401k
401k Information

Ira Rates

My multimillionaire client Bill called me the other day. He wanted to talk about congress recently loosening the rules about who can convert regular IRA accounts to Roth-IRA accounts.

In the past, because of his income, Bill hasn’t been able to use a Roth-IRA. Starting in 2010, however, even high net worth, multi-millionaire taxpayers like Bill can use a Roth-IRA by converting existing traditional IRAs and IRA-Rollover accounts to Roth-IRAs.

Bill understood he would pay income taxes on the conversion. But wouldn’t it make sense, he asked, to convert a ,000,000 IRA account he’d been able to accumulate to a Roth-IRA?

A Simple Roth-IRA Conversion Example

Unfortunately, I explained, Roth-IRA conversions aren’t that simple.

But let me share some additional information. Bill will retire in about 25 years. He earns about 9% a year on his ,000,000 IRA. He also pays the highest 35% marginal income tax.

If he converts, Bill will need to pay income taxes on his ,000,000 conversion. Because Bill gets taxed as the highest, 35% marginal rate, he’ll pay 0,000 today if he converts. But even so, he will end up with ,605,002.43 in his Roth-IRA in 25 years. And the sweet thing is, of course, that money will have already been taxed.

Bill thought that sounded great, of course. And I had to agree. More than ,000,000 tax free. Sweet.

What Happens with a Traditional IRA and No Conversion

I explained, however, that we also needed to compare this Roth-IRA future value amount to what Bill would end up with after tax if he just stuck with his regular IRA.

In that case, Bill ended up with ,623,080.66.

If he also paid a 35% tax on this money, after paying the income taxes, he would net ,605,002.43. Which is the exact some number he ends up with if he converts to a Roth-IRA…

Some sort of weird cosmic coincidence? No. Here’s the dirty little secret about Roth-IRAs: If the tax rates stay the same, converting a traditional IRA to a Roth-IRA doesn’t really make sense.

But One Final Roth Wrinkle…

Let me share a final wrinkle related to Roth-IRAs and Roth conversions.

I truly suggest clients like Bill think of Roths and regular IRAs as “six of one, half a dozen of the other” situations. That said, where a person gets the money to pay the taxes on the conversion makes a difference, too.

For example, if a client like Bill uses some of the IRA balance to pay the taxes (this is sort of what my example calculations assume), the taxpayer may have to pay an early withdrawal penalty. That early withdrawal penalty makes the Roth a worse deal. (Conclusion: Don’t convert to a Roth unless you’ve got other, non-Roth money to pay the taxes.)

And here’s another example. If a taxpayer uses other funds to pay the taxes, he or she gets a slightly better outcome with the Roth–even if tax rates are the same now and in the future. This Roth-related boost comes from the fact that with a Roth, a taxpayer can save more money in a tax-advantaged account.

Getting Smart about Roth-IRA Conversions

The conclusion? Converting to a Roth-IRA probably makes sense when you expect your tax rates to stay the same or to go up in retirement.

Because most people’s tax rates fall in retirement, most people shouldn’t use a Roth or convert existing an IRA to a Roth. Even multimillionaires like Bill.

Frequently Asked Questions

  1. QUESTION:
    IS a Bank CD IRA a good retirement account? Do you know which Banks offer the best rates for Bank IRAs?
    I am looking into investing in a second IRA, a CD Bank IRA, my question is this a good investment, will I make good returns from this, I dont think the rates are good for Bank IRAs but I can be sure I wont lose any money.
    Note: I already have another retirement account through my employer.

    • ANSWER:
      CD’s are one of the worst places for retirement investing. You’ll lose on the purchasing power of each dollar, over time, because of inflation & the taxes you’ll pay when you pull the money out (at over ager 59.5).

      Stay away from banks & insurance companies for retirement products. Here’s some good mutual fund families that can be helpful;
      T. Rowe Price
      Dodge & Cox
      Vanguard

      Good luck!

  2. QUESTION:
    Where can I find the best Roth IRA rates?
    My current Roth IRA only accumulates 2.5% interest. Where can I get better? Highest rate return gets 10pts!!!! :D
    I’m not sure if what I’m asking will make sense, but I’m looking for the kind of risk I’d normally expect from a good mutual fund, something I can manage myself — ultimately, I want to protect my 10K from being counted against me when I apply for financial aid so I may go back to school…. I understand a Roth might help with that… THANKS!

    • ANSWER:
      You didn’t specify the type of investment you have currently in your IRA portfolio. You need to be more specific on whether you’re willing to take on more risk. From here you’ll be able to find the type of investment you’re willing to invest (mutual fund, bonds, stocks, etc.) and then extrapolate the historical return you should be receiving.

      I have Vanguard Roth IRA diversified into 80% VTSMX (Vanguard Total Stock Market Index) and 20% VGTSX (Vanguard Total International Stock Index) and the theoretical long term return is about 10.5%

      My return from VGTSX (Vanguard Total International Stock Market Index) recently has returned close to 20%, but that is out of the ordinary and not expected sustainable over the long term. You should not chase recent short term return, but instead focus on the long term.

  3. QUESTION:
    Where can I find the best rates for a Roth IRA?
    I only want to open it with a minimal amount (under 0) and contribute no more than 0 a month. Does anyone know where I could find the best rate? Thanks!

    • ANSWER:
      Start with Vanguard Mutual Funds, . They have a wide variety of funds to suit your taste (costs, flavors & past returns). Roth IRAs are a good choice.

