Saving money for down payment home or invest in roth IRA at age 26.?

[savingdealz]

Now, I am 26. I live in Califronia. I just opened my roth Ira with trowprice on October 2008. I am a full time student and work part time job. I can make about 1500$ a month. Now, I have about $15,000 in my saving account. I will not touch this saving account because I have enough money in my checking account to cover my expense. I also have emergency fund. I only contribute 50$ for each month to my roth Ira. So right now, I have about 100$ in my roth. In addition, I think owning a house in 5 or 10 years. So I still keep saving for my down payment for my future house. I think I will keep adding money to my 15,000$ for down payment a house. In addion, I would like to invest in my roth Ira. What should I do now? I have 2 options:

1. If I keep adding up to my 15,000$, I cannot max out my roth 2008.

2. If I max out my roth, I will use my $15,000 to invest in roth. So It will takes long time to build my down payment for my house because it takes me 2 to 3 years to save $15,000. Right now, a buyer needs to have at least 20% of total price of house for a down payment in California HIC HIC HIC. So if I keep saving in 5 to 10 years, I will have enough money for down payment a house.

So what should I do now? Can you give some budget plans please? I would like to save for my home down payment. Also, I would like to invest in my roth IRA.[/COLOR]
Note: after caculating all my expense from my 1500$, I will have about $500 - $600 each month.

[responduser]

Good to see that you have a very good saving strategy. You are putting money in your roth IRA, have few for emergency fund and also have a good savings.

I always prefer to be clearing debts (if any), then go for savings (may be for retirement or some other investments).

Hence, IMO keep adding up to my 15,000$, no need to max out roth IRA until paid entirely for your home.

[savingdealz]

Right now, I dont have any debt.

[MaskedMarvel]

I would save money for the down payment because that way your monthly payments will be lower. Having a lower mortgage will allow to save more every month to put into roth IRA.

[MonkeyMama]

I would focus more on the down payment because you do live in such an expensive area.

However, I would hope you would be getting raises (since you are young) and do think about retirement as well. I'd start putting in $50 or $100/month, to the ROTH, and I would put every raise to this (or a large chunk of any future income or windfall). In a few years you should be able to max out your ROTH, while saving for your down payment. I would say it is time to start small, but put it on the back burner a bit though.

As far as responduser - I couldn't disagree more. No retirement contributions until home is paid off? Not realistic in the least. For your youth I'd focus more on the home down payment, but I would say by the time you are 30 you should have a decent sum and should be focusing more on retirement. & I only say this for the extreme expensiveness of the area. It will likely take decades to pay for a house in California, and I don't think it's a good idea to not max out your retirement for decades.

As far as the home down payment, if you don't need it for 5-10 years, lock it in with some good CDs with some good interest rates. I'd go shorter term until interest rates improve a bit. But I just wanted to add, make sure that money is working FOR you. Don't settle for 1% interest or anything like that.

[jIM_Ohio]

I don't think you can predict where you will be living or working in 3 years if you are a full time student.

Plus your tax bracket is as low now as it will ever get.

Roth IRA all the way. Once you work full time, have a broader savings plan which includes both the Roth and the house savings.

[hasselfree]

I think you should still try to contribute whatever you can to your roth ira. You want your money to grow and the longer you wait, the less it will have a chance in growing. I am sure you expect your income to increase and you can always save extra for the house but you cannot go back and contribute to your retirement plan.

[jIM_Ohio]

One additional point- a person should rely on compounding to be majority of savings for a house. The house payment will come from significant savings over a short period of time (for a down payment).

Retirement comes from small deposits over a large period of time. You want as much time as possible for this to give you the highest return.

Time is a much bigger factor for retirement- factor meaning the time will multiply retirement savings more than it will impact a short term savings plan for a house down payment.

[savingdealz]

Thanks for all your suggestions.
I am still in difficult situation about what should I choose between max roth or saving for down payment.

guys, do you own a house? if Yes
Did you maximize your roth first, then you save for your down payment home?
or
Did you save for your down payment home First, then you maximize your roth?
or
You contribute a little amount to your roth, while you are saving large money for your down payment home?

I know retirement is very important. Time is valuable. Time never comes back.

[jIM_Ohio]

I invested for retirement from the day I started working. I bought my first house 3 years later with 5% down. I bought another house (twice the price) 5 years later with 5% down again.

You need to develop your own financial plan. If you are not saving 15% of gross pay for retirement, retirement saving will become significantly more difficult later (save 15% now or 30-50% later- which will be easier?).

[project15]

Thanks for all your suggestions.
I am still in difficult situation about what should I choose between max roth or saving for down payment.

guys, do you own a house? if Yes
Did you maximize your roth first, then you save for your down payment home?
or
Did you save for your down payment home First, then you maximize your roth?
or
You contribute a little amount to your roth, while you are saving large money for your down payment home?

I know retirement is very important. Time is valuable. Time never comes back.

We just bought this past summer. We saved about $800 a month for the down payment and put $350 into the Roth IRA. Obviously $350 does not max out an IRA, but it's still a large enough contribution to build up the funds (only to be torn down by the current market )

[marvholly]

Several points:
You HAVE to have earned income to do any IRA
There does not need to be a choice between a Roth IRA and saving for a house. I think with a Roth, since you did pay tax on that money, you can withdraw your contributions BUT not the earnings w/o penalty & tax.