I am looking to open up an IRA account?

Question

I want to open an IRA account with about $2000 dollars. Then monthly I want to add around $200 dollars. Where do I go to open on of these accounts. I still don't understand the basis of it, what percentage it pays, if it is accessible? When I asked the gentlemen at the bank he said I wanted to open up a CD but from everything I hear CD's are a bad way to go?!?! Please Help!!!! All answers will be appreciated.

Answer 1

There are two types of IRA's.  One is called Traditional and the other is Roth.  Based on your income and the amount of contributions that you are making to your 401K or 403B you may to allowed to contribute a max of $5000 per year to an ira--$6000 if you are over 50.  You may not withdraw monies deposited into traditional ira's without tax implications.  Roth IRAs are a little different.  You may open an IRA at any brokerage firm or any bank.  You may put an IRA into cd's, bonds, mutual funds, etc.  There is nothing wrong with cd's.  They usually pay a bit more interest because you agree to keep your money deposited for a fixed time. There is a lot to consider when making contributions to an IRA.  Your tax advisor should be able to help you with this.

Answer 2

You can go to your bank or investment institution to open an IRA.  The money you put into the account, if it's earned, can be deducted from your income, so that you defer the taxes you owe on the money.  The Roth style doesn't let you deduct the deposits from your income, but then when you take it out later, you don't have to pay taxes on it then, when it's hopefully more money. You are limited to about $5K per year invested in the account.

Once the money is in there it can be invested in anything the investment company holding your account will allow.  Depending on which account you have, you could face penalties if you pull it out before you're 59 & 1/2 years old.

The following questions might help you to determine what to do:

Do you want to reduce your taxes today, and possibly pay more taxes later on? Yes, open a traditional IRA.

Do you want to pay taxes today, but maybe pay less taxes in the future? Yes, open a Roth IRA

Do you want to save more than $5K a year for retirement?  Open a non-qualified annuity or Equity Indexed Universal Life Insurance Policy.

You should speak to someone about all the pros and cons with each option.

Answer 3

An IRA is a form of retirement account. it is a form of investing, with that said there is no Guarantee rate of return but  for calculation purposes figure 8% to be conservative.

It being a retirement account there can be penalties for removing the money prior to the age of retirement with a few exceptions (first house and some others).

CD's or Certificates of Deposit are different in that they do have a definitive end date (3m, 6m up to 20years) and can be renewed but you will also have penalties if you end them early so if you do use one make sure it is not money you may need!

Back to the IRAs, there are two different kinds,  not knowing too much about you it is hard to make the call on what you should get but don't panic whichever one you pick will be fine.

The first is the standard IRA, which you put money into pre-tax. This is a great savings on your tax return because you are taking down your taxable income. In you are not in a high tax bracket it may not make a huge difference for you.

Also the money that is in you IRA will be taxed when it is taken out during your retirement.

The other type of IRA is the Roth IRA, which is all post-tax money so there is no effect on your tax return. In the Roth IRA the money you contribute and it's earning would not be taxed when you do with draw it during retirement.

Now for places to get this all rolling, you can try Fidelity Smith Barney or Vanguard. I used Vanguard to set up one for myself and sister but I know the initial set up investment is a minimum of 3K but that have super low expense rates. Fidelity has a very easy to navigate site and lots of information so it would be a good resource. Smith Barney is also easy to use and has a wide variety of funds to pick from.

CD's aren't bad but they are also not what you should be using as a retirement vehicle.

Lastly there is a limit to the amount you can add to your IRA (either type) and I think it is 5K this year so try to fund it as much as you can. It sounds like you are off to a great start. Hope I helped and Good Luck!!