IRAs for 20-somethings?
 

Do any of the GC finance gurus have any knowledge about retirement plans for 20-somethings? I've heard so much about the target retirement plans, and a lot of it seems to be conflicting, so I wondered if there were any real live 20-something investors with real information or legitimate sources that aren't a result of Google research..

I'm visiting a few financial planners later on this week, and I've done a lot of interweb research, but I still don't want to be taken by some guy who just wants to get a large initial investment from me.

There are 2 IRAs: Traditional and Roth. Traditional is better but you can only open one if you make below a certain income.

http://www.fool.com/ira/ira.htm?source=LN

If you're looking for a broker to handle the IRA account, most do it for free, but they make their money off the trades you make in that account.

-Rudey

Are you employed? Does your company offer any kind of 401-k or retirement savings plan?

In my field (Architecture/Conservation), most of the employers are small businesses that do not offer much in the way of retirement benefits. :( Eventually, I will work for a larget company that does offer 401(k) or retirement savings plans, but I'd like to get started now.

Rudey, do you know anything about Vanguard's Target 2045? I know there are others like it, but Vanguard sounds the best for me. It doesn't have a contribution limit like the IRAs do.

I don't know about it that much but that is a fund. It's not an IRA. Think about it like this.

An IRA is a type of brokerage account essentially. You can invest in anything traded publicly within that IRA account. One of the items you can invest in is the Vanguard fund you mentioned.

I don't make investment recommendations to people, but I don't think anyone should invest in one fund, one company, one sector, or one product group.

-Rudey

Rudey is more of an authority on this than I am but I don't think that there is an income limit if you do not participate in a retirement plan at work. If you do participate in a retirement plan at work and make $50,000 I believe that you can still make a fully tax-deductible contribution of $4,000. I think that your ability to contribute to a traditional IRA and an in-office retirement plan is phased out completely between $50,000 and $60,000.

I recommend a book called, "Investment Survival." You can get it at Amazon. It's an easy read and very informative.

There are several ways to save for retirement.

If your company offers a 401(k) or similar plan, that's a great option. Your contributions are deducted from your paycheck, and some companies will match part of your contributions. When you leave the company, you can turn your 401(k) into a rollover IRA if you want. But you say that's not an option right now.

You can contribute to a traditional or Roth IRA. Like Rudey said, you have to make below a certain amount to contribute to a traditional IRA. There is also a maximum income level for a Roth, but it's a lot higher.

If you're self-employed, there are a few types of retirement accounts you can set up, such as a SEP-IRA.

You are very wise to be thinking about starting to save for retirement while you're in your 20s.

No. I create a product (bonds) on behalf of my firm for an issuer. A financial advisor or broker's job is to take my product and sell/cold call/whatever to individuals.

-Rudey

I was able to open a Roth IRA. They didn't ask me how much I made though. There is just a monthly contribution that is deducted from my checking account every month. (Of course now that I don't really have a steady job, I kinda turned off the deposits.)

But I went to a local financial group and they set me up with Openheimer. I just call OP whenever I need to check something now.

i don't have much real advice for ya - but i'm 24 and i've had a roth since i was 21. i don't put a ton of money per month into it, but it's steady and i've got time.

-marissa

Hey Rudey!

I just rolled over a Symetra 401K plan that my job dropped 'cuz of I dunno, and a USAA TSA that wasn't making any money into a Traditional Met Life IRA account...

Then, I just opened a new Met Life Roth IRA, where I will contribute $100 per month upto $4000 per tax year...

My financial advisor works for Met Life--how much will he be getting off the top?

Also, he wants me to up my ante with a Met Life Insurance Policy VUL... Says the cash in value benefit and the death benefits are good... I have to have a physical for it... It is to complement my husband's State Farm Whole Life policy... Do you think that is wise to get in to right now? I have booty Phoenix Wealth Management Flexible Variable Life Annunity... But, it tain't much...

Lemme know what you think?

AKA_Monet, he might not want to give you advice over the 'net.... but wow. Sounds like you've got everything taken care of!

Re: IRAs for 20-somethings?
 

If he/she is forcing you to do somethg you don't want to do, then you should be concerned.

I am a financial advisor and the FIRST step we do with our clients is sit down and figure out their assets, liabilities and cash flow and all other important information about their situation. THEN we figure out what it going to work for them.

We have regulations to follow and the biggest is to do what is in the best interest of our client........

Monet, in all honesty I don't recommend brokers or financial planners to people. SmartBlondeGPhB I hope you don't take offense to that. I truly believe people are smart enough to make their own decisions and unless you truly have a vast fortune that needs daily tending to, it doesn't make sense to even pay 1% to anyone. Plus a lot of info out there is biased where fund pay brokers and whatnot. But that is just me and that is what I do and that's that.

Again, the thing I have seen recommended often is diversification. You can buy into 10 oil funds if you wanted as opposed to putting it all into 1. The other thing others recommend is staying away from funds and investing (not trading) yourself since managers can skim a couple percentage points off the top. I have heard some folks swear by exchange traded funds with great, stable active managers and I think fool.com ranks those funds if that's what you wanted. I personally never thought insurance fit my needs and people at those insurance brokers will sell you everything and anything and act like it's an investment. After all that's how they get their money.

