<p>^^That’s true, peacefulmom, this thread is getting hijacked with issues that older people face. Hijacking happens pretty quickly when an OP opens a thread, and doesn’t bother to come back and respond or ask questions one single time in four pages…If you’re starting a thread, make sure you have time to redirect or respond—or God only knows what it will turn into! Next thing you know, people will be talking about derivatives and embedded options and your eyes will roll back in your head as you drift off into sleep.</p>
<p>If nothing else, OP, you must get the idea now that even though you’re talking about just a little bit right now, keep adding onto it, and the little bits can eventually turn into huge sums of money. Put it into an investment calculator (I recommend this one: <a href=“Investment Calculator - Ramsey”>Investment Calculator - Ramsey) and you will be amazed how the money can add up over the years with the power of time. Try different annual rate of returns, and you’ll see why when you are young you should not bother with low return CD’s. Look at the amount of money at your retirement age, and decide if you want that amount tax free, or highly taxed. It should be obvious that unless you’re in a high tax bracket now and need the deductibility of an IRA, that the Roth is the way to go.</p>
<p>Busdriver- My fear is that the OP got overwhelmed and abandoned the thread. I must say I am learning from these discussions but I think we could continue them elsewhere.</p>
<p>OP- </p>
<p>1) Save and invest as much as you can while you are young. i would consider putting this years savings into a Roth IRA ASAP. There is absolutely no downside IMHO.</p>
<p>2) Spend some time learning about investments AFTER you make your contribution. There is a huge risk of “decision paralysis” and you could park your money into a money market fund until you decide what investment risk you are comfortable with. Making the contribution and opening the account is time sensitive. Choosing an investment option isn’t.</p>
<p>3) During the year, if you feel the need, you can explore the future tax implications of a Roth versus a non-Roth IRA. At your stage and with the beginning amounts you will invest, either is better than doing nothing. The consensus on this board seems to be a Roth IRA.</p>
<p>4) Understand that learning how to invest is hard and there isn’t a single right answer. Do not expect to understand it right away. It will take time. Many of us that are significantly older than you are still trying to understand all of the nuances. However, most will agree that setting up an account and funding it is good.</p>
<p>Good luck and come back and let us know what you decide to do!</p>
<p>Thank you so much for all of the advice and financial information, and I am so sorry for my absence. But I’m back!</p>
<p>I read everything and tried to keep up, and as I certainly don’t have to worry about maxing any limits or anything, I feel I can definitely benefit form opening an account, which I will start looking into presently.</p>
<p>I know it’s too late to contribute anything for 2013, so I know I’m left to invest for 2014. I don’t make too much money from my “taxable” job (I babysit and work for my family during the summers that make up most of my income), but I know I can probably put about $2,000 into a Roth after 2014 ends.</p>
<p>So, to clarify, I don’t have to invest my money as soon as I put it into the Roth? I can put the $2,000 in there after the first of 2015 and then make investments? </p>
<p>Also, do you all have any suggestions for non-IRA investments? I have money saved from my cash jobs that I’d like to make the most out of, but again, I’m completely naive about this sort of thing.</p>
<p>@opori2, you can contribute money for your 2014 all the way up until April 15th, 2015. You can do it now (if you wanted to), before you have earned the money…but you need to be very sure that you will earn the amount that you contribute. Of course, unless the market crashes and you know exactly what you want, there’s probably no rush to get it in the account immediately. And you can initially put it in a money market account, and move it around whenever you choose. The most important deadline is to open an account and get that money in before April 15th, 2015.</p>
<p>With Vanguard, I believe you need to have 3K to put into a mutual fund (except for their target funds). Definitely want to put your money into some sort of index mutual fund/ETF with a long history of good returns (like S&P 500, large cap, mid cap, small cap). A plan might be to put 2K in for the 2014, and then additional amounts in 2015, after you have enough to meet the minimum, move it into a mutual fund. I’m assuming that many other companies would have minimums to open up certain funds also.</p>
<p>But the main thing is to open up the account, and when you have the money, put it in. Decisions can be made later. Good luck!</p>
<p>I believe you have to open the Roth account by Dec 31 2014. As others have stated, you dont have to fund the Roth until next year. </p>
<p>I opened up a Roth and never funded it so don’t worry about that.</p>
<p>I have told my daughter to fund her Roth to the max with stock index funds or etfs. </p>
<p>I do want to finish the thought I brought up about funding a traditional ira.</p>
<p>You add up your marginal tax rate when you fund the ira plus the cap gains or div tax rates depending on how you make your money. If those rates added up are lower than your tax rates when you are going to withdraw the ira… Then the traditional ira is probably not worth it. </p>
<p>So… In most cases it probably is worth it to fund the tradional ira.</p>
<p>For 2014, you have up until April 2015, tax time, to open the account.</p>
<p>For funding traditional IRA, you never know when and how long you are going to have your job. If you are retired not by choice when you are 55-62, not yet time to get social security, it’s the best time to get that money out and spend, as long as you withdraw for at least 5 years. The point is nobody could foresee the future. I’m like busdriver, I don’t need to contribute anymore to 401K, my husband often asked me why we should still, but it’s hard to give up an immediate tax deduction. It maybe psychology, who knows.</p>
<p>Here’s what I read: “You may withdraw your contributions to a Roth IRA penalty-free at any time for any reason, but you’ll be penalized for withdrawing any investment earnings before age 59 ½, unless it’s for a qualifying reason. Money that was converted into a Roth IRA cannot be taken out penalty-free until at least five years after the conversion.”</p>
<p>So that 2K that opori2 puts into the Roth can be taken out at any time. But the investment earning on that can’t be taken out for a long time without penalty, unless it’s for one of their allowable reasons. Pretty cool access to one’s money that you don’t have with a traditional IRA.</p>
<p>Good for you, @harvestmoon! I tell ya, all you have to do is run the numbers through one of those calculators, and see the money add over the years to make one a believer. Who wouldn’t want to have millions at retirement, with relatively modest investments?</p>
<p>This made me think - do you have to file a tax return for the year you contribute to the Roth?</p>
<p>It sounds like OP might not need to file a tax return, if the jobs are working for family and no money is withheld - but if there is no tax return filed, how does the IRS know that you earned the money you contributed?</p>
<p>Thank you MathildaMae for asking the question. Does one have to report contribution to a Roth IRA on tax return? I don’t think it is a requirement since Roth IRA is tax-deferred and no tax benefit up front (unlike the traditional IRA), but how does IRS know you actually made the amount of wages to qualify for the amount of IRA contribution.</p>
<p>I am also thinking of opening a Roth IRA for my 18 year old daughter who has been working part time since January this year and all summer. I will fund the Roth as a gift to her.</p>
<p>For us, we were able to put whatever our kids earned for their 1st job into a Roth IRA for them. They contributed the following year, so that they had more investment options thereafter. I agree that a S&P 500 index fund or something similar with low annual fees (under 1/10 of 1%) is a good way to invest your funds. </p>
<p>If you never plan to touch the funds and want to leave them to your heirs, it’s a nice way for the money to grow tax free. If you will need the money in the future, after 59.5 years of age, you can withdraw without having to pay taxes, as you have already paid taxes. Your current tax bracket is likely much less than it will be when you start your career.</p>
<p>Good luck! S has quite a bit in his Roth accounts (an IRA and a 401K with his employer), and is very happy about it.</p>
<p>Ds1 just graduated and is working a noble, yet low-paying, AmeriCorps job. However, he is all about saving and wants to open a Roth IRA. We called Vanguard and got info on how to go about it. I think he is set.</p>
<p>Now, however, his competitive younger brother, a rising sophomore in college, wants to open one, too. My question is for those of you with kids who opened a Roth IRA … how does it affect FA?</p>