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For most young professionals in the lower tax bracket, choosing a Roth IRA (Individual Retirement Account) is generally a no-brainer. As a thrill-filled retirement account, the Roth IRA allows you to grow, accumulate your retirement savings tax-free and avoid hiring a financial planner. If you cash it out during retirement, you won’t owe Uncle Sam a cent!

For those that haven’t considered a Roth IRA (or a traditional one), it’s highly recommended that you take the time out to research more on the topic. Although the deadline for the 2007 contribution has already passed (April 17 tax day), learning more about your choices now will enable you to better allocate your future budget to maximize your 2008 IRA contribution.

To better help you see the process in choosing and opening a Roth IRA account, let’s take a look at the thought process of Trent from The Simple Dollar, who has chosen Vanguard to start his Roth IRA.

When am I going to retire?

I plan on “retiring” (which may involve working a part time job of some sort) as early as possible, which for most of my assets (save Social Security) means at age 59 1/2. I’m currently roughly 28 1/2 years old, which means I’m 31 years away from retirement, and my financial planner says my year for retirement is 2038.

How much risk am I willing to take on?

I’m fine with carrying quite a bit of risk until I get pretty close to retirement, after which I want to shift back to bond holdings rather strongly. This means that I might put my retirement date even a bit later in terms of picking out a “target retirement” fund, to 2045 or so.

How much do I want to micromanage?

Admittedly, not much. I plan on keeping an eye on the funds and expense tracking, but in terms of investigating individual stock picks, I’ll save that effort for my own individual stock investments outside of the Roth IRA, thank you.

Given that I have an approximate target retirement date (2038 to 2045) and that I want to do minimal research for the Roth IRA, I’ve elected to try out the Vanguard Target Retirement Funds — more specifically, the Vanguard Target Retirement 2045 Fund. All of their funds start out aggressively and then gradually shift your assets from stocks into bonds and eventually even into a bit of liquid cash holdings as you enter retirement age.

What’s in the Vanguard Target Retirement 2045?

It’s a combination of five separate funds: four stock funds (Total Stock Market, about 72% of total holdings), European Stock (10.5%), Pacific Stock (5.0%), and Emerging Markets (2.7%)) and a single bond fund (Total Bond Market, about 9.9%). Through 2020, the portion of stocks to bonds (9:1) will remain the same, and then will move about 1.5% a year from the stocks into the bonds until 2045, where the split will be about 50/50. After that, the portfolio becomes more and more conservative as you use it to live out your golden years.

It’s reasonably diversified and has returned 13.84% annually since inception (yes, past is no indication of future), which is a rate of growth that has strong appeal to me. I think I’ll buy this one and just let it sit, reinvesting any dividends and capital gains, and keep an eye on it over time.

There are a few key points you should note from this specific example.

• Be like Trent and start expense tracking. When you have a more specific goal, choosing the necessary investment strategy to reach that goal will become much easier.
• Assess your risk tolerance. Once you figure out how much risk you can handle from your investment, the better you can narrow down your investment fund choices.
• Figure out how much involvement you want with your IRA. Do you want to pick your own stock or do you want to let someone else do the work? Knowing the answer to this question will allow you to better pick the correct institution for you to open your IRA.
• Understand how the fund is allocated and how the assets will shift based on the retirement time frame and risk tolerance (e.g., a fund shifts from stocks to bonds as it reaches the target retirement date to decrease risk to the fund).

Other key notes:

• When you choose an institution to open your IRA, you should consider the account fees and minimums. If you do decide to go with a fund like the Vanguard Target Retirement Fund, you need to consider its expense ratio.

Utilize the Cost comparison calculator from Vanguard to compare and contrast the cost associated with various funds.

The above post contains content written by Trent of The Simple Dollar.

Further Reading on the Topic:

Financial Planner

Expense Tracking

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In the past few years, many students and graduates took advantage of record-low interest rates and consolidated their federal student loans to lock in the historic low rates. If you missed out, don’t fret: we’ve created a simple guide on how better narrow down your decision for a future consolidation.

