Any good books or internet resources explaining Roth IRA options?

[almostalumping]

Hi! I know that I want to open a Roth IRA, but I've never invested in anything before, and I don't know how to get started. Can anyone recommend any books or internet resources that focus on Roth IRAs and do a really good job of explaining my options? Or does anyone have advice from experience? I'm 24, so I think that I wouldn't mind being aggressive with a portion of my money.

Thank you very much!

[autoxer]

The options for what to invest it in are endless, so you will probably get many different opinions. I prefer index mutual funds, because they have low operating costs (low expense ratio) & they can provide great diversification without a complex portfolio.

Take a look at Vanguard Target Retirement 2045 fund (VTIVX):
https://flagship.vanguard.com/VGApp/...SummaryJSP.jsp

or the Fidelity Freedom 2045 Fund (FFFGX):
Fidelity Investments:

Morningstar is a great site for analyzing mutual funds without bias.

Keep it simple and it will be easier to figure out what to do down the road.

[cptacek]

I think you are making a common mistake...you can invest your Roth IRA money in stocks, bonds, mutual funds, REITs, etc. The only thing that is different is that the money is treated differently for tax reasons. I explained it like this to my younger brother and sisters:
Beginning Investing: Cptacek's Personal Finance Blog

[PetMom]

cptaceck:

That is amazing how well and clearly you explain
the complicated ins and outs of this type of investing.

Thanks, it was so good I printed some of it up to show
to my husband and sister.

[cptacek]

<blushing>thank you!</blushing>

[LuckyRobin]

I like David Bach for explaining stuff. Either Smart Women Finish Rich or Smart Couples Finish Rich. The first one explains it best, I think.

[almostalumping]

Thanks so much for your advice, Everyone! I'm going to start looking into your suggestions this weekend.

[InDebtInDC]

Originally Posted by cptacek

I think you are making a common mistake...you can invest your Roth IRA money in stocks, bonds, mutual funds, REITs, etc. The only thing that is different is that the money is treated differently for tax reasons. I explained it like this to my younger brother and sisters:
Beginning Investing: Cptacek's Personal Finance Blog

Thanks for posting the link. I have 2 questions for you:

1. How did you calculate 8% to be the breakeven point for paying off debt versus saving?

2. Would you still recommend investing in a Roth IRA for someone who has cashflow problems? To me it looks like a pre-tax 401k or IRA gives you more immediate tax breaks.

Thanks.

[cptacek]

I didn't really calculate (i.e., use exact math to find) the 8% figure. But, many people think that the market will return 10% if you invest for the long term. I want to be more conservative and not count on the 10% figure, but I'm personally comfortable with thinking that 8% is more realistic. Since you are investing for the long term with these tax advantaged accounts, it makes sense to me that a long-term return of 8% will yield more money than paying off your 7.5% loan. But, that is personal preference...I've never seen any financial gurus use that figure.

As to the Roth IRA vs. 401k or IRA, if you get a match from your company, always get that match. After that, for younger investors, I like Roth IRAs better than regular IRAs for two reasons. First, you can take out your original investment with no penalty if something unexpected come up (as a last resort!). And second, you are probably not making your peak salary yet, so paying a little tax now will allow you to not pay any tax later when you are in a higher tax bracket. So again, long term, Roth IRAs seem better to me than regular IRAs.

I've found that starting something and stopping something are the hardest things to do. If you get something started and especially if you make it automatic, then you are more likely to continue doing it. I wanted them (and anyone just starting a job) to sign up for their 401k immediately, like within the first day or two, and to start planning to fund their Roth IRA within the first paycheck just so that money is earmarked for a specific purpose. If you get used to making so much in your job and spending all of it, it is very hard to cut back. But, if you plan from the very beginning that you will do this new-fangled investing thang, you'll fit your lifestyle around that.

[autoxer]

Originally Posted by InDebtInDC

2. Would you still recommend investing in a Roth IRA for someone who has cashflow problems? To me it looks like a pre-tax 401k or IRA gives you more immediate tax breaks.

If your tax bracket never changes, then it doesn't matter if you get the tax break now, or later. Either way you will still end up with the same amount of money.

Scenario 1: If you put $4000 into a regular IRA pre-tax, let it compound for 20 years gaining 10% each year, you will end up with $26,910. Suppose you take it out then and you are in the 25% bracket, then you will have $20,183 after taxes.

Scenario 2: On the other hand, you could tax that $4000 up front in the 25% bracket, and you would have $3000 to invest into a Roth. Letting that $3,000 compound for 20 years gaining 10% each year and you will end up with $20,183.

Both scenarios will have the same take home pay and the same amount after taxes in the end. Both scenarios are investing a certain percentage of your gross paycheck, but the dollar amounts invested will be different until all of the tax is taken out.

[Aleta]

Autoxer: Alot depends upon the tax bracket you are in when you retire as well. Some people might be in a lower tax bracket at retirement and some may be in a higher one. I've always heard it said that when the government gives you free money up front today; to take it before they change the rules again. I wonder what would happen if they changed to a flat tax or a consumption tax and how that would affect retirement payouts. I think it also depends upon your age at the time of investing as well. There are alot of scenarios and variables out there to consider.