My econ professor in my class just advised me make the roth IRA investment for my retirement. Anyone know anything about that? That is new thing to me
A Roth IRA allows you to make AFTER tax contributions to your IRA account. The big advantage to a Roth is that once you start withdrawing your money at retirement it will the withdrawls will not be subject to tax unlike a traditional IRA where your contributions are done pre-tax and will be subject to tax once you begin to withdraw your money.
If you have a job and have maxed out other things like 401k, etc, then I'd definitely get one, especially since you'll probably be in a higher tax bracket when you plan on retiring. I have a Roth IRA with Vanguard since they have good funds with no fees (I think). With Roth IRA's just put money in with automatic contributions monthly (if you can) and leave it there. No need to tinker with it like you do a brokerage account. Remember you are planning for really long-term gains, more so than you may be long-term with stocks.
I would first check to see if your employer (assuming you are employed) has a 401k/403b/457 option and what the employer match is. Then I would at least contribute to that plan up to the match before considering a Roth IRA. I mean who doesn't like free money right?
After that it depends on your 401k plan options, how much you want to invest and how much flexibility you need.
Some employer based plans have excellent fund selections. My wife has access to some plan options with exceptionally low Expense Ratios (0.02% for most foreign options!) that would require mere mortals to invest $100,000 per fund to get access to. Others have horrid plan options filled with under-performers with high fees/sales charges/redemption charges. It makes more sense for the latter option to move to a Roth IRA after meeting employer match than it does for my wife
Employer based retirement plans rarely require a minimum investment but you will find most Roth IRA plans have a fund minimum. For example, most Vanguard plans require $3,000 to open an account. Now that said I was able to start one with less than $3,000 by using automatic contributions but YMMV.
With a Roth IRA you get some additional withdrawal flexibility in terms of qualifying events. These are events when you can withdraw money without penalty. For example you can withdrawal $10,000 penalty free for your first home purchase. I wouldn't necessarily recommend doing this but those extra options are there
You in school part time/full time? For people working less than full time, the Roth is probably the way to go. You are in the lowest tax bracket you'll ever be in and pre-tax savings makes little sense.
As others have answered, Roth accounts let you save post-tax money, but never to be taxed again. My teen age daughter's income is low enough to pay no federal tax at all, by putting some in a Roth, she's getting a great head start on her retirement account. I think this is why the professor suggested Roth.
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