Roth Ira Interest Rates

Frequently Asked Questions

1. 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.

2. 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.)

3. 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.

4. 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!!!!
   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.

5. QUESTION:
   Which savings account has a better interest rate: TSP, Roth IRA or 401K?
   Is it good to have all three?

   • ANSWER:
     You misunderstand. They are not “savings accounts.” Those are simply different types of retirement accounts – not specific investments. They do not have fixed “interest rates.” It all depends on what specific investments are held within the accounts. That is up to the account holder.

6. 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.

7. QUESTION:
   What Roth IRA company has the highest Compound interest rate?
   I’m looking for somewhere to put my money and build it up as well. Help?

   • ANSWER:
     For information on what a ROTH IRA is and whether or not you should get one visit my Blog.

     http://familymanfinance.blogspot.com/

8. QUESTION:
   I just opened a ROTH IRA but the interest rate was .01%….?
   I was really confused by the rate since I had heard Suze Orman say that you can have Million in your ROTH IRA if you put 0/month in for 35 years. I am 25 and starting in February, will be able to put 0/month in my ROTH IRA. I’m confused about what to do with that 0/month because the banker that just set it up for me said that I could leave it alone at .01% or put it in mutual funds and annuities and such but I don’t really know what that means, and the last thing I want is to be 60 and have all my “planning” be a complete waste and have no money in the account. So if someone could actually explain to me what to do with 0/month, please let me know.

   Sarcasm and such is not going to be helpful. I know it makes you feel better about yourself, but please….take it somewhere else.

   Spammers will be flagged.

   • ANSWER:
     Yes, it sounds to me like you are in a money market fund. That is way too conservative for someone your age.

     My short answer is that you need to invest your Roth IRA into equity mutual funds. My favorite fund companies are Vanguard, T. Rowe Price, and Fidelity. All have an excellent selection of funds, low fees, great websites, and outstanding customer service.

     If you’re not sure what type of equity fund to invest in, start simple with an S&P 500 fund – this will spread your investment across the 500 largest U.S. companies (think Coke, GE, Disney, Microsoft, etc.). Note that equity funds fluctuate up AND DOWN over the short term, but historically they have been the best long term investment, averaging around 9-10% per year. If you average 9% per year, your monthly 0 will grow to about 0K after 35 years. But remember, you’re going to be increasing your monthly investment amount as you start making more money.

     After you set up your account, you should educate yourself about investing – it’s really not that complicated, and this information will serve you VERY well throughout your life. Talk with a friend or family member who knows about investing or – better yet – pick up a “For Dummies” or other beginning investment guide at any bookstore or library.

     BTW – it’s great that you are thinking about investing for retirement at your age. The longer you wait, the more difficult it becomes. You are doing yourself a HUGE favor by starting now.

     I hope that helps. Good luck!

9. QUESTION:
   Investing under a Roth IRA?
   So, lets say I put in ,000 into a European Index Fund that in 1 year goes up to ,000. Does the Roth IRA interest now calculate ,000 or the ,000? Does it do the total assets in my Roth IRA? I am trying to explain it the best I can. Well, lets say you made a great return on your stock exchange like 200% yield under your Roth IRA…does that new amount of money get factored into the interest rates of your ROTH towards retirement?

   • ANSWER:
     You dont really earn “interest” as in the sense of a bank paying you interest for the use of your money. Roth IRAs invested in the stock market via things like mutual funds have a rate of return depending on the funds performance.
     Yes if you were to invest 5000 which grew to 6000, you now have 6000 in assets. But you are not “garateed” to earn more money because you have 6000 in assest. You basically own the same number of shares that you did at 5000, they are just valued higher now.
     With the ups and downs of the stockmarket you could invest 5000 on year, it grow to 6000 the next, and fall to 5500 the next. Roth IRA invested in mutual funds (good aggressive groth/income/international funds) will do great over the long term.
     But know that your not making a standard “interest” rate for your money, it is all based on the performance of the fund.

10. QUESTION:
    Roth IRA compound interest?
    we talk of roth ira as compounding benefit. but, if we invest in stocks we get say minimum 8%, but there is no compounding. if we invest in CD’s or bonds we have compounding but cheap 3-5% interest rate. so, why does everybody say take the benefit of compounding if we get 3-5%; instead of stocks. Am i wrong in my calculations. please explain.
    Thanks everybody for answering. It cleared some of my questions.

    • ANSWER:
      An IRA is just a type of account. Within it, you can invest in stocks, funds, bonds, CDs, etc. The “compounding” effect is because your earnings are reinvested.

11. QUESTION:
    Should I pay off school loans with a 7.25 interest rate with all the money I have in my Roth IRA’s?
    I’m 26, going back to college but almost done. I am going to end up with about ,000 in debt when I graduate with Bachelors. Should I pay off some of this school loan debt with all the money I have in my Roth IRA?

    • ANSWER:
      I disagree with themurp. If you withdraw money from IRAs… which is a bad idea period… you will have a 10% penalty, plus tax. You avoid the penalty ONLY when you use the fund to pay qualifying expenses. Current student loans do not qualify.

