So as some of you know, I’m graduating this December! Whoo! Which is really really exciting. I’m graduating in 3.5 years from a top liberal arts college, with a double major in computer science and economics. It is important to note that I am currently XXXX in debt to student loans. I hope to pay these off by the 6 month mark after graduation, so that I can avoid paying any interest on the loans.
Additionally as a young graduate I’m looking for work. I’m currently interviewing with handful of the top tech companies though I don’t know that i’ll necessarily get a position with them. One can hope. Either way hopefully I’ll land a decent engineering job.
That means I get to pay off loans and start saving for retirement. I currently max my Roth IRA each year, however once I start making a full time salary it may make sense to switch to a Traditional IRA where I am taxed upon withdrawal rather than when I save funds now.
The other thing I’m thinking about these days are 401ks. They come in two varieties like the IRA traditional and roth where money put in now is taxed immediately (Roth) or upon withdrawal during retirement (traditional). The benefits of a traditional account accrue when your income in retirement is less than what you are being taxed on when you’re depositing that money. For example if I make 80k but plan to live off of 60k when I’m retired a traditional account makes sense.
That’s why I’ve been saving into a Roth IRA for the past 2 years. I make around 30-50k a year depending and thus it makes the most sense for me to pay taxes now and reap the benefits in 45 years (I’m 21 now).
The current limit for someone under the age of 55 for a IRA contribution in 2014 is $5,500. If you’re over 55 you can deposit an additional $1,000 pushing your max contribution up to $6,500.
The current limit for someone under the age of 55 for a 401k contribution in 2014 is $17,500. If you’re 55 or older you can add an additional $5,500 and push that number up to $23,000.
I’m hoping to max both my IRA and 401k which is a whopping $23,000 a year that I need to save off of my starting salary + student loan costs + potentially a mortgage some day.
There are a few things to remember though:
- If you participate in a company sponsored retirement plan, your IRA contribution may not be deductible. Check with your company to make sure!
- Keep in mind that there are income limits on what is tax deductible into a traditional IRA and income limits on when you can even contribute to a Roth IRA. If you reach your income limits on tax-deductibility on a traditional IRA, you can contribute after-tax; then later convert it to a Roth. I don’t recommend you co-mingle after tax monies with pre-tax monies in the same IRA.
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