add-on- roth ira??

[Guest fletchthecat]

I've heard alot of good things about roth IRAs, so I recently set on up. However, was confused as to where?? Does one place that offer a Roth IRA differ from another (Am. Express vs. MBNA vs. a Credit Union)?? Also, every piece of literature that mentions a Roth IRA never mentions Add-On Roth IRAs.. Is it to be assumed that every Roth IRA is in fact an Add-on??? Is so, what are so sites about the rates for IRAs.. any help would be appreciated...

[John G]

Yes, there is a difference in "custodians" that you might choose. First, they may differ in what types of investments they offer. For example, banks may focus on certificates of deposit... although they may also have a few mutual funds. Almost all brokerages offer both traditional individual purchase of stocks (I do not recommend this for folks getting started) and mutual funds. The third major option a mutual fund or fund family, and most funds come with multiple options ("family of funds"). Mutual funds come in two major types: LOADED and NOLOAD. Load refers to a front end or termination commission. The loaded fund typically has the extra fee to reward the salesperson who steered you to the fund.

Another difference in "custodians" is in the annual fees they charge. Zero is a fine number that some custodians still use, especially if you have other business with them, your total assets exceed 5k or 10k, or you just plain ask them to waive the fee!

There are literally thousands of potential custodians. Talk to three that seem reasonable and make a choice. A beginner can be very happy with just one custodian for a long time. Other differences between institutions that will be your IRA custodian include hours of access, local presence vs mail or internet, internet support, etc. Almost every custodian has materials designed for the newcomer to IRAs. Make some phone calls or surf the net. Ask for this material and an account application, they will help you learn the rules and terms and give you an early clue about the level of service to expect.

Add-on? Not sure what you are referring to, but any "contributory" IRA can take contributions once a year, periodically during the year, and in subsequent years. For the first few years, one IRA with one general investment choice is just fine. Keep life simple. I highly recommend that if you plan to leave this money invested for a few decades that you consider a broad based NO LOAD stock mutual fund. An INDEX fund would be a great example of this. Index funds own every stock on a list (like 3000 publicly traded firms or the top 500 S&P companies) and generally have very low internal expenses and a good annual return.

You talk about "rates" which sounds to me like you are considering some kind of IOU like a CD or money market account. These are ultra-low risk but over the long haul will just not give you a great total return. Near risk free investments do not offer a great return because in a free market system, they just don't have to bid very high to get money. IOUs do not typically have any kind of growth component. If you don't understand about the differences between different "asset classes" (stocks, bonds, money market, etc.) then you will need to spend a couple of hours with a basic investment text. The longer the hold period in you IRA (and for many people this is 3-5 decades!) the more appropriate for you to have a larger percentage of your assets in stocks.

You also say "you recently set one up"? This is confusing as you can not set up an IRA without having chosen a custodian institution, filled out an application and given them a check. Perhaps that sentence got garbled, but understand you must have a custodian acting as your fiduciary to properly have a legal IRA.

I also assume that you understand the "earned income" requirements, the $3,000 (or$3,500) maximum annual contribution and the single or married filling status issues.

Post again if you have other questions or if I did not understand your question completely.