Ira Questions
July 9th, 2010
ira questions
Question: Roth IRA questions from my bank?
If I open an Roth IRA with my bank, do I contribute to it whenever I want? or does the bank automatically contribute a certain amount each month to my Roth IRA for me from my checking account?
The maximum contribution to it is 5,000 dollars. Does the penalty still stand if I contribute less than that, but when it draws interest, it goes over that?
Also, IRS regulation says that you can not withdraw until 59.5 but products can last about 23 months. What happens after the 23months is over and I am not 59.5? does it stop drawing interest and just sit there? or can I take it out? or am I required to renew or open a new IRA?
Answer: Do not open a Roth at your bank. Banks are not brokerages, your investment options will be severely limited. Open it at a discount brokerage like Schwab, which has low initial deposit requirements and the lowest fees on index funds that currently exist.
You can contribute up to $5000/year to your Roth, limits may change in future years. You can set it up to fund monthly or fund it whenever you like throughout the year. I’m not sure what penalty you are talking about. Your bank may have minimum balance requirements that would cause a penalty for having too little money in the account. Pick an institution with minimum balance requirements that fit with how much money you can afford to start out with.
If you fund your account the money in the Roth is initially in cash. You can then take this cash and purchase shares in a mutual fund, bond fund, a CD, or any other type of investment instrument. If you were to buy a 12-month CD, when the time ran up you could either extend the CD or the money would stay in the account as cash. You could then use it to purchase another financial instrument.
Do not take money out once it goes into your Roth. For most people personal retirement savings are your only hope of having a decent retirement.
You don’t have to open a Roth immediately, so take some time to learn about how these plans work, what brokerages you might choose to use, and what investment options you should use (read up on asset allocation). I suggest starting with a broad-market index fund (total stock market index fund or S&P500 index fund). Later you can add other investment types, like small-cap stock funds, international stock funds, or bond funds.
Edit: I see you were asking about a penalty if your deposits plus earnings run over $5000 in a year. Earnings do not count towards your $5000 limit, which is great because hopefully at some point you will be returning much more than $5000 annually in the account! Only transfers into the account count towards the $5000 limit.
Considering A Gold IRA: Questions To Consider Prior To Adding Gold To Your IRA
Posted in 
Tags: