What to do with money, Roth IRA or Save more?

[Meltz]

I have 4k in my savings account.

Should I contribute to a Roth IRA before the 2011 tax year ends? Because your able to only contribute 5k a year to an IRA.

Or should I just leave it in my savings account and keep saving and acclimating more money?(possibly for more options within this year)

 

I have an Emergency Fund in place in addition to this money.

Thanks.

[hegemony]

take advantage of the ROTH IRA if you can. It is a great deal. You can invest the $$ almost anyway you want. We max out IRA contributions each year.

 

You could always cut the baby in half and put some in ROTH and some in savings.

[Meltz]

Yeah I think I agree. I'll put it all into the Roth because I will continue to save like I have been. I'm thinking about opening one with scottrade since I have read they are great, especially for beginner. I am 22 years old, so I'm pretty new to this whole game.

[Meltz]

What do you guys think about Scottrade?

[hegemony]

I used to use scottrade for a brokerage account but prefer Fidelity and no longer use my scottrade account.

 

Check out Vanguard, Fidelity, and T Rowe Price for the three best low-cost IRA options. Fidelity has local offices in some areas and it is nice to be able to drop in and talk to a human about retirement planning etc. I have most of my investments and retirement with Fidelity and I also have a couple funds with Vanguard.

[Cactus Flower]

I have 4k in my savings account.

Should I contribute to a Roth IRA before the 2011 tax year ends? Because your able to only contribute 5k a year to an IRA.

Or should I just leave it in my savings account and keep saving and acclimating more money?(possibly for more options within this year)

 

I have an Emergency Fund in place in addition to this money.

Thanks.

 

 

I use my ROTH IRA as an emergency fund/savings account - make sure to max it to the $5k - by the way, you can allocate $5k to 2011 and then some to 2012.

 

I use T Rowe Price for my Roth IRA, because I already have an employer 401k at Vanguard and like to make sure I don't have all of my eggs in one basket.

Edited April 14, 2012 by Cactus Flower

[Meltz]

Then what do you use for your retirement account if you use a Roth as your emergency funds?

[Kevin20]

Then what do you use for your retirement account if you use a Roth as your emergency funds?

 

 

Using a Roth IRA as a cash reserve fund is an idea that's not totally without merit - I used to discuss the pros and cons of that when I was a financial advisor. But FWIW I've evolved my thinking towards avoiding that, and keeping any IRA as inviolate as possible. I'd rather first build up a cash reserve in a conventional savings account until I have a suitable cushion, then throw my attention towards the IRAs.

 

Lord knows I've encountered various life-changes that caused me to raid my funds. Result: almost nothing in my IRAs (even though I've been preaching for 20 years that you need to put money into IRAs); I'm currently restocking my cash reserves in bank savings according to a very tight plan, and I'll add to IRA's later this year.

 

Of course if you find a year or two goes by and you're only treading water and not building up any IRA savings, then you need to re-evaluate the situation.

 

While someone can argue a Roth IRA is a good source of desperation money if you need it, my thinking is more like this: Pretend the IRA doesn't exist, and all you have to fall back on is your "unqualified" bank savings and/or any regular brokerage account you have. If something is going awry in your life (perhaps you begin dating my last girlfriend...) and you eat through your unqualified savings, that signals it's time to get desperate and do whatever needs to be done to right the ship -- get a second job, look for a job in another town, join the French Foreign Legion, whatever. It would be nice to get through the crisis and actually still have some retirement savings left.