Mint Tip: Besides locking in lower rates, there are some other reasons why you may want to consolidate your loans. Check out FinAid’s list of pros & cons to consolidating student loans.

So when rate changes come around and locking in lower interest rate becomes a no-brainer, who should you choose to consolidate your loans?

The easy answer is your current lender. You’ve chosen your current lender for a reason. There’s no reason to complicate things further by going with a different lender. However, the problem with that easy answer is you may have chosen the wrong lender in the first place, or — get this — there may be better lenders out there. If you have a personal finance advisor, it wise to consult with him/her before switching lenders.

Fact: The only differences between federal student loan consolidation lenders are Lender Repayment Incentives and Lender Service. Don’t underestimate their importance!

If you currently have a federal student loan for yourself or your child, you’ve no doubt received many solicitation from different lenders to get you to consolidate your loans to them. Many of these will tout some type incentive programs. Common repayment incentives are along the lines of a reduction in your interest rate after a certain amount of timely repayments.

Example: After 36 months of consecutive (timely) payments on your 10-year loan, you receive a 1% discount from your loan.

This typical type of lender incentive sounds great enough, but the problem is that many borrowers fail to qualify for the incentive program. Many of these incentive offers require timely monthly payments, so if you miss a payment deadline before reaching the required payment term, you won’t receive their rate deduction bonus. The same applies if you miss a payment deadline after earning your bonus.

In comes a different type of incentive program: immediate interest rate deduction if you sign up for auto debit, with additional deduction after consecutive payment.

Example: You receive a 0.5% interest rate deduction if you sign up to have your monthly loan payments automatically withdrawn from your checking account. Plus, after 24 months of consecutive on-time payment, you receive an additional 1.25% deduction in your interest rate.

A much nicer incentive, right? It doesn’t take a free financial calculator to see that you can save some significant money. The above example is from ELC, which unfortunately has a minimum of $20,000 for their 1.25% deduction. If you only have a $10,000 loan, you’re out of luck on the additional interest deduction. Thus, it’s important to compare the offers and figure out the programs for which you can actually qualify.

As mentioned above, the second difference amidst the sea of lenders are lender services. Even if the incentive program is the best in the world, if the lender has a spotty track record for customer service, you may be doing yourself a disservice by signing up. What happens if you wish to defer your payment? If you call to ask about that, or simply have a general inquiry on your loan, will they respond in a timely matter? For those of us with a low loan amount, lender service may not be a big deal—but for those of us that are in it for the long haul, you’ll want approachable service.

Remember, you can only consolidate once. So if you choose the wrong lender to go with, you’ll be stuck with them until you pay off your student loan for that expensive private university.

Important questions to ask when you’re choosing your lender:

• What’s their repayment incentive?
• Is there a waiting period for the incentive? Do I have to earn it?
• What happens if I miss a payment?
• What happens if I request a deferment?
• How many of the borrowers actually receive the incentive?
• Is the lender knowledgeable and experienced?
• What is their credibility? Does my school support or recommend this lender?
• How is their accessibility? Do they have online account access? A 24/7 customer service number? If I call them, will they give me information tailored to me, or will they give me a scripted response?
• How is their long-term commitment? Does this lender have a history of selling consolidated loan? The worst part of owing money is when the lender disappears and some other company buys out your loan. Suddenly you owe money to someone else.

If you can’t figure out some of these answers with the information provided to you, ask the lenders. This is a great way to gauge their service. If a customer service rep is having a hard time, or trying very little to help you understand their program, it may be a good cue to stay away. If they’re being such a hassle when you’re trying to give them money, imagine when you already owe them the money!

More Resources to Check Out:

• Bank Sweeten Student-Loan Terms from the WSJ
• Student Loan Consolidation Info from FinAid.org
• Best Student Loan Consolidation Deals from Fatwallet Finance Forum. Great thread with a list of various different lenders, their incentive programs and some first-hand customer service experiences.

Further Reading on the choosing a federal student loan consolidation leader

• Free Online Financial Calculator
• Personal Finance Tools, Tracking and Advisors
• Create a Personal Budget Online
• Personal Budget Management
• Financial Tools