Iras For Dummies

Frequently Asked Questions

1. QUESTION:
   I don’t know anything about Rother IRAs or how it works, but I know it’s beneficial for retirement. So….
   how do I begin?

   where to get one?

   how does it all work?

   are there any books out there like IRA’s for Dummies? lol I really don’t know anything about it.
   i meant ROTH

   • ANSWER:
     Roth IRA’s can be opened at most financial institutions. The way they work in a nutshell are. Money put in is already taxed all interest is tax free so when you retire you don’t get taxed on any distributions.

     With Traditional IRA’s the funds deposited are tax deductible, meaning you can claim the contributions on your tax return and you get a tax credit, when you retire and start taking distributions you pay taxes on the principle and interest.

     The one you choose now deepens on you current tax bracket. Seek advice from a tax account to make sure you are making the right decision.

     The financial institution should also have literature on both types. Good Luck!!

2. QUESTION:
   IRA or stocks for dummies?
   Me and my husband just got married. He has a real job but plays the stock market, puts money in his IRA, and knows alot about business. My talents are in other areas. Is there a book out there to bring me up to his level regarding financial moves? I hate feeling so stupid when it comes to this. He takes care of it all but I wouldn’t mind being more knowledgeable and having a say in what goes on.

   • ANSWER:
     Start with Personal Finance for Dummies.
     You need to understand all areas of your finances first.So you can save more money to invest later after you have an emergency account.
     About 3 months of wages in a money market account so you won’t have to cash out your IRA when the car breaks.

3. QUESTION:
   buying an ira?
   I’ve never bought an IRA. There’s so much information out there and it’s confusing … who to buy it from, how much an ira costs to establish, how much to put into an ira yearly. Can someone give me an “IRA for Dummies” paragraph with your advice on buying an ira. thanks!

   • ANSWER:
     Go to Yahoo Finance and click on “Personal Finance.” There’s a section that explains IRAs.

4. QUESTION:
   Can I buy into more than one mutual fund?
   I am an investing dummy..Just know I need to save for retirement….I have a Scottrade account with a ROTH, and currently only have added funds to the IRA to fund CAIBX. Can I add additional funds to my account and buy into other mutual funds in this same IRA? If so, any one that anyone would suggest for a moderate risk?
   I am very good in my profession, but please explain as if you were explaining to a 12 year old, as I am lost in your explanations

   • ANSWER:
     Yes you can buy more than 1 mutual fund and since your primary concern is investing you can attain good asset allocations by investing in more than one mutual fund.

     Yes you can expand your IRA o ROTH IRA with additional funds.

     Without having more information about your personal information, such as age, current income and other data such as risk tolerance, martial status, and demographics it would be very inappropriate for me or any other responsible person to provide specific investment information in this type of media.

     Also it would not be appropriate for any professional to provide any specific investing advice based on the information provided. And it would not be prudent for you to accept any investment advice from unknown individuals here at YA or a similar media.

     There are many people just like you that are, or were looking to invest and those that did bought Mutual Funds and/or Exchange Traded Funds (ETFs). One purpose of mutual funds is to help investors like you, who are either just entering the investment world or who have no investing experience. Once you feel you at least have an understanding of investments you should look into ETFs which are similar to mutual funds but are traded on the exchanges.

     Mutual Fund companies as well as ETFs have an entire array of products many will fit your needs. Read about the various products and in doing so you will be getting investment ideas and at the same time educating yourself about investing.

     You could also contact the funds companies for more information. I have found that Vanguard (http://www.vanguard.com/) & Fidelity Investments (https://www.fidelity.com/)
     can meet your needs for mutual funds. The service and information they provide is all free and you will find it helpful. Or you can call Scottrade and speak to one of their Reps that specialize in fund products, once again this service is free.

     Good luck on your journey

5. QUESTION:
   Need help with investing, stocks (Mutal Funds, IRA’s etc)?
   Hello, I live in the US

   What do you recommend for investing? I have no clue on how stock or anything works. Is there a good site handy which explains in more detail? Like Stocks for Dummies type of thing?

   Saving accounts are not cutting it – What will turn a better profit for my savings? Should I go with a Credit Union instead of Bank of America? Please help – What are you doing and how has it worked for you?

   Thanks

   • ANSWER:
     To Start Investing
     It takes a long time to learn the stock market and for someone that wants to start investing in the market needs to decide what risk level he wants to take. CDs backed up by the government has about 3-4% annual return for the long term with a low risk. Bonds or Bonds Funds has about 5-7% annual return for the long term with a medium risk. Stocks or Stock Mutual Funds has about 8-10% annual return for the long term with a high risk and are more volatile than Bonds. Usually the more risk you take, the more return you will have, but not always. To see the Return vs Risk go to: http://i1223.photobucket.com/albums/dd520/jjmarcantell/RiskvsReturn.jpg If you can’t see the Return vs Risk table, let me know and I will send it another way. The stock market is basally made up of stocks and bonds. Investment managers pick a group of stocks to make a mutual fund or a group of bonds to make a bond fund. They even put a mixture of stocks and bonds together and call it Growth & Income Fund.