  4. QUESTION:
    Are IRA’s roth and traditional 100% tax defered? Are there different rates of returns for IRA’s?
    Where do you purchase IRA’s, can you buy one on line? Thank you for your help and input.

    • ANSWER:
      “Tax deferred” means that you don’t pay taxes each year while the IRA is invested and grows.

      A traditional IRA is both tax deductible and tax deferred.
      If eligible, the money put in is deducted from current income, the IRA grows untouched (at whatever rate you can get!) and when you withdraw the money, it’s taxed as ordinary income.
      (Just avoid putting “non-deductible” money into an IRA.)

      A ROTH is tax deferred. You fund it with after tax dollars and then it grows untouched (again at whatever rate you can get). If you reach 59.5, both the contributions AND the earnings will be tax free.

      You purchase IRAs at banks and brokerage houses. Due to a lousy return on one IRA I have (it’s the only one that lost money this year), I’m in the process of closing it and rolling the money into another one of my IRAs.

  5. QUESTION:
    top ira rates. traditional or roth ira?
    trying to find the best rates for an ira account

    • ANSWER:
      Depends what you invest it in, not the type of account.

  6. QUESTION:
    individual stock account vs IRA and Roth IRA (tax rates).?
    I have a stock account and am looking for the best way to make the most of my return (after tax). If I make 10% return this year (let’s say 0) . How much would I have to pay in taxes (what is the rate)? If I converted that account into an IRA or Roth IRA or some other account (can I do that?)…how much would I have to contribute monthly and how much tax would I have to pay at the end of the year (on that return)? If I cashed in early on those IRAs (sold some of the stock and took the cash and bought, let’s say, an apartment), what penalty rate would be applied to that withdrawal?

    This basically boils down into: Is it better to hold stock in a regular (i.e non IRA etc) account (so I can withdraw $ whenever I need to) and pay tax on that, or hold it in an IRA (or other type) account and then pay the penalty, if I need to withdraw?. Any advice is appreciated. Thanks!

    • ANSWER:
      You don’t get the privilege of paying taxes on a stock gain until you sell the stock, and when you do, your tax will depend on your tax bracket.

      Technically speaking, capital gains are the final dollars in your income, meaning they enjoy the highest tax, while your ordinary income is taxed at the lower brackets.

      On the other hand, your IRA benefits will depend on how much you make, too, because of the extra “saver’s credit”. You can take up to a certain amount out of your taxable income, but you get the bonus of 0%, 10%, 20% or 50% credit in addition depending on your income and marital status.

      So you’ll have to give us a little more information to be more specific.

  7. QUESTION:
    Who is the best financial institution to open an IRA with?
    I’m only 26 and I think it’s time for me to start saving for my retirement now. I work at a job who doesn’t provide a 401k to their employees. I don’t plan on working there forever but right now it’s hard to get a new job. I live in San Diego, CA where the work force is very competitive. Any suggestions on the best IRA rates in my city. Currently, I bank with a credit union.

    • ANSWER:
      If you looking where to open an IRA do not use a bank.
      There is also a ROTH IRA so you need to find out which
      kind is right for you. I suggest you call one or more of
      these mutual fund companies and get free advice on where
      to invest your money.
      FIDELITY
      VANGUARD
      AMERICAN CENTURY
      TR PRICE

  8. QUESTION:
    I have had a 401K for15 years and want to roll it to a traditional IRA, who has the best rates right now?
    Having a great deal of trouble finding the right place to invest my $ in 100% risk free environment, earning as much as possible, Can someone out there help, at least point me in the right direction?

    • ANSWER:
      Just some things for you to think about:
      How much did YOU put into the 401 ?
      How much is it worth now?
      Was your percentage gain respectable?
      What were you invested in?

      Caution is one thing, but looking to get into a ” risk free” enviroment is sort of bizarre ( if you have made money in the 401 for 15 years)

      As far as ” rolling over”…get to Fidelity or someone similar…let them do all the work for you…get into a self- directed IRA…. select anything you want once you have the account… but, try, try, try to get some portion of your funds into something that is doing better than ” average” and learn to make adjustments now and then….if you don’t, your cautious investments will barely keep up with inflation.

  9. QUESTION:
    Vanguard Roth IRA growth rates?
    I am new to this and would like to know what is the average annual growth rate for a Roth IRA amongst competitive investment banks? What is a reasonable growth rate to expect?
    What percent interest do they pay?

    • ANSWER:
      Roth IRAs are like any investment – the growth depends on the investment. No one can provide the data you are looking for since no one knows what you would be investing in. For example, a growth fund will appreciate/depreciate faster than an income fund (different target investments), while a tech fund will grow/decline differently than an energy fund.

      One does not just walk into an investment house and say put my money in an IRA…you need to tell them exactly how to invest that money based upon your risk tolerance, your length of time until withdrawal (the longer the time, the more aggressive you can be), etc.

  10. QUESTION:
    Who has the best IRA rates avaialbe right now?

    • ANSWER:
      Look at the major mutual fund houses, like Vanguard, T. Rowe Price, Fidelity, etc. IRAs are not like CDs or savings accounts.

  11. QUESTION:
    What all is involved in a ROTH IRA? How much money do i need down? What rates are included? Anything you know!
    When I finally start my new career as a nurse I want to get rid of my 5,000 dollar debt and also invest! I want to have a great retirement! I have been interested in a ROTH IRA and wanted to know more about it!

