Your Money_ The Missing Manual - J. D. Roth [147]
T. Rowe Price. http://tinyurl.com/TRP-ind, 800-638-5660
The Vanguard Group. http://tinyurl.com/TVG-ind, 800-319-4254
Set aside an hour or two some Saturday morning to explore the options over a cup of coffee. With a little research, you should be able to find a company and program that suits your needs. When you're shopping around for a place to open an IRA account, ask the following questions:
Is there a minimum initial investment?
What sorts of fees will they charge on your account?
Can I make automatic contributions?
Tip
Making regular automatic investments to a Roth IRA account is a fantastic way to build wealth. Most brokers and mutual-fund companies provide some sort of program that'll pull money from your bank account every month. If you make this a habit, you won't even notice the money is missing; it'll be a regular expense in your monthly budget. Do this and you'll put yourself far ahead of your peers.
What investment options will I have? Can I invest in index funds?
Will I be able to download statements?
Search for a company that suits your needs. But don't fret about finding the perfect match—find a good match, and then get your IRA account in motion. You can move your money to a new IRA account if the first company you choose isn't a good fit.
Once you pick a place to open your IRA account, it's time to fill out the application. Some firms want you to download forms, and then mail or fax them back, but most companies provide online applications. To complete the application, you'll need your Social Security number, bank account info (so you can transfer funds), info about your current employer, money in a bank account (depending on where you open your IRA account, you might need anywhere from $25 to $3,000), and about half an hour of free time.
When you've gathered all that info, you're ready to fill out the paperwork. You'll probably have to answer some simple questions about your investment plans and goals. Once you complete the application, they'll ask you to transfer money to your new Roth IRA account. (This money will probably earn interest until you choose an investment.) That's all there is to it!
Frequently Asked Question: Roth IRAs Versus. Traditional IRAs
How do I choose between a Roth and a traditional IRA?
As great as Roth IRAs are, they're not for everyone. The general rule of thumb is that you should go with a traditional IRA if you need the immediate tax deduction (see Roth IRA rules and requirements) or if you're likely to be in a lower tax bracket when you retire than you're in now. (Both of these are more likely if you make a lot of money, in which case you might not qualify for a Roth IRA anyhow [see Roth IRA rules and requirements]).
There are many subtle differences between the two types of arrangements that affect people in or near retirement. You read about some of these details earlier in this chapter, but to save you from having to do a point-by-point comparison, here are the most important considerations for the majority of folks:
Both types of IRAs have the same contribution limits. The current limit is $5,000 a year, or $6,000 a year if you're 50 or older.
Roth IRAs have income limits; traditional IRAs don't. For the 2010 tax year, single filers have to make less than $105,000 to be allowed to fully fund their Roth IRAs; for joint filers, it's less than $167,000. (Traditional IRAs have income limits on deductibility in certain cases; see http://tinyurl.com/ira-deduct for details.)
The two types of arrangements have different tax advantages. You typically fund a traditional IRA with pre-tax dollars, so you pay taxes when you withdraw the money. The money you put into a Roth IRA has already been taxed so it grows tax-free and you don't have to pay taxes when you withdraw it.
You have to take yearly distributions from a traditional IRA (and pay taxes on them) when you're over 70 and a half. As with a 401(k), the IRS says you have to take a certain minimum amount out of your traditional IRA every year once