401k and investments

And yet here i am going...yes go down more! More value for my retirement funds! Cheaper share prices=more share prices so when they go back up (and lets be honest they will given i have ~30 years till i need the funds) ill just be making that much more

 

When you say first 6 months salary, do you mean upon graduation? Or save it up now before doing anything? It would be very hard to do now, seeing as I only work 3 months of the year, of which there are two left.

I used to work during the semester, but decided against it for a few reasons. It isn't near the money I make during the summer, I get my aforementioned stipend already, and I am much happier in the semester without working. It's almost greedy to try and work during the semester. It's more feasible to just save up from my summer work.

As for matching, I don't believe so as an intern, but I could ask at my next company. Secondly, an internship is so temporary that there would be a lot of switching between companies I believe.

Edit: I try to save 6 months living expenses (Not salary) as a cushion. It is a small cushion because I only have to pay for gas and food.

 

That is not necessarily a good thing. That can mean a lot of shares are being diluted because new shares are being issued on top of existing shares, decreasing current share value.

Obviously buying low and selling high is optimal, but wanting the stock market value to decrease is insane. We haven't even fully come out of the current recession.

 

All of these suggestions are after you gradutate and working full time.

For now, while you are still in school, after you have your 6 month living expenses saved, I would save for a house down payment. Once you start working is when I would do what I recommended a couple responses up.

 

That and hope the stocks don't split.

 

To start a 401K, does it need to be offered by your employer or is that something I would be responsible for? I know how the funding part works, but I do not know how to start one.

 

Okay, that is sound advice. It seems simple, but some things make sense after they're repeated back to you out loud.

To save 6 mos. salary would be to not spend anything (2 summer internships= 6 mos) and I can't really do that. Perhaps I can find something to contribute a large part of my savings to like a Roth or 401K. I'm not sure how these work.

I think the main question I need to answer is what is the difference between the different types of Roths and 401ks are with my own research.

 

You don't need to save 6 months salary, most recommend 6 months living expenses.

 

This for sure, I had to burn through mine last year after I lost my job.

 

Chopper, in your situation I would focus on the Roth. Another thing to keep in mind, because it's after tax, you can withdraw your contributions at any time. So you can essentially treat it as another savings account in need of emergency while earning high yields and building your retirement.

 

Key word here is gamble... You should do you full due diligence on everything that you buy. Consider a Buffett approach and look at it as whether or not you would buy a company. You worked hard for that $$, don't drop it in the slot machine and pull the handle.

I use the approach of win by not losing. I'm not buying flashy stocks, mostly well-established names that pay a dividend. If I have strong conviction in a company/sector/idea and have done my research, I'll pull the trigger on something a little more speculative. If I were buying something right now, it would probably be Ford Motor Co.

 

Its not really like a savings account. You can take pull money from your Roth if you really need it, but you take a 10% penalty for doing so.

"To discourage the use of IRAs for purposes other than retirement, the law imposes a 10% additional tax on early distributions from traditional and Roth IRAs unless an exception applies. Generally, early distributions are those you receive from an IRA before reaching age 59½. The 10% additional tax applies to the part of the distribution that you have to include in gross income. It is in addition to any regular income tax on that amount."

http://www.irs.gov/taxtopics/tc557.html

 

There are a lot of exemptions for early withdrawal of IRA accounts, like education costs, down payment on a house, etc.

If you have a rothIRA that is five years or older you can withdraw contributions (not earnings) tax and penalty free.

 

Hey Chris, how are ya man?

I know we've talked about it but, I don't remember your work situation...contract, self employed, not employed or an employee. Here's a basic link that, I bet, can lead to an answer to your question.

http://www.irs.gov/Retirement-Plans/One-Participant-401(k)-Plans

http://www.irs.gov/Retirement-Plans/401(k)-Plans

 

In a Roth IRA, the money you directly contribute can be withdrawn at any time, penalty free. Earnings are subject to the early withdrawal period. Additionally, money converted into a Roth IRA must remain in there for 5 years. But your direct contributions can be immediately withdrawn.

From Wikipedia, which I know is not a scientific source. But in this case, it outlines the withdrawal scenario well, and is accurate:

Direct contributions to a Roth IRA (principal) may be withdrawn tax and penalty free at any time.[2] Earnings may be withdrawn tax and penalty free after 5 years if the condition of age 59½ (or other qualifying condition) is also met. Rollover, converted (before age 59½) contributions held in a Roth IRA may be withdrawn tax and penalty free after 5 years. Distributions from a Roth IRA do not increase Adjusted Gross Income. This differs from a traditional IRA where all withdrawals are taxed as Ordinary Income, and a penalty applies for withdrawals before age 59½. In contrast, capital gains on stocks or other securities held in a regular taxable account for at least a year would be taxed at the lower long-term capital gain rate. This potentially higher tax rate for withdrawals of capital gains from a traditional IRA is a quid pro quo for the deduction taken against ordinary income when putting money into the IRA.

 

Thanks for the links I'm about to read over them.

I am not currently working. I decided to focus on school because I graduate in December. I know I will not be self employees right out of school, but that is my ultimate goal.

 

Thanks to everyone for the advice. I'm going to do some research to answer the following questions, but you may answer if you wish.

1. What is the difference between a Traditional Roth, Roth IRA, and 401ks? (I don't even know the types)

2. How can I start one or the other? Do I need a company to do so?

3. How are my accounts affected when I switch companies?

I'll post back once I've done that.

 

See my responses above. Hope this helps.

 

You're absolutely right. I didn't realize that I could pull principal from my Roth at no penalty. Good info.

 

I was shocked to find out too. It's definitely a great thing to have in your back pocket should you need it!