Opening Roth IRA

[CountryBoy]

Good Morning folks,

I’m looking to open a Roth IRA and have been looking at different firms and funds. The Vanguard funds are very attractive, but I’ve kinda settled on the TR Price 2015 or 2020 Retirement Fund for a couple of reasons. The driving reason is, with funds, to open another account, tight with TSP contributions, college fund contributions and other mutual funds, the low buy in, plus auto monthly investments are very attractive plus the future flexibility with future TSP investment, after retirement, were the deciding factors.

The fees seem to be pretty much in line with other funds/firms, although, I will admit to being a little overwhelmed in deciphering the fees.

I’m leaning towards the 2020 fund since it is a little more aggressive even though the 2015 is in my retirement time frame.

T Rowe seems to be a pretty reputable firm, but is there a better Roth IRA vehicle out there, that has a low upfront buy in ($1,000). I’m always a little nervous about starting something new like this, so any help, real experience or suggestions would be greatly appreciated.

Thanks
CB

[thedrewster85]

hey CB,
is this your children's college funds you are speaking of? not to sound cold, but let them worry about that. save for your retirement first and foremost. don't share with them til you're sending money to their kids!

[CountryBoy]

Howdy drewster,

Nope, this is for me, well us, and it didn’t sound cold. :) College (knock on wood) is well in hand now, between her academic scholarship and the 529 plan. I got some mutuals, but no ira, so I thought I’d open one up, just for some more diversity.

I found some comments elsewhere on the net, saying pretty good things about TR Price (plus the buy-in is very attractive as I mentioned earlier), but it never hurts to have as many data points as possible and the folks here sound pretty knowledgeable.

CB

[Birchtree]

Suggest you use the Roth IRA and build your own mutual fund with individual stocks - much more lucrative in the long run. Good stocks pay dividends four times a year and often increase their dividends on a regular basis. This way you participate on a DCA program with dividend reinvestment. You can also trade the account without generating a 1099 and there is no RMD time line. The best part is it can live long after you are gone - plan your beneficiary for optimum growth.

[CountryBoy]

Thanks Birch,

I like the sound of the dividends. I've never even looked at buying individual stocks before, that's why I feel comfortable with the TSP and Mutual funds. I've got my mutuals with AG Edwards and to tell the truth, I feel like I got a better handle on muttuals than he does. They seem to only want to push a few. The last 2 mutuals I opened, he wasn't that enthusiastic about, since he wasn't familiar with them. My broker really is just a vehicle, that allows me to buy funds. That's one reason I wanted to go with someone else on the Roth. Since it's my money I'd just as soon lose it myself on my own research/selections. :D

Being a newbie on stocks, any suggestions on good stocks, I can research or a good company or site that would be useful? I may even be able to purchase the stocks thru TR, I've just never considered it, probably be of the intimidation factor of selecting a stock and even knowing the lingo. :embarrest:

Thanks
Rus

[Birchtree]

Look at companies you might have familiar with - including the work place. A web site called Sharebuilders has a low price set up and is owned by Warren Buffet. You can select stocks by industry sectors. One I own is GE, another is DUK, I actually own about 175 in my outside portfolio and I'm presently on the search for a few more. Here is a few that are on my current list: AIT, DRC, ROLL, SJI, TFR, BRS, CBI, ENS, KG, MLR, AB, ARII, BNE, FWLT, GPX, HUN, ROG, SHS, URS, WTI, BVF, CGT, THS, UDRL, AE, BAS, LTD, LDG. They are all making money and I have plenty more. Well since you asked here are a few more in case there are lurkers: RBC, ATW, AVA, CBG, CPX, GNA, GFF, MTD, NRP, PKD, PCR, PAA, SCS, BKE, DLM, GEF, HEI, TRN, ESP, WR, GDP, HW, PVA, SEN. There are so many good wall flowers out there looking for the shelter of a portfolio. Good luck. If anybody wants I have another bunch.

[CountryBoy]

Hey Birch,

I really appreciate these stocks and I have heard of Sharebuilders, but never really looked at it, since I was more geared to looking at mutuals. I’ll definitely give this information a long, serious look and check about purchasing some of these as part of my Roth, if that can be an option. I’m guessing I can purchase some of these as part of a Roth, thru Sharebuilders? Is that a correct assumption? I sure do like the idea of me being able to select what I want in my Roth.

Edit: I think I answered my own question after making a quick look at the Sharebuilders site, it looks like at straight stock purchase option and not a Roth option, but I like the idea of building my own portfolio and I'll be able to do more research tomorrow. Thanks again.

