Should more money be borrowed to fund an IRA?

[archcommus]

My school tuition is almost 16 grand this year. I'm getting about 4k from the school, hopefully around 4k from my parents, and hopefully I myself will be able to contribute about 3k. That leaves about 5k in loans, perhaps maybe a bit less with some scholarships, for my first year. My intentions were to not even think about any kind of mutual funds or IRAs until after I've graduated college and am working. My thought was that, now, I must focus on keeping my debt as low as possible and that's it.

 

However, I've received many suggestions from others on other forums to start an IRA or mutual fund ASAP, putting in at least a grand, or two if possible, a year. Sure, I'd be able to do that this year, but then I'd consequently have to take out a grand or two more in student loans. If I started doing this now I could graduate with almost 10k more in debt than if I didn't do this. However again, starting an IRA at the age of 18 can be a lot more profitable at the age of 60 than if I started at 23.

 

So what would you say? Is it a perfectly okay idea to put every penny I can into tuition NOW and forget about any kind of investing until I'm out of college?

[archcommus]

Any comments?

[TxQuiltGirl]

Personally, I wouldn't do this. I would wait to start an IRA till out of school. I mean, you're how old? Less than 25? If so, you're not missing out on a WHOLE lot by waiting another two or three years to start saving for retirement.

 

And trust me, the less you have in SLs, the happier you will be in the long run.

[gregcjackson]

It Depends. I have borrowed more than I needed for tuition before and used the money well,but I dont plan to do it again.

 

As far as compound interest goes though, yes waiting a year or 2 and saving a few grand now actually could cost you a million bucks in the long run ( or be the difference of being able to retire by several years). however, you may want to carry as little debt as you can now.

[archcommus]

however, you may want to carry as little debt as you can now.

<{POST_SNAPBACK}>

That's exactly what I was thinking.

 

So you all think I should exhaust all of my money now towards tuition? I was thinking of keeping about two grand in my savings account and a few hundred in my checking, and putting all the rest towards the bill.

[angeleyeskkhr]

I think you SHOULD have a savings acct which you don't touch UNLESS it's a TRUE emergency (maybe you could work this summer, and put quite a bit of that to it, instead of taking out extra loans?)...but I don't think you should take out extra sl's for the IRA.

[Mayor]

IMO IRA can be the best savings -- Because you get penalized for taking money out -- Which makes you NOT take money out unless it is a TRUE TRUE TRUE emergency.

[Cheech]

arch - I'm going to move this post to the Money Management forum. I think you'd probably get a lot more input there, since it's more of a "saving money/investing money" type forum.

 

If you want me to move it back, just let me know.

[54regcab]

Never borrow to invest. Any good financial planner will say this.

Many financial planners also reccomend being 100% debt free except your home before investing for retirement. Consumer debt such as CC's and Car payments is what keeps Americans broke.

[TNPATL]

no, no, no, no.

 

You do not borrow money to "save" money. I mean when you really think about it does not make sense does it?

 

Wait to start your savings when you are finished with school and able to pay down on your loans and you have steady employment.

[sfbehr]

Speaking from personal experience, I would limit student loan borrowing to the minimum possible level necessary.

 

SLs may be lower interest loans, but they're still debt. And you WILL have to pay them back pretty much regardless of your future financial situation...having higher debt levels limits your options more than you may realize now.

 

Going into debt to fund an IRA *doesn't* make good financial sense. Wait until you're done with school and have a job at least...you should still have plenty of time to build up for retirement. What's more, most (if not all) employers have matching plans for 401Ks and the like, and you should take advantage of it if it's there.

[flygirrll]

Lets not forget the fact that IRA's can ONLY be funded with money that is EARNED, ie wages, salary, commissions, etc. You must have some kind of earnings in order to contribute to your IRA. So if you have no job, you cannot legally fund an IRA. If you have a job and only make $2000/year (for example) you can only contribute up to $2000, not the $4000 max for a year (because you can only contribute what you earn.)

Edited May 7, 2005 by flygirrll

[archcommus]

Cheech, thanks for the move. I wasn't quite sure what board to put this in.

 

I agree with what all of you are saying. I need to stay as debt-free as possible, NOW is certainly not the time to start trying to fund an IRA.

 

I'm going to *try* to stay under $3500 in loans for my first year, which isn't too bad at all.

[Clarkfan2]

I agree with REG. Borrowing to invest is a bad idea especially if you don't have money to begin with.... Paying off debt would be a higher priority at your age. The problem with the long term tables is that it doesn't take into consideration a sucky 00,01,02 a good 03 an ok 04, and a wishy washy 05. You could lose every bit of that money in today's market. Staying out now is a good choice.