SHRXTC

I remember reading about IRA's in college. Finally decided to start investing.
What were the differences between an IRA and a Roth IRA??

How do I go about starting one??
Do I goto a bank, broker, online, etc.??
Is there a fee to start an account??

As you can tell, I am totally BLANK on where to start.
Any info would be great!!!

Thanks~~

Slinks

Wikipedia or another site would probably has a great writeup on it, so I'd say check out that site.
The basic diff is
Traditional IRA: money goes in tax free, everything is taxed when taken out (plus 10% penalty if taken out prior to retirement age)
Roth IRA: money goes in after taxes, nothing is taxed when taken out (except if taken prior to retirement age, then contributions are not taxed/penalized, but gains are)
Which one is best?
Generally speaking, the Roth IRA is most likely better for ppl 10+ (I'm estimating here) years away. There are graphs that show you which is better given years out, estimated return, estimated tax rate at retirement.

Do not go to your local bank. They offer them, but usually there nothing more than glorified cd accounts. I would say go to a brokerage. I personally like Fidelity. Ameritrade is my second choice. There's tons of choices though.
They shouldn't charge a fee. Some could, but if they do avoid them.

Depending on your age, I'd suggest different things. If you're young and you want to learn about the stock market and only have a few k to work with, i'd say jump in. If you just want to start a retirement, not too sure about much, dont care about investing, then throw your money in an index fund (a type of mutual fund) or two and let it just sit there.

DAROCK

^^ good advice.

JediMindTricks

i agree with slinks.

also keep in mind that not everyone is eligible to contribute to a roth ira. whether or not you're eligible depends on how you file (single, married and file jointly or single) and your modifed adjust gross income.

also, with a roth ira, all distributions are tax free as long as you're 59 1/2 and have held the account for more than 5 years.

there are some other exceptions (ie: higher education expenses, death, disability, first time purchase of a home, etc) where the 10% penalty for early withdrawals will be waived. but you still may have to pay taxes on the earnings/gains. but the principal is never taxed or penalized.

mutual funds are good, easy places to open a roth. but see if you can find a mutual fund family that doesn't charge sales charges.

Centrum

So, anybody recommend ETrade for trading mutual fund and stocks, and Roth IRA?

NiteQwill

Etrade sucks. Use T. Rowe Price or Vanguard. Fidelity is also good but their customer service sucks. Remember, look at expense ratios, because after a certain number of years, they start to take a hit on your capital gains.

doopstr

I like Vanguard for retirement accounts. For your retirement account you want good steady growth and you can get that from their mutual funds.

You can also buy stocks but only buy strong companies for your retirement account (find companies that pay dividends).

Save any cowboy stock trading for a standard brokerage account.

SHRXTC

Thanks for the info.
So much to learn and so many options.
I would do search online and get some ridiculous site that is unhelpful.

You guys are great, straight to the point and put me in the right direction.

You think I'll hit the lotto

Thanks~~

Mike 350Z

What's wrong with Etrade for an IRA account? I was considering using Scottrade at first but they didn't have access to all the funds I wanted plus they weren't configured for ETF (had to actually write a check and mail it in to fund your account) but maybe that has changed.

Etrade has the funds I want and supports ETF, so what's wrong with it?

Do T. Rowe and Vanguard let you put other firm's funds (like each others') in your account?

yunginTL

so i can use a roth IRA for my first home purchase? how do they determine if gains are taxed?

JediMindTricks

i believe on first time home purchases, you can take up to $10,000 and the 10% premature penalty will be waived. gains are still taxed though.

yunginTL

sounds like a nice way to save for a downpayment though

Centrum

what if i want to do some minor stock trading? I have like around $2000 to play with, which account would you recommand? ETrade?

iTimmy

Unless your last name is Buffet I wouldn't even think about doing stock trading inside a ROTH. A ROTH is for long term planning, unless you know an awful lot about the market leave the long term investing to the pro's. If you max out your retirement accounts and want to play a bit, then go for it, but be prepared to lose... my excellent investing cost me $35k last year, fortunately I do max out all of my retirement accounts and it won't impact my life much, but instead of having a S2000 like I was going to buy I learned a life lesson...

