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Roth IRA Questions

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Contributor

Re: Roth IRA Questions


@tacpoly wrote:

@ZZWW2017 wrote:

 

And after the term of the certificate is up, I can transfer the Roth to a different financial institution and invest the Roth into the stock market, correct?


 

I think you should be clear what a Roth IRA is: think of it as a brokerage account that comes with tax benefits and some limitations. You can open a Roth IRA with a lot of financial institutions; full-service or discount brokerages (Fidelity, Schwab, Vanguard are good ones) make it very easy to set one up.

 

As the owner of the Roth account, you are allowed to deposit a limited amount of money (your contribution) to the account ($6,000 in 2019) per year. You can then use whatever cash is in your Roth account to buy investment vehicles like individual stock, mutual funds, ETFs, bonds, treasuries, CDs, etc... Your choices are usually limited by the financial institution that holds your account -- for example you have a lot of options at Schwab, but maybe a Roth IRA account at a local bank would be limited to CDs and mutual funds.

 

As for transferring accounts, let's say you have a Roth account at Merrill Lynch, you can open another one at Vanguard (combined contribution cannot exceed maximum). Later you decide you want to consolidate it all at Fidelity: so you open a Roth IRA at Fidelity then transfer what's in your Roth at Merrill and Vanguard to the Fidelity Roth IRA.

 

As for withdrawing money, let's say you contributed $25,000 into your Roth over the last 7 years. It has grown to $60,000 because you invested well. You can withdraw that $25,000 contribution penalty- and income tax-free. You cannot touch the $35,000 in gains until you turn 59 1/2 years old; if you withdraw it before that, you will be taxed and penalized. When you reach official retirement age, you can do what you want with the money -- withdraw it all at once, leave it alone, or in-between -- and it will be completely (federal) income tax-free.

 

As your tax rate is currently very low (according to your previous post) it is very smart to contribute to a Roth (if your company has a Roth 401k, might be even better). It is also very smart to invest that cash wisely and let that money grow in the Roth over a long time (don't withdraw it).


 

Thank you so much for the thorough reply.  Thank you for taking the time to type it all out; I really appreciate it.  This confirms what I was thinking.

Smiley Happy

 

Message 11 of 32
Regular Contributor

Re: Roth IRA Questions


@ZZWW2017 wrote:

@CGeorge wrote:

The beauty of the ROTH is that because all funds going into the ROTH have already been taxed - you will NEVER be taxed on monies coming out. Furthermore, should you need any of of your ROTH principal prior to age 59-1/2 - you can pull any of your invested amount out with no penalty. You can't the funds that have grown from the investments without penalty. Gosh, I really wish that Roths had been available years ago...


 

Thank you.  

 

And after the term of the certificate is up, I can transfer the Roth to a different financial institution and invest the Roth into the stock market, correct?

 

Yes. That is correct. Make certain that the new institution characterizes your account as Roth. Double check that yourself. I had one instance where the gal who did the CD wrote it up as a traditional IRA. I caught that before leaving her cube. It was a big deal to get it taken care of as she either did not know or did not want her supervisor to know about the error. 

 

 

 


 

Message 12 of 32
Contributor

Re: Roth IRA Questions

Thank you for the reply, and thank you for letting me know to double-check. 

Good advice.

 

Message 13 of 32
Frequent Contributor

Re: Roth IRA Questions


@ZZWW2017 wrote:

@CGeorge wrote:

The beauty of the ROTH is that because all funds going into the ROTH have already been taxed - you will NEVER be taxed on monies coming out. Furthermore, should you need any of of your ROTH principal prior to age 59-1/2 - you can pull any of your invested amount out with no penalty. You can't the funds that have grown from the investments without penalty. Gosh, I really wish that Roths had been available years ago...


 

Thank you.  

 

And after the term of the certificate is up, I can transfer the Roth to a different financial institution and invest the Roth into the stock market, correct?

 

 

 


Moving an IRA, including a Roth IRA, from one institution to another is called a "Roll over"

and is very easy to do. All of the big brokerages - Fidelity, Schwab, Vanguard, etc - have 

departments dedicated to rolling money from other institutions into their brokerage. Pretty

much one call or log-in can get the ball rolling and they will do it.