12. QUESTION:
    What is a realistic return and interest rate on a Roth IRA in NYS?
    I don’t know that much about IRA’s but was wondering if it was better getting a 5K Roth IRA or putting 5K into a CD with a return of 5%? I live in New York State.
    So far, the first 2 responders gave me EXCELLENT ANSWERS. But, if the bank is going to try to sell me their junk, then where do I go where I’m not spending all my ‘profit’ on fees from say an investment corp?
    BTW: I’m 30 going on 31, leaving grad school in the science field, don’t have a job lined up and chances are will be working on short term low pay post-docs for the next 10 years.

    • ANSWER:
      Well, you need to figure out what your financial objectives are for the money. That will determine whether you should be investing short term or long term.

      I think given your situation, I might try to do both. Put some money in a Roth IRA (say k) and put some in a CD. Vanguard, Fidelity and Schwab are some good places to open a Roth IRA account. A good mutual fund (or an S&P 500 index fund) should be able to make about 10% a year on average over the long term (10 years). It’ll also lose money in about 3 of those 10 years.

      And you never know what the future will bring. If you’re doing low paying post-doc research in 10 years, I’d be surprised. I know someone who got his Ph.D in Chemistry and retired at 35 (by investing well). Of course, if you were to participate in some great scientific breakthru, that would be its own reward.

13. 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.

14. QUESTION:
    Where can I open a Roth IRA so that I can both trade stocks and make a fair interest on idle cash?
    I would like to be able to buy and sell stocks with a reasonable commission ( or less). I would also like my cash to make a decent interest rate when it is not invested in the market. Finally, I would like to be able to buy stocks quickly with my idle money. If there is a long transfer delay it won’t work. Thanks for the help in advance.

    • ANSWER:

15. QUESTION:
    IRA ROTH? Is this a good interest rate?
    I just turned 18 years old. I am planning to start an IRA ROTH because I heard the earlier the better. I am part of the Navy Federal Credit Union. I want to start with the 7 year certificate that requires a 00 minimum deposit and offers a 4.10%. I might start with the 1 year special easy-start certificate that requires a deposit and offers a 3.25%. Are these good interest rate? If not, tell me an good rate and from what company.

    • ANSWER:
      i assume these are CDs you are talking about? i would suggest you stay away from the 7 year certificate. right now interest rates are low but the economic experts are predicting rates will start going up and you don’t want to be locked in to anything for 7 years.

16. 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.

17. QUESTION:
    what is the average interest rate you will get on a roth ira?

    • ANSWER:
      There is no average. Totally depends on what you choose to invest it in. An IRA is not a specific investment – it’s just a type of account that holds investments within it.

18. QUESTION:
    BEST ROTH IRA rate!!?
    i am trying to invest in a Roth IRA, but i don’t know where to find the best interest rate on one.
    PLEASE someone help, i have no idea where to start!
    thanks

    • ANSWER:
      You do not understand IRAs. See here: http://www.ira.com.

19. 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.

20. QUESTION:
    Roth IRA Certificate of Deposit in international bank?
    Can I put money earned in US into a Roth IRA Certificate of deposit in an international bank ?
    Reasons –
    1) i am happy with a lower but steady bank interest rate on my retirement funds.
    2) i don’t like bond funds. I would like to buy a 10-15 yr maturity CD and have peace that i wil get the same interest rate.

    Why international ?
    - because of higher interest rates.

    Is it possible ?
    Is it possible in an indian bank (i am interested since i am a citizen of india working in US) ?

    • ANSWER:
      If an Indian bank offers the product, then you can do that. I know that US banks offer ROTH IRA deposit accounts.

21. QUESTION:
    Are there any whole life insurance / Roth IRA options similar to Colorado Banking?
    I recently spoke to an investment broker about an option offered by Colorado Banking that offers an IRA with a guaranteed interest rate where the amount you put in (0 per month) goes toward a 80,000 whole life insurance plan and also into an IRA that would return 319,000 at the end of 45 years. I’ve done the math and it does work itself out, but I’m curious if there are any companies that compete with the same type of plan.

    • ANSWER:
      Woah. Sound like you are being rip off. I don’t know how much you are spending on the whole life insurance, but I bet you are spending at least 0 on it. And what interest rate are you getting on your IRA?

      I have a 20 year term policy with 0k coverage at age 30 and spend only /month on it. I also put in 0/month into a Roth IRA and with an average rate of return of 10% over the 20 year period, I would have about 6,278,

      But if I was in your situation and invested difference of 0/month for the next 20 years with a rate of return of 10%, I would have ,883. In 45 years, I would have .2 million. Or if at the end of the term, I increase my contribution from 0 to 0/month and continue to invest for the next 25 years, I would have about .3 million. Yes I know 10% is not guaranteed, but with the mutual funds I seen and currently have, they have average out 10%-14% during the last 25 years (even with the recession we are in right now!)

      Are you sure you still want to do business with that bank?

      By the way, I have life insurance and my investments at Primerica Financial Services. You should check them out. If you don’t like the company, at least get a financial needs analysis which is a helpful financial guide to help you reach your financial goals. They do it for free.