    • ANSWER:
      The first misconception a lot of people have is that ROTH IRA is an investment. It isn’t. It is an account registration for tax purposes. The types of investments you can possess in a ROTH IRA are nearly limitless. It can be applied to the savings account at your bank or individuals stock or bonds. They can all be held in a ROTH registered account.

      For small investors like myself, make sure you can take of you and your family’s (if you have one) needs first. Try to have a couple months wages of saving first for the what if’s (car repairs, sickness). Make sure your adequately insured. Then consider investing.

      If you are rather young and are focused on retirement, then I strongly recommend walking through some retirement tutorials at some major mutual fund companies. They have done a lot of work to help new investors understand the market, risk, returns, and investment options that will fit your risk tolerance. Consider one of these major mutual fund companies:
      Fidelity
      T. Rowe Price
      Vanguard

      You will find a link for retirement or retirement guidance on each of these companies web sites.

      Take the time to educate yourself, and you can avoid being steered in the wrong direction by someone looking at you as his next commission.

  12. QUESTION:
    Where can I compare rates for IRA accounts?
    Particularly in New Jersey.

    Thank you

    • ANSWER:
      There are no “rates” for IRA accounts. IRA accounts are tax advantaged accounts where you can place various investments. They can be stocks, mutual funds, etc. which have no “rates”. You can use it to invest in CD’s which have various “rates” but IRA themselves have no rates. It’s an account you put investments in which are tax advantaged. Before you begin investing in an IRA you need to understand this concept and also understand that there are different types of IRA’s and various companies you can open them with.

  13. QUESTION:
    What are the rates for ROTH IRA’s? Do they vary from company 2 company? Are they federally regulated? Help!
    I have found that the rate at my bank is 1.71% which isn’t all that hot. I want to know if Fidelity or Vanguard or someone else offers a higher rate. Or, if they are regulated, what is the rate? Thanks to all in advance.

    • ANSWER:
      A Roth IRA is an Individual Retirement Account that provides tax-free growth. A Roth account can be opened through a stockbroker, mutual fund, or other provider of “normal” investment accounts. The rates vary depending on what the investments are in. 1.71% is low. The rates aren’t regulated by the government but rather the market. You will need to do research as far as finding a better rate, also they fluctuate and you’ll want to keep that in mind. You may want to look at how a Roth has been doing over several years because of this fact. The best person to do the research is YOU (since no one will care about your money like you.)

  14. QUESTION:
    What is a GOOD investment right now w/ the way interest rates are? I use to do CD’s, I already have a roth IRA?
    I have ,000 to put somewhere.

    • ANSWER:
      Although stocks may seem negative, there are many at bargain prices. I would stay away from Banks and Transportation stocks, also unless you have heavily research Biotech stocks they may be a bit tricky. It really depends on if your looking long term, however, I feel that CDs are pretty worthless as their rates barely cover inflation.

      I am starting a website called InvestmentFractions.com that will be able to earn every investor a flat 10% rate, however, it will not be fully running until mid October.

  15. QUESTION:
    Does the interest rates on Roth IRAs differ based on where you establish them?
    I would like to open a Roth IRA. Do the interest rates or rates of return differ between Vanguard, Fidelity, my personal bank, etc. just as the interest on a savings account a different banks would differ? If so, do these rates fluctuate daily? Does anyone know whose rates are consistently higher? Can I have more than one Roth? Can I have a Roth AND a Traditional IRA?

    • ANSWER:
      Your rate of return will depend more on what funds you decide to invest in rather than what company you decide to invest with. Most mutual funds have different investment objectives to match individual investor’s unique goals. How you allocate your funds between asset classes (stocks, bonds, cash, etc.) will determine your potential return. Also, your investment time horizon (how long before you use the money) will also factor into your potential rate of return.

      You can have as many Roth IRAs as you want but you cannot contribute more than the maximum ,000 a year collectively.

      You can also have a traditional IRA and a Roth but you still are limited to the ,000 maximum combined. For example, you could contribute ,000 to each IRA but not ,000 to each.

  16. QUESTION:
    Can I make the bank increase my IRA CD’s rate if rates go up once I’m over 62 years old?
    I’ve heard that if for example I open a 10YR IRA CD at 2% and the interest rates for that IRA CD at the bank climb up to say 3% I can go in and have them change the rate on my CD up to the new 3% rate even though my IRA CD has not matured. Is that true ? Is it an IRS rule ?

    I’ve also heard that you can only do this once a year. Is that also true ? If so, does the yearly rule apply on an account by account basis or is it for all my IRA CD accounts ?

    • ANSWER:
      my only question is, why are you saving money in a CD? If inflation is 3.5% a year and you are only getting 2% on your money, you are losing it purchasing power every year. Find a low risk, well diversified mutual fund!

  17. QUESTION:
    What is the marginal tax rate on an IRA calculator?
    I have a Roth IRA, and wanted to see how much money would be in the account in 31 years (when I’m 70) if I contribute the maximum amount per year. I was confused by the category “Marginal Tax Rate” because I thought anything I withdraw after age 59 was tax free.

    • ANSWER:
      It is tax free and penalty free from a Roth after 59 1/2 years old.

      They are probably asking your marginal tax rate today for two reasons: 1) so that they can compare your Roth investment with a regular savings account investment in which you would lose some of the interest each year to taxes, and 2) so they can calculate the saver’s credit that you will get in the year of contribution if you quality.

