Roth IRA Question

[JohnCU]

Let's say I have $3,000 to open a Roth IRA. I understand that your IRA is whatever you want it to be, CDs, stocks, etc. So, you go to your bank and open an IRA, but then let's say you want to invest that $3,000 in a mutual fund. How do you like...put that mutual fund under the IRA account?

I guess I'm just kind of confused on how it works.

Oh, what if you have your IRA in stocks, do they still send you a dividend check, or does that go straight back into the IRA? I assume that since the interest grows tax-free, you'd have to put it back in the IRA, or else you'd have to pay taxes on it if you just got a straight dividend check...?

 

[RossMAN]

I believe it's a two step process.

1) You open a Roth IRA and fund the account with $3,000.00
2) After your account is created and funded, you specify how/where/what % is allocated to which fund.

I could be wrong though. I wish I had opened an IRA when I was 18 🙁

 

[richardycc]

you can open the IRA at a stock company like ameritrade, etc, and once the account is set up, you can buy and sell stocks/funds/etc from that account. one advantage of roth IRA is that you can start taking your CONTRIBUTION out after 5yrs without any penalty.

 

[dquan97]

Originally posted by: RossMAN
I believe it's a two step process.

1) You open a Roth IRA and fund the account with $3,000.00
2) After your account is created and funded, you specify how/where/what % is allocated to which fund.

I could be wrong though. I wish I had opened an IRA when I was 18 🙁

You're right. I opened my Roth IRA when I was 19, and have contributed only $5K into it so far.

 

[FeathersMcGraw]

Originally posted by: JohnCU
Let's say I have $3,000 to open a Roth IRA. I understand that your IRA is whatever you want it to be, CDs, stocks, etc. So, you go to your bank and open an IRA, but then let's say you want to invest that $3,000 in a mutual fund. How do you like...put that mutual fund under the IRA account?

I guess I'm just kind of confused on how it works.

Oh, what if you have your IRA in stocks, do they still send you a dividend check, or does that go straight back into the IRA? I assume that since the interest grows tax-free, you'd have to put it back in the IRA, or else you'd have to pay taxes on it if you just got a straight dividend check...?

If you open an account with a mutual fund company, you will typically designate the new account as an IRA account (either Roth or traditional). I haven't actually opened any IRAs with a third-party company (such as a brokerage firm), but I imagine the process is similar.

I don't know of any IRAs that would pay distributions directly to its owners instead of reinvesting them by default. In any case, you absolutely do not want to take dividends or capital gains from your IRA fund(s). For one thing, any such withdrawal on earnings will be subject to both income taxes as well as withdrawal penalties. For another, the whole power of the IRA is in compounding, which means reinvesting all of your earnings and letting them grow (and in turn compound) at the prevailing market rate.

 

[JohnCU]

Thanks for the help -- I went to Ameritrade and looked around and understand it better now. Time to start investing 😉