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I'm not very familiar with finances, however as I get to my undergrad being finished the more I feel I need to get acquainted with it.

From what I've gathered from a few investing tips I've read online, I should save for retirement before anything else, so I was thinking about opening an IRA sometime... but I don't know when. I've read so many posts that said 'I wished I started my IRA earlier' that it's scared me into action. But there are a few factors that make me think it's not a great idea, listed below.

Here are my circumstances:

  1. I'm half done with my undergraduate studies and have no idea whether or not I'm going to graduate school or work out of college. Should I make that decision before investing in retirement?
  2. I'm lucky enough to not have any student loans or any loans for college because of scholarships.
  3. I do not have a job at any time during the school year, I do work every summer for a few thousand dollars (3-5), half of which is spent during a school year and the other half just goes into a regular savings account. It also means I don't care about the tax deductions. 1-2k a year sitting inside a savings seems a tiny bit wasteful.
  4. I am not sure what country I will work in. It's is a very very high probability that it is the United States but there is a small, less than 5%, chance that I will seek a job in China or Europe. That's one of the biggest factors that's made me gun shy.

So when would it be a good idea to seriously start thinking about opening up an IRA? Should I wait for my first job (assuming it's in the U.S.) whenever it might be or is earlier always better?

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The earlier you start, the better off you'll be. There's no reason not to start as soon as you become eligible, even if your contributions are small.

I would start with a Roth IRA rather than a traditional IRA. Remember that with a Roth, you can always withdraw your principal (but not earnings) penalty free if you change your mind later (not true with a traditional IRA). You can also use the money for the purchase of your first home if you decide to in the future.

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    This is the way to go. you need taxable income to contribute to an IRA, but it sounds like you have that. Since your tax rates are low, then contributing 'after tax' money to a Roth is your best long term investment. Stick it into something like a no-load index fund, or ETF like SPY or VTI that tracks the S&P500 or the total stock market.
    – Chuck van der Linden
    Jun 17, 2011 at 20:52
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A lot of the "I wished I started my IRA earlier" comments are because of the relatively low annual IRA limit, $5k. The 401k limit is much higher ($16.5k) and has employer matching above that. You can never "get back" those years you didn't contribute to an IRA, and increasing the principal at only $5k per year takes a long while to add up to paying for retirement, compared to a 401k. This is especially relevant if you are trying to split your retirement funds between taxable and non-taxable retirement accounts.

To the question: I would wait until after you get your first post-college job. At that point (1) will be resolved, (3) will be more relevant, and you should have a better idea on (4).

If you do decide to contribute, keep in mind that you cannot contribute more than your income: "The maximum contribution that can be made to a traditional or Roth IRA is the smaller of $5,000 or the amount of your taxable compensation for 2011."

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  • I've also edited the OP to include this, but if I have 1-2 thousand every year that I'm 100% not spending on anything, keeping it inside a savings account is fine then?
    – inTide
    Jun 17, 2011 at 15:57

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