First, excuse me for my stupidity. I just started paying into retirement this year at 22. By next year, I will have taught school for 2 years and paid about $4600 into my state's retirement system. I plan to go back to graduate school for the next few years and would like to purchase a house in the area with my boyfriend and perhaps rent a room for money on the side. However, the down payment is going to be hard to come by. Should I get my retirement refunded to help with a down payment on a house? I'm really tempted to do it, but is it stupid? The way I see it, I'm going to have plenty of time to pay into retirement down the road. On the other hand, should I take the money out and put in an IRA account and just keep renting/throwing money away? And if so, what kind of IRA? Honestly, this is all pretty confusing to me. Hoping somebody is patient enough to help. At this age, it's just hard to know if I'm prioritizing well or not. 
@Anonymous wrote:First, excuse me for my stupidity. I just started paying into retirement this year at 22. By next year, I will have taught school for 2 years and paid about $4600 into my state's retirement system. I plan to go back to graduate school for the next few years and would like to purchase a house in the area with my boyfriend and perhaps rent a room for money on the side. However, the down payment is going to be hard to come by. Should I get my retirement refunded to help with a down payment on a house? I'm really tempted to do it, but is it stupid? The way I see it, I'm going to have plenty of time to pay into retirement down the road. On the other hand, should I take the money out and put in an IRA account and just keep renting/throwing money away? And if so, what kind of IRA? Honestly, this is all pretty confusing to me. Hoping somebody is patient enough to help. At this age, it's just hard to know if I'm prioritizing well or not.
+1 on the advice to talk to a fee only financial planner.
Also something to be aware of is HOW the return of funds to you is accomplished. Due to the amount, it could simply be considered a refund, for which you will pay taxes. IIRC, this would be the case if you weren't fully vested in the pension plan. However, it could also be considered a distribution, for which you would pay taxes AND a penalty for early withdrawal, being less than 59-1/2 years old. I did this years ago, when I was under that age; quit a job to take another, and received a REFUND and had taxes automatically taken out...but no penalty.
Best way to find out about it? Call the pension fund adminstrator at your job, or a company liason person.
@Anonymous wrote:Thank you both for the information. I will definitely start budgeting for a financial planner. Yes, I will be stopping my teaching job next May and continuing with graduate school. I will be working, but only part time. I honestly don't know how my retirement is set up. I don't believe they match anything to what we put in, but I will certainly look into it. I'd hate to remove the money just to pay an arm and a leg on it in taxes.
I would not contribute to any employee sponsored retirement unless there is a match. It would be infinitely better to invest that same amount of money into a Roth IRA. (You could also use this as your savings account if need be as you can take whatever you place in there out whenever you want it with no penalty.)
@KennyRS wrote:
@Anonymous wrote:Thank you both for the information. I will definitely start budgeting for a financial planner. Yes, I will be stopping my teaching job next May and continuing with graduate school. I will be working, but only part time. I honestly don't know how my retirement is set up. I don't believe they match anything to what we put in, but I will certainly look into it. I'd hate to remove the money just to pay an arm and a leg on it in taxes.
I would not contribute to any employee sponsored retirement unless there is a match. It would be infinitely better to invest that same amount of money into a Roth IRA. (You could also use this as your savings account if need be as you can take whatever you place in there out whenever you want it with no penalty.)
Terrible advice on both counts. Refusing to contribute to any non-matched retirement account is implicitly limiting your retirement contributions to $5,500 per year (or whatever the maximum amount is in later years). I am currently maxing out my Roth IRA contributions and also putting $500/mo into my Roth TSP and 10% into my Traditional TSP. Those in the uniformed services do not recieve a matching TSP contribution because we get what amounts to a pension.
As far as using your Roth contributions as a savings account, I am terrified and disappointed at the number of people I've seen on this board who consider this to be a good idea. There are two reasons for this:
The first is that you can get a loan for planned expenses, have a general savings account for unplanned expenses, or even have a taxable investment account for either. An IRA is essentially a tax-deferred/exempt brokerage account so it will have the same investment options as a(n) (Roth) IRA from the same institution.
The second is that one of the first questions that you are asked in planning for retirement is how much you think you will need in order to retire. Unfortunately, noone can be certain of how much they will actually have, so why would you risk your retirement funds?
My current (general) order of emergency funds is insurance claims, savings account, taxable accounts, loans, retirement.
@nightglider wrote:Terrible advice on both counts. Refusing to contribute to any non-matched retirement account is implicitly limiting your retirement contributions to $5,500 per year (or whatever the maximum amount is in later years). I am currently maxing out my Roth IRA contributions and also putting $500/mo into my Roth TSP and 10% into my Traditional TSP. Those in the uniformed services do not recieve a matching TSP contribution because we get what amounts to a pension.
As far as using your Roth contributions as a savings account, I am terrified and disappointed at the number of people I've seen on this board who consider this to be a good idea. There are two reasons for this:
The first is that you can get a loan for planned expenses, have a general savings account for unplanned expenses, or even have a taxable investment account for either. An IRA is essentially a tax-deferred/exempt brokerage account so it will have the same investment options as a(n) (Roth) IRA from the same institution.
The second is that one of the first questions that you are asked in planning for retirement is how much you think you will need in order to retire. Unfortunately, noone can be certain of how much they will actually have, so why would you risk your retirement funds?
My current (general) order of emergency funds is insurance claims, savings account, taxable accounts, loans, retirement.
I think maybe you have a different situation & perspective. There are many, many people who save for retirement but do not have the income to max out their contribution limits, especially young people just starting in careers. If you have annual limits you can't totally utilize for dedicated retirement savings, the remaining limit is available to hold other, shorter term savings. Emergency funds, savings towards a mortgage down, etc. fall into this class of savings. I'd put any savings I intended to hold for at least two years into a Roth, if I hadn't already used my annual limit up. 20 years ago I elected to put my "emergency fund" savings into my Roth 401K because I had limit above my ability to dedicate funds to retirement. Here 20 years later, the "emergency" never came and my emergency fund is still growing, tax exempt and protected from bankrupcy and liens in my Roth, commingled with my retirement funds. But I would have and could have used it for its intended purpose if it had arisen and still would. Although probably not as a first source of funds now, but earlier it was about all I had liquid.
Likewise, the same people that can't max out or even utilize a 401K would be smart to dedicate first retirement savings into a Roth IRA if they get no match at work. There are drawbacks to most 401K plans that are overshadowed by the benefit of a company match. If there is no company match, a Roth IRA is a no brainer over the 401K. I wouldn't forego using a 401K without a match, but I wouldn't put anything into one until I used my annual Roth IRA limit. For lots of people, the limit on a Roth IRA is more than they can dedicate to retirement for the year.
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