I have received a small inheritance that I would like to invest. I am thinking of buying shares in a no-load mutual fund and putting it into a Roth IRA. Can I do this? Is there a dollar limit on how much I can open with? Can I just leave the IRA to grow without further contributions?
I am thinking of opening the IRA with Vanguard, using one of their growth funds. Has anyone had experiences with them, good or bad?
I think that you would be able to do that no problem. You probably need $2000-$5000 to open it, if you are not going to make regular contributions. Just make sure that it is what you really want before you go ahead and do that. You really really do NOT want to take money out of an IRA before you are older (65 I think) so make sure you do not want to use this money for anything else in the next few years, like a house down payment.
As for Vanguard, I have not had much experience with them. Just watch out for the costs, either front end load, back end load, and expense ratio. These things will have a great effect on your long term returns.
I also believe Roth IRAs limit you to a $3000 max per year.
Nametag, that is an excellent idea, and should be easy to accomplish. The account minimums on IRA’s are generally lower, for Vanguard the minimum is $1000. The account can be opened online at their website. As you probably know the earnings on a Roth IRA can be withdrawn tax free after 59 1/2.
Vanguard is a well regarded, highly ethical company. Their hallmark is low fees, which means that, all things being equal, you keep more of your money working for you. The one thing you won’t get is a lot of advice, but you already have a sound plan so that shouldn’t be a problem. You need not make any more contributions, or you could deposit up to $3,000 every year.
Good luck!
Er, I wasn’t asking about minimum limits. I was wondering if I can open the IRA with a lump sum that exceeds the annual limit.
A Roth contribution is a great idea. Depending on your age and tax situation you may select a Regular IRA over a Roth IRA.
Maximum annual contribution iS $3,000, BUT persons over 50 years old have a caught-up option of and additional $500 per year.
A single contribution is all that is needed, no other contributions are required. No-load mutual fund are a GREAT way to invest.
I hope you do not just invest and ignore it for years, review your investments on a monthly basis.
No, you can only invest up to the maximum annual limit (which is $3000 right now).
Vanguard also offers a large selection of fine no-load mutual funds; you could place $3000 of that inheritance into a Roth IRA with Vanguard now and also open another (non-IRA) mutual fund with them to invest the rest of the money immediately, and then transfer $3000 per year from the other fund into the Roth IRA until all the money is in the IRA, if you definitely sure you want all of that money in a tax-favored retirement account.
I have several accounts with Vanguard - they’re an excellent company to deal with.
Ah. Thanks, everyone, for your replies; I’ve got a much clearer idea of what I need to do. I was hoping there might be an “initial investment” exception to the annual limit, but I think artemis’s advice is sound. I will, of course, check with Vanguard regarding specific issues before investing.
The only rule I know of like this is that you can make prior-year contributions until April 15. (So up until April 15, 2004, you could have made both your 2003 and 2004 contributions. Now you can make your 2004 contribution until 4/15/2005.) Too late for this year, though.
No one has mentioned this yet, so I will. I believe that you can only contribute to a Roth IRA if you’ve got wage income during the year. So if you don’t have a job during the year, you can’t make contributions it. Also, there are maximum income limits for the Roth IRA, so you can’t contribute if you make too much,
See http://www.irs.gov/publications/p590/ from the IRS for the straight dope.