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I have a general question. I am wondering if I need to be utilizing both a 401(k) and an IRA. Here is my situation:

I am 25. I have about $33,000 in my 401(k) right now. I do not have any sort of IRA. My current salary is $70,000 (and I can make up to a 50% yearly bonus, but I am not counting on that). I put 15% (the max allowed) of my pre-tax salary into my 401(k) and plan on always doing so. I do not own a house.

I am wondering if I should put additional money into an IRA or if I would be better off keeping that money in an account that I can access before retirement. I am thinking I should not get an IRA yet so I can save up for down payments on a house and new car quicker, then looking into an IRA after I buy a house (within the next 5 years or so).

Thanks,
Brad
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I'd vote for starting the IRA now. The amount you can put in is limited and you don't get the chance back to "make it up" when you miss a year.
The compound accretion over time mounts up impressively over a 40+
year period until you take it out.
With the IRA you have a lot more choices about what to put your money in. You can try stock picking, do something ultra safe with Treasury bonds, or try to pick the next Microsoft. Or you can put an index fund into your account. In your 401k you have limited options, so there is less to think about and you don't learn as much about the world of investing.
Having a 401k means you are covered under a retirement plan, so probably the IRA will not be deductible. With your long time horizon, however, that doesn't mean don't do it.
Even better is to use other than your retirment money to fund your new house. You might put the house money in an index mutual fund--not that much risk after a 2-year bear market.
Best wishes, and congratulations on starting your retirment fund early! Chris
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If you put money in a Roth IRA, you can take out up to the amount of your contributions at any time without penalty.

If you put money in a Traditional IRA, there are a few circumstances that let you take money out without penalty. One of those is buying your first home.

So you do not *need* to use both a 401(k) and an IRA, but doing so gives you more flexibility. If you need to use the money, it's available. If you don't need it (what if your rich uncle gives you his mansion so you don't need to buy a house) it's earning interest for you tax-deferred.
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>>I am 25. I have about $33,000 in my 401(k) right now. I do not have any sort of IRA. My current salary is $70,000 (and I can make up to a 50% yearly bonus, but I am not counting on that). I put 15% (the max allowed) of my pre-tax salary into my 401(k) and plan on always doing so. I do not own a house.

I am wondering if I should put additional money into an IRA or if I would be better off keeping that money in an account that I can access before retirement. I am thinking I should not get an IRA yet so I can save up for down payments on a house and new car quicker, then looking into an IRA after I buy a house (within the next 5 years or so).
<<

First, you are already in good shape if you are 25 and already have 33k in your 401k. The fact that you are 10 year younger and earn more than I do makes me hate you, but envey should never get in the way of Foolish advise. So as someone with a 401K, a Roth, and a condo, I recommend you...

Do all three.

Sure, why not. I am betting you pay around $1000 per month in apartment rent (unless you are one of those gen X'rs living at home), and you probably do not have a lot of expenses because you have one of those jobs that work you to death. If you can put away $250 a month for your Roth, and another $250 per month for your home, you can make your annual Roth contributions and build up a $9000 downpayment in just 3 years. Over 5 years it will be $15000. And each year as your salary increases, you can increase the amount put aside for your dream home.

Of course, there could be some other variables. For example, if you drive a luxary car and live at Park Place, you probably do have a lot of monthly debt. Or if your dream home starts at $200,000, a 5% down payment may not be your best bet.

But if a $100,000 home is acceptable and you drive a Ford instead of a Lexus, then putting 15-20% down now (or in 5 years) is the way to go.
Bottom line (and it has been a long line to get to the bottom of), decide how you want to live the next 5 years and what you consider to be a reasonable next life stage. Then plan to achieve all your goals. And watch the whole thing get washed a way when you fall in love, get married and have kids. Best of luck!

David
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>>I am 25. I have about $33,000 in my 401(k) right now. I do not have any sort of IRA. My current salary is $70,000 (and I can make up to a 50% yearly bonus, but I am not counting on that). I put 15% (the max allowed) of my pre-tax salary into my 401(k) and plan on always doing so. I do not own a house


But if a $100,000 home is acceptable and you drive a Ford instead of a Lexus, then putting 15-20% down now (or in 5 years) is the way to go.



David (and the previous poster, whose name I didn't retain - I'll call him "Fool25"

I assume "Fool25" has an excellent credit if everything he writes is true and he doesn't have any late payments from his student days... No need for a 20% down payment on an 'owner-occupied' house. He could keep that money in the e-fund, or for whatever bad surprises he'll encounter when moving in HIS house.
A lot more info to be found on the "Buying a house" board
http://boards.fool.com/messages.asp?mid=17066570&bid=100144

I know there is much more to it than pure finance when you talk about debts and stuff. But some Fools may be willing to consider the 100% financing.
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>>No need for a 20% down payment on an 'owner-occupied' house. He could keep that money in the e-fund, or for whatever bad surprises he'll encounter when moving in HIS house.<<

With the 20% down, you can avoid PMI and escrow. For me, that was important. It allows me to keep my property tax funds where it makes me money until the county comes looking for it in October.
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With the 20% down, you can avoid PMI and escrow.

Or one can look at "combo loans". If one searches for "combo loans", "80/20", "80/10/10" and the like on the Buying And Selling A Home board, one would see combo loans discussed fairly frequently.

Combo loans are offered by mortgage brokers, but seldom by banks and more traditional lendors. The idea is that the first mortgage is for 80% of the fair market value so one can avoid PMI and decide on whether to have an Escrow Account. The second loan, usually at a higher interest rate and often for a shorter period of time, takes care of the part between 80% FMV and the down payment one is making. Usually (but not always) the tax deduction makes the second mortgage more advantageous than paying (non-deductable) premiums on the Private Mortgage Insurance.
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