  18. QUESTION:
    What kind of rate could I get on an IRA rough fund these days?
    Ever since middle school my teacher always told me if I had an ira rough fund tht I put money in since 18 I’d be a millionare when I retired. Well, That was at a rate of like 10%. These days.. What kind of rates are there? are they fixed? or do they change when the ecoconomy goes down. Help! I’m eager to learn.

    • ANSWER:
      An IRA is not a specific investment. It’s just a type of account within which you can hold bank CDs, stocks, mutual funds, bonds, etc. It’s up to you.

  19. QUESTION:
    Any suggestions on a good company to go with for a ROTH IRA? What is a good rate to expect?
    I’m thinking about using Bank of America. Their rates on an IRA are 2.28% with 2.3% APY OR 2.72% with 2.75% APY. Is that good for an IRA?

    • ANSWER:
      I have an account with Vanguard and have been very happy with them. The site is easy to use and they have a wide range of funds to choose from. The main thing for me is that a lot of their index funds have very low fees, which leaves more of your return to grow over time.

      I’m a little confused by the rates you’ve included. You must be looking at pretty conservative investments. Typically with a Roth IRA, you open up the account and then choose the funds you want to buy. These rates are very low and indicate a very conservative investment approach. If you were to buy a stock market index fund, which mirrors the stock market there is no guaranteed return, but over time they should be much, much higher than the rates you have listed, as long as you have a long time before you plan to retire (longer than 10 years).

      I hope this helps.

  20. QUESTION:
    I’m looking at beginning a Roth IRA account. Where can I find out which company has the best rates of return?

    • ANSWER:
      Go to http://www.bestmoneyinfo.com for help finding which funds to invest in. It gives a list of top performing funds for the long term.

  21. QUESTION:
    I have a Roth IRA at my bank.. I want to have a Roth IRA at a different bank because the rates are better..
    Can I transfer the money in my roth ira to the one I want to open up with a different bank.. Even though there is like 12,000 in the roth ira i have now..

    • ANSWER:
      There are two issues in play.

      One is that it is an IRA (Roth or otherwise doesn’t matter in this situation).
      Thus, you must do a bank-to-bank transfer, not bank-you-bank, as the other answers have stated.

      The second issue is the terms of the account at the first bank.
      If the account is a CD with penalties for early withdrawal, then
      it is inadvisable to do the transfer before it matures. The penalties
      will probably outweigh the advantages of the other bank. So you
      just wait.

      On the other hand, if it is just a normal savings account, then
      you are free to transfer it any time you want, so you can go
      ahead. Start by contacting the other bank.

      .

  22. QUESTION:
    Where do I go to get the best interest rate for a Roth IRA?
    I am looking for a place to check out, so I can get the highest interest rate possible on a Roth IRA account. Please advise me on where I can start. Thanks

    • ANSWER:
      Consider the Vanguard Prime Money Market Fund with a current compound yield of ~4.7% APR. https://flagship.vanguard.com/VGApp/hnw/FundsSnapshot?FundId=0030&FundIntExt=INT

      Sometimes other institutions will have a higher teaser rate, but Vanguard tends to have the highest yields I’ve found over the long run. (Vanguard money markets are not FDIC insured, however.)

      Article on teaser rates:

      http://www.marketwatch.com/news/story/banks-advertised-rates-dont-always/story.aspx?guid=%7B0A13B6E2-FFB2-4E2B-BD42-E2D1E01C52E5%7D

      ING and HSBC often have rates close to Vanguard, and most of their products are FDIC insured. Bankrate.com provides links to CD’s with high interest rates. You can check these at the following links:

      http://home.ingdirect.com/

      http://www.us.hsbc.com/1/2/3/personal/savings?code=husa

      http://www.bankrate.com/

      (If you are investing for a long period of time and are willing to accept some volatility, you should consider putting some money into no-load low-expense mutual funds. Vanguard.com has many good funds. These are not guaranteed, but over the long run produce much higher returns.)

  23. QUESTION:
    At what rate is SEP IRA Distribution taxed?
    I want to take a little money from my SEP IRA account for an emergency. I am willing to pay the 10% penalty but they say I will have to pay additional taxes at the end of the year. I’m just wondering what is the tax rate for these things does anyone know?

    • ANSWER:
      Your marginal tax rate. If you are in the 28% bracket you will pay 38% Federal plus any state tax / penalty where you live.

  24. QUESTION:
    Can I rollover my roth ira to a different company but also roth ira?
    My agent wants me to roll my Roth IRA to another company (company1)that has better interest rates. Can I roll my roth ira to another company (company2) without penalties?

    • ANSWER:
      Yes, you can. Have the new company do a direct transfer. Technically, they don’t call it a rollover, just a transfer.

  25. QUESTION:
    Why would I want to invest in an IRA?
    What are the advantages to investing in an IRA if the interest rates are similar to a regular savings account?

    • ANSWER:
      Tax Advantages Associated with the IRA

      ~ ~ ~

  26. QUESTION:
    How are Capital Gains treated in a Traditional IRA if one waits until age 59.5 (or later) to make withdrawals?
    Imagine two people starting with 2,000 pre-tax dollars to invest at age twenty-five. The tax rate is a constant 25 %, and the capital gains rate is constantly 15 %.One person invests in the ROTH IRA (for 1,500 dollars because of the tax), and one invests in the Traditional IRA. If the annual rate of return for each investor is 8%, who does better in the end if retirement is age 70, exactly 45 years later?

