If necessary you can take your contributions (not earnings) out later if you need to. However, if you decide to do this, I would invest the Roth money in something conservative to avoid having to sell stocks at some future low point if you do have to take money out. Sort of defeats a little of the purpose of the Roth, but if you end up not having to take money out, you will have Roth space that you would not have had by going the other route. At that point, you can exchange the conservative investments in the Roth for something with a higher expected return which is what many people think should be in a Roth.

How to decide? Beats me. I guess if you know you will not be eligible for a Roth later (making too much money), maybe now is a good time to be accumulating the Roth space. You'll likely want it later. Eventually, you should have a dedicated emergency fund separate from your Roth though.

Bottom line here is this. What is actually important at your age is that you are saving money. That will account for a lot later on. Whether it goes into an emergency fund, an after school transition fund or a Roth is not as important as how much you save. Keep it up! jg P.S. Welcome to the forum!

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