This will give me plenty to do at work next week, since I do my best research there. :D

Thanks for the info,
CB

[Birchtree]

The primary disadvantage of a Roth IRA is the ceiling limit - it takes a lifetime to build a position. With a taxable account there is no limit and you have the benefit of possibly lower taxation and step up in basis for beneficiaries. Here are a few more to look at: BUCY, ACI, TAC, TNB, AXE, ARW, CSL, CPO, GLW, CR, WAB, AVX, CXG, FCL, GDI, BGC, HRS, HES, MDP, UNT, WLL, AEM, AVZ, AHG, BMS, BWA, CEN, CVG, GMT, GGG, GVA, HP, JAH, KEX, LMS, MPS, MTW, RRC, COL, TNL, TGI, WLV. This will keep you busy - I've been doing it since 1972. It's all a matter of information and familiarity. Have fun.

[ChemEng]

Im considering opening a Roth IRA also, and have a few questions. If some are obvious, forgive me in advance. :)


The primary disadvantage of a Roth IRA is the ceiling limit - it takes a lifetime to build a position.
Could you not just invest max into Roth and then remainder into dividend earning stocks? This is surprising to me because I would think that the tax-free growth of Roth would exceed the quarterly dividends.


With a taxable account there is no limit and you have the benefit of possibly lower taxation and step up in basis for beneficiaries.
How is investing in dividend yielding stocks generate a lower tax position? It seems that both money invested is post tax, so that is moot. I am not familiar with the taxation of stocks, but are their dividends not taxed? What if dividends are reinvested instead of withdrawn?

Can you explain your system a bit more (if you dont mind)? From what Ive seen you post, you buy dividend yielding stocks and then reinvest the dividends back into those stocks with the intention to turn the dividends into income once you retire. Is this right? How does your stock portfolio fit into your retirement package? (TSP, 401s, Roths, et al.)

I have 30 years until retirement and am trying to learn the pros/cons of each option and talk to as many smart people about it as would listen. So I appreciate in advance in comments you may add.

[Birchtree]

ChemEng,

With a 30 year horizon you are perfect for a Roth - so much flexibility available. Currently you are held to a $4,000.00 ceiling that expands to $5,000.00 in 2008 and then is indexed to inflation in 2010. There is a catch up provision that goes from an $500 to $1000 this year for those of us over 50 years wise. So my limit would be $5000.00 and then goes to $6,000.00 in 2008.
First there are no 1099s generated - the IRS will not know you exist. You can borrow these funds at will and trade with abandon under the no tax banner. There is no required minimum distribution date like in a regular IRA and a younger beneficiary can draw from this account tax free. It's really a designer program that can last a very long time.
You generate gains in several ways - first is capital gains as the stocks increase in value and then dividend reinvestment. Most good companies increase their dividends yearly and some even split their prices. I saw GE split twice in one year back in the late '80s. With the dividend payments every 4 months the system becomes self feeding. It's the slow way to grow, but over time can be very beneficial - and the gains are tax free.

My objective is to have my market gains and income taxed at 5%. I don't want an annuity but rather a defined contribution plan - and I think it will eventually be offered as a voluntary mechanism. How you control your money during retirement is the goal - protect your gains.

[Birchtree]

ChemEng,

With stocks inside a Roth IRA you can trade and there are no records kept - you just can't borrow against gains until you retire. Any money you put in you can take out without penalty and eventually it's all tax free. All you need is time to build the resources but there is also no tax loss write offs if you have a loss. Presently, my capital gains are taxed at 15% and my dividend income is also taxed at 15% - but eventually I'd like to be in position to be taxed at 5%. It does require planning. Call Sharebuilder and see if they offer a Roth IRA - TR probably does. Most of the time dividends are invested for free. Eventually I'm confident that Uncle will offer on a voluntary basis a defined contribution plan instead of an annuity. TSP is the perfect plan for such a change - the infrastructure is in place.

Dennis - permabull #1

[ChemEng]

Ive put a response in my allocation talk thread to discuss this more. Its specific to my situation so I wanted to move it out of the general discussion area. I woudl appreciate it if everyone gave it a look... Thanks.

[Bullitt]

You can select stocks by industry sectors... I actually own about 175 in my outside portfolio.

Incredible! Sounds like you're running your own personalized Mutual Fund. Ever look into getting your own ticker symbol?

[anthony]

This is a nice thread, and I'm hoping the wise TSPTalkers can expand it on another front. To me there's no question about maxing the Roth IRA, but where I am hoping for some suggestions is on performance and account selection.

Here's my situation: I'm maxing out Roths every year with $4000 for me and $4000 for my wife. With the exception of TSP, we do all our investment banking through USAA, including our IRAs, money markets and a couple mutual funds.

