17 Year Old With Question

[Guest brettsim]

Hey,

I've always been interested in investing, and i have been investing for a while.

Where do i start a Roth IRA?

Please email me with a response or post it here.

I've read that starting a Roth very early, at my age, can lead to a millionaire....

Brett

[John G]

Welcome aboard! You are wise to devote some time to understanding investing... getting started at an early age gives you a big leg up in terms of learning soon and compounding longer.

ROTH IRA 101:

This is a mechanism set up by act of Congress to give citizens with "earned income" a tax shelter for retirement. Prior to this year, you could contribute 2,000 for a Roth if you had atleast that much in earned income and otherwise qualified. Now, in 2002, that amount has been bumped up to $3,000 for someone your age. So, if you have any combination of jobs that gives you earned income (do not count dividends and interest) then you qualify.

Next step: You need to select a custodian who will handle your assets. Custodians can include brokerages, banks, mutual funds, etc. If you are not yet 18, you may need to hunt around to find a company that will accept Roth's for children. Schwab does, Etrade does not. Talk with atleast three potential custodians. Ask them about the investment options, annual fees (if any) and get them to sent you a "getting started" package. Since you are investing for a long time, think in terms of equities (aka stocks) rather than CDs or bonds.

For someone just getting started, I think a broad based mutual fund or perhaps an index fund will work just fine. You can find them listed in Kiplinger Financial mag, which is a great read for a young investor. It is hard to invest in individual stocks wisely with a small amount of money because of transactions costs, time consumed and difficulty maintaining a diverse portfolio.

If you invest 3,000 each year for the next 38 years in an account that on average goes up 10% a year your Roth will reach the 1M mark. Upon retirement you can withdraw the assets tax free. And if you marry someone as forward thinking as yourself you can 2x that amount!

Post again if you have more questions. If you don't have enough to get started, ask an uncle/aunt/grandparent to match your started amount. Good luck.

[david rigby]

...but don't forget to also save some for short term needs. Outside the IRA.