I want to start a Roth IRA, will the financial geniuses here please give me some tips and recommendations? Thanks.

The posse will be along shortly

I like Fidelity more than Vanguard and Wells Fargo

Check here to see if you are limited on how much you can contribute

https://www.irs.gov/retirement...ou-can-make-for-2023


I didn't see this until after I maxxed two out, last year and this year. OOPS

Find a low cost mutual fund and dollar cost average. The index funds at Vanguard come to mind. The important thing is continuing to fund the account no matter what. Time is more important than what fund you pick.

You can use any institution that you prefer. I have used Schwab for a long time and am happy with them, but there are other good choices. My wife was with Fidelity and liked it.

If you have other accounts like a 401k, regular IRA, or brokerage account then it can simplify to go with the same brokerage. If your spouse has accounts, it can simplify to use the same place for both of you.

I am a huge fan of ROTH accounts, either IRA or 401k. Your employer may offer the ROTH 401k option, and that could be huge because you can contribute a lot more to it than a ROTH IRA.

When you get to retirement, everything is tested against your income, and monies from traditional retirement accounts are taxable. What you pay for health insurance or Medicare supplements, how much of your social security is taxable, and if you have a pension then the tax rate for it will be increased too. Your state income tax, your property tax, etc. can all be affected.

That is, if you take money out of a traditional (non-ROTH) 401k or IRA it is taxable and it makes other things more expensive. By using ROTH you look poor on paper and save a lot of money. This is especially big if you retire before Medicare age (65), as you can get health insurance on the Obamacare exchange very cheap if you look poor.

Another bonus is that everything comes out of the ROTH tax free. So what it says you have in that account is what you have. With a regular 401k or IRA you pay taxes, so what you can actually spend is quite a bit less than what it looks like.

Roth does have annual contribution limits, around $6000 per year (more if you're older), and if you are a high earner your limit is lower. (You can get around those with a "backdoor" conversion or rolling over your 401k. You will pay some taxes but imho it is worth it under most circumstances.)

If you contribute over the limit you can undo it, but the paperwork is a pain. For example, my employer paid small quarterly bonuses, so instead of 24 paychecks in a year there were 28. I over-contributed because I didn't realize the extra 4 checks would also go into the ROTH. Extra forms to file with the IRS.

There are penalties for early withdrawal. Basically, the account has to exist for 5 years before you withdraw, and you have to be at least 59 1/2 yrs old. There are some important details, so if you are comfortably more than 5 years from retirement just start the account and start contributing. If you're closer to retirement, learn about the details so you don't pay penalties.

As to investments, see what is offered and what the fees are. Many times the target date funds have very high fees. Some of the mutual funds or ETFs may also have high fees. The brokerage where you have the account may have management fees. The fees can kill your growth, so look for no or low fee offerings.

Note, too, that how a fund's performance is calculated can be very deceptive. If you stick with index types of funds it is much less of a problem.

Keep really good records of what you contribute to retirement accounts. Paper printouts of statements put in a file cabinet at the least. The IRS asks a lot of detailed questions you start taking monies out of retirement accounts or do rollovers.

As a result of the last paragraph, I suggest not mixing pre- and post- tax contributions in any retirement account. You can, for example, make an excess contribution and pay tax on it, but then in the future you'll need to calculate how much of any withdrawal was pre- or post- tax. Keep it super simple. Everything in a 401k or IRA should be pre-tax, and everything in a ROTH should be post-tax.

quote:

As to investments, see what is offered and what the fees are. Many times the target date funds have very high fees.

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Forget those funds. A real gimmick.

I don’t like Vanguard as much as I used to, going back to at least the early 90’s. I’d compare with Schwab & T. Row Price, mostly Schwab.

Age, time horizon, & other factors come to mind. I’d likely start with a low fee/cost index fund, ‘total stock’ market fund.

I use both Schwab and Fidelity as custodians, they are both great and have low costs. They have good research. Try to make investments every month.