    • ANSWER:
      You’ve got 2 different questions. Capital gains don’t matter in a traditional IRA when you start making withdrawals, no matter what your age. It’s all taxed as ordinary income. As for who does better in the end between a regular IRA and a ROTH IRA, the person with the regular IRA will have more money at age 70, because they invested more each year (,000 for regular IRA, ,500 for ROTH), but once they start taking withdrawals, the ROTH IRA distributions will be tax free, and the regular IRA distributions won’t be. So it’s hard to say who’ll make out in the end, but what they do say is that if you’re expecting to retire and be in a lower tax bracket a regular IRA is better, and if you’re expecting to retire and be in a higher tax bracket a ROTH is better.

  27. QUESTION:
    How much does it cost to open up an IRA account?
    Do banks charge different rates? Is it a rate? or a flat first time fee? to open up an IRA account. Which would be better? Roth or Regular? What’s the difference? Appreciate your help!

    • ANSWER:
      Many mutual funds charge no first time fee, although there may be an annual maintenance fee on small accounts.

      A traditional IRA allows you to deduct the contribution from your taxable income (if your income is below certain limits).

      A Roth IRA permits tax free withdrawls (as long as you abide by the withdrawl rules).

  28. QUESTION:
    Roll IRA into IRA fixed rate annuity, good or bad?
    My husband and I are retired. Our financial adviser suggested we roll an IRA over into a fixed rate annuity.

    What are your views and experiences with annuities?

    We are looking for a safe place to roll the IRA over to with high interest. Do you have any suggestions that I can look into?
    Thank you.

    • ANSWER:
      With all assets at all time low, your life time savings would have probably a taken significant hit. Now is not the best time to liquidate and rebalance your positions. Having said that, “safe places” do not offer high interest at the moment. Government bond yields are at historic lows. You could take a look into TIPS and investment-grade corporate bonds.

      Be aware that fixed rate annuity is expensive for the investor and is lucrative for the sales person. Whether it is right for you and if so, when is the time to do the switch depends on your accumulated wealth and many other factors. You should also consider alternative income-oriented investment vehicles in the interim. Given the recent developments, you should also seriously take into account the credit risk of the financial institution selling you the annuity. Please talk to another financial adviser before doing anything with your hard-earned nest egg.

  29. QUESTION:
    How are Capital Gains treated in a Traditional IRA if one waits until age 59.5 (or later) to make withdrawls?
    Imagine two people starting starting with 2,000 pre-tax dollars to invest at age twenty-five. The tax rate is a constant 25 %, and the capital gains rate is constantly 15 %.One person invests in the ROTH IRA (for 1,500 dollars because of the tax), and one invests in the Traditional IRA. If the annual rate of return for each investor is 8%, who does better in the end if retirement is age 70, exactly 45 years later?

    • ANSWER:
      That’s an interesting scenario. Using my retirement calculator, the traditional IRA would have the largest absolute value at retirement. But the annual payout would be the same either way. The specific amount varies depending on assumed life expectancy, but it stays the same for both IRAs.

      Note that capital gains tax is irrelevant. The Roth payout is tax free and the traditional payout is taxed at ordinary income rates.

  30. QUESTION:
    im 18 years old, should i open a ROTH IRA? anyone know where to find all the rates for them?

    • ANSWER:
      This one, l don’t know!!!

  31. QUESTION:
    what is the best way to pick a bank for an IRA?
    I have to move my 401k to an IRA and don’t know anything about what the best rates are, or which banks are better to work with.

    • ANSWER:
      I recommend using a broker instead of a bank in most cases.

      I use Scottrade, because their are no IRA fees, and it has many mutual funds you can invest in that are no-load and no-transaction fees, and you can also buy stocks for a very low transaction fee of for limit trades.

      If you really want a bank, pick one that gives you freebies for having your IRA there, such as a free safe deposit box, free money orders, free checking, etc…

  32. QUESTION:
    what would be an average Interest rate on a Roth IRA?
    ive heard of compound interest and thought that opening a roth ira would be a good way to make some money in the long run, but can anyone tell me what an average rate on an IRA goes for now a days? ive heard of people talking about 12% or so but if its not that then how can someone accumulate interest that is more than 12%. Thank you

    • ANSWER:
      Right now it’s about 4.5 % . . . maybe you can find up to 5%.
      Using a brokerage account, you could place the funds in other investments – stocks, bonds, etc. Currently the market is “depressed”, but that means it’s the best time to buy.
      Higher risk, but potential for 20+% return per year too.

  33. QUESTION:
    As of today which bank or financial institution is offering the best rate of to open up a Roth IRA account?
    I want to open up a Roth IRA Account, wanted to know which bank or financial institution is offering the best rate, thanks

    • ANSWER:
      A Roth IRA is a type of retirement account, in which you invest your money. The return on investment you receive depends on what you invest in. Many financial institutions charge a one-time set up fee for new Roth IRAs, and an annual fee each year thereafter. But not all do.

      Fidelity Investments has a no-fee IRA. They have a minimum initial deposit of ,500, but that’s is waived if you have 0 monthly automatic contributions.

      T. Rowe Price charges per year for a Roth IRA account. Once your balance goes above ,000, there aren’t any annual fees. The minimum to open in ,000, but they waive that if you contribute at least monthly using their Automatic Asset Builder.

  34. QUESTION:
    How do I know if a Roth IRA or a regular 401K is a better long term investment?
    Both IRAs have advantages and I know that tax rates are not predictable. I am age 54 and I need to know which one is better over the next 10 years to take me into retirement.

    • ANSWER:
      The consensus on Diehards.org seems to be .