22. QUESTION:
    Roth IRA, how much can expect to make?
    For those of you who have a roth IRA. What kind of interest rate can I expect?
    how about a mutual fund then? or stocks?

    • ANSWER:
      A ROTH IRA is simply the holder. Within that ROTH you can invest in thousands of investments.

      That is kind of like asking – how much does a house cost? Or how much does a person earn? It all depends.

23. QUESTION:
    Is it possible to convert my checking accounting into a Roth IRA?
    I have come across a bank that pays a good interest rate on a checking accounting. Is it possible to incorporate this checking accounting into a Roth IRA?

    • ANSWER:
      No. You can’t write checks on an IRA.

24. QUESTION:
    Loans versus pulling money out of a Roth IRA or 529 for College?
    I have two children, 9 and 11, whom I am planning to put through college. I am debating whether to put money into a 529 investment fund or putting it into a Roth IRA and pulling out the money needed to pay for their college when the time comes.

    What I would rather do is pay for most of their college expenses by having them get student loans. I would be able to keep my money in a compounding interest account and make money against the interest rate of the student loan. I could then pay their loans off over five years after they graduate. This would not only net me more interest earned, but would also establish their credit for when they need to acquire more serious loans such as a new car loan or mortgage.

    One of the reasons that I am leary of putting money into 529 (which I know would work better than a Roth IRA) is that they will tally that in when putting together a student loan package. As far as I know, retirement accounts cannot be touched.

    • ANSWER:
      The thing is that the tax laws could change in 10 years when your oldest graduates from college in regards to the tax deductions. Also, with the loan interest rate trends going up with a strong chance of more interest rate hikes, odds are depending on the investment that it might not match the loan interest rate. The best thing is to consult an accountant before you make your final decision. However, it is an idea also to encourage your kids to keep their grades up because it will lead to possible merrit based help from the college and the state in some cases. Good luck!

25. QUESTION:
    What should a Roth IRA consist of now with the market in turmoil?
    I know people normally do a 60/40 % ratio. So 60 percent goes in mutual funds and 40 percent goes in CDs.

    But based on recent events why not establish an IRA and simply put all of the money in short-term CDs?

    Are there CDs out there where you can continually add money to them?
    So it would be like a savings account but you are guaranteed a certain high interest rate?
    Im 19 year old but I don’t want to dump my money into something.

    • ANSWER:
      It depends on your “asset allocation” model which would be built on by looking at your needs, risk tolorence, inflation expectations and years to retirement and a resonable quess at years in retirement.

      A 60/40 split rarlely means 40% in CD’s. for a 19 year old it should be none at all. Beside a 60/40 at your age would be a terrible idea… it may be way too little to get to your goals. So the answer is an “asset allocation” model.

      I believe the last place for retirement money before age 75, is a bank. The next worst place for any retirement money is an insurance company.

      Take some time. Learn about this stuff!!!! Start by reading; Mutual Funds For Dummies. It’s a whole lot better than getting advice from strangers who don’t know you & your needs. Besides you don’t know their qualifications or motives.

26. QUESTION:
    What will happen to me individually once the interest rates rise?
    my situation:
    Rent
    Have a job with a fixed income
    Have 50K most of it in Vanguard Mutual Funds
    Owe 0 on my credit card

    Maxing out my Roth Ira every year VTIVX with vanguad

    Thoughts?

    • ANSWER:
      It sounds like you really have your act together – good job!

      I’m with Aleks, though – everyone should have an emergency savings fund with at least 3-6 months’ worth of living expenses (everything – rent, food, utilities, gas, etc. – for most people a good amount is around K – K). This should be kept in a “boring” account like a money market (you could put half of it in CD’s to get a slightly better interest rate). First pay off your CC debt, then start building your emergency fund.

      I have found that it comes in handy even for small emergencies and unexpected expenses like trips for family emergencies/funerals, new tires, “emergency” ski trips, etc. I just use that money, then spend the next few months building my account back up. It saves me from having to use my credit card for these things.

      Keep building your Roth (VTIVX is a good fund), but maybe cut your monthly contribution in half, and use the other half to build up that emergency account.

      Don’t worry about interest rates – when they rise it may cause a temporary dip in the stock market, but that only means you’ll be buying more shares with your regular investments. Also, you’ll start to earn more in your emergency fund.

      I hope that helps – good luck!

27. QUESTION:
    Roth IRA account?
    I have an IRA Account w/ USAA is this good or is tehir something better? Im not looking into brokerage accounts plus I think I can only go from IRA to IRA.
    Current Interest Rate 4.300%
    Effective Annual Rate 3.752%
    Guaranteed Minimum Rate 3.00%

    • ANSWER:
      It’s unwise to hold such a conservative investment in a Roth IRA. Learn about mutual funds and exchange traded funds (ETFs). For a ROTH, I think ETFs are the way to go. That will probably mean switching from USAA to an online service such as Schwaab.

