Teach me about ROTH IRA

[Kroze]

Earlier today, I got an idea of putting my money somewhere other than savings where it earn 1% interest.

At first i was looking into short term CDs where I can earn about 3.54% a year. Is that bad?

Anyway, I was steered away from CDs mainly because i was told that ROTH IRA was much better.


My objective is that to have my money very liquidable. That's why I went to shortterm CDs in the first place. But I found out that ROTH IRA is pretty much the same thing as a savings account because you can still get your money out right?

Last year, i opened up a 5 year CD with $9048 @ 4.24%. I think that was a mistake because my money is stuck there for a long time & I think there are better ways to make it grow faster.

Right now, i have $4500 and i don't have to make the same mistake as i did with the long term CD acount.



What can you tell me about the roth ira? is it pretty much a savings account with higher gain?

what other options should i also look into for high gains?

 

[bradruth]

Originally posted by: Kroze
Teach me about ROTH IRA

and ways to maximized my growth.

Two totally different topics, my friend.

 

[everman]

Text :beer:

 

[DaveSimmons]

Advanced search > "Roth IRA"

 

[Taggart]

An IRA, whether it be a Roth, traditional, etc. is not an investment vehicle in the sense that a CD is. It is actually part of the tax code that allows you to save after-tax dollars for retirement.

 

[Kroze]

Originally posted by: Taggart
An IRA, whether it be a Roth, traditional, etc. is not an investment vehicle in the sense that a CD is. It is actually part of the tax code that allows you to save after-tax dollars for retirement.

i was told that with a roth ira, you're not taxed on anything even when you withdraw. Not only that, you can withdraw anytime you like without being penitalized if it's for "education" or "first-time homebuyer" reason right?

 

[SuperTool]

yesterday was the last day to contribute for year 2004 IRA.

 

[Taggart]

Originally posted by: Kroze

Originally posted by: Taggart
An IRA, whether it be a Roth, traditional, etc. is not an investment vehicle in the sense that a CD is. It is actually part of the tax code that allows you to save after-tax dollars for retirement.

i was told that with a roth ira, you're not taxed on anything even when you withdraw. Not only that, you can withdraw anytime you like without being penitalized if it's for "education" or "first-time homebuyer" reason right?

You can withdraw any contributions that you have made without penalty. However, you cannot withdraw gains made on your contributions without penalty. I'm not sure if you can withdraw gains without penalty for the "first time home buyer" or other reasons. The only time I know FOR SURE when you can withdraw gains is at 55 1/2.

 

[Mallow]

IRA is a retirement account. If you put your money in there you can't touch it until your 59.5

 

[dfi]

Originally posted by: Taggart

Originally posted by: Kroze

Originally posted by: Taggart
An IRA, whether it be a Roth, traditional, etc. is not an investment vehicle in the sense that a CD is. It is actually part of the tax code that allows you to save after-tax dollars for retirement.

i was told that with a roth ira, you're not taxed on anything even when you withdraw. Not only that, you can withdraw anytime you like without being penitalized if it's for "education" or "first-time homebuyer" reason right?

You can withdraw any contributions that you have made without penalty. However, you cannot withdraw gains made on your contributions without penalty. I'm not sure if you can withdraw gains without penalty for the "first time home buyer" or other reasons. The only time I know FOR SURE when you can withdraw gains is at 55 1/2.

Don't quote me, but I believe you can withdraw up to 10,000 without penalty for a first home.

dfi

 

[crazeinc]

You get taxed for the money you put into a Roth IRA, but don't get taxed when you take it out. Standard IRAs work just the opposite. There's pro/cons to both.

 

[RossMAN]

Roth IRA + 401k with employer match + no credit card debt = teh hotness!

 

[ponyo]

You shouldn't put money in Roth IRA if you need your money liquid. Roth IRA is retirement savings vehicle, not checking account. You can take money out under special cases like first time homebuyer or higher education but normally you can't without penalty until you're 59 1/2 years old. How you invest this money is up to you but I really don't recommend putting it in money market fund unless you're very near retirement as the current interest rate is too low and the returns wouldn't keep up with inflation. Most people buy some sort of mutal fund. I prefer to do my own investing and buy individual stocks. All my IRA money is invested in two companies, Merck and Altria Group which used to be called Phillip Morris. The way I figure is people are getting older and will always need more drugs and people will always smoke, drink, and eat. Both pay good dividend at around 5% so at least you've the inflation covered and hopefully both companies stock will appreciate over the years. MO has done very well for me over the years with good appreciation of the stock price and that constant increasing dividend. Merck I added late last year after the Vioxx scandal. It's also doing very nicely for me and I'll patiently wait while receiving dividend payment until Vioxx is swept under. I still got decades before I can even touch this money so I can be very patient.

This is not meant to be investment advice. Just giving you idea how I've my IRA invested.

 

[ghostman]

HSBC Online savings account: 3%
ING Direct Orange savings account: 3% ($25 for signing up with a referral and referrer will get $10... PM me if you want my referral )
Emigrant Direct savings accoutn: 3.25%

These are all online banks. Less liquid than a local bank (~5 days delay), but much more liquid than CDs. Compared to HSBC's 1 year CD offering 3%. It's not meant for growth, but it'll help fight some inflation.

If you put money in an IRA, don't touch it unless you REALLY have to. From what I can remember about Roth IRAs, you use after-tax dollars to contribute (so you don't pay tax when you take money out). You can withdraw your contributions, but you really shouldn't - you'll defeat the compounding benefits. You can withdraw part of the gains (I believe $10,000 is correct, but my info might be old) for a home purchase. I'm not certain about education. Unlike most savings accounts, there are usually maintenance fees, especially if you invest in an actively managed fund.

I would not lock significant money up in long-term CDs, especially not now. I also don't suggest undiversified investments unless you have done a serious amount of research on the companies (even then, I don't suggest it). In my opinion, few people beat the market by skill.

Having said all this, I have to rethink my investment plans. I think I'm too conservative to get any serious growth.

EDIT: BTW, I suggest investing in index funds meant to reflect the market, like S&P500, for IRAs. Diversified and low fees.

 

[zendari]

I have a question about a Roth IRA. If I withdraw some money from it for my first home purchase, it looks like I can escape the 10% penalty. Am I able to withdraw from it tax free as well?