Q: I am looking for investing info for setting up my 1st Roth IRA account ( I am 22) I heard you mention Vanguard for low fees, etc. But I don’t see info for Roth IRA on your web site. I have looked under personal finance.
A: I have information on Roth IRAs in my book, 100 Questions You Should Ask About Your Personal Finances. But here’s the short version: Open up your Roth with a great company (like Vanguard, Charles Schwab, Fidelity, etc.). Then, invest in an index fund. Like, the S&P 500, or a total market fund. You’ll pay very little in the way of fees, and little, if anything, in the way of taxes. So, it’s economical and efficient. Then, keep adding to it over time.
Q: What is the minimum investment to purchase a Roth IRA?
A: That depends on the financial institution where you open up the ROTH IRA account. For some places, it’s $250 to $1,000. Others may let you do a smaller amount, if you agree to automatic monthly withdrawals to invest more cash.
Remember, the ROTH IRA isn’t by itself an investment. It’s a type of retirement account. Once the money is there, you have to invest it in something, stocks, bonds or keep it in cash.
Q: How do I physically go about purchasing a Roth IRA? I understand they are a good investment but don’t know how to go about actually getting one.
A: Any financial institution will offer a Roth IRA option. It’s a type of account. So, visit a Fidelity Investments, Charles Schwab, etc. and fill out the forms. But be aware, once your funds are there, you have to choose the investment for them. So, if you deposit $2,000, you need to find a mutual fund or purchase an individual stock with those funds, or they’ll just grow at the minimum account interest rate of around 2-3 percent.
Q: My husband and I want to start saving with a Roth IRA this year (I’m 44, he’s 49). One question I have not been able to find an answer to is – how is this money invested? Is it a savings account earning money at a set percentage rate (like a CD)? Is it money that is invested in mutual funds? If so, do you choose the funds? Are there options?
After finding the answer to the question above, my next question would be – what are the advantages/disadvantages to investing the Roth in a local “bank” or an institution such as “Vanguard?”
A: A Roth IRA, Conventional IRA, KEOGH, or 401(k) are just the vehicles. You choose the investment within the vehicles. Think of them as being the banana peel. Except you get to choose the banana (investment).
So you can keep the money in a CD, bond, mutual fund, or individual shares of stock. You decide.
Any of the major fund companies offer Roth IRAs as does your bank. The upside to using a financial company is that you have a much larger scope of investments from which to choose.
For you, I’d recommend Vanguard, because you can put all of your funds into an S&P 500 index fund, which is plain vanilla, but will do the trick without requiring too much work from you.
January 1, 2005