      1. Contribute to your 401K up to the Company Match (The Free Money)

      2. Fund A ROTH IRA

      3. Fund your 401K to the Max.

      4. Taxable investment if you have any $$$$ left…lol

      If no Company Match go directly to ROTH IRA
      It is before taxes so all the money you get is tax free.

      Good Luck Gerry

  35. QUESTION:
    What is the benefit of rolling a 401k into a IRA?
    I have a 401k from a previous employer and I’ve understood that rolling it over into a IRA is a good idea, but I’m not totally clear why. Is because you face more penalities the longer the account remains open? When I contacted the company managing my account, they said I could leave it open for the life of the account and that rates where competitive, which I’m certain is to their benefit, but I thought it was a question worth asking. Any help would be greatly appreciated.

    • ANSWER:
      I have a free downloadable book on retirement investing, available in PDF format from my website. Click on my profile and read my info to get the site. Just in case you were interested.

      Now, to answer your question, let me pick an exerpt from my book:

      “There is a type of account, called a Rollover IRA, which is considered the “universal recipient” for any before-tax money. (Actually, a Rollover IRA is a type of Traditional IRA. We just give it this fancy name to denote what most people use it for.) The drawback is that you cannot contribute new money to a Rollover IRA. However, you can consolidate all your before-tax accounts (from previous employers) into one Rollover IRA with almost any investment firm. You now have free reign over how you retirement money is invested. You are no longer bound by the limitations of your former employer’s plan. And if you become dissatisfied with your Rollover IRA, guess what? You can roll that to another Rollover IRA with another investment firm. Just keep rolling, and you pay no taxes.”

      “I highly recommend rolling your money from past employer accounts into a Rollover IRA or your current employer’s plan. Do not let that money sit with your old employer. In order to release that money, you will need approval from human resources. This could be tricky if you left years ago. Human resources at your old job may look at your paper work and say, “who is this?” To avoid hassles down the road, please rollover money soon after you sever employment. Just think, once you get money into a Rollover IRA, you no longer need human resource’s permission.”

      “Any money from previous employer plans should be rolled over to your current employer’s plan or a Rollover IRA. Personally, I like the Rollover IRA since you can choose whatever firm you want, as well as the option to convert it to a Roth IRA. You will eventually have all your money in an IRA, anyway. Very few people keep their money in their old job’s plan while in retirement. Do you already have a Rollover IRA, but with high-cost funds? If so, use a direct rollover to get that money into a firm with low-costs funds like Fidelity, Vanguard, or T. Rowe Price.”

      The beauty of a rollover IRA is that you can pick an IRA with almost any firm you want and can get your money into low-cost funds. Also, you have the option of eventually converting it to a Roth IRA, if you are willing to pay the taxes this year.

      I don’t think you would “face more penalties” based on the length of time you have the account open. If you are referring to tax penalties, realize that you cannot withdraw money before age 60 in either a 401(k) or an IRA without incuring a 10% tax penalty.

      If you do decide to rollover, please use a Direct Rollover. With direct rollovers, the provider of your old account sends the check directly to the provider of your new account. The check is made out to the trustee for the new provider. With direct rollovers you never see the check and are not subject to the 60-day rule or the mandatory 20% withholding. If something goes wrong with the transfer, the money remains with the old account and you can try again. Yes, it’s frustrating if this happens, but at least you don’t run the risk of incurring a taxable distribution. Keep in mind that direct rollovers are not always smooth. Mine took 3 months. You may need to moderate the process by making calls to both providers. Some providers hassle you because they don’t want to give up your money. Despite any hassles, a direct rollover is far better than taking all your money as a taxable distribution.

      Hope this helps some. Download my free book if you want more help. Chapter 24 addressed the issues of retirement accounts.

  36. QUESTION:
    Question about interest rates on IRAs?
    When you go to bank-they usually quote a low interest for an IRA. They always say that because of taxes that you are paying that you are basically getting the equivalent to the higher interest rate on a regular account.

    For example, they say that 3 percent on an IRA is the equivalent to 5 percent on a regular account.

    How do they figure out what percentage on an IRA is equivalent to the percentage on a regular account?

    • ANSWER:
      You should calculate all of your interest rates(Yields) to the same standard. In this case you should use a tax-free yield.

      The rate that they are giving you for your IRA is alreadly Tax-free at 3% so you need to calculate what your rate will be for the Taxable yield.

      Take the 5% and subtract out your total tax rate. I assume it is around 28%-35% so for my example assume 28% taxes, (1 – tax rate is what you will have after taxes or 1-.28 = .72).

      At 28% taxes (.05 X .72 = .036) or 3.6% Tax-Free Yield equavalent on the 5% taxable yield.

      So now you can do your comparison.

      If they are offering you 5% yield but they still can take taxes out then you will only be keeping 3.6% of your yield after taxes at 28% rate.

      But that 5% even with taxes being taken out is a better rate then the 3% that they would offer you tax-free in your IRA.

      In other words if the going taxable rate is 5% don’t take less than 3.6% for your IRA.

      Or if it helps put real money into the equation.

      ,000 @ 5% for 1 year will give you back

      then you pay taxes on that @ 28% tax rate.
      X .72 = total return after tax.

      Compare what they would pay you for the 3% with no taxes taken out.

      ,000 @ 3% for 1 year will give you

      I hope this helps, if not, or is confusing please let me know.

