Roth IRA questions

[happygirl]

I have a few questions about Roth IRA's.

1) What are the advantages of Roth over regular IRA's.

2) What is the maximum amount that can be put in each year.

3) Can my husband and I each do one and still enjoy the full benefits

4) Where do you open one.

5) Do you just transfer money from your checking account to it every month?

And since I don't know much at all, is there anything else you can think of that I should know? Thanks in advance!

[am_vanquish]

I have a few questions about Roth IRA's.

1) What are the advantages of Roth over regular IRA's.

2) What is the maximum amount that can be put in each year.

3) Can my husband and I each do one and still enjoy the full benefits

4) Where do you open one.

5) Do you just transfer money from your checking account to it every month?

And since I don't know much at all, is there anything else you can think of that I should know? Thanks in advance!

1) You pay taxes on the money now, rather than when you make the withdrawls. The overwhelming assumption is that your current tax rate is lower than it will be in retirement.

2) The maximum is "the same" for Roth & Traditional. It changes from year-to-year. The 2009 maximum is $5,000 if you're under 50 and $6,000 if you're above 50. In fact, the maximum is for the combination of your Roth and Tradiational contributions. You could split it and put 50% in Roth and 50% in Traditional (or 80/20 or 15.27/84.73 ... whatever floats your boat).

3) Yes! There is a withdrawal penalty exemption that allows each individual to take up to $10,000 out without the 10% penalty. One of these exemptions is home purchase. My wife & I each have separate Roth IRA's so that (if we choose too, which we hope not to) we can take $10,000 *2 and apply to a down payment on our home purchase. There are other exemptions.

4) Any popular brokerage firm. We have Fidelity. Schwab is another popular one.

5) If you wish. Most people transfer money on-line. You add your checking account info & then you can set up recurring transfers or enter one-time transfers whenever you'd like. Some people prefer to make a single lump-sum payment to their IRA around tax time rather than making monthly payments. This is more typical of people who use Traditional IRA's to reduce their taxable income & those that use a tax refund as their contribution.

Anything else you should know??? JUST DO IT!!!! There's a whirlwind of other information out there that you will get overwhelmed with (especially where to put the money once you start contributing). Don't get bogged down in the details. You've made the most important step by getting started. The fact that you're saving for retirement is MUCH more important than the other details.

[maat55]

I have mine with T. Rowe Price.
Mutual Funds - T. Rowe Price Offers Over 90 No-Load Mutual Funds

Roth IRA - Wikipedia, the free encyclopedia

[buildmybudget]

I also recommend Scott Trade depending on the investments you will hold in the Roth. They have some of the lowest trading costs in the market. Good luck, Roth's are great!

[ktmarvels]

1) 3) Yes! There is a withdrawal penalty exemption that allows each individual to take up to $10,000 out without the 10% penalty. One of these exemptions is home purchase. My wife & I each have separate Roth IRA's so that (if we choose too, which we hope not to) we can take $10,000 *2 and apply to a down payment on our home purchase. There are other exemptions.

It was my understanding that the contributions from Roth IRAs could be taken out at any time without penalty. However I've also read about the $10,000 allowed penalty free for a down payment, provided the account has been open for 5 years.

Hearing both of these stipulations doesn't make a lot of sense to me. For example if I've got $30,000 in a Roth, $20,000 from contributions and $10,000 from earnings, does that mean that I could take the entire $30,000 and use it for a down payment penalty free?

*Note: This is a fictitious scenario, I don't plan on actually using a Roth in this manner...Roths are for retirement only!!...I'm just curious how it actually works!

[memorama]

I'm going to look a bit into it.

[happygirl]

I've noticed people mentioning that their Roth IRA is fully funded. What does that mean? It sounds like they quit putting money into it because they have enough, but that can't be right. I imagine myself putting money into it for many years to come. Do they mean they put in 5000$ (the maximum you can deposit in a year, right?) already this year, so are fully funded for the year?

Thanks again in advance!

[am_vanquish]

Yes, most people mean that they have maxed out their contributions for the year.

[jIM_Ohio]

Originally Posted by happygirl
I have a few questions about Roth IRA's.

