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Originally Posted by rmoriar1
What are the benefits of putting the money in a IRA account rather then just a general savings account? Just the fact that it will be tax exempt if you withdraw after your 59.5? I dont think I will need the money after I graduate, but id prefer having access to my funds rather than not being able to access them until I retire.
Tax-free growth is a pretty big deal. It makes a large difference in the amount of money available to you when you retire. Your contributions to a Roth can be withdrawn tax and penalty-free at any time (it's your money, which you've already paid taxes on). It's better to leave the money in there, but not as catastrophic for withdrawals as pre-tax IRAs. Your earnings can be withdrawn before age 59.5 for the purchase of a first home or for approved educational expenses, assuming the account has been in existence for five years.
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Additionally whats the best way to evaluate mutual funds and ETFs? Morningstar?
Check out the "What do I read?" thread in this forum. Many great resources are provided. I also recommend the Bogleheads forum and wiki (
http://www.bogleheads.org/wiki/Main_Page).
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Also do you think i will earn more in a CD over the next year than putting it into the four funds like you proposed?
Guessing whether a balanced group of index investments will return more than a CD (1.5% or so) is just that, a guess. I'd say that it is more likely than a good MF/ETF mix will have a better return, but it is also more likely that such an investment will have a lower or even a negative return.
I think that if you think that you might need the money within a year, you should leave it in a savings account or CD.
The risk of loss plus commissions and transaction fees greatly outweighs the chance of increased return of equities for such a short-term investment. Think about how you would feel next spring if your $9K is now worth only $7K. How would you feel if your $9K is worth $12K? Is the risk of loss justified? It depends on your risk tolerance and your anticipated need for funds.