  37. QUESTION:
    How and where to set up a Roth IRA?
    I am 23 years old and a recent college grad and wanted to get some info on setting up a Roth IRA. Should I do this at my bank (PNC Bank) or somewhere else. Are the rates and returns similar for anywhere I would go? What is your best advice on doing this? Good idea? Any other places to invest that would get a better return in say, 30 years or so than a Roth? Your input is appreciated.

    • ANSWER:
      Your best bet is to invest with an ” investment company”…Fidelity, T.Rowe Price, Vanguard… their main reasons for being IN BUSINESS is investing and making money grow.
      Take a few hours to look at their websites…find out what mutual funds belong in your IRA…( conservative at first?.. do you want to be aggressive for awhile?..do you want to be active or let it lay for 35 years? )
      I use Fidelity and E-trade and invest ( IRA’s ,401′s, rollovers, for myself, wife, daughters, and a couple of friends) and what I have learned is: I should have known about this approach when I was younger!!!
      The Roth is your a great choice for your first step… it is not an ” investment” by itself, what you choose to put in the Roth is your real investment….
      If you check into http://finishrich.com
      …and click on the ” latte calculator” you can get an idea of how much you can gain over different periods, saving different amounts and getting different returns…
      Please…get familiar with what’s available to you…and get a ROTH every year….find out how to up your returns with a little on-line moving…if it takes a couple of nights or even weekends, you will never regret being informed about ” investing”…..it’s something that should be taught in every school at every level …Teach people to take care of themselves and their futures…improve the lives of couples and families…. And we wouldn’t have a zillion people trying to live off Soc. Sec.
      Good luck
      P.S. I hope you get to read this part, I’m adding it much later…BUT, I didn’t want to forget to STRESS that a ROTH IRA is probably THE very best investment for an average American..”.tax-free income” an unbelievable concept!!!
      You’ll get my drift after you pay taxes on EVERYTHING for the next 30 years.

  38. QUESTION:
    What options do I have for the funds I have put away into a Roth IRA?
    I have already set up a couple IRA CD’s before the market went too far south knowing I wouldn’t touch the money for a long time. But what are some other options with higher rates of return?
    I have already set up a couple IRA CD’s before the market went too far south knowing I wouldn’t touch the money for a long time. That’s obviously the safe bet, but what are some other options with higher rates of return? Can it be used in Mutual funds? Stock?

    • ANSWER:
      The types of investments you can purchase within a Roth IRA are almost limitless, depending upon where the account is held. If you have it at a regular bank, which is what it sounds like, the CD’s are probably about the only option, unless the bank also has a brokerage department.

      If you transfer your IRA to a brokerage firm, or the brokerage-arm of your bank if they have one, you can have the ability to purchase stocks, bonds, mutual funds, and all sorts of other fancy securities within your Roth account.

      If you consider yourself a “savvy investor”, you could consider moving your account to a company like eTrade where you can manage your own investments. If you prefer to have personal guidance, you can ask your banker if they have a brokerage department they can refer you to, or try another full-service broker in your area.

      Advantages & Disadvantages?
      CDs:
      + Predictable Returns
      + FDIC Insured
      - Low rate of return
      Securities:
      + Potential for significantly higher returns
      - Not FDIC insured. May lose value.

      Best of luck!

  39. QUESTION:
    At age 70&1/2 a person must start taking money out of an IRA. At what rate must the money come out?

    • ANSWER:
      The IRS has a table that tells you, for a given age, what the distribution period is. (Thats essentially an actuarial guess on how long the IRA holder is expected to live.) You divide the value of the IRA by that number to determine what the minimum distribution is for a given year. You can get this at the IRS website.

  40. QUESTION:
    What is the IRA’s approval rating in Ireland?
    I was just wondering if the Irish people support the Irish Repbulican Army today. If so, how many percent of the population?

    • ANSWER:
      In general they are not supported in the Republic or the North, i don’t know an exact percentage but for the majority people here do not approve of them. The IRA at one stage stood for something, but nowadays they are nothing but drug dealing, murdering thugs with backwards views
      They cause nothing but problems.

  41. QUESTION:
    If I convert to a ROTH IRA and choose to spread the taxes over 2011 and 2012, what are the tax rates I use?

    • ANSWER:
      If you choose to use this method for the tax year 2011 income tax return that you will file in the year 2012 and the tax year 2012 income tax return that you will file in the year 2013 the taxable amounts will be added to all of your other gross worldwide income and be subject to the federal income tax at whatever the marginal tax rates may be in the future years to come.
      Can you make a good guess at this time of what the income tax rates may be in the future years to come.
      Hope that you find the above enclosed information useful.

  42. QUESTION:
    Is investing in a long-term IRA (higher percent) a better investment than a short term one?
    Does it make sense to get 2.8% for a 3 year IRA and risk losing much of the advantage due to inflation and or better rates in the near future? Or do shorter term plans make more sense in this economy?

    • ANSWER:
      we are talking an ira so this is your retirement which you will not need for a few years so go for the long term!!!

  43. QUESTION:
    how to claim loss on my tranditional ira account ?
    I have trade some stocks in my traditional ira account in 2007 and have some short term gain. I am also holding a stock for a few years and still a loss in my ira account- I am planning to sell it. Do I have to sell it same year to net out my gain in my portfolio ? what is the tax rate for capital gain in ira account ?

    • ANSWER:
      Gains and losses within an IRA have no tax consequences and aren’t reported. When you withdraw money, the amount withdrawn is taxed as ordinary income to you.