 

That said, there is very little difference between the big brokerages and there shouldn't

be compelling reasons to change very often. All of the brokerages have the same

investments available. In particular, all of them offer brokered CD's which sounds like

what you are invested in. You can compare and buy CDs from banks around the world

within your brokerage IRA account.

 

I have had accounts with Schwab, Vanguard, Fidelity, TdAmeritrade and Merril Lynch,

The is very little difference from a customer experience. I prefer Schwab and Fidelity,

but have no disagreement with someone preferring others. I would strongly

recommend that you choose one of the major discount brokerages over a bank or

credit union for your IRA(s) though. There is a big difference between a brokerage

verses a bank or CU.

 

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Message 14 of 32
Contributor

Re: Roth IRA Questions


 

Moving an IRA, including a Roth IRA, from one institution to another is called a "Roll over"

and is very easy to do. All of the big brokerages - Fidelity, Schwab, Vanguard, etc - have 

departments dedicated to rolling money from other institutions into their brokerage. Pretty

much one call or log-in can get the ball rolling and they will do it.

 

That said, there is very little difference between the big brokerages and there shouldn't

be compelling reasons to change very often. All of the brokerages have the same

investments available. In particular, all of them offer brokered CD's which sounds like

what you are invested in. You can compare and buy CDs from banks around the world

within your brokerage IRA account.

 

I have had accounts with Schwab, Vanguard, Fidelity, TdAmeritrade and Merril Lynch,

The is very little difference from a customer experience. I prefer Schwab and Fidelity,

but have no disagreement with someone preferring others. I would strongly

recommend that you choose one of the major discount brokerages over a bank or

credit union for your IRA(s) though. There is a big difference between a brokerage

verses a bank or CU.

 


 

Thank you for the reply. 

 

One of my credit unions offered me a promotion to open an IRA certificate with them.  After the term of the certificate is up, I would like to rollover the Roth IRA to Chase, because Chase offers me free trades (100 per year).  I would then like to purchase one of the S&P 500 ETFs with the Roth IRA, as I figure this would provide a better return than a certificate.

 

Does this sound good?  Would you still recommend one major discount brokerages over my plan?

 

Thank you.

 

Message 15 of 32
Frequent Contributor

Re: Roth IRA Questions


@ZZWW2017 wrote:

 

Moving an IRA, including a Roth IRA, from one institution to another is called a "Roll over"

and is very easy to do. All of the big brokerages - Fidelity, Schwab, Vanguard, etc - have 

departments dedicated to rolling money from other institutions into their brokerage. Pretty

much one call or log-in can get the ball rolling and they will do it.

 

That said, there is very little difference between the big brokerages and there shouldn't

be compelling reasons to change very often. All of the brokerages have the same

investments available. In particular, all of them offer brokered CD's which sounds like

what you are invested in. You can compare and buy CDs from banks around the world

within your brokerage IRA account.

 

I have had accounts with Schwab, Vanguard, Fidelity, TdAmeritrade and Merril Lynch,

The is very little difference from a customer experience. I prefer Schwab and Fidelity,

but have no disagreement with someone preferring others. I would strongly

recommend that you choose one of the major discount brokerages over a bank or

credit union for your IRA(s) though. There is a big difference between a brokerage

verses a bank or CU.

 


 

Thank you for the reply. 

 

One of my credit unions offered me a promotion to open an IRA certificate with them.  After the term of the certificate is up, I would like to rollover the Roth IRA to Chase, because Chase offers me free trades (100 per year).  I would then like to purchase one of the S&P 500 ETFs with the Roth IRA, as I figure this would provide a better return than a certificate.

 

Does this sound good?  Would you still recommend one major discount brokerages over my plan?

 

Thank you.

 


I have never dealt with Chase except their credit cards. I have read they have been offering free trades to

attract new investment accounts. I would guess that Chase would be suitable for a place to hold a long

term account, like an IRA. Just be careful about taking investment advice from them. They have an

investment management team that I personally would avoid. That isn't just Chase, that goes for all 

brokerages. There is an old saying "Once you know enough to evaluate a financial adviser, you know

enough to not need one". There is no substitute for a little time studying personal investment. 

https://bogleheads.org is a great, one stop site on personal investing, with a fantastic Wiki and a

very active, helpful forum. A few hours spent in their Wiki can pay huge dividends as far as performance

of long term investing.