28. QUESTION:
    What to do with my Roth IRA?
    I am 26 years old, I have a good job with a 401k. I contribute 3% of my earnings to it and my company matches it. I also have a Roth IRA that my dad set up for me a few years ago. I haven’t paid any attention to it over the past few years, but now I want to know everything I can about it. There is currently about ,000 in the Roth IRA. I also have a home equity loan for about ,000. I hate having this debt and am wondering if it would make sense to cash out my Roth and just pay off the home equity loan. I am not in any kind of financial crisis or anything, but the equity loan has a .12% interest rate, and I dont like paying the interest. Should I cash out the Roth and pay off the loan, then look back into another Roth down the line in a few years. Will I be taxed for taking out my Roth. I live in Michigan.

    • ANSWER:
      You can take CONTRIBUTIONS out of your roth without penalty or taxes. So, you would have to find out how much your father put in, and you could take that much out tax-free.

      However, if you take out any more, you would have to pay taxes plus a 10% penalty.

      That’s the law. However, I would suggest letting it ride. Leave the money in the Roth IRA – it will probably earn 8% or so tax free, which is pretty darn good.

      As for the HELOC, you are paying a tax-deductible 12%, which isn’t that high. You might be able to shop around for another HELOC or Home Equity Loan and get a better rate.

      –>Adam

29. QUESTION:
    Pay off credit card debt with ROTH IRA monies?
    I have some credit card debt hanging over my head…most of it is from when i was unemployed a few years back. needed to use it for basics like groceries and rent (had no alternative).

    i’ve negotiated my interest rates as low as the companies are willing to go and have good credit. however, the interest rates are still pretty high, so i’m getting reamed in the long run with finance charges. i want to pay at least one of the two cards off and close the account.

    this debt is causing me stress, I can only afford to pay the min. payment each month and want to have more disposable income and money for my 401k deduction and savings account.

    Any thoughts on using my ROTH IRA to pay off the debt? It will take nearly all of my IRA to cover the debt, so that’s the big concern. However, i’m confident i’ll be able to replenish it from other sources over the next few years.

    FYI, I’m 34 in case that’s a question in terms of retirement timing.

    Anyone do this and have any regrets? Thx!
    As a side note, i’m not in dire straits, so there’s no need to sell my belongings or cancel my cable TV or cell phone service. I do okay…i just want to reduce my debt.

    • ANSWER:
      I wouldn’t do it man! That money is for a specific purpose. Unless it’s a dire emergency leave it there for that purpose. You said you are confident that you can replenish that money from other sources. Use those sources to pay off the debt instead. The time will pass and the debts will eventually go away. If you want to build real wealth you have to keep some of what you earn. You’ve built it, now keep it. You can look up a Debtors Anonymous meeting in your area. You’ll see there’s tons of people in a worse situation than yours. Don’t be stressed about it. Just pay it off. You’ll feel great! Good luck!

30. QUESTION:
    Is a roth ira right for me?
    I am 21 and recently opened a roth ira. I have a modest amount of money saved and my living situation is stable. At my age and current situation is the roth ira right for me or should I be investing differently.

    What makes me question the roth ira is that since the interest rate is less than impressive (apparently its at 2.01 and can’t slip but can go up) and with inflation, the roth being taxed, and whatnot I am not moving up as much as I am hovering around where I already am. Different people are giving different answers and I am looking for a more difinitive answer. Thanks.

    • ANSWER:
      The second paragraph made little sense.

      A Roth IRA has no back end taxes on the federal level. That means any already taxed money (when shifting a 401K to an IRA to a Roth that would be an example of where you would need to pay taxes on that money) put into the Roth IRA will not be taxed when you take it out. You could put ,000 over a period of time and make 0,000 and not be taxed for the profit by the IRS, just the state.

      The Roth is a retirement basket where you put a limited amount of taxed money in and you can take it out around 59 1/2 years of age or not take it out at all (like you want to give the money to any future spouse or children). A regular IRA means you must take the money starting around 72 years of age and thre is a minimum amount that you must start taking out. If you have a 401K, you must move it over to a standard IRA and you will end up with being forced tomoney out you might not want to take out. You will also be taxed on all the money you take out (since the money was not taxed).

      If you don’t have a 401k or believe your 401K is any good, then you might want to start up a Roth IRA. The standard stuff you can put in a Roth IRA are bonds, mutual funds, stocks, ETFs and have money in a money market account. You can shift your investments around easier than if you had a 401K and you have more options than a 401k. Some other stuff you can put in a Roth IRA is real estate, and collectibles such as coins, trading cards and stamps. When putting in non standard iteams you may need permission from the administrator and you you may have to fill out some forms. Remember this is a retirement fund, so taking money out early can create penalties. If you are always short of money then such a retirement plan might not be your best option right now. People are taking money out of their retirement accounts suffering 15% penalties plus taxes for getting back their own money. There is no minimum limit, but there is a maximum limit of I think ,000 per year right now (it will continue to change and also income is a variable on how much you can put in). The fiscal New Year’s day for a Roth is April 15 not January 1. There is often an administrative fee per year. Mine is a year. I get around that my having money in a money market in my Roth which gains tax free interest which then pays the fee.