  44. QUESTION:
    What is the tax withdrawal rate on a Roth IRA? I want to withdrawl 00.?

    I have had it for 5 years and I’m under the original contributions. 35 yrs old.

    • ANSWER:
      So many answers, some right, some wrong. If you’re under the original contributions, that is, the Roth is worth less than what you put in, your withdrawal will be tax free. In fact, you could deduct the LOSS if you liquidate your entire Roth IRA, as a miscellaneous itemized deduction, subject to a 2% of adjusted gross income floor.

      The ordering rule for Roth withdrawals is contributions first.

      Hope that nails it for you.

      On behalf of all of your responders, who take the time and effort to help questioners in this free Yahoo! community, THANK YOU in advance for taking the time to choose your “Best” Answer. We really appreciate it.

      DISCLAIMER: While the information in this response was obtained from sources believed to be reliable, its accuracy and completeness cannot be guaranteed. The opinion voiced in this answer is for general information only and it shall not be construed as tax, legal, or investment advice for any individual. Questioners are urged to consult with their professional advisers before making any decisions regarding their finances.

      Bradley Mann, CFP®, EA
      Certified Financial Planner Practitioner
      Enrolled Agent | Admitted to Practice before the IRS

  45. QUESTION:
    What is the percentage rate of a Roth IRA and traditional IRA?
    Sorry, I kind of know what is the difference but I don’t know what percentage rate do each get. I am a noob to this.

    • ANSWER:
      There is a broad range of investment options for both ROTH ad traditional IRAs. The difference is that you pay taxes before you contribute to a ROTH IRA, with a traditional IRA, you get a deduction that means your deposit into the IRA was not taxed. At retirement you owe taxes on distributions from the traditional IRAs. However with the ROTH you already paid taxes, so the ROTH IRA distribution is tax free.

      What your earnings are will depend what you choose to invest in. For someone getting started a low-cost broad market index mutual fund is a great option.

  46. QUESTION:
    Why are bank CD rates so low at brokerage houses?
    Interest rates on CDs offered through brokerages are so much lower than the same CDs offered through banks. Why is that? If they were in a regular account I would switch to a bank but it is in an IRA account and not so easy to switch funds back and forth. At this stage want to diversify in IRA account and not keep everything in stocks or bonds.

    • ANSWER:
      Actually your broker should be able to find you the best rates But the rates are all low why not but it in a stock or bond with 6% yield

  47. QUESTION:
    What exactly is a Roth IRA and should I start putting money in it? Im 22?
    Im 22 and just started my first “real job” right out of college. About to finish paying off my student loan and was looking at also investing in mutual funds and a Roth IRA. What all is involved with a Roth IRA? Does it have its on interest rate or whats the deal?

    • ANSWER:
      A Roth IRA is a tax advantaged account that allows you to put money into it after taxes, and allows the money to grow tax-free from that point forward. Therefore, as your investments grow, you will not have to pay taxes on that money ever again. The only potential downside is that once the money is invested in a Roth, you cannot take it out until you are 59.5 years old (government regulation). But, there is a huge advantage to having your money grow tax free.

      And once the money is in the Roth IRA account, you can invest in anything you want – stocks, mutual funds, bonds, etc. It is the perfect savings tool for someone in your situation.

  48. QUESTION:
    what is best ira rate?
    i have a 401 k that i have to move because i left the company i am thinking of starting an ira account and want to know where i can find the best rate of return on average?

    • ANSWER:
      There is a direct relationship between risk and rate of return. The riskier an investment is, the higher the rate of return. This is because the entity which issues the bond or stock must pay a higher rate to attract people to buy their stock or bond. These risks include the company going bankrupt, as was the case with Chrysler. The stock could also be speculative. For example, a company develops a new product. Nobody knows whether the product will sell or whether it will be a dud. In the case of bonds, the company may suddenly stop paying dividends. This happens frequently, although only people who keep up with the stock market are likely to be aware of that.

      An IRA is like a shopping cart in the supermarket. You, the purchaser, select what investments you want in your IRA. You can select speculative stocks, corporate bonds, municipal bonds, stocks or bonds of well established companies, or a combination.

      I suggest you go to the library and get a book called Investing For Dummies by Eric Tyson. For Dummies is a publishing company. They contract with authors who are both experts in their field and have the ability to communicate clearly to beginners.

  49. QUESTION:
    RMD on Beneficiary IRA after Rollover/Change in Trustee?
    I understand that when I rollover my beneficiary IRA that the RMD for 2007 must be taken first. My question is, must the RMD’s continue with the new institution/IRA account after the rollover. I am doing the rollover because the IRA-CD interest rates at the current institution are less than what I can get elsewhere. Please advise. Thanks.

    • ANSWER:
      No.
      You can transfer the IRA to a new financial institution.

  50. QUESTION:
    What is the average annual rate of return on a Roth IRA today?
    I’m looking to figure out what the average annual rate of return on retirement savings accounts. Any info helps! Thanks!

    • ANSWER:
      A ROTH IRA is simply a tax shelter for retirement accounts, its not a type of investment. Same is true for traditional IRA accounts, 401k’s 403b’s SEP’s, and other retirement account types.

      WITHIN the IRA or similar account, you can choose almost any investment type. One person might open a ROTH IRA and put their money into a savings account earning a quarter percent interest, but another person might put money into a ROTH IRA by investing in small cap mutual funds and earn 30% on their money (or lose 30%).

      The “ROTH IRA” is not a type of investment, its a type of legal tax shelter for retirement savings.