But these USAA MF accounts seem a bit lackluster. I'll confess that we rather arbitrarily selected one of USAA's mutual funds as the basis for the Roth on the suggestions of a "financial consultant" on the telephone -- Good for getting started but I'm just not impressed for the long haul. I feel like I'm getting better performance out of my self-managed (read 'monkeys with darts') TSP Account. And I've also recently read that bank-managed mutual funds should be avoided.

My Questions:
- Where are the best managed/best performing Roth IRAs to be found?
- Are programmed accounts similar to the TSP L Funds the most recommended type of Roth?
- What are your thoughts about a Roth with a single mutual fund as its foundation?
- Aside from trying to buy individual stocks, are there Roths that let you "get more involved" similar to TSP? Or does that fall in the area of "fund managers hate market timers."
- I assume I can rollover the USAA Roths to some other company's Roth.

Thanks for any tips. Sorry for writing a whole novel ...:)

[Bullitt]

Most mutual fund companies don't allow trading like there is in TSP. They usually only allow one buy and sell combo in a period of 90 days to cut down on fees and also keep people a steady flow of cash for the fund to operate. Individual stocks can be traded as normal. The best broker for funds would be the particular company, ie: Vanguard, Rowe, American, etc. If you wish to make individual stocks your vehicle, try an Ameritrade or E trade.

Most major mutual fund companies have funds similar to our lifecycle funds. Everyone will give you a different opinion on what to fill your R-IRA with, but to answer your question... Yes you can fill an IRA with just one fund. Nothing wrong with that. I'd say that filling it with one fund is better than with none. Every Fund/Trading platform I've seen welcomes you to consolidate a Roth from other accounts solely into theirs. They're like credit card companies in the idea that they always willing to accept a balance transfer to their account.

The best way is to let it ride and not be concerned with making trades and transfers until you build a good base. A successful year or so in a bull market isn't a good indication of how one would do trading long term (30 years or so for roth). It takes money to make money. Birchtree has unbelievable knowledge and experience in the market. I'm sure he'd agree with me that the idea of running your own personal mutual fund with 145 stocks is 1. Not for everyone, and 2. Going to take YEARS with the contribution cap to accumulate a good position in any of your holdings.

[Birchtree]

I don't actually own a Roth IRA - but my daughter will once she returns from Iraq. I have 233 individual stocks in an advantage account with Merrill. My first 400 trades are semi-free - nothing is ever free. IMHO the best thing you can do with a Roth is own stocks - forget about mutual funds. Start with 4 or 5 and dump your money into them on a dollar cost basis. They will pay dividends 4 times per year and most times will be reinvested for free. You might look at Sharebuilders, they only charge $4.00/trade. Buy good stocks that pay fair dividends and let'em ride until you develope a good base to trade with - there is no paper work to worry about. And 20 years down the road all the income will be tax free. The best I can do is 95% tax free - providing the Donkeys don't mess things up.

[dell]

Birch, et al: I am a 1099 independent contractor with the Dept of the Army. I am opening an SEP (and if anyone has info on where would be a good place for the SEP I would appreciate hearing it). My accountant says I make too much for a Roth and has suggested I open a non-deductible IRA in addition to the SEP. That is something I am not familiar wth. Any advice / guidance?

Dell

[Birchtree]

I have information but I'll have to dig for it - so will return. I have something on a single employer 401K that may fit your bill. It allows greater deductability than even the SEP.

[dell]

I will be looking for it. Thanks !!

Dell

[Bullitt]

And 20 years down the road all the income will be tax free...providing the Donkeys don't mess things up.

That is my only qualm with a Roth IRA. Alot can happen in 20 years, but in my case even more can happen in 30.

[Birchtree]

dell,

The solo-retirement plan is known as a Uni-K plan and business owners can make both employer and employee contributions. You can find more information on-line by looking at Pioneer Investment Management based in Boston and owned by UniCredito Italiano Group. They have annual charges of $100 and these plans are offered with no setup charges. As a one-person business you can stash unusually large sums in this type of 401(K), thousands of dollars higher than in most other types of tax deferred plans. Because Pioneer is a mutual fund you may be limited to selecting mutual funds. There may be a 25% of pay cap but employee deferrals aren't counted toward the 25% of pay limit - making it possible for one person business to make a large employer contribution and then also make the maximum $20,500 a person deferral - that includes the over 50 catchup. There is a flat dollar cap which I think is around $60,000. The one-person 401(K) offers the biggest potential benefit for one-person businesses earning between $50,00 and $160,000. Check out the Uni-K plan before opening a SEP IRA. Hope this might help - if you don't need your working income you would be working for your retirement. Take care.

[dell]

Thanks for researching this for me and anyone else who is interested.

Dell