Savings plan for 23 year old whose employer doesn't have a plan

[Syringer]

I work for a UK based firm which doesn't really have any sort of 401k program or anything like most places over here do..What sorts of options do I have?

 

[Orsorum]

Savings account
Regular IRA
Roth IRA
Certificate of Deposit
Brokerage account
Real estate

Lots, but which combination is right for you depends on how much you're earning, how much you want to save, when you plan on retiring, etc.

 

[jakedeez]

Where do you live? If your in the US, then an IRA. Right now a good idea would be to contribute as much as you can manage for the next few years, and then in 2010, convert it to a Roth IRA... if you make more then 100k a traditional IRA still might be the best option.

 

[Sukhoi]

Originally posted by: jakedeez
Where do you live? If your in the US, then an IRA. Right now a good idea would be to contribute as much as you can manage for the next few years, and then in 2010, convert it to a Roth IRA... if you make more then 100k a traditional IRA still might be the best option.

Why wait to convert to a Roth?

 

[Pepsi90919]

a spider account

 

[axelfox]

Originally posted by: Pepsi90919
a spider account

Or a spider fund

 

[jakedeez]

Originally posted by: Sukhoi

Originally posted by: jakedeez
Where do you live? If your in the US, then an IRA. Right now a good idea would be to contribute as much as you can manage for the next few years, and then in 2010, convert it to a Roth IRA... if you make more then 100k a traditional IRA still might be the best option.

Why wait to convert to a Roth?

Because you can put in untaxed dollars now, and then once its converted, the only taxed on the amount invested, not the growth. The ability to covert from trad. to roth ends in 2010.

A traditional IRA you get taxed on the gains, not the contribution. A roth is better if you have a while to gain, and for a 23 yo, you can that... however since you can't put in tax free money, its more costly to invest. This way you get the best of both.

 

[jakedeez]

Originally posted by: axelfox

Originally posted by: Pepsi90919
a spider account

Or a spider fund

A SPY maybe a good investment for long term, but you still need to put it in a type of account. ETFs are great, I am not saying its not a good investment, just doesn't really answer the guys question.

 

[Sukhoi]

Originally posted by: jakedeez

Originally posted by: Sukhoi

Originally posted by: jakedeez
Where do you live? If your in the US, then an IRA. Right now a good idea would be to contribute as much as you can manage for the next few years, and then in 2010, convert it to a Roth IRA... if you make more then 100k a traditional IRA still might be the best option.

Why wait to convert to a Roth?

Because you can put in untaxed dollars now, and then once its converted, the only taxed on the amount invested, not the growth. The ability to covert from trad. to roth ends in 2010.

A traditional IRA you get taxed on the gains, not the contribution. A roth is better if you have a while to gain, and for a 23 yo, you can that... however since you can't put in tax free money, its more costly to invest. This way you get the best of both.

So what you're saying is doing it that way until 2010 you get to make gains on what you would be paying for taxes if you did a Roth right now?

 

[jakedeez]

Originally posted by: Sukhoi

So what you're saying is doing it that way until 2010 you get to make gains on what you would be paying for taxes if you did a Roth right now?

Yes... but, you will also have to pay gains on the gains in the trad., not however until you withdraw from the Roth. The idea here is that a young person, will do better by investing pre-tax dollars now, rather then having to contribute more actual money by contributing taxed money.

When I suggest doing a conversion in 2010, in reality, it could be better to do it sooner... if your AIG (adjusted gross income) exceeds 100k then you can no longer open or convert to a Roth. So if you think your going to make 100k next year, convert now.

While net it maybe close to a wash, or even net loss long term, since if your traditional IRA grows significantly between now and when you do the conversion, you will still be liable for the capital gains on that growth, however, for a 23 year old, you won't be liable for almost fifty years.... The idea/hope here is that since, one, the extra money you would have to contribute today (by contributing taxed money) is worth more to you now then it will be fifty years... or that if you would contribute less to a Roth then a traditional, since it cost you more, then the compounded growth of the additional money over the fifty years would be worth more then the additional tax you would have to pay. (you only have to pay capital gains on the initial contribution plus the gains you made in the traditional IRA, once the conversion happens, the tax is capped.)

However, I think after all this I need to say, that while I have read a lot about investing, and do deal with it a lot, I am not a licensed Financial Advisor. I am not qualified to give investment advice. You or anyone else really needs to speak to a financial advisor who knows you and your personal financial situation.

 

[alrocky]

Originally posted by: jakedeez

Originally posted by: Sukhoi

Why wait to convert to a Roth?

Because you can put in untaxed dollars now, and then once its converted, the only taxed on the amount invested, not the growth.

---

you will also have to pay gains on the gains in the trad., not however until you withdraw from the Roth.

I am not qualified to give investment advice.

ROTH conversion info
What happens from a tax point of view when I convert to a Roth IRA? Answer: The entire amount converted is subject to income taxes.

 

[jakedeez]

Originally posted by: alrocky

ROTH conversion info
What happens from a tax point of view when I convert to a Roth IRA? Answer: The entire amount converted is subject to income taxes.

Right, but after that the growth is not taxable. So you will have that tax burden, but for a 23 yo case, not until 2010, or whenever the conversion is done, and the idea is that the FV of that tax burden will be less then the present value of the cost of tax on contributions to a roth.

And when I say that I am not qualified, I mean I am not NASD licensed.

 

[alrocky]

Originally posted by: jakedeez
A traditional IRA you get taxed on the gains, not the contribution.

"What happens from a tax point of view when I convert to a Roth IRA? Answer: The entire amount converted is subject to income taxes."

There too many numerous errors in your posts. Please stop.

 

[Sukhoi]

Originally posted by: jakedeez

Originally posted by: Sukhoi

So what you're saying is doing it that way until 2010 you get to make gains on what you would be paying for taxes if you did a Roth right now?

Yes... but, you will also have to pay gains on the gains in the trad., not however until you withdraw from the Roth. The idea here is that a young person, will do better by investing pre-tax dollars now, rather then having to contribute more actual money by contributing taxed money.

When I suggest doing a conversion in 2010, in reality, it could be better to do it sooner... if your AIG (adjusted gross income) exceeds 100k then you can no longer open or convert to a Roth. So if you think your going to make 100k next year, convert now.

While net it maybe close to a wash, or even net loss long term, since if your traditional IRA grows significantly between now and when you do the conversion, you will still be liable for the capital gains on that growth, however, for a 23 year old, you won't be liable for almost fifty years.... The idea/hope here is that since, one, the extra money you would have to contribute today (by contributing taxed money) is worth more to you now then it will be fifty years... or that if you would contribute less to a Roth then a traditional, since it cost you more, then the compounded growth of the additional money over the fifty years would be worth more then the additional tax you would have to pay. (you only have to pay capital gains on the initial contribution plus the gains you made in the traditional IRA, once the conversion happens, the tax is capped.)

However, I think after all this I need to say, that while I have read a lot about investing, and do deal with it a lot, I am not a licensed Financial Advisor. I am not qualified to give investment advice. You or anyone else really needs to speak to a financial advisor who knows you and your personal financial situation.

Thanks, I'll the financial advisor I get through work about this. I didn't realize you could do a conversion.