Q: I am a 23-year-old single woman with a stable job. I pay off my credit cards every month and contribute 12 percent of my salary to a 401(k) that has a 3 percent company match. I also put the maximum allowance into a Roth IRA each year, which is a stretch. At the end of the month there's little left over to save for a house. Should I reduce the amount I'm putting into my 401(k)? Not contribute to my Roth annually? Switch to a traditional IRA? I'm so confused, and I don't want to live with my parents forever.

A: For starters, give yourself a pat on the back. The great decisions you're making today will pay huge dividends in the future. So my advice may come as a surprise to you: I want you to consider tapping into your Roth IRA.

I love that you're socking away money for retirement, but I bet you didn't know that you can withdraw any of the funds you originally contributed with no tax or penalty. Let me be clear: I'm only talking about the dollars you put into the Roth, not the earnings on your contributions. (There are tax and penalty rules for early withdrawals on those.)

I'm making this suggestion because you're putting so much into your 401(k); while you will temporarily reduce your Roth savings, your cushion for retirement is still being nicely padded.

If you think you may dip into your IRA in the next few years, I would change the investments in your account. Stocks are terrific over the long term but too volatile over the short term, so you don't want to count on them to pay for a goal that's a few months or years away, such as a down payment on a house. Any funds you think you might use from your IRA should be shifted into a low-risk investment like a money market mutual fund or a certificate of deposit.

Instead of making new contributions to your Roth IRA, steer money into an FDIC-insured bank account. So if you were saving the $5,000 maximum per year, stash it in the bank for now. That would give you $10,000 for a down payment in two years. Combine that with money you take from your Roth, and I bet you're closer to owning a home than you realize.

After you buy a place, and if you still meet the eligibility rules, get back to investing in your Roth IRA. You can recharge your account by scaling back your 401(k) contributions to 6 percent of your salary and using the extra dollars that will show up in your paycheck. Don't forget to switch back to stocks since you will once again be saving for a goal that's decades away.
Please note: This is general information and is not intended to be legal advice. You should consult with your own financial advisor before making any major financial decisions, including investments or changes to your portfolio, and a qualified legal professional before executing any legal documents or taking any legal action. Harpo Productions, Inc., OWN: Oprah Winfrey Network, Discovery Communications LLC and their affiliated companies and entities are not responsible for any losses, damages or claims that may result from your financial or legal decisions.


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