should i open a regular brokerage account

[jacklee]

heres the situation. i was going to open a roth ira (got an application filled it out), but some issues came up. In a roth the money is locked up, well ill have to pay fines to take it out, and i MIGHT need it.
should i open a regular account? This isnt my rent and food money but i might need it in 3-4 months. my main concern is the taxes and the paperwork. Is there a lot of both? im a full time student am still in the 10% tax rate what will be my cap gains tax %?
im itching to get into the market right now because the market is sooooo undervalued.

[Bimmer]

A Roth IRA should be a part of your retirement portfolio. It is not a short-term investment vehicle. Basically, nearly all stock/bond/mutual fund investments are long-term propositions. Unless you are trying to buy low on specific stock in the hopes it will trend up quickly, but that should almost be considered gambling money rather than investment.

If you really need the money in a few months, just stash it in a simple savings account.

I'm assuming you have no debt load. If not, there are better things to do with the money...

I guess more information about your financial situation would be helpful in obtaining answers.

[Seeker]

Originally Posted by jacklee

heres the situation. i was going to open a roth ira (got an application filled it out), but some issues came up. In a roth the money is locked up, well ill have to pay fines to take it out, and i MIGHT need it.
should i open a regular account? This isnt my rent and food money but i might need it in 3-4 months. my main concern is the taxes and the paperwork. Is there a lot of both? im a full time student am still in the 10% tax rate what will be my cap gains tax %?
im itching to get into the market right now because the market is sooooo undervalued.

If you might need the money for any purpose it's best not to lock it in an account where there are fees to do so.

Yes you should open a regular account.

"Itching to get into the market..." if you will possibly need the moeny in three to four months it's best not to play with it. What happens if the market still goes down in that timeframe? And you will also have to pay fees to get out the money at that time if you need to.

[maat55]

You have to leave money in a Roth for at least five years to avoid penalties. You may only be able to withdraw the original contribution after that time.

[Broken Arrow]

If it's money you need in 3 to 4 months, just put in into your savings account or short-term CD. Capital gains tax is only 5% of interest earned (for your bracket).

The Roth isn't appropriate in my opinion, but you can pull out your contributions at any time, regardless of the reason. I'm not saying that's what you should do, only that it could be done.

There is no capital gains tax for the Roth. Any interest you earn can not be pulled out without a 10% withdraw penalty (with some very specific exceptions).

I... would generally agree that the market is undervalued right now. However, I have to stress that there's also a good reason for the general weakness, and there may be more to come. As always, please exercise proper due diligence when investing or trading. That's the key to any market.

[disneysteve]

Originally Posted by Seeker

if you will possibly need the moeny in three to four months it's best not to play with it.

Agreed. 3-4 months is nowhere near an adequate timeframe for investing in stocks. That money should be in a high yield savings account.

Originally Posted by maat55

You have to leave money in a Roth for at least five years to avoid penalties. You may only be able to withdraw the original contribution after that time.

That isn't quite right, maat. You can withdraw CONTRIBUTIONS to your Roth at any time without tax or penalty. The 5-year rule applies to withdrawing EARNINGS.

Let's say that you put $5,000 in your Roth in 2007. You managed to pick a fund that did well this year and your account is now worth $5,500. Your car dies and you have no savings. You can withdraw the original $5,000 from the Roth without penalty. If, however, you withdraw the additional $500 that the money has earned, that $500 would be subject to tax and penalty if the account has been open for less than 5 years.

[jacklee]

guess i shuda just skipped most of what i wrote there my question is what my short term cap gains tax rate will be (im in the 10% tax rate will be in the 15 very soon) and how much paperwork is there.

[maat55]

[quote]

Originally Posted by disneysteve

That isn't quite right, maat. You can withdraw CONTRIBUTIONS to your Roth at any time without tax or penalty. The 5-year rule applies to withdrawing EARNINGS.

As glad as I am to learn this, I wish I didn't know this. I assume that the 5 year rule applies even after age 59.5. I've been under the impression that you had to wait 5 years for either.

Correct me if I'm wrong, you can withdraw the contributions at anytime and the earnings after five years without penalty. But, before 59.5 you will have to pay tax on the earnings, and not after age 59.5.

jacklee,

if you are looking to open an Roth IRA or any other investment in mutual funds, you can go to T. Rowe Price's website and fill out an application online. You can download it or call and ask that they send you by mail. They will need your signiture on specific documents. The process is not that complicated.

T. Rowe Price Mutual Funds

[disneysteve]

Originally Posted by maat55

Correct me if I'm wrong, you can withdraw the contributions at anytime and the earnings after five years without penalty. But, before 59.5 you will have to pay tax on the earnings, and not after age 59.5.

Not quite. If you withdraw earnings before 59.5, even after 5 years, there is a 10% penalty. Plus, as noted, you will have to pay taxes.

There are some exceptions to the early withdrawal penalty. From the Motley Fool website:
The early withdrawal penalty does not apply to distributions that:

Occur because of the IRA owner's disability. (This can be a very narrow definition, so if you get a severe paper cut, don't consider a Roth IRA distribution for a disability until you review IRS Code Section 72(m)(7) and IRS Publication 590.)
Occur because of the IRA owner's death.
Are a series of "substantially equal periodic payments" made over the life expectancy of the IRA owner.
Are used to pay for unreimbursed medical expenses that exceed 7 1/2% of adjusted gross income (AGI).
Are used to pay medical insurance premiums after the IRA owner has received unemployment compensation for more than 12 weeks.
Are used to pay the costs of a first-time home purchase (subject to a lifetime limit of $10,000).
Are used to pay for the qualified expenses of higher education for the IRA owner and/or eligible family members.
Are used to pay back taxes because of an Internal Revenue Service levy placed against the IRA.