Which type of IRA should I start? Which do you have?

I just wanted a quick take on what you guys suggest. It's not very photography related, but think of it as investing money for the future for photography when I retire.

Just some background info. I'm 26, single, and currently earn around $38,000 in taxable income. I also have other sources of income that are not taxed. My expenses are rather low, so I have flexibility to diversify my money. I have finished my undergrad but hope to get a graduate degree in the somewhat near future. I have no contribued to a 401k yet but that is something that I'm considering. I also do some light trading, but it is something that I want to get into further when I have the assets to do so. The bank that I holds all my financials (Etrade) offers various types of IRAs. Rollover, Traditional, Roth for IRA's then also Traditional and Roth IRA CD's. All this is confusing to me.

I'm leaning towards the Roth at the moment since it places a cap on annual contribution (I think for 2008 is $5,000) which is good since I know if there was no cap I would be motivated to put more into it. I do like the fact that if I need I can withdraw my original contributions without penalty in case of emergency and that I can withdraw after 5 years to purchase a home if wanted. Do you need to submit your entire contribution at one time or can you have it so you contribute say $400/month?

For those of you that have IRA's or if anyone of you are financial advisors, I would love your input. I apologize ahead of time if this is way off topic. Thanks again.

First of all, I am not a financial advisor and you would be wise to consult one before you make any major decisions.

If your company does any matching of fund for your 401k, you should definately enroll in that. Otherwise, you're turning down free money!

As for IRAs, I just researched them a few months ago. I chose a Roth IRA mainly because I make too much money to qualify for any tax savings with a traditional IRA and I won't be taxed on the withdrawals from the Roth when I retire. And yes, you're right, you can withdraw without penalty after 5 years.

I have my IRA through Fidelity and they have a program where you don't have to contribute the entire amount at one time, but can contribute a little each month. The people I talked to there were very helpful when I was trying to decide what to do, too.

I put away about $1,000 a month between a few different things, but the most important part isn't how much you save. The important thing is to get into the habit of saving early and let that work for you. A dollar that I save this year will be worth about 4x as much as a dollar I save the year before I retire, and once you get into the habit of saving its much easier to maintain. I recommend that you set things up to do the investments automatically; if you never see the money in your checking account then you don't miss it when you start shopping for camera gear later that month. If you look up "dollar cost averaging" you will also see that its usually cheaper to buy from a mutual fund a little at a time.
I know our wonderful president asked us all to spend more to help the economy but the average person spends about 95% of their discretionary income. I don't understand how people can sleep at night with out saving some money to put into a house or retirement in the future.
Another popular trick to make investing hurt less is to add half of each raise you get to your monthly investments. That way you increase your quality of life slightly, but you don't miss the money you never had before. Of course that only works if you have a steady job and probably won't help a self employed photographer.

Thanks to both of you for your contributions. I actually went ahead and opened a Roth IRA at Etrade a few hours ago. I put an intiail transfer of $2500 into it and I'll put the rest of the 2008 cap into it month by month until the deadline. I weighed the benefits between the Traditional and Roth and decided that at this present I don't need the additional tax benefits of the Traditional and liked the fact that the Roth is flexible that I can withdraw the contribution portions of my portfolio if need be.

I've noticed that there are aggressive paths to take (trading) as well as conversative (index funds). I'll give the hands off approach for now and see how happy I am, then re-evaluate later on. I don't have the time nor skill to throughly research each investment opportunity, so I'll pick a few no fee funds to start with.

I'm not a financial advisor, don't play one on TV, and didn't stay at a Holiday Inn last night.

That said, with the relatively small amount of money you'll likely have in your account for now, actively trading is likely to cost you a significant portion of your investment each trade. On a $1,000 investment, if you pay a $14.95 commision, that's 1.5% to purchase. On a $500 investment, that's 3%. If you're really thinking long-term, which is the only way you should approach this $$$, until you have more money to invest, low fee index funds are probably the best way to go. They're not exciting or flashy, but they'll get the job done as you build up enough money to start a more diverse portfolio.

Congrats on starting your savings now. I started buying stocks through a company investment plan when I was 24, and took advantage of their 401(k) + match as soon as I could. Keep it up, and keep a long term perspective, and you'll be handsomely rewarded in the end.

Yup, I just executed buy orders on 5 no load, no fee funds for $500 each. GOLDX (Precious Metals), WESWX (Large Value), and NBMOX (Small Growth) off the top of my head. The last two are 5 star rated from Morningstar and the first is a risk to try and capitalize off the gold market. I'll stick to no load, no fee funds until my portfolio reaches 10k or so then see where it goes from there.