31. QUESTION:
    I’m trying to choose either a low risk mutual fund or a roth ira. Any help would be really appreciated.?
    Just alittle worried to lose my money in this recession. And not sure how I will be taxed on either a mutual fund or an Roth IRA. I was also thinking of a high interest rate savings account. Just want to put some money away and let it grow and not touch it. Thanks

    • ANSWER:
      A Roth IRA grows tax-sheltered, and no taxes when you pull the money out.

      a mutual fund will generate taxable interest, dividends and/or capital gains, depending on what it’s invested in. Morningstar reports show the amount of turnover; the higher the turnover, the more likelihood you will pay capital gains tax. Of course, the max. capital gains tax right now is 15%.

      CD interest is taxed at the same rate as your salary–ordinary income, which can be as high as 35%.

      From a tax standpoint, the Roth IRA is the best bet longterm because all gains are sheltered (“under current law”–I would not hold my breath that Congress will not change this someday).

      Do you have an emergency fund of 6-8 months’ living expenses in the bank or credit union? If not, you need to start with that before you even think of investing. Good luck!

      Read Money, Smart Money and Kiplinger’s magazines to educate yourself before investing.

32. QUESTION:
    Can Roth IRA be transferred to child?
    According to the Compound Interest Calculator, my ROTH IRA account will have a total balance of 7,067 in 28 years from now assuming an average 8% interest rate over the 28 years.

    When my daughter and son are 28 and 32 will I be able to transfer my Roth IRA into their name without any penalty? Or do I need to withdraw the money (which is tax free) and just give it to them to open their own ROTH IRA?

    What is the best way to go about it without losing any money?

    Also, what is the best method to make sure that the account averages at least 8% interest over the 28 years?

    My current Internation Investments are at 11%

    • ANSWER:
      No. You cant give an IRA to someone else. They can inherit when you die. But they cant contribute to it. Only a spouse can take an inherited IRA as their own and contribute to it.

33. QUESTION:
    Is it worth cashing out my 401K & Roth IRA’s to reduce my debt?
    I have about ,000 in credit card debt, I have a consolidation loan (15,000) but the interest rate is ridiculous (28%) I can’t afford very much of a monthly payment (max 0).I currently have 00 in a 401K and about 00 in an IRA. What do you suggest?

    • ANSWER:
      You will have to pay taxes on your 401-K plus a 10% penalty if you are under 59 1/2

34. QUESTION:
    ROTH IRA? Is this something I need to Shop for? ?
    Or are they same where ever I go? Interest rates and such. Basically should I just go to my local bank and start a ROTH. Or is there some place I am better off going?

    • ANSWER:
      A Roth IRA is a type of account. It is a retirement account where you pay taxes upfront but none with qulified withdrawals (59.5 years of age and you must have had the account open under your name for at least 5 years). You can open one up at a bank, brokerage firm, mutual fund company, etc.

      You can have a Roth IRA at bank A and another Roth IRA at broker B. You can have as many as you want however all of them together form one retirement account in the eyes of the IRS. What this means is that for 2009 since the maximum individual contribution limit is 00 for people under 50 years of age you can contribute up to 00 between the accounts in bank A and broker B not 00 per account.

      A Roth is just an account like a savings account but it has different rules i.e. contribution limits and eligibility (i.e. high income earners, six figures, cannot open one) and withdrawal criteria. It is an “umbrella” where you can invest in securities, earn interest, earn dividends, etc. without paying taxes on those profits. A Roth IRA does not carry an interest rate itself.

      Now what you do in a Roth IRA is where the creativity lies. A bank may only offer CDs in its Roth IRA whereas in a broker Roth IRA you can invest in stocks, options, mutual funds, ETFs, bonds, etc.

      I personally have a Roth IRA at a mutual fund company and at a brokerage firm.

      It sounds like you are a new investor therefore I would suggest opening up a Roth IRA account at a mutual fund company like Vanguard and buy a low cost (expense ratio < %0.50) mutual fund to start out with. When you grow your acumen you can open a Roth IRA at a brokerage firm and start investing in riskier securities.

      My [FAQ-ANSWER].02

35. QUESTION:
    A question about roth IRAs?
    I’ve been thinking about getting a roth IRA, but I’m not really sure how they work, or if the return is good enough to justify the long term investment. Wondering if anyone could break it down for me.

    I’m 23 years old right now and I use USAA as my bank (not sure what their interest rates on a roth IRA are). If I invested 00 per year until I was 59 (which I think is the point at which you can withdraw), that would come out to 180,000 dollars invested altogether. What kind interest return would I see on that by the time I began taking distributions?

    • ANSWER:
      At low tax rates the Roth is a very good option.

      I like your plan. However, to better motivate you use an investment calculator. Use 5% annual return (average for stock market) for 36 years and at age 59 your amount is 0,000. That is the power of compounding.

      Good luck, work hard, you will do well

      At this stage of life, education is the best method to increase your earning potential over the next 36 years. At night, when you are not working, you need to focus on learning something that will increase your earnings. Accreditation will improve options. Inspector, assessor, other part time options.