-Rudey

Be careful here - fine-tooth comb the policies and make sure this is something solid, many MANY times the largest margin products offered are life insurance policies (as in, the sale will make the broker the most money).

FWIW, many IRA plans have lower startup/initial investment costs. For example, I have a Roth IRA mutual fund with T. Rowe Price. I requested a prospectus (fund description and history) from the company, and it had a form for me and my bank to fill out that would allow transfers from my checking account to my IRA. (You'd need to fill one out for each fund you end up investing in.) But I could set it up with a $100/month automatic withdrawal from my checking account. Otherwise, I'd need to deposit $1000 into the IRA right off the bat to open the account.

Since you're young, you can afford to invest in "riskier" stock mutual fund accounts, as opposed to mutual fund bond accounts (those are more stable, but can still lose money, of course).

Either way, it's good to invest something every month. That way you aren't trying to time the market, and the ups and downs of the share prices kind of even out a little more.

Just some stuff to think about.

My college money was in mutual funds, the left over was put into a ROTH IRA when I graduated. When I met with the AG edwards people they never mentioned about having to have a certain amount to open a traditional IRA, just about the difference about when you pay the taxes on the money in the account, and the penalties for taking money out of it early.

It is my understanding that there are minimum requirements to open IRA accounts at most investment institutions, just as most banks have minimum opening balances or monthly average balances for their interest-bearing accounts (CDs, savings, checking with interest, etc.).

The more important point is that many investment organizations do have plans where someone with an income but not a lot of savings can start investing in an IRA, even if their workplace doesn't offer a 401K plan or other asset-deduction plan.

For example, T. Rowe Price has a fund called Mid-Cap Value. When we invested, we had the option to invest $50 monthly into MCV as an IRA via automatic asset builder-- where they automatically deduct $50 per month from your checking account. Otherwise, you'd need to deposit $1000 to open MCV as an IRA. (If we wanted a non-IRA version of MCV, the minimum initial investment was $2500). So $50/month is probably affordable to most people who are working and are just starting to invest their money in outside accounts.

The above poster may not have been told about minimums by AG Edwards, because it's likely that the leftover college mutual funds that were rolled over into the AG Edwards IRA were *already* more than the minimum requirements to open an IRA account.

Again, a fund is different from an IRA. An IRA is just an account and a fund is whatever you invest the account money in.

I trade through my broker, Brownco/JPMorgan. Their minimum for regular accounts is 50 but you get a great deal on IRAs because it drops to 3. The reason why I like Brown is because of the fees charged for each trade. I think a plain vanilla trade is $5 but I do limits.

-Rudey

*bump*

My firm is terminating their retirement savings account, and I'll need somewhere to roll over my earnings. I am a member of a bank and a credit union, and they both offer IRAs. Obviously, the credit union would have better rates, but I'm wondering if I should look elsewhere other than a bank? Do I need to get a financial advisor to do this for me?

Better rates for what?

An IRA is just an account. You shouldn't be charged to open one up. Everything you do from there is the same that you would do with any broker - basically the fee you pay to buy or sell a stock/bond/option/whatever. There are a lot of websites comparing broker fees - I recommend Brownco.com.

-Rudey

Okay, I confused myself. When I went to my credit union's website to look at information on how I would open up an IRA, etc., they had this chart of interest rates for all their accounts. Under IRAs, they have interest rates listed. (pretty much, it looks exactly like when you go to the bank to open up a checking account and you compare the interest rates b/w the different types of accounts). Apparently that's for their IRA certificates, which wasn't immediately clear to me. That's why I was asking about the rates (interest rates).

I guess I'm asking if it's better to open up an IRA through a bank or through an investment firm, such as some of the ones listed in this thread. Or does it even matter? Since brokers make $$$ off the trades you make in your account, do banks do the same? Do you even have the power to make trades if you go through a bank, or do banks automatically do it for you?

Am I making any sense? Sorry if this is making me sound like a complete idiot.

My next question is this: as I understand it, once I've rolled over my account, if I make any contributions to this new IRA account, that can no longer be combined with any IRAs in the future, is that correct?

I have a Roth IRA with Legg Mason investment firm. :)

If your company offers a retirement plan, you may want to contact your benefits coordinator to see if your plan allows IRA money to roll into the plan. The IRS/DOL recently revised regulations that allow IRA money to flow into the 401k as rollover money - however each retirement plan has the option of not adopting this new allowance. This may be a better option as you won't be hit with as many fees as you would under the IRA.

Regarding the Vanguard Target Maturity 2045 fund, this fund is perfect for the investor who doesn't want to try to pick a diversified portfolio. It is actively managed and over time, the fund will become more conservative until the "maturity date". It assumes you'll retire in 2045, so the mix is initially very aggressive, so don't be squeamish about fluctuations. Keep in mind though that this fund was only started in 2003, so the track record is short.

Just as a note: I work with company retirement plans for a living....

Your bank/credit union may have a financial advising arm to it (my credit union does) and they would be the best ones to talk to. A bunch of people on the internet, aren't.

Basically, you want a rollover IRA and then you want to pick the funds that you put the money into. Hundreds of companies offer them. Fidelity is great on educational materials if you want to check out their websites and learn some of the basics. www.fidelity.com.