+ 850 FICO8 since 2015, Thanks MyFICO - 5+ years since last HP
Message 16 of 32
Contributor

Re: Roth IRA Questions

Alright; thank you for the reply and for the link.  I'll check it out.

 

Message 17 of 32
Frequent Contributor

Re: Roth IRA Questions

I have issues with what you're attempting to do, ie moving Roth money from custodian to custodian, chasing the best certificate return.

The problem is that there are fees involved when you do account transfers.

My personal view is this... Roth accounts are tax-free in the sense that all GROWTH is tax-free (assuming you don't withdraw early). Therefore, you should invest in something that will GROW. The investment which grows the most in the long-term is the stock market (albeit with a lot of volatility). My suggestion is to invest in low-cost mutual funds and hold on for the long-run. Don't be scared out by the occasional corrections (and crashes) because historically, the stock market has always recovered and gone higher.

If you have questions, I have answers so feel free to ask!



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Message 18 of 32
Contributor

Re: Roth IRA Questions


@brother7 wrote:

I have issues with what you're attempting to do, ie moving Roth money from custodian to custodian, chasing the best certificate return.

The problem is that there are fees involved when you do account transfers.

My personal view is this... Roth accounts are tax-free in the sense that all GROWTH is tax-free (assuming you don't withdraw early). Therefore, you should invest in something that will GROW. The investment which grows the most in the long-term is the stock market (albeit with a lot of volatility). My suggestion is to invest in low-cost mutual funds and hold on for the long-run. Don't be scared out by the occasional corrections (and crashes) because historically, the stock market has always recovered and gone higher.

If you have questions, I have answers so feel free to ask!


 

Thank you for the reply.

 

Yes, I plan on investing in the stock market; that is the reason I want to eventually move the Roth from the credit union to Chase.

Thank you again.

Smiley Happy

 

Message 19 of 32
Moderator Emeritus

Re: Roth IRA Questions


@brother7 wrote:

I have issues with what you're attempting to do, ie moving Roth money from custodian to custodian, chasing the best certificate return.

The problem is that there are fees involved when you do account transfers.

My personal view is this... Roth accounts are tax-free in the sense that all GROWTH is tax-free (assuming you don't withdraw early). Therefore, you should invest in something that will GROW. The investment which grows the most in the long-term is the stock market (albeit with a lot of volatility). My suggestion is to invest in low-cost mutual funds and hold on for the long-run. Don't be scared out by the occasional corrections (and crashes) because historically, the stock market has always recovered and gone higher.

If you have questions, I have answers so feel free to ask!


I've never paid a fee to shuffle my money around between custodians to my knowledge for either my Trad or Roth IRA's assuming you are transferring securities rather than liquidating the account (might be fees associated with that transaction).  What specific fees are you referring to?

 

I would absolutely put any form of IRA or brokerage account at a place that actually has diverse investment options: there are plenty out there, I'm using Chase for both my Brokerage and Roth IRA though I can't do much that's fancy there (no derivatives or alternative investments) but the Roth isn't a huge account and my brokerage is long term equity plays with some tax loss-harvesting for ones that don't work out.

 

That said we're at, and I hate this word, historically low personal tax rates that are going to expire as I understand it and doubt they will be renewed: I'm converting some of my Traditional IRA's to Roth's when I have limited income as a result; I probably will be out of the workforce temporarily while in school within the next 5 years and I may convert my main IRA's over piecemeal at that time at the lowest marginal tax rate I'm probably ever going to see in addition to playing games with "backdoor" Roth contributions currently since I can't deduct a traditional IRA when I'm working anyway.

 

In general Roth's are good things, but because a traditional 401k reduces my AGI whereas a Roth 401k does not, I doubt I'll ever get large sums into it short of massive rollovers which are their own special blend of tax fun.




        
Message 20 of 32