36. QUESTION:
    How does this work. The compound interest rate is 3.41 and the dividend rate is 3.3?
    This is for one of my roth IRA’s with my local bank. The compound interest rate is calculated daily and I am not sure about the dividend rate. So If I put 10,000 in, at the end of the year would I find out how much interest I will have at the end of the year by calculating 3.41 compounded (daily) then a one time dividend calculation rate of 3.3? Please help! Thanks

    • ANSWER:
      The 3.3 percent is the interest/dividend for the year. However, instead of just giving you the simple interest of 0 on December 31, the bank figures IRA figures the interest based on a a daily basis (which is about .00904% daily). Because in effect you will get interest on th e interest (each day they add in the interest earned the previous day), the actual rate (the APR) comes out a little higher then the simple rate. In this case, the interest on interest (compounding) earn you and extra .11 of a percent annually, so instead of having 10,330 at the end of the year (compounded annually), you will have ,441 compounded daily. You don’t get credit for the 3.3% again.

37. QUESTION:
    Any insight into a Roth-IRA?
    I’m looking into a Roth IRA but my question is….how does your money grow? If i put in 5000 what will it be in 34 years? Does it grow from interest? If so, what are the interest rates? What do i need to do with the 5000 to make it grow? Thanks!

    • ANSWER:
      A Roth-IRA is just a type of account – you choose the investments you put the money into once you put the money in the account. You can pick individual stocks, bonds, index funds, bond funds… there are a variety of options, depending on which company you get your Roth with.

      If you get a broad based index fund, the typical return is an average of 10% a year. At that rate, if you put in ,000 this year and never added to it, it would grow to about 8,000. (I did that calculation really quickly so it’s an estimate – you might want to double check it by searching the internet for a compound interest calculator!)

      Check out a book called The Bogleheads’ Guide To Investing – it has a lot of information and is really easy to understand. Good luck!

38. QUESTION:
    Long term investments: Is now a good time to invest in the stock market?
    I am young and still learning the basics of the stock market. I have over 30 years until retirement. I keep reading that now is a good time to buy stocks but like many people i am scared. I have money in a roth ira but the interest rate is only 1.25%.
    I am eager to learn so any advice would be great.

    Thanks for you time.

    • ANSWER:
      Yes, I would recommend putting some log term money into the market, but feed it in slowly.

      You do need to do some reading on investments. I can see this from your question. Your IRA doesn’t pay interest because it is a form of ownership, not an investment. The IRA can invest in a variety of things. If you are with a bank, that will limit you, so move to a broker. A broker can sell you CDs if that’s what you want, but a bank can’t sell you stocks or bond funds, where the real money is.

39. QUESTION:
    Stupid question about Roth IRAs?
    What is the interest rate for a Roth IRA? I realize who can contribute and what the limit is, but how do you make money with one? Does the bank that you go through help you invest, or are you completely on your own?

    • ANSWER:
      The rate of return is whatever the fund you chose gets. You can have more than one fund in your Roth portfolio too.

      I have some with higher rates than other. You can hire someone (financial advisor) to help you pick and chose and maintain your portfolio but then you have to pay him/her.

      You can go to a site such a Vanguard or Fidelity and do your research and open your Roth thru them all on your own.

      Some banks offer financial planning but I’ve never used such services so I don’t know if you have to pay or not.

40. QUESTION:
    Invest an a Roth IRA or pay down my student loans?
    Which is the better move for someone that will be finishing up college in the next year or so here? I believe my interest rate is around 6% on the loan. I know that a Roth IRA wont give as good of an interest % but I know that it grows over time meaning the money put in it might do me more good. At the same time I know the markets are crazy right now going up and down and up and down so I didnt know if its better to avoid it all together right now or this is the best time possible for a young person like me to be investing.

    So which as a 24 year old about to finish college should I be focusing on? Put my 0 a month investment savings into the IRA or into paying back my student loans?

    • ANSWER:
      Pay down student loan first.Your still young.Get that out of the way.

41. QUESTION:
    Purchase CD inside Roth IRA or not?
    My Roth IRA provider (Fidelity) is offering a 10 year CD offering a 5.25% coupon rate. Since I have a pool of cash just sitting in the Roth IRA, I’m wondering if this is a good place to buy the CD. Reasons being as it is safe/secure up to 0k (thanks FDIC).

    My question is on how the interest will be treated that the CD spins off. I’m guessing that the interest will be treated as gains in the IRA, and therefore untaxed…since the Roth IRA was opened with after-tax dollars. If I’m in the 25% tax bracket, does that mean that my actual interest rate is 7%, since I dont have to pay the 25% ordinary income taxes associated with interest that a CD generates?

    All feedback is appreciated.

    Thanks!
    I guess I need to clarify. By my rate being 7%, I meant my effective yield net taxes. The actual rate will still be 5.25%, but if there is no taxes on the gains, then my return is bumped up 25% (no taxes) making my yield higher…is that logic valid?

    • ANSWER:

42. QUESTION:
    Does it benefit me to roll my traditional IRA in a Roth IRA if I had no income for ’06?
    I had [FAQ-QUESTION] earned income and 00 interest and dividend income for tax year 2006. Is now the time to roll to a Roth? How is the tax rate determined? Prior year income? I have savings to pay the tax so I’m not worried about having to pay the tax with principal thus paying penalty tax also. Thanks a $$$$$$$$$$$.

    • ANSWER:
      You have missed the 12/31/2006 deadline for converting the traditional IRA to a Roth.

