In the upcoming weeks, I’m expecting two unexpected sources of income: First, I got a call out of the blue for a database consulting job. Second, because I paid estimated taxes for money I never actually got paid for (don’t get me started on that one!), I have an entire quarter of taxes being returned to me.

Most of that money is going to go towards the first two steps in securing myself financially: Padding my checking account with about one paycheck’s worth of money, and filling up my emergency savings fund. As we all know, your emergency savings fund is supposed to have three to nine months worth of money to cover expenses, depending on your own financial situation. My wife and I have about $2000 worth of expenses each month, such as rent, car, utilities, and food.

Therefore, I’m focused on getting that savings account to $10,000 as soon as possible. Right now it has about $2,500, and is earning a nice 5% interest at Emigrant Direct.

I considered just waiting until that account hit its goal before doing any other kind of investments, which I am hoping to reach in six to nine months. And I may still do that. However, I am also considering finally opening an IRA. The main issue with opening my IRA, up to this point, has been deciding what to invest that money in. I have heard very good things about target retirement funds, which adjust their allocation depending on how close you are to retirement. Specifically, the Vanguard Target Retirement 2045 Fund (VTIVX) looks to be a good choice.

Unfortunately, that fund requires a $3000 minimum investment. While I don’t see that being too far off, I couldn’t invest in that now without greatly hindering progress towards my goal of $10,000 in the savings account. At the same time, I feel it’s important to get started working towards my retirement as early as possible, even if I only end up contributing $100 a month.

That’s when I discovered the Vanguard Star Fund (VGSTX). It’s one of Vanguard’s only funds I could find that has just a $1,000 initial investment, with $100 for additional contributions. It has an expense ratio of 0.35%, which is very reasonable. It’s actually a fund of funds, and is classified as a balanced fund, so it’s not something I would want to stay in forever. However it looks to be a great starting point for my IRA.

One of the questions I have though is this: If I hit $3000 in my IRA before I have held the funds in the Vanguard Star account for more than a year, will I be hit with the full amount of capital gains taxes? Or do mutual funds have special rules regarding capital gains taxes?