Contribute to Roth before July?

[rxfudd]

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I had planned to open a Roth once I start residency (whether I can max it out is another story). I know that you need to have earned/paid taxes on the money you contribute, but it also occurs to me that it shouldn't matter what point in the year you earn it.

After confirming that Vanguard/Fidelity does not need employment information to open an account, I'm tempted to open one and begin contributing now (I have some extra cash). Is there any reason I couldn't do this? After all, six extra months of growth is six extra months. I just don't want to end up paying penalties to the IRS...

 

[alhkim]

I had planned to open a Roth once I start residency (whether I can max it out is another story). I know that you need to have earned/paid taxes on the money you contribute, but it also occurs to me that it shouldn't matter what point in the year you earn it.

After confirming that Vanguard/Fidelity does not need employment information to open an account, I'm tempted to open one and begin contributing now (I have some extra cash). Is there any reason I couldn't do this? After all, six extra months of growth is six extra months. I just don't want to end up paying penalties to the IRS...

I believe you have until April 15th this year, not july, to contribute for the income year 2005. If you want to open one up, you should probably do it now and deposit what you can now, and then add more for year 2006 after starting residency.

 

[rxfudd]

Actually, I cannot contribute for 2005 because I didn't work during the year. Residency will be my first job since starting med school, so when my reference to July is actually when I will be starting that "job". So 2006 will be the first year I can contribute. I'm just wondering if a) it's worth the hassle to open the Roth before residency begins in July, and b) whether I can even do this legally in the first place.

 

[group_theory]

You should be fine. Just don't contribute more than the your EARNED income for 2006 or the limit on what you can contribute for 2006 (whichever is lower). You can make contribution to your 2006 Roth IRA up till April 15, 2007

Also there are also some rules that may limit or prohibit contributing to a Roth IRA, but for most people, these rules won't apply. But check the IRS website if you want to inquire further.

Also - you can call any bank or brokerage (and pretend to be a potential customer) and ask them if it's legal.

 

[Blade28]

I started one after I graduated.

 

[rxfudd]

I figured as much, thanks for the confirmation. I suspect since I'll only be able to contribute for three years and then let is sit for the next 40, I'll probably put it all in an S&P 500 or total market index fund.

 

[Blade28]

Well, at least 7-9 years for me. But yeah, could be a minimum of 3 years for some. 🙂

 

[Aubrey]

As far as I know, there are no barriers to opening Roth IRA accounts while you are still a med student, just keep in mind that you cannot take the retirement savings tax credit if you are a full time student under IRS rules.

 

[southerndoc]

As far as I know, there are no barriers to opening Roth IRA accounts while you are still a med student, just keep in mind that you cannot take the retirement savings tax credit if you are a full time student under IRS rules.

You can open it while a med student, and you can contribute to it while a med student so long as you have income. You can contribute up to your maximum income or $4,000, whichever is less. I doubt anyone is making more than $85-90,000 per year as a medical student, so the income limitations shouldn't be a problem.

You may not be able to contribute your last year of residency because you may make so much the last 6 months of the year that you disqualify yourself from contributing because of income limitations.

Remember, if you are doing a fellowship, and if you contribute to a 401(k)/403(b) during residency, it will probably be in your best interest to roll your 401(k)/403(b) over to a traditional IRA and then to a Roth IRA between your residency and your fellowship. This will allow you to have a lot more money in your Roth. Most of us will retire with higher incomes than during residency/fellowship, so that's why a Roth will be better. (If you predict your retirement income will be less, then don't do the Roth.) If you rollover a 401(k)/403(b) to a traditional IRA, you will have to claim the amount in your rollover from the traditional IRA to a Roth IRA as income on your federal taxes. Don't keep a portion of your traditional IRA as tax money because if you do, you'll need to pay an additional 10% penalty on that amount. So you should save up how much it will cost you in taxes to rollover your traditional IRA to a Roth IRA.