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[concordancia]

So, guess what. I am finally a grown up!! As such, I plan on opening an IRA this year.

What should I be looking for? What companies do y'all use?

Would anyone like to give me $5000 to get me started for this first year?

[charlesr]

Fidelity and Vanguard are both reputable, reasonably low cost firms.

Can't help you on the $5k.

[archaeo42]

Has anyone opened up one with their credit union?  I've considered doing this for awhile but as a grad student didn't have the extra cash.

[clean]

An IRA is just a house.  It shields your stuff from the taxes that rain down.  What you put in that house is what is important.

Where do you build your house?

I have mine with E*Trade.  However, you can open that house just about anywhere.  You can use TIAA, or a credit union, or USAA, or just about any other place.

What do you put in it?  That is another question, and in some respects dependent on where you build your house.  IF you open it at a credit union, then you are generally limited to Cd's.  Cd's may be safe, but they are very low yielding right now, meaning that you may not be able to afford to retire... how safe is that?

If you open it at TIAA, you may well be limited to TIAA's choices, but if you use Etrade/Scottrade/ameritrade, then you can use individual stocks, mutual funds or exchange traded funds.

The next (first really) question is 'are you going to set up a regular or Roth IRA'?  (my vote is for the Roth).

[concordancia]

The next (first really) question is 'are you going to set up a regular or Roth IRA'?  (my vote is for the Roth).

Please to be discussing.

[clean]

 A regular IRA gives you a deduction on your income taxes this year (assuming that your income is low enough).  The money put in grows tax free, and then when you take the money out, you pay taxes on it.

The Roth IRA allows you to put money in after taxes today (no deduction on this year's taxes) BUT you can take all the money, including the earnings out tax free when you retire.  Further, you can take out the initial contributions out tax free after five years.


Here is the big question:
Do you think that tax rates are going up or down?  If you think that they are going up, then pay the taxes today.

Next question:
Let's say that you contribute over your working life $250K, but that grew to over 1 mil at retirement.  Would you rather pay taxes on 1/4 mil or over a mil?  Even if tax rates stay the same, you will end up paying more in taxes later than now.  (There is a time value of money argument, but I will sidestep that for now).

Finally,
The regular IRA REQUIRES that you start making payments(withdrawals) when you are 70 1/2.  You wont have any control over you taxes at that point.  With a Roth IRA, you never have to take the money out.

[pedanterast]

Probably the single biggest factor in the decision is whether you think you will be in a lower tax bracket when you retire, which is the situation where the regular is better than the Roth.  That can be hard to predict.  We've discussed this before so a search may be helpful.

If all else is equal than the Roth is more equal, if that makes any sense.  More flexibility.  However if you die early you will wish you had gone with the regular.  That won't matter, though.

[archaeo42]

So, how do you choose what to put in your IRA if you're completely clueless (like myself)?  I've always leaned towards going with a Roth IRA but was completely unaware that it mattered if you had CDs vs other things.  I suppose the best answer is to discuss this with a financial planner?

[aristotelian]

I personally don't think there is anything a financial planner can tell you that you cant learn for yourself with a bit of research.  I would rather do the research myself rather than pay fees to someone who might have a conflict of interest.

Yes, you can invest in pretty much anything you want, from a savings account with a guaranteed rate of return (but probably lower than the rate of inflation), to stocks in an individual company that can gain or lose 50% overnight.  In general, you should go for higher risk, higher rate of return when you are young and you want the money to grow as much as possible, and get more conservative the closer you are to retirement and using that money for your living expenses.

Read a financial planning book by somebody like Suze Orman or Dave Ramsey, then see if you need a financial planner.

Start conservative, with things that you understand, such as savings accounts or CDs.  Then if you decide you have the risk tolerance, broaden to mutual funds after you have done some research.

[clean]

So, how do you choose what to put in your IRA if you're completely clueless (like myself)?

See if you have an Employee Assistance Program where you work.  See if they can set you up with a fee only financial planner.  It may not cost you anything.

Otherwise, for the retirement portion, I would suggest that you stick with TIAA/CREf.  They have rather low fees and enough choices for investments, but not so many that you are paralyzed.

Still, you may want to see a financial planner because there are other life issues that you need to discuss.  (insurance, retirement, debt management, etc).

[sciguy]

On the Traditional vs. Roth IRA issue

The first IRA account I opened was a traditional - I was younger wanted to save, but also wanted the tax credit.  Without the credit I would have owed a bit in taxes that year, with the credit I got a nice (not huge) refund on my taxes.  At the time the tax credit was the deciding factor.

A few years ago I opened a Roth IRA since the tax credit wasn't important and it's much more flexible (you can withdraw contributions early penalty free in many cases).

[concordancia]

So, how do you choose what to put in your IRA if you're completely clueless (like myself)?

See if you have an Employee Assistance Program where you work.  See if they can set you up with a fee only financial planner.  It may not cost you anything.

Otherwise, for the retirement portion, I would suggest that you stick with TIAA/CREf.  They have rather low fees and enough choices for investments, but not so many that you are paralyzed.

Still, you may want to see a financial planner because there are other life issues that you need to discuss.  (insurance, retirement, debt management, etc).

We do not have an EAP, as I learned when attempting to chose a counselor when I was new to town.

However, we have one of those alternative retirement plans, so my money is currently with Fidelity and I have been meaning to meet with their rep (LOOOOONNNNNNGGGGGG story in which my initial attempts to make an informed decision were thwarted at every turn, so I just signed on with Fidelity without ever meeting the rep). Of course, said rep may just say "put the rest of your money with us, too!" But it is at least a place to start the conversation.

[clean]

As Ive said for a long, long time, I tend to agree with Dave Ramsey.    Ive often recommended his book, "The Total Money Makeover".  Someone else here already has.

So here are the top questions:
1.  Are you debt free?  (What debts do you have)?
2.  do you have an emergency fund of 8 months (Suze Ormand) of expenses?
3.  Do you have adequate insurance (life, health, auto, home?)
4.  Do you have children (are you saving for their college?)
5.  Do you (and your spouse) have a will?
6.  Do you have any special needs or plans (buy a house, car, birth, sabbatical, research/travel expenses, etc).


Since you are asking about an IRA, it does not have to be with the same as your regular retirement fund.

Dave Ramsey will also give you advice on how invest, if that is appropriate.


Anyway, these are some of the questions that the financial adviser would ask.

[archaeo42]

Clean, thanks for the book recommendations.  I'll definitely check those out once I'm more settled (just moved for a postdoc).  I've always felt very overwhelmed by the number of investing possibilities and never quite knew where to start.

[concordancia]

Evidently, I should be reading the fine print on the HR bulletins - we do have an EAP now.