If you don't get the Buffet joke, don't even think of doing it on your own, there are plenty of good mutual funds that will give you 11-13% annually over long periods of time, chances of a novice out performing that for 20-40 years consistantly is pretty much none existant. I am not trying to come across as a dick, but at 18 your money is so valuable you shouldn't gamble with it unless you have everything else maxed out. I started when I was 18, and am now in a very good position as I approach 30, I have no regrets about it and starting young was the BEST move I have ever made.

iTimmy

Don't do it! Leave the money in there, same goes to you from my previous post, at 18 the money is so valueable if its in there leave it, you will thank me in the years to come. You can borrow against what you have invested, but if you need money for a down payment its not a wise move use your retirement. In particular for a first time home buyer when there are so many incentives and once in a life time opportunities that are available to you. Patience is the key to long term success and wealth.

studville

Slinks summed it up very nicely in a nutshell post.

yunginTL

i see... thanks for the info

Centrum

I'm not talking about trading stock inside a ROTH, I'm talking about just setting up a brokerage account on ETrade and fund my account with 2K to buy various stocks.

AkuraCLS

so if i wanted to get into a roth IRA, what is the easiest way to do it? i'd like to do it all online so i don't have to take off work to go deal with people...ideas?
thanks

NiteQwill

Check out Vanguard

Fill in all your tax info online and e-signature. I recommend choosing the target-date retirement funds; low expense fees, maintenance-free, and easy to use (plus, good customer service).

NiteQwill

Why are you putting all your funds into ETF? You should balance it all the way around. Like you said, Scottrade is too much of a headache to use and deal with. ETrade has horrible customer service and some of their funds are bleh. Vanguard allows target-date funds that are more aggressive in your younger years and begins to flatten out to a conservative approach as your reach your target date. There is nothing but raves about it.

Mike 350Z

I meant EFT i.e. Electronic Funds Transfer, as in what I would use to add funds to my account.

I know about Vanguard's funds, and I like a couple of them. But I also like some T. Rowe funds and would like to keep my options open to other firm's funds, so if I open an account w/ Vanguard, would I be able to invest in other funds or just Vanguard?

And can I do it all online?

NiteQwill

Oh, haha. Whoops.

yes, you can invest any other funds other than primary, you just pay a few fees, which can suck depending on which company you go with. Sometimes they charge you a percentage of the fund, on top of expense fees, and when you withdraw your money, they hit you with another fee.

I would rather just open an account with each broker individually unless funds prevent you from doing so.

yunginTL

how does it work exactly when you borrow against what you have invested...didn't know you could even do that...

iTimmy

You have a 45 day window where you can borrow funds from yor ROTH with no penalties or taxes being taken out - or at least it was 45 days, I would double check that before you just do it, sometimes they change the time period and I haven't looked into it in a number of years. The problem is that if you don't have it back in there by 45 days not only can't you put it back, but you have to pay taxes and penalties. This is set up not so much to use the money for personal needs, but to transfer from one fund to another, to change what your invested in. Its much more typical to borrow from a 401k or 403b, which you have a virtually endless amount of time to pay yourself back and you can charge yourself the interest. I personally feel borrowing from your retirement before your retired is one of the dumbest moves you can make, in particular when your young because its costing you so much more then it really should.

yunginTL

oh okay, i was just wonder what that meant....i agree it would be stupid to borrow from it...

Mike 350Z

Just curious, how do they verify you're not going over the $4,000 yearly limit? Not that I would, but there has to be some kind of control in place, right?

iTimmy

I am sure its some sort of program when you open a ROTH that automatically regulates what you can and cannot do. With that said I do believe you can contribute more then the max amount, you just don't have any of the tax savings, when you reach that point with saving there are plenty of other avenues to explore which spread out risk and are more profitable/flexible.

JediMindTricks

when you go over the limit, you have to take a "removal of excess contributions"

depending on when you do it (there are deadlines and extensions to remove it), you have to pay additional taxes and penalties. also, if you gain any income on the additional contributions, you might be subject to even more taxes or penalties.

as far as regulating that, for mutual funds, i don't think they'll actually police that. i think it's really between you and the irs. so if you happen to get audited, i guess that's when you get screwed.

Mike 350Z

So even if it's after tax money you're using, they could still check your account records and see what you have?

I know i sound really shady right now haha. I'm just used to here at work EVERYTHING has a control or 4 so I was just wondering what keeps people honest with the Roth.

iTimmy

Who ever manages the account reports to the IRS and is subject to investigation from the SEC. When you open a certain type of account you have to fill out the appropriate paperwork(application). If you do something that is not with in the bounderies of the account type, it will trigger notifying the IRS... other wise they would have their balls hammered against the wall and the SEC would start following what they are doing closer, which is not a good thing for a number of reason.

If we have a bot that comes through here at 12:25PM EST that will ban people automatically if they have to many negative rep points, this type of programing cannot be hard

JediMindTricks

^^ true.

also, you and the irs will receive a 5498 form, which shows the contributions you made into an ira.