1) What are the advantages of Roth over regular IRA's.

2) What is the maximum amount that can be put in each year.

3) Can my husband and I each do one and still enjoy the full benefits

4) Where do you open one.

5) Do you just transfer money from your checking account to it every month?

And since I don't know much at all, is there anything else you can think of that I should know? Thanks in advance!

1) You pay taxes on the money now, rather than when you make the withdrawls. The overwhelming assumption is that your current tax rate is lower than it will be in retirement.

2) The maximum is "the same" for Roth & Traditional. It changes from year-to-year. The 2009 maximum is $5,000 if you're under 50 and $6,000 if you're above 50. In fact, the maximum is for the combination of your Roth and Tradiational contributions. You could split it and put 50% in Roth and 50% in Traditional (or 80/20 or 15.27/84.73 ... whatever floats your boat).

3) Yes! There is a withdrawal penalty exemption that allows each individual to take up to $10,000 out without the 10% penalty. One of these exemptions is home purchase. My wife & I each have separate Roth IRA's so that (if we choose too, which we hope not to) we can take $10,000 *2 and apply to a down payment on our home purchase. There are other exemptions.

4) Any popular brokerage firm. We have Fidelity. Schwab is another popular one.

5) If you wish. Most people transfer money on-line. You add your checking account info & then you can set up recurring transfers or enter one-time transfers whenever you'd like. Some people prefer to make a single lump-sum payment to their IRA around tax time rather than making monthly payments. This is more typical of people who use Traditional IRA's to reduce their taxable income & those that use a tax refund as their contribution.

Anything else you should know??? JUST DO IT!!!! There's a whirlwind of other information out there that you will get overwhelmed with (especially where to put the money once you start contributing). Don't get bogged down in the details. You've made the most important step by getting started. The fact that you're saving for retirement is MUCH more important than the other details.

everything I read thus far looks accurate

I see 2 huge advantages to Roth
1) taxes are paid at time of deposit (if your future earnings will be taxed higher than they are now, this is a good deal, if you have a pension this is also a good deal)
2) WITHDRAWS ARE CONTROLLED BY YOU at age 59.5. If you use a traditional IRA, you are REQUIRED to start taking money out at age 70.5. Roth IRAs do not have any such requirement. This allows you to control your retirement tax situation much easier.
3) there are better/more favorable rules for inheriting a roth IRA, but I do not know the specifics

2) and 3) were not mentioned anywhere prior to my post.


In addition the best way to invest is to do it reguarly from a paycheck or bank account to whoever is the custodian for your IRA. I use T Rowe Price. Vanguard and Fidelity each would work as well.

Vanguard has cheaper funds, but "more fees" and "higher minimums". Because I do not invest with Vanguard I cannot be more specific, but if you ask someone, I am sure they can expand.

Fidelity has more funds, more expensive funds and decent minimums. Check with someone on specifics.

T Rowe price is the middle. More funds than Vanguard (I think), fewer than Fidelity though. Cheaper funds than Fidelity, more expensive than Vanguard. Account minimums are low ($0) if you contribute each month through their asset builder, and if you put in $5000 between september and august, you will not be assessed any custodian fees (that fee is assessed in August, so if you open an account now for $50, $10 is taken out in August... if you open account now with $5000, the $10 is not taken out, if you open account in september with $50, you have 12 months to grow account to $5000 before fee is assessed).

[parafly]

1) You pay taxes on the money now, rather than when you make the withdrawls. The overwhelming assumption is that your current tax rate is lower than it will be in retirement.

This is true, and to take it a step further, all of the EARNINGS in a Roth IRA are tax free! This is a huge advantage that is often overlooked. Tax rates now vs. tax rates in retirement almost become a moot point.

As a hypothetical, let's say you start contributing to an IRA at an early age. When you are ready to retire, it is worth $1 million. With a traditional IRA, every cent of that $1 million will be taxed when you withdraw. With a Roth IRA, every cent of that $1 million is completely tax free! This will save you hundreds of thousands of dollars no matter what your tax bracket is now vs then.