     1- Mutual Funds: I like mutual funds because they have a group of stocks, could be around 100+, invested in different sectors, and manage by a professional. Managers have lots of schooling for investing in stocks, around 8 years. So I think managers can pick stocks better than me. There are lots of different kinds of mutual funds that does not charge any fees to buy it’s shares and they are called Noload Funds. There are also some funds called Load Funds that charge 5% of your investment. But what I don’t like is the fact that most funds has trading restricting and you may not be able to trade more than 4 times a year. That’s because it makes it hard for the fund to make a good return if there is to much trading in the fund, causing the fund manager to make more buys and sells. Mutual funds are meant for long term investors.
     2- Stocks: Stocks is more volatile than funds unless you spread you money in about ten different sectors and know witch sector will do best. And stock trading restricting is only a few days and that’s something that I like. If you own stocks, you need to keep up with all the company’s business so you don’t get stuck with a bad stock.
     3- ETFs (Exchange Traded Funds): ETFs are like a mutual fund but trades like a stock and that is my main reason why I like ETFs. There are some ETFs that represents Index’s. An Index is like S&P or DOW. Index’s operate just like a mutual fund with a group of stocks in deferent sectors, manage by professionals. You can’t buy Index’s because they are not for sell. A company owns them. But you can buy a mutual funds or an ETF that has the same stocks as the Index they represent. There are a lots of different kinds of ETFs for someone to choose from. Some have 1x leverage, some have 2x leverage, and some has 3x leverage. There are some that represent almost every kind of sector.

     You can find several good brokers that charge .00 and under, per stock trade and no fee on Noload Funds. Most broker websites have good research tools. Some popular broker websites are Fidelity, TD Ameritrade, E-trade, Scottrade and others. I think you need a min. of 0 (some sites ,000) to open a broker account.

     I have finally found a way to help me choose the right stock at the right time. If you want to follow and learn from a retired individual that has 24 years of stock market experience, click my picture and read “About Me”.

6. QUESTION:
   Double taxation during Roth IRA conversion.?
   In year 2004 when I was a dummy I opened 00 account in traditional IRA by mistake as I had already paid tax on it and I was eligible for Roth IRA as my income was less than 0000.
   Now come 2011. I converted that amount which is (00 + 0 interest ) 00 to Roth IRA account. In total Rollover IRA I have 000 but when I am trying to file a tax, it is calculating stupid basis as 2 non taxable and taxing 28 again.
   What I do not like that there is no literature on this double taxation issue on IRS as actually many would face this problem.
   Is there any way or Clause in 1099-R that I can select to avoid double taxation.
   I already had paid tax on this 00 so why I should not be just tag this as Roth account and correct a mistake when guy similar to me who would have opened Roth account would not be taxed again.

   Cardron says: There should be no double taxation issue with this conversion. Unless your original IRA contributions were nondeductible contributions,

   >> I am pretty clear above when I said ” I had already paid tax on it ” is that these were after tax dollars in traditional IRA.

   Jan, I am not converting all 60000 as these 60000 are taxable. I am converting only 3500 to Roth but its still making me pay tax on 28 again.
   Cardron,
   I was not able to take deduction in year 2004 as my wife was working (actually she worked just couple of months)
   Please read this article

   http://www.biblemoneymatters.com/should-you-convert-non-deductible-ira-contributions-to-a-roth-ira/

   if you see section uh-oh thats my and many people’s case not highlighted much by irs double taxing.
   so you have 000 in IRA deductible
   and 00 in IRA deductible and you try to convert that 3000 to Roth you can not, it will allow you only 3000/60000 * 3000 amount nontaxable rest will be double taxed. To save tax you need to convert everything but then considering inflation in future you will be unnecessarily paying tax on 000

   • ANSWER:

7. QUESTION:
   Help with my options for a Roth IRA?
   Ok, so I started a ROTH IRA today with Ameritrade. I funded it. Now I’m at the point of trade. Keep in mind I’m a newborn to this, I was wondering if I divided my funds between 2 ETFs am I considered “Diverse” until I put more funds in to buy other securities such as bonds, cds, mutual funds(which I will probably invest less because I’m in my prime(late 20s)). I am researching through the ameritrade site and investing for dummies by the way. Any other advice for me? I’m chosing to go with the ETFs chosen by Suze Orman. My funds are equal to 00. Thanks in Advance.
   I’m going to do lump sum investing, once a year.

   • ANSWER:
     The answer lies in how “diverse” the makeup of the ETF is. Is it in a narrow range of a certain market sector, or a broad market sector?

