E3only

Hi Guys,

Just toying with the idea of opening a Roth IRA account. I have done some basis research and understand the different between IRA and Roth IRA. I am thinking more so Roth IRA given the post tax contributions will be tax free (along with the growth). I understand that except for certain conditions (like withdrawing for first home, disability, death etc) the money can not be withdrawn until 59.5 years.

Wife and I avg age is 29 so I have no idea if there is such a thing as 'best age' to start considering IRA accounts. BTW, I contribute 6% to my 401(k) which is matched by my employer.

Just looking for some words of wisdom. Understand not advice but just some things to consider before I make a concrete plan. We are looking to open an account and contribute 200-300 a month.

Also
- Any suggestions whom I should open the account with. For some reason Fidelity comes to mind
- Once I contribute, can I dictate how the funds would be invested?
- Looking for no fees account.

Any help greatly appreciated.

Regards,

fatbrit

Any money contributed to the account can be withdrawn without penalty. It's only the interest that's tied up or subject to penalty with a Roth.

E3only

Let me get this right...

Let's say I contribute $10,000 over 3 year period. It earns 6% say that is $1,800. Are you saying I can withdraw 10k anytime I want but just not that 1800?

fatbrit

Yep.

E3only

Thanks for confirming. I assume when I open one, I can chose investment options just like I am able to do with 401k?

fatbrit

Gamble the forex markets if you want.

Michael

Normally if you open an account with a broker (Fidelity, Schwab, TD Amertrade, ETrade, etc.), you have access to all investments that a normal brokerage account has.

E3only

Schwab seems to be more dominant than say fidelity. Anyway I want to know if I can open an account then just invest to an index. Say mid cap or whatever? I don't want to necessarily trade. I know nothing yet about US stocks.

Michael

Sure. The two most common index ETFs are SPY which tracks the S&P500 with a low expense ratio of 0.10% and DIA which tracks the DOW with an expense ratio of 0.18%. For a midcap index, there is MDY.

If you want to track international indexes, FEZ is pretty good and tracks the 50 largest stocks in the Euro zone or DWX which tracks the largest companies around the world.

Many consider ETFs better than mutual funds because of the lower expense ratios.

https://www.spdrs.com/product/fund.seam?ticker=SPY
https://www.spdrs.com/product/fund.seam?ticker=DIA
https://www.spdrs.com/product/fund.seam?ticker=MDY
https://www.spdrs.com/product/fund.seam?ticker=FEZ
https://www.spdrs.com/product/fund.seam?ticker=DWX

nun

I'd go with Fidelity or Vanguard if all you want to do are index funds.

ROTHs are also good in that withdrawals are tax free in both the US and the UK

E3only

Excellent thank you so much.

I am kinda surprised (well I don;t have enuf research may be that;s why).

e.g. I have a property in Sydney. If I liquidate that and place it at call, given the current interest rates I can earn 6% risk free money! Some of the indexes above are earning less than 6% (long term avg). That's hilarious. Am I missing something?

Another example. I have good contacts in India, own a property there. The current FD rates there are 9-10% Sure I will be exposed to FX rate but again clearly I may be missing something. It leads me to deduce that ROTH are not value for money?

nun

I don't understand this? ROTHs are for retirement saving and if you use them sensibly you can get a tax advantage out of them.....ie tax free growth and tax free on withdrawal and you can invest in whatever your ROTH administrator gives you access to....so that can be stocks, bonds, pork bellies etc. You comment that 6% return is "hilarious" is not the comment of an index investor. That's what US stock indexes have averaged over the years and a passive index investor wants the index and doesn't go searching for alpha.

My next question would be, what's your residency status....you are throwing around a lot of non-US based ideas and that's a mine field for a US tax payer. Also you are running after investment return in lots of places and that can be dangerous. There are US based closed end funds that will pay you 9-10% dividends......but they are in junk bonds. Your Indian fixed interest rates look appealing, but what is the fine print?

E3only

Ok, here is the way I think. There are two options for me when I think of retirement (although I am thinking 15 years ahead coz retirement for me is not until 30 years from now, so let’s say I am thinking long term may be kids education)

There are a couple of ways to do it
1. Investment fund like say ROTH or FD or whatever
2. Take advantage of countries one has access to and chose the best option


Now I know I started off this thread specifically talking about index funds etc but frankly anything less than 7% won’t be acceptable to me the reason is this
1. I have access to Australia. The economy there is better therefore the retail rates are higher. Without any risk whatsoever, I can earn 6%. Post tax (to compare to ROTH given the growth is not taxable) that is 4.2%. Note, this is RISK FREE.
2. Retail rates are much higher in India so the CDs or FDs pay handsome rate. The home loans there are running at 11% so not very difficult to get 9-10% interest on FDs. And yes there is no fine print on that. Post tax that would be 6.3% RISK FREE
Now I know a thing or two about Interest Rate Parity but my logic is, why would I put after tax dollars to earn 4%-5% in ROTH when I can earn 6%-7% risk free.

That’s what I meant. I don’t mean to contradict myself. As I said, I am knew here so I hardly know the index returns and things like that.

Although the reason why I wanted to know more about ROTH is because I already own a property in Sydney and India so I don’t want to keep all investments in one area. From that perspective 401K and ROTH is attractive. Purely from diversification perspective.

Cheers,

Giantaxe

Risk free? Only if you ultimately want to retire in one of those countries and have 100% of your investments there. Otherwise, you have a currency risk. Even then economic circumstances change and what may be a good bet today, might not be tomorrow. Especially if "tomorrow" is a couple of decades down the road.

I am not understanding your logic anyway. Why not invest in, say, Australian stocks/bonds/mutual funds and/or ETFs from within a Roth IRA?

E3only

Correct, I did categorically say I am exposed to currency risk and reference to Interest Rate Parity. I totally understand you point re relevance to where I would want to retire.

I am not 100% what all I can do with ROTH. Hence I was comparing it against my other options. If I can invest in specific mutual funds/investments based in say Australia then sure it makes sense. It was just lack of knowledget (or still is) in terms of what I am able to do with ROTH.

When I say risk free, I mean without being exposed to any fluctuations. Australia has at call accounts paying 6%.