Investment help!!
We have several options available, and I’d like to get some input/advice on what might be the best way to go in terms of socking away cash.
Right now, we don’t have much, but we do have $3500 in savings, soon to be growing quickly (will be able to put away between $1K and $2K every month). Basically over the course of the next four years I want to put away enough money to get us to about $80-90K for a down-payment on a house, and at the same time, this account would also serve as an emergency fund. I was thinking of putting this money into an individual investment account (subject to capital gains taxes, I know), so that I would have quick access to it in case of a disaster, WITHOUT PENALTIES. Current savings is only earning 1% with ING, but I’ve just thrown a couple hundred bucks into a Betterment.com investment account to accomplish this goal.
Additionally, we have WAY TOO MANY options for retirement accounts through both my job and my husband’s, and it’s kind of making my head hurt….
SIMPLE IRA – Offered by my job, includes 100% employer-matching up to 3%. $11,500 annual limit
Traditional 403(b) – Offered by my husband’s job….no matching, BUT this plan would allow you to take a low-interest (prime+1%) loan from your plan, should it be needed for some reason. $16,500 annual limit
457(b) – Offered by my husband’s work (he’s a schoolteacher) again, no matching, but it allows you to take distributions penalty-free prior to age 59.5 provided you terminate your employment. $16,500 annual limit
I also opened a ROTH IRA through Sharebuilder, but I’m still fuzzy on the whole use-it-like-a-savings-account thing that has been lauded by many in the forum. People claim that you can withdraw your contributions, but not the gains, tax-free, and this is how it acts as an emergency fund. At least, that’s my interpretation of what people have been saying…perhaps I’m understanding it wrong. I think I am, because this is what the IRS website says:
Withdrawals of contributions by due date. If you withdraw contributions (including any net earnings on the contributions) by the due date of your return for the year in which you made the contribution, the contributions are treated as if you never made them. If you have an extension of time to file your return, you can withdraw the contributions and earnings by the extended due date. The withdrawal of contributions is tax free, but you must include the earnings on the contributions in income for the year in which you made the contributions.
It sounds as if you can withdraw contributions within the same year without a problem, but not anytime for any amount of contributed cash. If I’m wrong, someone please explain it to me. I opened my Sharebuilder ROTH account with $200, but I’ve invested it in nothing because I don’t know what to do. Heck, I don’t even know if I want to KEEP it as an “emergency fund”. Please enlighten me.
I’m a total newb, so bear with my questions: Is one account better than the other? Is it beneficial to open and contribute to ALL of the above? Or is it better to put everything in one big account and watch the compounding go gangbusters? Do you think the liquidity of the individual investment account is a good idea? Will the returns out-pace the taxes I will have to pay on it?
Just….help. I’m 34, so is my husband, and right now at current projections, we could possibly retire as early as late 40s, early 50s…..or at least scale back from full-time to part-time work. So having money completely tied up in an account that’s not accessible without penalty before age 59.5 probably isn’t the way to go, at least not 100%.