I posted something similar to this question a month or so ago, only difference was, i was trying to figure out how to start my own roth ira. Im a 19 year old full time college student without a job. im lucky enough that my parents can afford sending me to school and giving me a monthly allowance, allowing me to get by without a job. But i wanted to start a roth now because of the awesome power of compounding, also, i pay very little taxes now, so thats good for a roth. Basically, what i was told when i asked this question was that really all "earned income" means is income written up on a W-2 form. In order for me to place money into the roth, i would be paying taxes on imaginary income, in essence, paying extra taxes on money which taxes have already been paid. I never actually calculated which would come out ahead; a tax-exempt account where you pay EXTRA taxes up-front (different than regular roth, since making up taxes to pay), or a taxed index fund for a few years until i get a paying job. I have assumed though, that through compounding, the tax-exempt account would come out ahead in the long run (not by much though). Even though i decided this, i didnt find out how to fill out a W-2 (just plaing lazy), so i just placed my money into a vanguard index fund through my scottrade account. Maybe someone could figure out the math for me...i have enough money to max out the roth every year if im able to (saved from previous jobs and have done well last few years in the market); or if the index fund for now, then roth later would be better.... Not really sure if i brought any more info to the table, or just more questions. Thanks all.
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