Roth IRA vs Mutual Funds, saving for mortgage downpayment

[treasurefull2]

What are your thoughts, I'm no business expert, that lurking around trying to come up with good plans for eventually owning a home and figuring out a way to save up for a decent down payment...

I was planning on buying a home next year when I start my residency, but that plan crashed with the housing market. So I'm now planning on buying a home when I finish residency, about 5 years.

So I figured that I should start saving money for the down payment and I've come to TWO possible ways. Roth IRA vs Mutual Funds.

My plan was to start with an invest of $2500, that's ALOT for me, followed by an annual investment of $5000 for the next 4 years using my residency income. That would give me close to $28,000 in the end.

Roth IRA: Safe, tax free, great return and one can withdraw after 5 years (so I would have to start that now).

Mutual Funds: Not as reliable or safe, some require more money to start, about equal return.

Anyway, just wanted to hear some thoughts, good or bad, on my plan...

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[elderjack21]

I was planning on buying a home next year when I start my residency, but that plan crashed with the housing market. So I'm now planning on buying a home when I finish residency, about 5 years.

So I figured that I should start saving money for the down payment and I've come to TWO possible ways. Roth IRA vs Mutual Funds.

My plan was to start with an invest of $2500, that's ALOT for me, followed by an annual investment of $5000 for the next 4 years using my residency income. That would give me close to $28,000 in the end.

Roth IRA: Safe, tax free, great return and one can withdraw after 5 years (so I would have to start that now).

Mutual Funds: Not as reliable or safe, some require more money to start, about equal return.

Anyway, just wanted to hear some thoughts, good or bad, on my plan...

Two points.

It would seem that you would want to buy a house now...while the housing market is still a "buyer's market" with depressed home prices, low interest rates, etc.

Second point - IRAs are only as safe as the stock market is. I have lost about 4k so far over the last three months in my Roth IRA accounts (money I had thought about using for a down payment this summer). Also, with ROTH IRAs you can withdraw your contributions at any time for any reason without being penalized (because you already paid taxes on them). Your returns (or interest) on the other hand has to stay in for 5 years or you stiff penalties.

 

[Sol Rosenberg]

IRAs and Mutual Funds are not mutually exclusive investments. What would you be doing with your $$$ in your Roth IRA? Personally, I wouldn't use the Roth IRA as a short-term account. Not that there is anything wrong with doing so, but you'll just generate more [tax] paperwork with the early distributions (you don't have to pay tax on the early withdrawal of your contributions, but I believe that there are extra forms to fill out.) I would just open a brokerage account....

 

[pdz]

What are your thoughts, I'm no business expert, that lurking around trying to come up with good plans for eventually owning a home and figuring out a way to save up for a decent down payment...

I was planning on buying a home next year when I start my residency, but that plan crashed with the housing market. So I'm now planning on buying a home when I finish residency, about 5 years.

So I figured that I should start saving money for the down payment and I've come to TWO possible ways. Roth IRA vs Mutual Funds.

My plan was to start with an invest of $2500, that's ALOT for me, followed by an annual investment of $5000 for the next 4 years using my residency income. That would give me close to $28,000 in the end.

Roth IRA: Safe, tax free, great return and one can withdraw after 5 years (so I would have to start that now).

Mutual Funds: Not as reliable or safe, some require more money to start, about equal return.

Anyway, just wanted to hear some thoughts, good or bad, on my plan...

Why are you saying the Roth IRA is safe? How are you planning to invest your money in the Roth IRA?

 

[mmmlortab]

I wouldn't recommend using a roth ira to fund a house especially since it looks like you want it to invest in stocks, since your opinion on mutual funds aren't that great. But if you really wanted to invest something safe with your Roth and you only have 5 years, maybe a roth CD or MMA or savings account? A general rule is if you don't have 10 years to wait on stocks don't invest in it, especially in this volatile market.

A high yield savings account/MMA/CD at a brokerage would probably be the best route to save up for a house.

 

[pdz]

I wouldn't recommend using a roth ira to fund a house especially since it looks like you want it to invest in stocks, since your opinion on mutual funds aren't that great. But if you really wanted to invest something safe with your Roth and you only have 5 years, maybe a roth CD or MMA or savings account? A general rule is if you don't have 10 years to wait on stocks don't invest in it, especially in this volatile market.

A high yield savings account/MMA/CD at a brokerage would probably be the best route to save up for a house.

Or maybe put your money in some bond funds, either through roth or taxable account.