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jhermiz
3564 Posts |
 Posted - 2007-02-20 : 21:21:20
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Hello Folks,I currently have had 401k for about 5 years with the company I am with through Fidelity. I've decided to persue a Roth IRA but I don't completely get all the pros vs cons. So far I know the following:-Allows you to pull money without a tax deduction (provided you dont pull out any money that you have gained / profited, in addition, you can only pull what you put in-Approx. 4% interest-Unlike 401k no taxes are taken from the money you pull out-As stated before there are no penalty fees if your moneyt you have put in is taken out-Great chance to save more money for retirement-Social security is not so great right now-401k is just not enough as the avg. age of the lifespan is increasing.So I decided to check on fidelity's site and open an IRA. You can either open a roth ira by depositing a starting of 2500 or doing a monthly 200 withdrawl from your bank account to the ira. I decided to do the later...as times are tough right now in Michigan.My question is since it is only 200 bucks a month should I wait to invest my funds in my IRA till it builds up or should I just go ahead and invest my initial 200 and anything else I put in.I talked to a fidelity representative and explained to him that I was a bit more conservative or balanced as opposed to a risky investor. He mentioned that for someone who is more conservative or balanced to invest my money in something known as Fidelity Asset Manager 50% (FASMX). The reason being he said is the fund is split between high / mediocre risk stocks (50%) and very low risk bonds / money market investments.So is it best to for now not invest in any fund until I save enough money or is it best to take the rep's advice and have low risk with the Fidelity Manager 50% (FASMX).Do any of you have Roth IRA's? Is it a good move or risky? Benefits? Your advice to me ?Thanks so much.
Keeping the web experience alive -- [url]http://www.web-impulse.com[/url]RS Blog -- [url]http://weblogs.sqlteam.com/jhermiz[/url] |
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robvolk
Most Valuable Yak
15732 Posts |
Posted - 2007-02-21 : 00:03:09
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| My advice is to talk to a tax professional (lawyer or accountant) if you don't already have one (you should). I'm not saying the Fidelity rep is giving you bad advice, but unless you've given him all of you financial info he could possibly put you in a less-than-ideal fund. And it always helps to get a second opinion.I've been lucky, my sister is an accountant and does my taxes, she has a lot of things with Fidelity and likes them a lot. She had me go with a traditional IRA though, don't remember all the reasons why but IHHO it was better for my income level and timing. In fact, by opening the IRA and depositing money I got almost all of it back in tax refund(!) YMMV, but it's really a good idea to get some more objective and informed advice. Ask your friends/family/coworkers about their accountants and any financial planners they use. |
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Michael Valentine Jones
Yak DBA Kernel (pronounced Colonel)
7020 Posts |
Posted - 2007-02-21 : 00:24:47
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| The Roth IRA has the disadvantage of being savings after tax. The normal IRA is before tax savings, so it has the advantage of lowering your total taxable income. If you contribute $4,000 to a normal IRA, that is $4,000 less in taxable income. If your income tax rate is 25%, you would pay $1,000 less in taxes now, and defer that tax till when you take it out, presumably after you retire and have a lower income and income tax rate. That means that your $4,000 savings now only costs you $3,000 in current cash.If your objective is long-term savings, generally you should make investments with a higher chance of income/risk the longer you are from retirement, and make more conservative investments the closer you are to retirement. That is because a higher return when you are young can be multiplied many more times over the years. When you are older, you have less time to recover from losses, so it becomes more important to preserve what you have.Historically, the return from stock market investments has been higher than bonds, but, of course, the risk is higher.If you lose your shirt basing you investment decisions on what I say, well, you’ve been warned.CODO ERGO SUM |
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eyechart
Master Smack Fu Yak Hacker
3575 Posts |
Posted - 2007-02-21 : 05:27:05
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| do both if possible. If you can't afford doing both, max the 401k if possible. the 401k is before tax dollars like Michael said. It reduces your taxable income, so put as much to it as possible especially if your employer does any kind of matching funds.bthe roth ira is differnt. it is after tax dollars which allows you to take money out of this account up to the amount of principal you have contributed without penalty (as you stated). the other nice thing is that the money you take out when you are retired is also tax-free. This is different than a standard IRa OR 401K plan. money taken out at when retired from 401k or standard IRA is taxable.The roth IRA limits the dollar amount you can contribute per year. I think it is around 3 or 4k per year. the 401k also limits the amount you can contribute, but that is around 13 or 14k (not counting employer contribution). |
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jhermiz
3564 Posts |
Posted - 2007-02-21 : 08:36:28
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quote:
Originally posted by Michael Valentine Jones
The Roth IRA has the disadvantage of being savings after tax. The normal IRA is before tax savings, so it has the advantage of lowering your total taxable income. If you contribute $4,000 to a normal IRA, that is $4,000 less in taxable income. If your income tax rate is 25%, you would pay $1,000 less in taxes now, and defer that tax till when you take it out, presumably after you retire and have a lower income and income tax rate. That means that your $4,000 savings now only costs you $3,000 in current cash.If your objective is long-term savings, generally you should make investments with a higher chance of income/risk the longer you are from retirement, and make more conservative investments the closer you are to retirement. That is because a higher return when you are young can be multiplied many more times over the years. When you are older, you have less time to recover from losses, so it becomes more important to preserve what you have.Historically, the return from stock market investments has been higher than bonds, but, of course, the risk is higher.If you lose your shirt basing you investment decisions on what I say, well, you’ve been warned.CODO ERGO SUM
Thanks Michael that is very good advice as I did talk to someone last night and he said pretty much what you said. Rob thank you for your contribution as well, you're lucky you have someone in the family who is really close to the guts of how these things work.Eyechart I have definately maxed my 401k, just thinking the Roth would be a good idea.I've opened up the ROTH IRA through fidelity (by the way their customer service is GREAT). I just have not considered the funds to go into it yet. I am definately leaning more risky then what I thought since I still have some time till retirement :).Been looking more at equity / stocks rather than bonds/money markets.Thanks again all.
Keeping the web experience alive -- [url]http://www.web-impulse.com[/url]RS Blog -- [url]http://weblogs.sqlteam.com/jhermiz[/url] |
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Roth IRA Advice