     Narrow might mean it’s an energy related ETF. Broad might mean it has holdings that are in energy, retail, housing, metals, household goods, media, manufacturing, technology. If you have narrow holdings you are more likely to have up and down swings because you are dependent on one part of our economy.

8. QUESTION:
   We are filing taxes jointly. My wife’s employer has retirement benefits, but she could not avail it until 2007
   My wife got her SSN only in Jan07 even though she started working in Nov 06(with a dummy SSN). Without an SSN, a retirement a/c could not be opened and hence she could not contribute in 2006. In that case, will she be eligible for an IRA investment for 2006? Our AGI (filing jointly)is less than the prescribed limits and is eligible for an IRA.

   We would appreciate a clear response.
   Thanks,

   • ANSWER:
     Since your adjusted gross income is under the phase out limits of an IRA it doesn’t matter if she particiapted in a retirement plan or not.
     You both can make a deductible IRA and also claim the retirement savings credit.
     Being in a retirement plan at work only matters if you are above the agi limits for your filing status.

9. QUESTION:
   Laid off, what are my options with my 401k?
   I am a 27/F and have been contributing to my 401k since I was 23. I do not understand investment lingo very well so PLEASE feel free to dummy down the vocabulary as much as possible.

   I was laid off four months ago due to the thriving economy and have to make a choice on what to do with my 401k (approx value of K). I like the company that has been handling my 401k while I was working. However since I have been laid off, I have been paying a higher maintenance fee because my account has not been moved into an individual account.

   What are my choices? I do not want to cash it out (take the money and not reinvest it). I would like to keep the investments I have made (knowing the market will rebound before I retire). I know that the money I have invested is pretaxed. I guess I like this option because I know I won’t loose anything I have invested.

   I have heard that I can cash out my stocks & mutual funds then buy again with some sort of other investment. (I feel if I cash out I’m somehow loosing something I have invested). This is where I get confused. I’m not sure I know what that means. Is that considered a roll over? What’s a traditional IRA and a Roth IRA and what are their similarities and differences? (It should be obvious by now that I really don’t have a clue here.)

   No one close to me has a clue about this sort of thing. I would like advice from people who have nothing to financially gain from me. The only advice I was offered was to find out the maintenance fees for an individual account at the current place my 401k is at, at my bank (nationally known), and at my financial group. Choose the one who will somehow keep the most of my money (depending on my options) and the lowest maintenance fee. Was that good advice?

   PLEASE HELP!

   • ANSWER:
     Since you don’t want to cash out (wise if your situation is sufficienty comfortable, if for nothing else but the shock to your system when you figure your taxes next year), you might not need to do anything. Otherwise, if you must, it is called a “rollover”. The customer service people at whichever bank or mutual fund will help you. It isn’t hard, but they will be throwing the terms at you anyway, they are required to. Listen calmly, and then simply ask when they stop for air (they will be in as much a hurry to get through it as you will be), “Does this mean that my old account is now in the new account approximately like it was at the other company?” If they say yes, then you made it.

     There is so much competition that if you stay at a big name, and your account isn’t huge (if you had the kinds of jobs that would make your account large, you probably would have also learned the lingo along the way) then you will probably do okay. Look for the important words “no load”. This means there will be no sales fee, coming or going.

     Also the difference between a traditional IRA and a Roth IRA is whether you want to pay taxes on the money now (Roth) or in the future (traditional). Here is one possibility: http://www.scottrade.com/ira/compare-IRA-roth-traditional-rollover-sep.asp. Read what they have and if you are comfortable, see if there is a branch near you http://www.scottrade.com/online_brokerage_firm_locator/ or call the 800 number on that page. They have an excellent list of mutual funds to roll your money into and the helpful brokers are good and not greedy.

     This link to Ishares.com may be helpful. I like them because they are minimally managed funds that buy or sell just like stocks, so you have no extra or substantial fees. For instance, if you had a simple stock fund at your 401, you might look at IWW, the Russell 3000 Value Index fund (http://us.ishares.com/product_info/fund/overview/IWW.htm) or if your current holdings were in bonds, you might look at AGG, the Aggregate Bond fund, http://us.ishares.com/product_info/fund/overview/AGG.htm. Look around and see what makes sense to you.

     The trick is that in the long run, investing in a range of solid companies will do wonders for your investment value. How to determine what among choices is almost like dating. Some are gems and some are dogs and you will get a feel pretty quick as to which one might likely be when you spend some time watching and asking questions. You’ll do fine.

     Added:
     I work at a nonprofit and we recently changed 403k administrators. We used TIAA-Cref. I rolled over most of the funds to a couple of available funds doing like things with the new company and kept one of my TIAA accounts as is. The only thing I had extra to do was answer the questions from the paperwork reviewers — since everyone else was losing 50-60% and upwards, how did I only lose 12% last year? (I saw it coming and rearranged my holdings).