So I've decided to start a Roth IRA but talking to a few colleagues of mine they said that there's a few fees and stuff that comes with it such that if you don't put in quite a bit of money each year then it's not worth it. I only make about $3-5k a year in the summer and use roughly $1.8k through the school year. I also like to leave a little bit in case of emergencies so that makes it about $1k-3k a year that I can put into an IRA, is that enough?

Also, slightly unrelated question but I've read that taxable income is income after subtracting exemptions. Since I make so little such that all my income is exempt, does that mean I have no taxable income?

3 Answers 3


The Roth IRA is worth it. My initial reaction - there are no "fees and stuff" and your colleagues don't know what they are talking about. That said it depends on your IRA provider. You will setup the Roth IRA with a bank, credit union or brokerage. If they charge something, go elsewhere - another bank, Vanguard, etc.

Remember an IRA is different from a 401k. An IRA is also just a label, not an account. The vehicle/account/place you put your money can be a CD, money market account or mutual fund. You could put $1000 into an IRA CD and $1000 into an IRA mutual fund. Next year you can do something different with a different bank. You could hold those two accounts with two different banks even. There is a lot of flexibility and it's all your own choice.

The amount you are legally allowed to put into an IRA (Traditional and/or Roth) is capped each year by whichever is lower:

  • $5000 (though the amount may increase in future years)
  • Amount you earn (taxable income)

So if you only earn $4000 after taxes in a year, then you can only put $4000 max into a Roth IRA.

I've mentioned two different types of IRA; if that is confusing and you don't feel like researching/reading further then just choose a Roth IRA. Congrats on saving early!

  • 1
    The income limit for Roth and Traditional IRA are the same, "Amount you earn (pre-tax earning for Traditional IRA; post-tax earnings for Roth IRA)" appears to imply otherwise. Jun 18, 2011 at 2:33
  • 1
    right on @Joe. edited my answer and tossed in a link for good measure.
    – JCotton
    Jun 18, 2011 at 3:00
  • Um... could you explain what a CD is? 2 letter acronyms are hard to google. I'm trying to google the differences between CD, money moarket and mutual fund.
    – inTide
    Jun 18, 2011 at 13:49
  • CD means certificate of deposit. Basically a low-risk guaranteed return for a fixed period of time.
    – Sean W.
    Jun 18, 2011 at 22:25

MAGI (modified adjusted gross income) is just that, gross. So even though ones income can be wiped out by both standard deduction and exemption but can still make the IRA deposit.

Yes, it's worth starting, whatever you can afford. There should be no fees, ask the bank or broker what their minimum is for a no fee account.


My Fidelity IRA offers many low cost mutual fund options. You will need $2k+ to open an account (since you won't have paychecks 3/4ths the year), your investment options will be limited, and if your investment performs poorly enough to fall below a certain level (it varies depending on the fund), the mutual fund can charge you a fee. Quite excruciating to lose half your fund's value and then be charged a fee for the offense.

Since you have no taxable income, Roth IRA is a pretty sweet deal. Of course, if you've got sufficiently expensive student loans (6.8 percent?), you may have alternative investment opportunities.

However, if you want to trade individual stocks, that's a horse of another color. There are fees they charge for that, that will make it impossible to trade actively with a small balance.

  • For a Fidelity IRA I manage my own investments instead of going through a broker? This might be a different question all together but can you me a very general explanation? Does all IRAs charge you a fee if you do poorly? I have no student loans because of scholarships, if that changes anything.
    – inTide
    Jun 18, 2011 at 13:54
  • Fidelity is your broker. Brokers execute trades on behalf of their customers, by taking your money to the exchange and trading it for the securities you've requested. You generally do that online, rather than in person or over the phone.
    – jldugger
    Jun 19, 2011 at 16:55
  • On fees, I suggest you spend some time reading the contract agreement with some prospective places you'd open an IRA. That will specify all the fees associated with having an IRA. Mutual funds will carry some fees, as stated on their prospectus that you should factor in when selecting investments. There are fees, but you can avoid many of them and minimize what remains.
    – jldugger
    Jun 19, 2011 at 16:56

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