Opening up a Roth IRA

ColdCaller · #1 03-05-2006, 11:02 PM

This is my first post here, and while I've read a lot and contributed very little, I hope to improve that ratio in the near future. [img]/images/graemlins/smile.gif[/img]

I am 22 years old and single. My yearly income is around $55,000, but is likely to increase to $80-90k this year due to the expansion of my business. I currently have no assets in a Roth IRA, and very little in the way of liquid assets (moving takes a toll, as I'm sure most of you know!).

I have an ING Direct savings account where I store my money and winnings from online poker (not significantly high), as well as any spare change I have after keeping an acceptable balance in my checking account. I have very little in the way of debt (maybe $9k in student loans that are deferred, as I am still enrolled) and a credit card that never carries a balance (I had some debt problems when younger, but I have cleared them up and now I'm re-establishing credit).

My monthly expenses are approximately $1,200-$1,300 for rent, utilities, insurance, and gas for my car. I cook most of my own food, as I'm on a pretty good routine of working out and eating well to get ready for the baseball season (I play in an adult baseball league here in Seattle).

So, with all of that out of the way, I'm interested in starting a Roth IRA as my first value investment tool. I've read The Intelligent Investor, and a lot of it makes sense, though I'd probably like to gamble a bit with speculative investing sometime down the road (not anytime soon). After all of the research I have done, Vanguard seems by far and away the best choices of funds, with a mix of retirement, international, and total market funds. Does that sound about right?

Also, another question: I'm not really sure how it "technically" works when you open a Roth IRA. Should I be opening an account at Vanguard and buying their funds? What if I want to add individual stocks, bonds, or other funds to the Roth IRA - how would I go about doing that? I have an Ameritrade account that hasn't seen much play, and they led me to believe that if I buy Vanguard funds that I'll be charged a fee everytime I add it to my portfolio. Is this true, or should I use Ameritrade's portfolio manager (much cheaper to buy individual stocks through them!) and just add the Vanguard funds? I spoke with Vanguard's people, and they said there are no fees if I go directly through them, but they couldn't elaborate on other providers (understandably so).

Thanks for all the help, everyone!

econophile · #2 03-06-2006, 12:34 AM

can't answer everything, but a couple of tips: i have my IRA through Vanguard and can buy their funds with no transaction fees, although they charge a $10 annual maintenence fee for each fund that you have less than $10,000 in. i don't think you can get individual stocks or bonds through vangaurd, though, so if this is important to you you might want to use ameritrade.

remember that you have until april 15th to contribute towards your 2005 tax year IRA limit (should be $4,000), so try and take advantage of that since your growing income may limit how much you can contribute in tax year 2006.

mwgr5 · #3 03-06-2006, 01:06 AM

Basically when you complete the new account form you fill out a Roth IRA account form. So you open a mutual fund, for example, in a Roth IRA account. You can have as many Roth IRA accounts as you want but you cannot excede 4K per year.

So if you wanted individual stocks in a Roth IRA you would open a Roth IRA account at a place like Ameritrade I think.

Vanguard is a good choice because of low costs and fund variety. If you want to change funds in your Roth IRA you can do that easily within Vanguard.

I am not sure if you own your own business but if you do look into opening a sep or Simple plan. I don't know the details but I think if you own your own business you can open these and they are similar to a 401K. I think these programs have tax advantages for the business owner too. I am not sure about this information but it is definitley something to look into if you own your own business.

ColdCaller · #4 03-06-2006, 12:34 PM

Great, thanks for the comments! I will develop a more detailed plan and share it with the forum for analysis, hopefully by the end of the month so I can get my contribution in before April 15th. [img]/images/graemlins/smile.gif[/img]

KKrAAAzy88s · #5 03-06-2006, 05:28 PM

check out firstrade.com. no fee iras, all of the vanguard funds at no extra fee (all mutual funds have no transaction costs) and u can buy stocks for $6.95 on top of that. you can find a lot more reading material at fool.com's forums.

ColdCaller · #6 03-06-2006, 06:05 PM

[ QUOTE ]
check out firstrade.com. no fee iras, all of the vanguard funds at no extra fee (all mutual funds have no transaction costs) and u can buy stocks for $6.95 on top of that. you can find a lot more reading material at fool.com's forums.