I am a low risk investor. If you are just starting out, I recommend an ETF like COWZ. It concentrates on large companies with high cash flow. This ETF rebalances every quarter, adding new stock and removing some old ones. They have a series of criteria that the stocks must meet, please search YouTube for recent videos. There are better videos than this:
https://www.youtube.com/watch?v=dmeowU9Y4Ps

After you have been investing for a while and have more money to invest, go through the COWZ holdings and pick the ten individual stocks that you like the best.

Having a Roth is a wonderful thing.

Oh, yeah.

Ignore Jim Cramer as a source of advice.

Listen to Warren Buffet, Charlie Munger and Dennis Gartman. Then do your own research.

I finally did a Roth "back-door" conversion from my IRA. Should have started years ago, but better late than never.
I did it now because I'm convinced tax rates will go up over time; and my minimum required distributions (MRD's) from the IRA are going to put us into a punishing tax rate in future years.

By rolling IRA funds into a Roth IRA (paying taxes at time of conversion, of course), we hope to decrease size of future MRD's and therefore lowering future tax burden. I'll do this each year that our taxable income (including the tax on money converted) allows us to stay short of the next higher tax bracket.

Fidelity is the best way to go to set up an account and get started. They offer a very wide range of options.

In terms of investments. Vanguard funds are great, low cost. Though a fee to buy them through Fidelity.

That said there are Many more options. Look at ETFs. I shared
S is one fund company. Use ETFs to buy an index.

Fidelity also has their own line of ETFs which are good and inexpensive.

Look to buy S&P500 ETF, OR nasdaq so many opportunities for you.

quote:

Originally posted by Hay2bale:
I use both Schwab and Fidelity as custodians, they are both great and have low costs. They have good research. Try to make investments every month.

This is a key point: Who holds your account (custodian) is not the same as who is in your accounts (your investments - be it fidelity, vanguard, or schwab.)

I imagine people who started when brokerages make expressed commissions on transactions would have Schwab or one of the old brokerage houses. New investors will use one of the newer brokerages who can act as custodians. If you go with an established broker such as Schwab to hold your account, then once you've set up your account and deposited your money, you can buy any security in your account.

ETFs, as opposed to mutual funds, can be traded during the day instead of waiting at the end of the day. But that shouldn't matter much to you as your roth ira is for the long term.

I assume you have a a regular IRA account also. So the optimal use of the two in tandem is that you would put "riskier" (and I'm only using it as a relative term) securities in the Roth IRA and "safer" / low returns in the traditional IRA. The reason for this is because the riskier security presumably has higher returns which means your Roth IRA will grow more than your traditional IRA while your overall portfolio is balanced in terms of risks / rewards. The benefit of this strategy is that the Roth IRA is tax-free forever and you're setting up the Roth IRA account to gain the most. Meanwhile, the traditional IRA will be taxed on withdrawals and, at some point, you will be required to do minimum withdrawals. Since you're going to pay taxes on the withdrawals, you will want to use the traditional 401k as a "safety buffer" to lower your overall risk while still providing an adequate return.

Now, what I just outlined may be over your head if you're starting out so it's okay not to "get" it. But something to keep in mind as you mature investing-wise.

I’ll simplify, go to Schwab, Vanguard, or Fidelity. Look at costs & minimal iniinvestment amount.

That amount can be very low if you opt out of mailed statements, and/or do monthly contributions. I think you could get it down to $10.

You sound like you have a long time horizon, don’t worry about current ups & downs. For many, getting started is hard, with who? What investments? Etc..

I’d just go into a total stock market fund, maybe an ‘ETF’. I’m not big on going down to a local ‘investment advisor’, yeah, some people like it. You are better off to school up some.

Thanks so much for the advice. There are so many options and regulations, it's a bit overwhelming.

Forbes did a study a few years ago on which investors did best for retirement. The results? Those who started.

Seriously.

Yes, some strategies had higher returns than others. But those who made regular contributions all ended up ok.

So don't sweat the pile of details. BigSwede gave a link to the max annual contribution based on income and age. Look up your number, go online to one of the brokerages mentioned in this thread, and open an account. Then either do a payroll deduction to the account or send money direct yourself.