I would use my brokerage account for savings that would not be used for at least 7-8 years. It seems like a good idea to me to start an IRA rather than a normal brokerage account and be able to save on the tax-free accumulation..if I need the money I can still take out my principal tax free and without penalty. I have an account with scottrade for around 3,000 and would like to just use the vfinx fund for the IRA. Does this sound like a good savings strategy.
You might be able to reverse an IRA contribution in the same year you made it, but the idea you will be able to withdraw principal tax free in the future is incorrect.When you take a distribution from your IRA, you will pay a 10% penalty if prior to age 59-1/2 (or not according to exceptions to the rules) and the portion of your distribution that is refund of principal and therefore tax free is calculated on Form 8606 when you file your income taxes. The IRS decides how much; not you.If you think you will need the funds in 7-8 years, you would be best off to put that portion into taxable investments and invest them LTBH (long term buy and hold). That way you pay income taxes only at capital gains rates and then only when you sell. There are no penalties to deal with.The rest of your funds would best be invested in a Roth IRA (which has no incomes taxes due in retirement) if you qualify.
It seems like a good idea to me to start an IRA rather than a normal brokerage account and be able to save on the tax-free accumulation..if I need the money I can still take out my principal tax free and without penalty. That is correct only for a Roth IRA.--Peter
I'm sorry for not being more specific, I meant a Roth IRA. I have been doing research on both and do infact qaulify for the Roth. I do invest in a 401k up until the match, but am worried about putting to much money into it at such a young age (23) for fear of needing that money to buy a house or some other big expense in the future. This is why the Roth seems like a good savings vehicle for money that is already taxed and just sitting in my brokerage account...could you reply to my first question in this context...thanks and sorry for the confusion!
Hmmm, seems you have some goals:1) Owning a home2) RetirementFirst off...CONGRATS...you are starting at a great age that will enable you to build a great portfolio for both of your goals...now the tough stuff, "how do you do this?"I think you need to look at a couple of things.1) How much will I need for a down payment? Make that a target for your non-retirement accounts and figure out how much you will need to invest in it for how long (hopefully less than your 7-8 year goal).2) How much do I have left that I would like to and should devote to retirement savings?What you have left I would put into the Roth and leave it there. Anything after that goes to the 401k. I generally don't recommend that people withdraw from their retirement accounts for their homes. My personal belief is your retirement funds are for just that...retirement. If an emergency comes up then by all means do what you have to do but I think you have a good shot at meeting your goals without delving into retirement funds.You may also want to read pub 590 from the IRS for more details on IRA's...http://www.irs.gov/pub/irs-pdf/p590.pdfGood luck!!!
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