I want to start a retirement investing account. I currently just have a Robinhood regular one with 1000 most being in voo s&p 500 and I have a good chunk in my checking and cash close to 50k as well and I want know what’s my next step I keep hearing 401(k) traditional Roth IRA or whatever it’s called and I know there’s one where you employer matches your money, but I’m unempluzzed so that’s not gonna help. What’s my next step here?
Im 23 and want to start a retirement account
byu/Unable-Anxiety-6274 inpersonalfinance
Posted by Unable-Anxiety-6274
7 Comments
401k is through your company. Start an individual retirement account (IRA) at a big boring firm like vanguard. They have auto deposits, 529, some savings stuff. Everything to save for a lifetime and be boring rich at the end.
401k only matters when you have an employer offering one.
your next step is probably a roth ira, but only if you have earned income for the year. open it at fidelity/schwab/vanguard, keep an emergency fund, move excess checking cash to a HYSA, and don’t overcomplicate the investing part.
Sounds like your best bet is to start a Roth IRA through Robinhood, because:
– You already have an open account with them
– Roth means it’s taxable today (if you’re unemployed that’s not a problem) but not at withdrawal, that’s better than traditional 401(k)
Contribute up to the max amount for this year, then VOO and chill in that account.
50k in your checking?! Good lawd
1. Contributing to any tax-advantaged account, such as retirement accounts is limited to the amount of earned income you have in the contribution year. This means the income has to come from employment (which could also be self-employment, gig work, contract work, as long as you are paid for your labor or services and report that income to the IRS), and the total amount you contribute to all accounts can’t exceed your total reported earned income for the year (so you can’t earn $3000 and contribute $7500 to an IRA just because you have $4500 available to pull out of the bank).
2. 401k is a type of retirement accounts that may be available through an employer, and contributions can only be made through payroll deductions (you can’t transfer any of the $50K you have saved directly into the account, but you could use the $50K to cover you living expenses while contributing a large percentage of your paycheck to your 401k). Not all employers offer them, and some employers offer other plans (like 403b or 457), and some don’t offer one. If you are self-employed (including if you are a 1099 worker), you may have options such as a Solo 401k. When you leave an employer, you can rollover the money to a new account with a new employer or to an IRA or possibly just leave it in the previous employer’s plan if the balance is enough.
3. IRA is an individual retirement account, so-called because you can set it up yourself at a brokerage of your choice, and it isn’t tied to your employer. Fidelity is who I use, but Vanguard and Schwab are also good options. It does still required you to contribute no more than the amount of your earned income. However, you can contribute $7500 to an IRA now even if you earned that $7500 earlier in the year. IRAs can be funded on your own schedule, so you could just transfer directly from your bank in a lump sum.
4. What I recommend as your next step is to start with the flowchart to assess where you really are as fare as emergency fund and debt management (if you have any) before you start investing more. Since you are unemployed, you probably should not lock up your liquid funds until you stabilize your employment situation. At 23, the best investment for some of that money might be sorting out education or training to launch you into a career that will help you earn a good income over your lifetime, or if you’ve completed that step, provide you with safety to keep searching for a good job in your chosen field. Start a new job before you put your funds into retirement accounts. In the meantime, read the wiki sections on Investing and Retirement to get yourself ready when the time comes.
You need a job with income to be able to contribute to a tax advantaged retirement account.
Read the wiki and follow the flowchart. You can open an IRA through Robinhood but you cannot contribute more than you have in “earned income”. Capital gains dont count as earned income.
since you have a significant cash cushion, opening a roth ira is the smartest move to get that money growing tax-free for the long haul. been using trylattice to compare different retirement accounts, and even without an employer match right now, getting your voo holdings into a tax advantaged shield at 23 is one of the best favors you can do for your future self.