starting my first ira? 401k? help!! which site?

[dgcoupe]

Wow i'm amazed by the great replies very knowledgeable thank you guys and seems to me with very little knowledge ofcourse that roth might be a better idea...

Once i choose roth i cant change to traditional years down the road right? just wondering.

[skydivingchic]

You won't be able to recharacterize from Roth to traditional and you wouldn't want to. If you did that you would be taxed first when you put the money into the Roth and then again when you withdraw money since it would then be characterized as a traditional IRA. There is a process for recharacterizing from a traditional to a Roth which involves paying taxes on the conversion.

If years down the line you decide you want to contribute to a traditional IRA, you would simply open a traditional IRA. The $5k limit applies to the combined contributions to traditional and Roth IRAs each year. The 401k limit is separate. So if you have access to both a 401k and a Roth IRA you would be able to contribute a total of $21,500 to tax advantaged retirement accounts each year. The contribution limits are indexed each year and new limits are announced each year around October/November for the next tax year. If I recall correctly you cannot contribute to both a 401k and a traditional IRA. Info on that should be on the IRS website somewhere.

[jIM_Ohio]

I just finished college and i am 24 making ab 35k yr i want to start about 10 percent of my paycheck to go to a retirement, should i go to my bank in wachovia, regions, or sunstate fedrel credit union and start an IRA? or go to a web site like vanguard and Charles schwab??

please help thank you!!!

10% of income is a good place to start
if you have a 401k I would stick with that until you learn about more things- 401ks have the least amount of paperwork of any other option (IRA) and you will keep the 401k until you switch jobs.

If the 401k has a target date fund, pick one for the year in which you turn 70, then adjust that later if you think you will retire earlier.

For example if you are 24 now (2010), in 2056 you will turn 70, so find a target 2050 fund, target 2055 fund (even better) or even a target 2060 fund (best choice). The send all of 401k deposit to that one fund, and learn more about personal finance as you go and make changes along the way.

[jIM_Ohio]

This is a point of much debate. Jim must be away this weekend since he hasn't posted to any of your threads yet. I'm sure he'll be along.

Traditional: Invest pre-tax money. Get a tax deduction for your contributions if you qualify. Money is taxed upon withdrawal. You can start taking money out when you are 59.5 and must start taking money out by age 70. Once you start taking money, there is a minimum required amount you must take out each year.

Roth: Invest after-tax money. No tax deduction since you've already paid the taxes. Money is not taxed upon withdrawal. You can start taking money out when you are 59.5 but there is no requirement to ever take the money out and no minimum amount you must take out. It can stay there forever and pass to your heirs upon your death.

Avoiding taxes now is better if you think your tax bracket will decrease in retirement.
Paying taxes now is better if you think your tax bracket will be higher in retirement.

Of course, nobody knows the answer to that question. Most folks agree that the historically low tax rates we have been enjoying can't last. The government spending spree will result in higher taxes in the future which makes paying taxes now and avoiding them down the line more appealing. I'm sure there are some online calculators, possibly at Vanguard's site, to help you make that decision.

The OP started 5 threads, and when I see that, I wait to figure out which threads get most attention- the "new posts" feature will only show the threads all of you reply to.

All of info above is good, its amazing how such a group of educated people (this forum) can confuse the bejesus out of a newbie... whether something is a discount brokerage or not does not help OP get started and creates more confusion IMO.

OP wants to know how to save for retirement, and 10% to a 401k is a simple solution which works until they learn more.

In meantime OP should make sure emergency fund has 3 months expenses and all debts are paid down. If they wanted to open an IRA, the OP should consider Roth and Traditional IRA options.

The choice is more about taxes than investing, if you are in 25% tax bracket I suggest 401k, if you are in 15% tax bracket, I think the Roth is a better option.