Where should I put my money?

[Anonymous]

Keep in mind, the banks do send you a 1099-int which you will have to report to the IRS.

[expatCanuck]

Indeed -- mine arrived yesterday.

[Anonymous]

After seeing in another thread that you made $15,000 last year (I know you're a student), CreditGuyInDixie's suggestion that you put your money in a Roth IRA is even better. In fact, it is really an amazing opportunity!

A Roth IRA (as opposed to a traditional IRA) is one where you pay taxes on the money before you contribute it. But then (and this is the great part), when you take it out after you retire, you don't have to pay any taxes on it. The beauty of this for you is that you pay next to no taxes now anyway because your income is so low right now (relative to someone working full-time and supporting a family, I mean).

You could open a traditional IRA now and get a tax break now, but it would only save you a few hundred dollars in taxes for last year. But if you open and fully fund a Roth IRA ($5,500 for 2018) it could potentially save you thousands when your retire.

If you were retiring today with a decent IRA, your distributions (the money you take out) would be taxed up to 22% or 24% (depending on your total income). But there's a really good chance that that could be a lot higher by the time you retire. It's entirely plausible that you could be taxed at 50% by that point if certain politicians get their way.

So if your $5,500 became $40,000 over the next 40 years (which is realistic), you could potentially have to pay $10,000 to $20,000 of that in taxes if you have a traditional IRA. But if you have a Roth IRA, you would get to keep the entire amount! (And it would only cost you about $300 in taxes today.)

[Anonymous]

I usemsynchrony financial for my savings.  They are a little harder to pull money out of, with the avg of 3 buisness days to do an account trasfer from that savings to my primary check at NFCU, but i liked that as it makes it hard for me to transfer money and use so i rethink doing it.  They have a 1.2APR i believe....since my payments go to that acct via Allotment, i dont even check my balances for about 6 months at a time.

[SBR249]

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@Anonymous wrote:

After seeing in another thread that you made $15,000 last year (I know you're a student), CreditGuyInDixie's suggestion that you put your money in a Roth IRA is even better. In fact, it is really an amazing opportunity!

A Roth IRA (as opposed to a traditional IRA) is one where you pay taxes on the money before you contribute it. But then (and this is the great part), when you take it out after you retire, you don't have to pay any taxes on it. The beauty of this for you is that you pay next to no taxes now anyway because your income is so low right now (relative to someone working full-time and supporting a family, I mean).

You could open a traditional IRA now and get a tax break now, but it would only save you a few hundred dollars in taxes for last year. But if you open and fully fund a Roth IRA ($5,500 for 2018) it could potentially save you thousands when your retire.

If you were retiring today with a decent IRA, your distributions (the money you take out) would be taxed up to 22% or 24% (depending on your total income). But there's a really good chance that that could be a lot higher by the time you retire. It's entirely plausible that you could be taxed at 50% by that point if certain politicians get their way.

So if your $5,500 became $40,000 over the next 40 years (which is realistic), you could potentially have to pay $10,000 to $20,000 of that in taxes if you have a traditional IRA. But if you have a Roth IRA, you would get to keep the entire amount! (And it would only cost you about $300 in taxes today.)

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For a student, it would really depend on the source of the income. This might not apply to the OP as it was stated that the income is from working, but many students with taxable "income" may actually be on fellowships and stipends. Roth IRA contributions are restricted in what type of income is eligible and most fellowships and such are not as such income sources are generally not considered "compensation". Again, I know the OP said they are working and that is probably fine for Roth IRA purposes, but in general, it's something that students need to be careful about. 

[Anonymous]

After reading two lengthy and informative articles above, I hopped over to NFCU and saw that their IRAs say $6K. But both of you said $5,500, does that mean they take $500 for taxes? Aldso, what is the benefit of opening prior year(2018) over 2019?

[Anonymous]

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@Anonymous wrote:

After reading two lengthy and informative articles above, I hopped over to NFCU and saw that their IRAs say $6K. But both of you said $5,500, does that mean they take $500 for taxes? Aldso, what is the benefit of opening prior year(2018) over 2019?

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The limit for 2018 is $5,500. The limit for 2019 is going up to $6000, so that's probably what you saw. Also, if you're over 50 years old, you can add an extra $1,000 per year as a "catch up" amount.

Since an IRA has tax implications (particularly if it's a traditional IRA), they allow you up until April 15 of the following year (when your income tax is due) to make your contributions. The advantage of making a contribution now for 2018 (instead of 2019) is that if you do, you still have the option to contribute more for 2019 (until April 15, 2020). Also, if you made a contribution to a traditional IRA for 2018, you would get the tax benefit now (for your 2018 taxes). If you contributed for 2019, then you couldn't take the deduction until you filed for 2019 a year from now. But if you're opening a Roth IRA, the deduction isn't an issue.