TribLIVE

| Business

 
Larger text Larger text Smaller text Smaller text | Order Photo Reprints

Roth IRA may offer an answer

Email Newsletters

Click here to sign up for one of our email newsletters.

On the Grid

From the shale fields to the cooling towers, Trib Total Media covers the energy industry in Western Pennsylvania and beyond. For the latest news and views on gas, coal, electricity and more, check out On the Grid today.

'American Coyotes' Series

Traveling by Jeep, boat and foot, Tribune-Review investigative reporter Carl Prine and photojournalist Justin Merriman covered nearly 2,000 miles over two months along the border with Mexico to report on coyotes — the human traffickers who bring illegal immigrants into the United States. Most are Americans working for money and/or drugs. This series reports how their operations have a major impact on life for residents and the environment along the border — and beyond.

Sunday, Dec. 2, 2012, 8:51 p.m.
 

Q: I'm 24, married with a child and in medical school. Thanks to my wonderful parents, I will graduate with no debt. I'd like to start saving for retirement now. I don't have a job, so I can't use a 401(k) or Roth IRA. Is there another account I could use that wouldn't be taxed, and how should I invest?

A: Congratulations for thinking ahead. With Social Security and Medicare threatened, your generation is going to need to do more saving for retirement than the previous one. So starting now — even if it's just $5 a week — will help tremendously.

A 24-year-old who invests just $5 a week in a stock market index mutual fund and keeps it up year after year should have more than $130,000 by retirement. Investing $20 a week should provide more than $500,000 by retirement. Yet a person who waits until age 45 to start saving is not likely to accumulate $500,000, even by investing $150 a week. Try it with this calculator: http://bit.ly/cSYagW.

You are wise to want to invest in a 401(k), Roth IRA or another account that is not taxed. Your money accumulates much faster when you aren't giving part of it to Uncle Sam each year, and the two accounts you mentioned do keep the taxman away.

But as you point out, you are not earning money now, so — on the basis of your income — the Internal Revenue Service won't let you open an IRA or Roth IRA and shield your savings from taxes.

You might have an option to keep Uncle Sam away.

Even though you are not working, you can open a Roth IRA and contribute up to $5,000 this year if your spouse has a job or business and is earning $5,000 or more a year at work. Your spouse can also open a Roth IRA and contribute up to $5,000, provided his/her income from working is high enough to cover the contributions.

In other words, the two of you could be saving a total of $10,000 this year in accounts that will never be taxed. Roth IRAs are not taxed if you leave money invested in them until you are at least 59 12 years old. If you have $500,000 at retirement, it will be yours free and clear if it's in a Roth. If it's a million, $3 million or any amount, the money in your Roth will be all yours — free of taxes — unless the government changes the promises it has made.

Next year, with your spouse working, you two can put away a total of $11,000 in Roth IRAs. That's $5,500 for each of you. In 2013, the government is raising the maximum contribution for Roth IRAs to $5,500 per person.

If you and your spouse don't have jobs, you won't be able to shield your money from taxes in an IRA. But unless you have received a huge inheritance or other gift of money, you probably won't have to worry about taxes until you have a job.

Then you can start saving regularly in a 401(k) at work, and you can open Roth IRAs if your income is within the limits — currently $173,000 for a couple contributing $5,000 each.

Meanwhile, you can get started saving in a taxable account. Keeping your fees low is important. So consider going to a mutual fund company such as Vanguard, which is known for low fees. If you invest in an index mutual fund, your fees will be very low.

Gail MarksJarvis is a personal finance columnist for the Chicago Tribune and author of “Saving for Retirement Without Living Like a Pauper or Winning the Lottery.” Email herat gmarksjarvis@tribune.com.

Subscribe today! Click here for our subscription offers.

 

 


Show commenting policy

Most-Read Business Headlines

  1. Stocks bounce back from big losses to close relatively flat
  2. Post-Gazette offers voluntary buyouts in bid to avoid layoffs
  3. GNC to convert more stores to franchises as sales, profits slip
  4. Muni bond funds stressed
  5. Kennametal expects to consolidate plants as it shrinks manufacturing in continuing streamlining; profit drops
  6. EPA ordered to ease limits on cross-border air pollution that involves Pennsylvania
  7. Range Resources cuts workforce 11%
  8. U.S. Steel CEO expects rebound
  9. Ambridge’s PittMoss takes off with help from TV show, Mt. Lebanon native Cuban
  10. Travelers find direct Web route to Priory’s spirited past in North Side
  11. PPG puts brand 1st in strategy to reach commercial paint market