Would I be penalized for / would it be unwise to contribute only small amounts (a couple grand) this year to my Roth IRA?
(I haven’t opened the Roth account yet)
I’m in college and don’t know if I’ll be able to contribute more than 2k this year, or at all next couple years, while in college.
And do you need to invest into the stock market to
fund your Roth, is that the best/common practice?
Should I just not open the account yet (currently 21 years old)
Could i open a Roth IRA and contribute really small amounts?
byu/VarietyOther inpersonalfinance
Posted by VarietyOther
4 Comments
Nah you won’t get penalized for small contributions, that’s totally fine. Even putting in like $500 is better than nothing since you can’t go back and contribute to previous years later
And yeah most people just throw it in index funds or target date funds – way better than letting it sit in cash. The earlier you start the more time compound interest has to work its magic
You can only contribute income to an Ira, do you have income?
I think you should go do a deep dive of reading in the wiki too, it will answer some of your questions and many you don’t even know
If you going to have earned income for the year, then yes it’s wise to contribute to any tax-advantaged accounts. But make sure to follow the PF wiki- eliminate any high interest debt + have a 3-6 months emergency fund.
Think of the Roth IRA contribution as funds for an empty house- you are using that to buy furnitures (stocks) for your house.
As in what to invest in, I suggest a target day fund or a simple 2-3 funds portfolio.
https://www.bogleheads.org/wiki/Three-fund_portfolio
https://smithplanet.com/stuff/BogleheadFunds.svg
Investing early is fantastic!
A good rule of thumb is that any money invested in the S&P 500 will double about every 10 years. (Rule of 72). This means that, if you put in $2K today, you’ll have $4K at 31, $8K at 41, $16K at 51, and $32K at 61, which is really nice! You would be giving yourself a $30K+ head start on retirement before you even graduated college.