Roth IRAs

Dear Ilyce: I want to invest in a Roth IRA, but don't know exactly how it works. I have a 401(k) plan at work. Is a Roth IRA a better choice than a 401(k)?
 

Other than the fact a Roth IRA is a retirement account, it's very different from a 401(k) retirement account. 401(k), 457(B) Keogh, simple and conventional IRAs are all accounts that you fund with pre-tax dollars. In other words, the way you contribute to these accounts is the cash is automatically deducted from your gross paycheck. So, they're tax deductible, meaning that you pay less tax now because they lower your taxable income and then they grow tax deferred. That means you don't pay any tax until you withdraw the money years from now.

With a Roth IRA, you're dealing with after-tax cash. You can put in up to $3,000 per year (or up to $3,500 per year if you're over the age of 50). This cash comes out of your savings, or your take home pay. The nice thing about the Roth IRA is that the cash grow tax-free forever and there are some estate-planning benefits as well.

Just remember, the Roth IRA is an account. Once you fund the account, you still have to choose an investment, whether you buy individual stocks, an index fund, bonds or just leave it in cash.

Dear Ilyce: Can you give me any recommendations for purchasing a home that is for sale by owner. I know I need a real estate attorney to close, but what about before?

What do you need to know about buying a property that's for sale by owner? There are so many things it's hard to know where to start.

First, is the house priced right? The only way to know this is to spend time visiting a lot of other homes in the area. You can also try a website, www.domania.com for information on home values, but it's not great in every neighborhood. Next, you should hire the real estate attorney now, to write up the contract and make sure you're protected. It's very important to have documents that protect you in this situation. Not only that, but the attorney can make sure the taxes have been paid, order the title and survey and help you get things done so that you can close and feel good about it.

Finally, many times a seller who lists by owner will be amenable to paying a buyer's borker a half commission. If you're working with a buyer's agent or buyer's broker, you should approach this seller about working with your agent and paying some sort of commission.

That would probably make you feel a whole lot better. From the seller's point of view, paying a half commission or 2.5 to 3 percent is a lot better than paying 5 to 6 percent.