She can withdraw her contributions at any time w/o penalty, so she may as well contribute the full amount. My recent college graduate did not seem to grasp that aspect even though he has been funding his Roth IRA since age 18 and then maxing out his company Roth 401K.Just wanted to follow up on this billfromct... She opened her Roth IRA, $1000 in an total stock market fund (SWTSX). Schwab allows a $0 investment in a Roth IRA with no additional deposits needed. I even contacted them to be sure since I was surprised by that.Since she has earned income, she can open a Roth IRA at Vanguard. The Target Retirement Funds have a $1,000 minimum to open an account.
The longest date Target Retirement Fund, the 2070 fund, would be the best (starting out with the most stock asset allocation) since she has 40-50 years until retirement. The Target Retirement Funds start out 90% stocks/10% fixed income, then move to a 50%/50% allocation at the target year, then 30%/70% allocation 7 years after the target year. Once she gets up to $3,000 in her Roth IRA, she can move to another mutual fund if desired. Most Vanguard mutual funds have a $3,000 minimum.
I believe that the amount she could fund her Roth IRA would be her gross earned income minus 1/2 of the self employment tax (SS & Medicare). You can check “the google” for the details.
It would be good to start her retirement savings early & let that money compound & grow tax free for 40-50 years. Distributions from a Roth IRA can be taken out state & Federal tax free after age 59.5.
bill
My daughter mulled it over for a few weeks (I suggested it soon after your posts here). She was a little reluctant because while she likes saving money, she didn't like the idea of putting it away for 40 years. But she (and I) know she's never going to spend the money and she had $6K in her savings account. She came home for spring break and I sat down with her and showed her how much she could have in 40 years with a compounding interest calculator, explained market ups and downs, and index funds. She read a little on this forum too. But I think it was the compounding interest that amazed her and convinced her.
She decided on $1000 for a 2023 Roth deposit. I had to help walk her though opening the account and how to transfer and invest but she did it.
Thanks again for the suggestion. I don't think I ever would have thought of it.
P.S. Kudos to you and your daughter for having this discussion.
Statistics: Posted by HereToLearn — Wed Mar 13, 2024 9:14 pm — Replies 16 — Views 1053
