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Author: wcfenton Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75340  
Subject: Re: Which type of account? Date: 6/4/2005 9:33 PM
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I don't hang out on these boards much, but I'm wondering if I can get a few opinions on a simple and oft-repeated question? My daughter, just turned 20, has also just started her first job (just for the summer). She's interning with a large oil and gas co, and very fortunate to be making fairly good coin for a rising junior in a liberal arts program. We're going to sit down this week and open her first investment account, pick a nice low-cost index fund and start putting back x% of every pay check, never to be touched again (at least for 40-odd years). My own sense is that the Roth is best choice for her at this point: She wont be paying much tax anyhow, and with the Roth she has the freedom to trade without tax implications (although I dont suspect she'll be trading much for a while). Also, she wont have any taxable income imputed on dividends paid by the fund. So my question is: is an IRA the best choice for a 20-year-old setting up her first account, and is the Roth the best choice of IRA?
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I had a similar situation with my daughter who, although, is more then 20 years old. Trying to get her to invest at all was like pulling teeth. I finally convinced her to go with a "Target Retirement" Fund in a Roth IRA with Vanguard.

http://flagship4.vanguard.com/VGApp/hnw/content/Funds/FundsVanguardFundsTargetOverviewJSP.jsp?Entry=fndspoton82962

These are excellent funds for busy people who either don't have the time or the inclination to manage their accounts. A "Feed-it-and-forget-it" type of investing.

Also, the Roth IRA is a very versatile investing vehicle that, again in my opinion, is perfect for a long-term retirement account. I think it better to pay the taxes up front in small pieces now while an individual is in the accumulation phase of their investing lives then waiting until the future and not knowing what the tax situation will be like. Knowing that when they retire they can withdraw however much they want, whenever and never have to worry about paying any taxes is a very good feeling.

http://www.fairmark.com/rothira/decision.htm

Anyway, good for you for getting your daughter started on one of the most important parts of her productive life - her financial future.

Regards,
Bill

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