In my begining down the Foolish path, I seem to have stumbled and need a little help......I graduating college and have just made aware that I have about $5,000 in bonds that I can cash in. This year I made probably $10,000 however I have accepted a job begining in Jan. in which
I will make $41,500.

Now, I want to put $2,000 into a Roth IRA next month, and another $2,000 on Jan. 1st. Only problem - Roth IRA's aren't available until Jan 1,1998 (my understanding). How do I get the $2k in for this year ? My guess is a deductible IRA this year that will roll over to a Roth in
Jan. Only problem, my tax rate is a lot lower this year than what it will be next year (for conversion (rollover)).

Next, my company (Sonoco Products - SON) has a 401k plan in which you can invest up to 15% of your salary in a choice of 5 mutual funds or Sonoco stock. If you invest in Sonoco stock, they match the first 6% of my salary by 50%. I think its a good idea to put 6% in and get 3% free but beyond that I am not sure whether to put the rest in a regular brokerage acct (w/foolish 4) or put the additional 9% in the 401k. I am not sure if tax break is worth it. Any advice ?

Thank you so much for taking time to read this, if you could point me in the right direction I would appreciate it !

Justin Sandler (a young Fool)

Greetings, Justin, and welcome to Fooldom.

<<In my begining down the Foolish path, I seem to have stumbled and need a little help......I graduating college and have just made aware that I have about $5,000 in bonds that I can cash in. This year I made probably $10,000 however I have accepted a job begining in Jan. in which
I will make $41,500.

Now, I want to put $2,000 into a Roth IRA next month, and another $2,000 on Jan. 1st. Only problem - Roth IRA's aren't available until Jan 1,1998 (my understanding). How do I get the $2k in for this year ? My guess is a deductible IRA this year that will roll over to a Roth in Jan. Only problem, my tax rate is a lot lower this year than what it will be next year (for conversion (rollover)). >>

Your guess is correct. You'll have to use a traditional IRA this year, and then roll that to a Roth on or after January. In essence, you'll probably pay taxes on not much more than your initial $2K because of the short earnings potential over the 60 days before you can roll. If you take the deduction, for tax purposes you'll save 15% of $2K this year, or $300, to pay 28%, or $560 roughly, over the four years beginning in 1998. That will cost you $260 additional in taxes, but that's a small price to pay for the compounding over the years. But you don't have to do that. Just forego the deduction and open an after-tax IRA. You'll pay $300 more in taxes this year, but virtually none when you roll to the Roth next year. Given the option, that may be much better for you.

<<Next, my company (Sonoco Products - SON) has a 401k plan in which you can invest up to 15% of your salary in a choice of 5 mutual funds or Sonoco stock. If you invest in Sonoco stock, they match the first 6% of my salary by 50%. I think its a good idea to put 6% in and get 3% free but beyond that I am not sure whether to put the rest in a regular brokerage acct (w/foolish 4) or put the additional 9% in the 401k. I am not sure if tax break is worth it. Any advice ? >>

No advice, just a comment. Getting the 3% match is the Foolish thing to do. Beyond that, you have to look carefully at the after-tax impacts and returns in all alternatives including the 401k. At your age and using an after-tax approach in the Foolish Four, chances are you'll do far better with the extra $$$ outside the 401k instead of within it. However, if you won't consistently devote those $$$ to the investment, then stay with the 401k. The payroll deduction forces you to stay with the program and will help ensure a comfortable retirement.

Regards…..Pixy

You'll have to put this year's $2000 into an IRA, then roll it into a Roth after January. I'm using a 3 month CD from a bank.
In general, the preferred order is:
1) Enough into your 401(k) to get employer matching funds (it's hard to beat free money!)
2) Your Roth IRA, $2000 max (assuming you can't fund a regular IRA).
3) Your 401(k), until you max out.
4) A regular taxable account (if you still have more to invest for retirement).
If you want to invest for non-retirement, you might not want to max out your 401(k), because in general you can't get money out of a 401(k) unless you quit, retire, or die.
Ray