      But if you have little or no income in 2007, be sure to take advantage of converting with little or no tax owed. The tax rate is determined by adding the amount converted to your other income.

      There would be no penalty assessed on a conversion, only income tax.

43. QUESTION:
    IS a 1.85 APY good for a roth ira?
    i’m thinking of opening a roth ira retirement fund online with bank of america i chose the high yield CD IRA but the APY is 1.85% and the interest rate is 1.83….how do you i get those 10% APY roth accounts i’ve been hearing about?
    it’s for a 1 year CD…
    if i invested just the 2,000 how much would i have at the end of the year at that rate?
    ok so the CD is a definite no…maybe i’ll open an account with etrade…any good books you can recommend that would teach me about investingly smartly? btw i’m 21

    • ANSWER:
      Over how much time? For a one-year CD it is good. For more than a year, it is not.

44. QUESTION:
    ROTH IRA question?
    I’ve had a Roth IRA for about 10.5 months with Wachovia. i put 2k in it to start out. The interest rate is only 1.25%. Is there something wrong with this? Or does the rate increase over time? Because that rate is terrible and i have made 12 dollars since i started it.

    • ANSWER:
      Wachovia has put your funds in the lowest possible yielding investment. And, that’s bad. Retirement funds are long term investments that should be invested accordingly mainly in equity mutual funds and some bond funds.

      First, check what it would cost you to get out of Wachovia and move your funds at Vanguard for instance. A transfer of Roth IRA funds from one fiduciary institution to another may not cost you anything. It certainly does not trigger any tax liabilities or penalties because you are not taking any distribution out.

      If you find out the costs are minimal, I would do exactly that, transfer this Roth IRA at Vanguard. They have the best choice of mutual funds associated with the lowest operating costs.

      If the costs of leaving Wachovia, find out if these costs evaporate once you have been there for over a year. They probably should. And, at that time leave.

      If costs and burden of leaving Wachovia are impossible to circumvent, talk to them and indicate you want to switch your investment earning only 1% to a diversified stock mutual fund or even a stock index fund (maybe a $&P 500 or Wilshire 5000 stock index fund). These would be a lot more appropriate retirement investment than the current investment you hold.

      Hope this answer was helpful. You are welcome to contact me through “Answer” for any clarification.

45. QUESTION:
    I’m 22 and want to save for retirement, which is better Roth IRA or CD?
    I’ve been wanting to save since I was 20 but haven’t had the money like I want to save I feel like I behind and I want to start before the end of this year even it’s a 100 or 50 dollars a month until my income increases in the coming years just so I can start building. Should I consider a Roth IRA or a CD what are the advantages and disadvantages? I want to thoroughly examine all the facts before I make a decision. Any links or articles will be great as well. I think Roth IRA will be best since it has a High Yield interest rate and saves greatly but CD is tempting as well, what are your opinions and/or experience? It’s a headache sorting through all of this but of course it’s important.

    Also…do you all know if any good companies High yield returns besides WAMU? It’s not offered where I live.

    Thanks in advance.
    I was also doing some reading, would a CD be better for say if I wanted to buy a house in 10 years than a Direct banking high yield savings account or are they almost the same?

    • ANSWER:
      Your question should be phrased slightly different: Should I invest in stocks/mutual funds or in CDs? A Roth IRA is merely one of various choices for retirement accounts. As such a tool, it enjoys the benefits of such an account. Once you put money (which is post tax) into a Roth IRA you won’t be taxed again when you take it out. There are limits that apply how much you can put in on an annual basis.

      CD’s provide stable, guaranteed fixed income. This means as well that you pay a price for that stability: low interest. Furthermore, you put post tax money into a CD but at maturity the interest will be taxed again. Thus for a long term investment, CDs are clearly a poor choice.

      Now the question is what do you buy with the money you put into your IRA? In your case, it is simple. You are 22 and have roughly 40 years until you retire. So your choice should be mutual funds, preferrably a blend of large, small caps and international funds. Of course, if you just want to put it in and forget it, get index funds that closely track the overall stock market or the S&P 500. Once you get close to retirement you gradually shift your portfolio towards bonds aka fixed income financial vehicle as you can less afford market swings the closer you get to retirement.
      Right now and for quite a while to come is a good time to invest in the market as stocks have been battered. Essentially, the market has turned the clock back 10 years. That means for you, that you start investing at age 12 rather than 22. You should consider yourself lucky that you did not have the money 2 years ago as your portfolio would be bleeding red.

      I just read your PS: 10 years time is still quite a way out. I still would go with an Index Fund (Vanguard, Fidelity ..) rather than a CD. Just think about it: If you put 10k in a CD at a rate of 4% (which is roughly what you are going to get these days) for 4 years. That means you will have roughly gained 00 (including compounded interest).
      If you invest in an index fund, you will receive dividend income (not much but still) for sure. Nobody can guarantee this but I am virtually certain that your 10k investment will yield you a lot more than 2k in 4 years based on the price increase of the fund plus short and long term capital gains distributions.

