IRAs for young people?

Hi, I'm new to the forum and to money saving. My friend got me interested in Dave Ramsey and budgeted living a couple months ago. I've got a basic budget made in an Excel spreadsheet, and have an account with ING.

If I understand correctly, due to compounding interest, money can grow practically exponentially. I've heard you should start saving for retirement as young as possible because of this reason. I'm only a 20 year old college student, but I'd like to start saving for the future. Should I get an IRA? Right now I have about 1000 dollars that I could put into it from savings, and I could add probably 100 dollars a month. Is it worth it for me to start now? Or should I stick just to savings or CDs? What are the best places to get an IRA from?

[sweeps]

Do you have earned income? You can only open and contribute to an IRA if you have income from a job. If you do, absolutely, the earlier you start saving the better.

Most people in these forums like Fidelity and Vanguard for opening their IRA, but account minimums may be an issue. Vanguard recently raised the minimum investment from $1000 to $3000. Fidelity's minimum is $2500; however they have something called a SimpleStart IRA which allows you to contribute $200/month or $600/quarter with no initial investment.

[sweeps]

Also, most young people should choose a Roth IRA over a traditional IRA since they are usually in a low tax bracket. You pay your taxes up front, but then you never have to pay taxes on the money again.

I do not have income I am supported by my parents, and the money I do make as a skydiving videographer is all in cash.
Oh well...

[sweeps]

Ok. Keep adding to your savings anyway. (See other discussion topics about ING Direct vs. Emigrant Direct vs. HSBC Direct.)

Also consider opening an account at Sharebuilder. Allows you to buy stocks and ETFs for $4/trade. Also get a $25 bonus.

I had an online chat session with a guy at Fidelity, and he said I don't need to actually be an employee of a company, I just need some kind of income. So if my parents wrote me a check and just said it was for "services rendered" or something like that, would that count?

Edit : Although I guess I'd have to report that on my taxes then, right?

[sweeps]

Originally Posted by Jheadley

Although I guess I'd have to report that on my taxes then, right?

Yup

[Tree0164]

I would wait until you got a job and earned income. In the meantime, put that money into an emergency fund saving account or a mutual fund if you do not want to touch that money.

[fiffer010]

I'm 19 and I just opened a Roth IRA a few weeks ago. My custodian is vangaurd and maxed out my contribution. If you cant pay the initial investment you can find other custodians that offer no minimums. If i were in you I would start adding whatever you can to a Roth. If you just have it laying a round in a savings acount you may spend ( Well I did before I opened a roth ) your savings on stuff you dont need and miss out on 40 years of compound interest. And as a safety, you can withdral your contributions if you really need the money. But dont go into debt jsut to contribute

Maybe you can work out a deal with your parents with them giving you money and reporting it as worked earnings. You will have to pay taxes on it but you will make it back within a year or two. After that it is all profit. Hope this helped.

-chris

Well isn't the rule if you make less than 8000 a year then you don't have to pay taxes? I think I learned that in my high school Econ class. If that's the case I'd just have them give me less than 8000...

[Bluezy]

Cheers to you for showing a desire to start early!

Until you secure a job with reportable income, I agree that you should place any monies saved in an online savings account like HSBC (paying 4.25% APR) or Emigrant Direct (4.00% APR).

Good luck to you!

[lrjohnson]

I am in great admiration of you attempting to save early, but I am extraordinarily leary of any ideas you have about having you and/or your parents say that unearned money is earned. Savvy people out there have got to have great ideas for you that don't involve anything "creative", to put it kindly. I wish you luck.

[sweeps]

I'd like to reiterate my suggestion to invest in ETFs or individual stocks through Sharebuilder. Dividend and capital gains taxes are pretty favorable right now, and 4% commission is hard to beat.

There are several promos out there. I just took advantage of a $65 bonus because I am a Costco member. ($85 if you're an executive member!)

If you're not a Costco member, you can still get a $40 bonus until Jan 15.

[TBH]

Congratulations for thinking about this so early. You'll thank yourself later.

I agree with everyone who has said *don't* lie about gift money and call it income. It doesn't make sense to me.

If you really, really want to open a Roth before you finish school and get a job, why not start actually reporting your videographer income? You should really report it anyway (not that I'm so virtuous, I'm just scared of the IRS) and that way you can contribute to the Roth, up to the amount you're reporting as earned income.

If you don't want to do that, I think the idea of opening an investment account (sharebuilder or similar) is great because it will be psychologically harder for you to touch the money than if you leave it somewhere more accessible. Also, you can start getting some hands-on experience with asset allocation and mutual funds (or at least hands-on experience talking to advisors at your investment company about such things).

[MN-Troy]

Greetings,

I would open up a ROTH IRAccount right now at your age because the earlier you put away money for the future, the better. In addition, the money you put into a ROTH IRA has been taxed so it cannot be taxed again.

As for savings/CD's/Money Market accounts, these are for short-term savings that are easily accessible for those unexpected emergencies.

In my opinion use that $1000 and open a Roth IRA, then allocate that $100/month however you want between both long-term and short-term savings.

Cheers

[Ima saver]

I agree. any young person who has earned income should open a Roth IRA. You are almost guaranteed to have a million dollars built up in a roth if you start early enough. As soon as my granddaugher gets a paying job, I will open and fund one for her. I only wish I had had this opportunity when I was a teenager. I always worked, but I knew nothing about mutual funds and there were no IRA's around back in those days!