Setting up IRAs during an Internship
Going to be making way too much money this summer at a HF internship, and I got to thinking that opening an IRA might not be the worst idea. Are you able to do this for an internship, and is a traditional or Roth IRA the better choice? Can I open both/does that make sense to do? Sincerely, a clueless college kid with zero life experience
A lot of threads on this topic. Consensus seems to be to max out that Roth IRA when you can and open a traditional IRA (don't put funds into it yet) to use for backdoor Roth operations later on.
Is the roth still best when I’ll only be making ~40k this summer (180 prorated)?
Yes because you'll be paying taxes on $40k not $180k. Assuming your tax rate will be higher in the future, its best to use Roth when you are in your lower income years (earlier years of work and especially before starting full time work). I maxed out my Roth IRA every year with internship / work money. Some of those years I made like $10-20k a year through a summer internship or part time work so barely paid taxes if at all and now it'll grow tax free for 40 years.
Actually, he will be paying taxes on $180k, but will receive a huge tax refund next year.
But yeah even though ur tax burden is going to be high, the most accepted practice is to Max Out the Roth and then the IRA.
Now, since Roth gains are tax free, there are 2 ways to invest.
You either play it super risky and buy individual stocks etc that you think in 60 years from now will be the next Apple Google Berkshire etc.
Or
You play it safe and just buy ETFs
Since gains are tax free, having a high risk appetite isn’t shunned on since the potential profits can be immense !!!
It’s really all up to your individual risk tolerance. I usually split it. I’ll buy individual stocks but also buy ETFs
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