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Shaun | Questions about Roth IRA? |
I was wondering how old you have to be to open a Roth IRA?
- would it be a good idea to open one right now (19) & what would I be able to max out on avg. ?
Is there a certain amount of assets or money you must have to open one?
How much does a Roth IRA cost per year/month?
Is a Roth IRA affected by inflation?
Additional Details
That was very helpful - Thank you.
Currently I am unemployed although I am "working" various jobs and making an income.. Though I'm not sure I fit the criteria to rule my self as self employed... Will that carry an effect on opening an IRA...
Also with the different IRA plans - which would be best to open as a young guy.. Right now I was thinking Roth. |
 
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Hylian
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Since you are over 18 years old you can own securities and this includes opening a Roth IRA. The max allowable for 2010 is $5000 or the 100% of you your taxable compensation which ever is less. This is very important, you don't want to have excess contribution, there is hefty fines and tax consequences. On the other hand, you may not qualify for Roth IRA if you make over $120,000.
Depending on the financial institution you open your Roth IRA at, the funding minimum will vary. Charges may vary, and it depends on the investment vehicle you choose (CDs, Mutual Funds, Money Market etc.). Its probably best to talk to a financial adviser.
Roth IRA like all money will be affected by inflation, so as long as your growth rate is greater than the inflation rate you are making good progress.
The difference in Roth is that it is after tax money invested to grows tax free, and is tax free when you take it out during your retirement age @ 59 1/2. However, Traditional IRA is tax deferred money that grows tax free, and taxed when you take the money out during retirement. The key here is do you want your tax money to work for you, or do you want to not pay tax when you retire.
In addition, for Roth if you were to take money out early you can take out the principle tax and penalty free. It is only when you dip into the earnings and take it out early would you be tax and penalized. The five year rule only applies if you do a conversion from a Traditional to a Roth IRA, which is not the case for you. |
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efflandt
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Although, $5000 is the currently most you can contribute to the total of any or all IRA's per year, it has to be "earned" income (wages, tips, salary, etc.). So if you only have unreported income, you cannot contribute that. If you get paid for odd jobs, that would be considered self employed and it is up to you to keep track of that and file taxes if it is enough to require tax filing.
An IRA is not a specific type of investment, it is a wrapper around whatever you want to invest in that is allowed. So whether it keeps growing or not under different economic conditions depends what you actually invest in.
Generally contributing to a Roth IRA is best when your income and tax rate is lowest, because Roth IRA contributions are not tax deductible, but "qualified" gains are never taxed. Later as your income and tax increase, it can make sense to contribute to a regular IRA or 401k or other plan at work, not only for any employee match, but also to possibly stop you from bumping into a higher tax rate, since they are generally either tax deductible or not taxed until withdrawn. Although, there may be deduction limits for an IRA if you are eligible for an employee plan.
See IRS Publication 590. |
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StephenWeinstein
 |
If you are working any job, are being paid for it, and are not an employee, then you are self-employed. The only criteria for being ruled self-employed is doing any paid work except work that an employee does for an employer.
If you are working any job and are being paid for it, then you are not unemployed. The government's definition of an "unemployed" person is someone who is looking for work, is available to work, can work, and is not doing any paid work at all. Any person who is being paid to do any work is not "unemployed", even if the person is not an "employee".
Different places charge different amounts per month or year. At many places, you can have one for free.
At many banks, you do not need any certain amount of money or assets. Mutual fund companies typically want at least $1,000 or so if you are just making a one-time investment, but some will go lower if you are periodically adding more money.
Inflation generally does not affect the amount of money in a Roth IRA directly. Inflation does tend to affect interest rates, so it will ultimately have an indirect effect. You can elect to invest the Roth IRA in certain things that are directly affected by inflation, such as "TIPS" (treasury inflation protected securities, no connection to "tips" spelled in lowercase letters, something completely different). |
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tro
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there are two kinds, one has a tax advantage and one has no tax consequence
if you open a regular IRA is it based on your earnings, so if you don't have a lot of income you very likely will not benefit by opening one(a tax credit)
you are limited to withdrawals until age 59 1/2 without penalties
when you take distribution you will be taxed on the impact it has on your gross income
A Roth is tax free when contributed, and you must hold it at least 5 yrs before you take any distribution without a penalty
when you eventually take distribution, after age 59 1/2 it is not taxable, all the years, of interest income is not taxable |
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papasteve
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As soon as you make any money you can open an IRA, Roth or not. Roth would be better.
You can put in up to I think $5,000 a year.
Now When you put the money in a Roth IRA, you will still need to choose where to put your money. Money Market, Stocks, or Bonds. Most people at your age would put money in stocks. But then there you still have choices. Low risk, where you most likely will not lose any money, but you will only earn maybe 3-5%. Medium risk, you could lose up to 10- 20% of your money, but you could earn 10-20%. High risk is the big one. You could lose 20-40%, but you could earn 30-50% or more.
The basic rule, at your age is 20% low, 20% medium, and 60% high risk. Then at 40 and every 5yrs switch 5% from the high risk to medium risk. So at 40, you will have 20% low, 25% medium and 55% high risk. At 45yrs old 20% low, 30% medium, and 50% high risk, and so on.
Now if you put 2,000 a year for 5yrs, in 30yrs you will have 600,000 at 50. at 60 you will have 2 million. Now if you do 2,000 for 10yrs, in 30yrs at 50yrs old, you will have 1.2 million.
As long as you earn any money, you can still put the max. Lets say you only earn $2,000, your parents or uncle can put in an account up to the max. Just as long as you have a SS #, and got a paycheck and paid into SS.
Also after 5yrs, and beyond, if you want or need the money you could take out any amount of money you put in. Not recommended, but you can if needed. But the rest of the money you can not touch until you turn 591/2. Otherwise, you will have to pay a penalty. If you put in 10,000, and 20yrs later you have 100,000. If you take out more then the 10,000, lets say 20,000. you will have to pay 2,000 to the government, as a penalty.
I think you can start with as little as $500. Charles Schaub is ok, Merle Lynch is ok.
Hope this helps. Good luck. |
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