46. QUESTION:
    Are US Bonds a good investment? I maxed out my ROTH IRA and just want to know what else is there out there.?
    I really don’t like CD’s so I just wana know more about bonds and what the the best ones to buy with the highest interest rate. If anyone else has any other ideas of investing, let me know. Thank you

    • ANSWER:
      If your still in the Army, have you maxed out your TSP yet? That would be the next logical step.

      The most secure bonds generally don’t pay a lot more that CD specials that you can find. If you want higher yield, you’ll have to accept higher risk. That being said, most bonds with a rating of BB or higher (S&P Rating) have a low (very low) likelihood of default.

      To answer your question specifically, highly rated US bonds are a solid investment for someone who is looking for mediocre returns with little risk.

      Look at the below link at Fidelity. It is just a research site, not a place trying to push you into a sale. You can compare the rates of CD’s versus Bonds and learn more about both there.

47. QUESTION:
    Worth of a Roth IRA account after 42 years?
    Say I invest 00 a year for each of the 42 years and the interest rate on the account is 7% (I have no idea about Roth IRA’s, but I’m thinking about opening one hence the question…hopefully that is a good guess at a possible interest rate), how much will the account be worth after 42 years? How do I calculate that?
    The 7% was a guess because I keep seeing 5-10% interest rates for a roth when I google the average rate. Most of the posts are from years ago so it might be a stretch, maybe not…

    Yea I was leaning more toward the money market account not a cd, because I know a cd interest rate is low. There’s no reward w/o a risk right?

    As for the 540% return…holy crap! I’m definitely not expecting that though.

    Oh yea, and I am definitely going to raise contributions as my pay rate increases! Any debts I have to take care of along the way will be taken care of before making payments because I know that, that is important also.

    • ANSWER:
      There’s plenty of online calculators. I googled it and the one I used is below in source. You’d be looking for the future value of an annuity. An annuity because you’re going to be putting in the same dollar amount over a number of years. I did it as if starting this year – putting in ,000 and then adding ,000 each year for the next 41. Came up with a worth of 1,309.82…pretty good when you consider you actually only put in ,000 x 42 =,000. What’s working for you is time and compounding. And as it is a Roth, you’ll be able to take the money out tax free.

48. QUESTION:
    Roth IRA question. Close to the income limits. How to decide on monthly contributions.?
    My wife and I have Roth IRA’s. We’re close to the income limits. I would like to setup a monthly contribution rate, but I don’t know if I will over contribute because of year end bonuses.

    Should I contribute once, at the end of each year (I know I’ll miss out on the interest)?

    I also read about being able to contribute some into a roth and some into a traditional IRA. If anyone can clear this up it would be helpful.

    Either way, what would happen if I over contribute?

    Thank you.

    • ANSWER:
      If you need to know the income limits for Roth IRA eligibility you can look here.ttp://personal.fidelity.com/products/retirement/getstart/aboutira.shtml.cvsr

      Should you end up making too much and not qualify for a Roth IRA you can either withdraw the money as an excess contribution, or complete a re-characterization form to move the contribution to a traditional IRA. Depending on your income and other factors such as participation in an employer sponsored retirement plan, the re-characterized contribution may be deductible or may be considered a non deductible contribution for the tax year in question.

49. QUESTION:
    Traditional IRA vs. Roth IRA?
    I currently have some money from a previous job in an regular IRA. I’d love to put it in a Roth but when I do I’ll have to leave it there with the initial interest rate I joined with – as I understand it. Is now a good time to convert my traditional IRA to a Roth or are there better options?

    • ANSWER:
      The major difference between a traditional IRA and a Rothh IRA is the tax situation. A traditional IRA is considered pre-tax, so any distributions will be taxed as income and there is a tax penalty for ealy, before 591/2, withdrawal. A Roth IRA is poast-tax, or after tax dollars. The distribution has already been taxed, so none will be due on withdrawal. You may want to consider a move to your employers retirement plan, if there is one. You can also convert into short etrm CD’s or certificates of deposit. These have set periods and are renewablr like IRA’s.

50. QUESTION:
    Pay off debt or invest in an Roth IRA?
    I’ve got 00 car loan with a 6.65 % interest rate and a student loan of 00 with a 6.875 % interest rate. Currently I am investing in my 401k at work but want to quit with that and invest in a Roth IRA since the market is so low right now and I don’t know how much longer I’ll be able to invest in a Roth IRA. Should I quit investing in 401k and hold off on Roth IRA and pay off loans first or try to invest and pay off loans simultaneously?

    • ANSWER:
      The first rule of debt is pay off whatever has the highest interest first, which is your student loan. If your Roth IRA will earn you more than 6.875%, invest in that because it will pay for your student loan.

      This also depends on if your other loans are at fixed rates. Consolidate the student loans if they are not, so that you keep that rate.

      All in all, I’d say the Roth IRA is a good idea, even if you don’t put much money in it at first, because it is something that should generate money in the relatively near future (and you’ll NEED it when you retire).

      Paying off the debts will help, but believe it or not, it looks good on your credit score that you had a long-term debt that you never defaulted on. Credit companies don’t necessarily want someone who pays off all of their debt too quickly, because the companies don’t make any money off of them from interest. As long as you make at least minimum payments on time, those loans are building your credit score.