I’ve decided to get a Roth IRA. Why? I don’t make much money, but I don’t have time to spend what I have (yay chemistry grad school!), so I might as well save it. I’m barely getting taxed now, so I’m probably better off paying the taxes now.
But anyway, I decided I was going to set one of these things up, except I’m not really sure how. My bank will do it, but they seem to only offer CDs (no thanks.) It looks like there’s hundreds of investment companies that will do it (Charles Schwab, Fidelity, etc.) In looking over the details on these sites, it looks like there’s tons of fees involved. Plus, it looks like you can only invest in the funds that company manages. What criteria should I use to choose the best place to hold my money so that I’m not loosing it through fees or lack of options?
I set my IRA up at Fidelity Investments. I didn’t know much about investing so I asked my dad and father in law where they had their retirement funds set up at. They both said Fidelity. They were happy with the performance of the funds and the relatively low fees.
So I set mine up with Fidelity and I have been very happy with the funds performance.
You can set up an account online at Fidelity.com or make an appointment at one of their brokerage centers (if there is one where you live). Or just call their 800 nuber and ask to talk to someone about your options.
The people have always been nice to me even though I am a low end investor and I haven’t made a contribution in a while ( :o )
I’m a huge fan of Vanguard and I mention them regularly on the board. They will set up a Roth IRA for you, and you can then invest your IRA money in any Vanguard mutual fund, index fund or ETF.
I second the suggestion of Vanguard, and especially recommend the Vanguard Target Retirement Funds, which are diversified appropriately (mostly in higher risk/higher return funds at first, and then changing to lower risk/lower return funds later).
(Except that anything you invest in the Roth IRA is effectively off-limits until you retire, so make sure that you’ve got some savings set aside first.)
Can I third the suggestion of Vanguard? You don’t need a complicated investment plan, or to know really anything at all to do better than the vast majority of investors. Just open the account online, choose the Target Retirement fund that matches your theoretical date of retirement and start worrying about other stuff.
Fourth recommendation for Vanguard - I have had a variety of investments with them for about ten years (I’m 37) and I max out my Roth IRA using an automatic investment (direct deposit from my bank account each month), with the targeted retirement date. It’s very simple, you just pick the approximate year that you think you’ll be retiring and they handle the rest, rebalancing as the years go along.
Good on you for starting early - if I knew in grad school (hell, undergrad!) what I learned in my first couple of years after college (first 401k was a big education) I would have had a bit less pizza and beer and started saving in my late teens/early 20s. Time is a massive advantage in long-term investing, even if you start small.
Make it an automatic deposit, even a modest one, and you’ll find it very simple. You will quickly adjust to having X dollars less per month to spend on other stuff and you don’t have to take any action to continue the investment. As you start earning more you can increase the amount you save as well, great habit to get into.
Thanks for the replies. I guess this is the sort of account you don’t fiddle around with much? That seems to be where one gets hit by fees, so maybe it doesn’t matter much where. My father has some accounts with Charles Schwab. Anyone have experience with them? He’s the one who helps me if I have trouble with my taxes*, so it would at least be a familiar medium.
The other issue is that I might stop contributing to the Roth IRA once I start making more money. Postdoc payscale will push me into the 25% bracket, so I may open a trad IRA. Some of these companies charge a maintenance fee if you stop deposits, so I’ll need to into that.
*“Sure, this’ll only take 30 minutes.” (4 hours later and we’re still not done) “I don’t know how yours ended up more complicated than mine.” All sorts of horrors can occur when one of you accounts is closed and transfered, but they have to sell off all the partial shares.
I’ll fifth Vanguard. Ivylad and I invested the proceeds from the sales of our rental property a few years back. He opened three and I opened two accounts. Some accounts can be opened for as little as $1000, and if the value of the fund is below $5000 you’re only charged $10 a year.
Very friendly site, very big on security, and you can make the deposits via a bank transfer…no writing of checks.
A very important thing to look at, and one of the reasons Vanguard is often the best choice out there, is the expense ratio on the funds that you’re investing in within whatever vehicle you are using (401K, Roth, IRA, anything really). Higher expense ratio = more money off the top = less that builds upon itself as you move on. Anything over 1% is probably a bad deal when we’re talking simple stuff like this (index funds, target retirement funds, etc), and you want to get as low as possible.
Traditional wisdom is that, if you are eligible, a Roth IRA is a better choice for retirement money than any other option BUT a 401K-type plan that includes an employer match (i.e. free money). So even when you’re kicked up that tax bracket, you may very well want to stay with the Roth.
Fidelity allows you to invest in non-Fidelity funds. There are something like 4500+ funds available in their IRAs, including the Vanguard funds. Definitely shop around and ask lots of questions about maintenence fees.
I use TD Ameritrade for my roth, wife’s roth, other IRA’s and a regular investment account.
Setting up the Roth’s is easy. You can do recurring deposits. I typically buy Vanguard funds within the account. Although, there might be higher commissions than if you go with Vanguard directly.
I like having it all in the same place. Definitely set up recurring transfers, and bump those up as time goes by.
I have TD Ameritrade accounts that I use for everything except my Vanguard funds, which I hold at Vanguard. TD Ameritrade charges $70 per trade for the Vanguard funds, whereas Vanguard charges nothing. I don’t trade much, but even so this would have cost me a few hundred dollars over the last couple of years if I had them in TD Ameritrade. I do have an IRA at TD Ameritrade in which I hold Vanguard ETFs. They are bought and sold as stocks and the fee is only $10/trade.
However I looked into using my Fidelity account to put some money in a Vanguard fund and there was a fee involved to make the purchase - 25.00 if memory serves. I don’t know if the converse is true (account at Vanguard, purchasing Fidelity etc. funds) but it wouldn’t surprise me.
You’d be perfectly happy with either of those, or Schwab, or really any big brokerage house to handle your Roth. Heck, you could probably open one up at the neighborhood bank (we’ve got a little money in traditional IRAs at our credit union) but your investment options would be more limited.
The only direct fees I’ve ever been charged (aside from the hidden ones built into the mutual fund expenses) are a 10.00 a year fee because the balance of one of my investments was below the “minimum” for that fund.
My bias would be to go with one of the big houses because they’ve got good online tools, easy download to Quicken if you use that, and a lot of investment choices.
You can even purchase individual stocks in the Roth.