Need some advise

[Tanzie]

Hi, I am new to the boards and just starting my financial research. My income right now isn’t that great as I’m 24 and just getting started in my career. Right I am making around 1,000 per month. I have a 10,000 CD which will be up in June, $2,000 in a savings account and $5,000 in a checking account from were I pay my bills. As of now the only regular bills I have is my car payment and car insurance(live with my parents).

The company I work with does not have a 401K just a regular pension in which they match my contribution up to 7%. In turn they invest my money for me in stocks. I contribute $80 a month.

My questions are:
1. Even though I have a pension should I open an IRA?
2. After my CD matures, where should put my $10,000? (something simple and hassle free please!)
3. Should I look into putting my $5,000 into a money market instead of a checking account?

[sweeps]

1. Yes! A pension (along with Social Security) is only a supplement to your retirement income. Open a Roth IRA and make the maximum contribution if you can. (You still have time to make your 2007 contribution if you have the funds to spare.)
2. What is the purpose of the $10,000? Is it emergency money? Then it should probably be in a high-yield savings account.
3. A money market fund isn't a replacement for a checking account. For example, a MMF usually limits you to 6 checks written per month.

[jIM_Ohio]

I would open an IRA in addition to the pension. Make sure you know when you are eligible to collect the pension, that may change the advice you receive. Pensions can be underfunded and also be cashed out by company, so know what the rules are.

In mean time, put 7% into pension, then open an IRA as well. Your income suggests a deductable IRA would be a good move- you might even get a tax credit (check this- because if parents claim you as dependant, you might not be able to get the credit). A tax credit means if you put $4000 in the IRA, the government gives you a 4k refund for this (tax credit).

I would put 5k of CD into an IRA for 2007 (before April 15) and 5k into a CD for 2008 (before April 15 2009). I would invest the IRA aggressively (80% stocks or 100% stocks).

I would put 5k in checking account into 3 90 day CDs, each with $1000. Have each CD mature in 30 day intervals (so every 30 days a 90 day CD matures). This way the money is not all tied up for a long period of time. This is known as a CD ladder.

I would look to put 2k into a high yield savings account. You could put 5k into the high yield account, but my thought is why have access to 100% of the money 100% of the time- you might spend too much of it without thinking in that case.

[Slug]

I would put 5k of CD into an IRA for 2007 (before April 15) and 5k into a CD for 2008 (before April 15 2009). I would invest the IRA aggressively (80% stocks or 100% stocks).

I thought the limit for 2007 was 4k, not 5k since this person is 24 (not over 50)

I agree with all of jIM_Ohio's recommendations though.

[Tanzie]

Ok, so the first thing I will do is open an IRA. Is there a certain percentage of my income I should contribute? The $10,000 in the CD is basically my life savings plus the savings account. I took the $10,000 out of savings because it was just setting there and the CD had a better interest rate than my savings account. This money is my emergency fund and savings for one day buying a house. Now I have another question, how is a high yielding savings account different that a regular savings account? Is the difference just the interest rate? Also I didn't know you get a CD for only 30 days! Thank you for the suggestions and advise!

[sweeps]

I recommend separating these different needs/goals into different buckets -- if not physically in different accounts, at least logically in your mind or on a spreadsheet.

An example might be:
$300/month to your Roth IRA
$100/month to your emergency fund
$200/month to your house fund
$50/month to your vacation fund
etc.

You must have actual line items in your budget for savings. A lot of people don't do that. They just randomly save/invest with what's left at the end of the month.

Yes, a high-yield savings account is just a savings account with a high-yield. I prefer CDs only when you need money in a certain time period in the future. For example if you knew you were going to buy a house 2 years from now, you could put your money in a 2-year CD.

[Scanner]

Don't place it in a Roth if you plan to use that money.

Go ahead and put 4K in the Roth.

Keep the 6K as your emergency fund. ($1000/month is your expenses?)

Find a balanced fund for your medium goal of a house down payment.

[jIM_Ohio]

Ok, so the first thing I will do is open an IRA. Is there a certain percentage of my income I should contribute? The $10,000 in the CD is basically my life savings plus the savings account. I took the $10,000 out of savings because it was just setting there and the CD had a better interest rate than my savings account. This money is my emergency fund and savings for one day buying a house. Now I have another question, how is a high yielding savings account different that a regular savings account? Is the difference just the interest rate? Also I didn't know you get a CD for only 30 days! Thank you for the suggestions and advise!

Careful on the CDs- I suggested a 90 day CD.

Open a 90 day CD, 120 day CD and a 150 day CD at same time. Then when each matures, roll into a 90 day CD. What you will have is a 30 day CD ladder. One 90 day CD maturing every 30 days.

IRA maxes are $4000 for 2007 and $5000 for 2008. It is not based on percentage of income.

[safari]

If you want to open an IRA account, only consider a Roth. Do not open a traditional IRA account because you're only making $12,000 a year, so your taxes are minimal, and it doesn't make sense to save on taxes now and pay them later when your you will be in a higher tax bracket.