[/ QUOTE ]

Interesting. Thanks!

Ponks · #7 03-07-2006, 03:18 AM

Speaking of which, I'm 21 and contributing my first $4,000 this year. I have a good amount already invested in VTSAX (Vanguard Total Stock Market) on Vanguard, and that's it so far. I was wondering what would compliment my portfolio well for the IRA. I was thinking a mid-cap index fund? I also plan to pick up an index fund of international stocks on Vanguard in the foreseeable future.

Thanks,
Ponks

MatthewRyan · #8 03-07-2006, 03:20 AM

[ QUOTE ]
Speaking of which, I'm 21 and contributing my first $4,000 this year. I have a good amount already invested in VTSAX (Vanguard Total Stock Market) on Vanguard, and that's it so far. I was wondering what would compliment my portfolio well for the IRA. I was thinking a mid-cap index fund? I also plan to pick up an index fund of international stocks on Vanguard in the foreseeable future.

Thanks,
Ponks

[/ QUOTE ]

Pick a balanced fund until your account balance grows large enough to effectively 'slice and dice' your asset allocation with different funds.

You could choose a target retirement fund, lifestrategy fund, wellington, or star.

-Matt

Ponks · #9 03-07-2006, 03:32 AM

[ QUOTE ]
[ QUOTE ]
Speaking of which, I'm 21 and contributing my first $4,000 this year. I have a good amount already invested in VTSAX (Vanguard Total Stock Market) on Vanguard, and that's it so far. I was wondering what would compliment my portfolio well for the IRA. I was thinking a mid-cap index fund? I also plan to pick up an index fund of international stocks on Vanguard in the foreseeable future.

Thanks,
Ponks

[/ QUOTE ]

Pick a balanced fund until your account balance grows large enough to effectively 'slice and dice' your asset allocation with different funds.

You could choose a target retirement fund, lifestrategy fund, wellington, or star.

-Matt

[/ QUOTE ]

I think I was looking for something more aggressive in my earlier years. (The Mid-cap index funds would be more aggressive, right?) Something such as the Mid-Cap Index Fund Investor Shares (VIMSX) or possibly the Vanguard Mid-Cap Growth Fund (VMGRX). Then as I get older I could move the money around into a more balanced/less risky portfolio? I'd be left with Large Cap/International Cap/Maybe some Small-Cap in my regular portfolio and Mid-Cap in my IRA which would slowly develop to less volatile as I become older. Just my ramblings, what do you think of this?

Thanks,
Ponks

MatthewRyan · #10 03-07-2006, 03:44 AM

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
Speaking of which, I'm 21 and contributing my first $4,000 this year. I have a good amount already invested in VTSAX (Vanguard Total Stock Market) on Vanguard, and that's it so far. I was wondering what would compliment my portfolio well for the IRA. I was thinking a mid-cap index fund? I also plan to pick up an index fund of international stocks on Vanguard in the foreseeable future.

Thanks,
Ponks

[/ QUOTE ]

Pick a balanced fund until your account balance grows large enough to effectively 'slice and dice' your asset allocation with different funds.

You could choose a target retirement fund, lifestrategy fund, wellington, or star.

-Matt

[/ QUOTE ]

I think I was looking for something more aggressive in my earlier years. (The Mid-cap index funds would be more aggressive, right?) Something such as the Mid-Cap Index Fund Investor Shares (VIMSX) or possibly the Vanguard Mid-Cap Growth Fund (VMGRX). Then as I get older I could move the money around into a more balanced/less risky portfolio? I'd be left with Large Cap/International Cap/Maybe some Small-Cap in my regular portfolio and Mid-Cap in my IRA which would slowly develop to less volatile as I become older. Just my ramblings, what do you think of this?

Thanks,
Ponks

[/ QUOTE ]

Ponks,

To be totally honest, I think you should become very informed on the topic of asset allocation, the efficient frontier and passive investing. Just google those, read around for a while and you'll get the picture eventually.

You question is complicated so it requires a lot more than I can answer in one post.

But if you want the short story, my recomendation is still the same.

Goodluck,

-Matt