Hello SOTGC community,
If you had $10,000 sitting in the bank, what would you do with it?
a) SPEND it
b) SAVE it
I wouldn’t choose either option. I would INVEST it.
Recently, a reader wrote to ask me and the other advisors on NerdWallet’s Ask an Advisor the following question: “What’s the best thing to do with $10K right now? I eventually want to buy a home. I’m single, have no debt, and make $40K a year.”
Without knowing more details, let’s assume the reader is in her 20′s and just starting a career. We’ll call her Mandy. Since she has no student, auto, mortgage or credit card debt, she is already ahead of the curve of most people and can use that to her advantage. Mandy can afford to start investing for the future.
The first action Mandy should take to start investing for her future is to open and fund a Roth IRA at a discount brokerage firm (I recommend TD Ameritrade….here is the link to open up a free account) while she still qualifies under the income limit (which is $112K in adjusted gross income for a single person). She can contribute up to $5,500 in 2013. Each year she can add up to the same amount (or more if the government adjusts the level for inflation). She is investing after-tax money so all that money and the investment income and returns she generates will not be taxed when she takes it out during retirement.
The cool thing with a Roth is that if an emergency (or an opportunity to make a down payment on a house) strikes and she needs cash, Mandy can withdraw the contributions without penalty. (It’s just the investment income that has a penalty for early withdrawal although there is some flexibility for first-time home buyers.)
So now Mandy has a Roth IRA. What goes in that IRA? For the answers, you can read the complete Nerd Wallet article here.
Laurie Itkin is an investment advisor at Coastwise Capital Group and Founder of The Options Lady. She is the author of the forthcoming book, Every Woman Should Know Her Options: A Guide to Successful Investing and Financial Independence.
Tags: Roth IRA; TD Ameritrade, discount brokerage, NerdWallet, The Options Lady
Photo credit: blog.dressforsuccess.org