College Student investing in IRA, appreciate some info.

[Guest UCRBusinessMan]

Hi, I'm currently a full time student at UC Riverside in California. I'm only 19 and am planning to begin investing soon. I'm still looking into options for long term investments and have decided that I will be opening a Roth IRA to begin with. I've been looking around for investment firms to open it with, any good ideas?

Also, I am curious as to how my account will gain interest? When I invest my max. of $2,000 annually, $3,000 starting next year, does it accumulate in the IRA and gain interest in itself. What I'm asking is, is the Roth IRA an actual account that pays interest? Or are my annual deposits going into CDs, stocks, mutual funds, etc. that are under the IRA? This is where my confusion is. When I deposit $2,000 into my IRA, do I have a choice as to where it is going to be invested? Thank you for reading this post and if you have any information or advice for a young, new investor, please contact me at MGutie3957@aol.com.

[John G]

I have grabbed an old comment and done some cut and pasting. You will find lots of refs to this "just getting started" if you go back 100 days....

All IRAs require a custodian to hold the funds. Your choices for custodians include banks, full service brokerages, discount brokerages, internet brokerages, a mutual fund or fund family, etc. The common IRA investment options include individual stocks, mutual funds, bonds, and CDs. Yes, the interest and capital gains are credited into the account.

Each custodian has a different package of investment options, some are extensive others narrow or limited. Banks traditionally have emphasized CDs, although more sophisticated banks have an array of mutual funds or brokerage options. Some of the brokerages provide access to thousands of mutual funds in a broad array of families. Annual fees for IRAs vary from zero to rediculous. Commission rates and mutual fund expenses vary from ultra low to excessive. If you are inclined toward mutual funds, I suggest limiting your search to NO LOAD funds... the loaded funds (front or back end commissions) are more common at full service brokerages and banks. Mutual funds are attractive for folks just getting started. You get diversification, easy incremental purchases.

Convenience and service for custodian should be considered. Some folks like the local counter service, others have no problem with far away internet based firms.

There are hundreds of custodians that will do a good job for you. Within some catagories like internet brokerages, the cost differences are just not that big and most offer too many investment options. You only need a couple of broad based mutuals funds.... there are more than 8,000 to chose from.

You may want to read the retirement section in the March issue of Consumer Reports. They do a decent job reviewing some of your options and boiling down the list of mutual funds.

I would collect information from atleast three different custodians. Ask them about fees, investment options, etc. Get started, then after two years if you don't like your choice you may do a direct custodian to custodian transfer of your IRA.

Read this ref on interest rates vs equities:

http://benefitslink.com/boards/index.php?showtopic=7176

Other refs, some duplication of content

http://benefitslink.com/boards/index.php?showtopic=9321

http://benefitslink.com/boards/index.php?showtopic=9278

http://benefitslink.com/boards/index.php?showtopic=8638

http://benefitslink.com/boards/index.php?showtopic=6713