Where to start?

[Guest IRAnewbie]

I've read up on Roth IRAs and am finally beginning to understand how they work. What I'd like to know is where, who, and when is the best time to invest in a Roth. I'm only 18 years old, but my business teachers at school, tell me NOW is the best time. Time is one of the most important factors in a Roth IRA, or so I've been told. I don't have much money to contribute but I would definitely like to get started. I'm excellent with saving money, so I'll probably be depositing as much as I can ($3000 cap). As of right now, I have more than $3000 to invest so should I open two Roth IRAs, is that possible? If so, why don't other people do it to increase their gaining potential since there's a $3000 contribution limit. Any feedback would be greatly appreciated. Thank you

[ljr]

Not being an expert on IRA's all I can tell you is that the annual cap on contributions is per taxpayer. Therefore, while you could open multiple IRA's, the grand total you could contribute is limited to the same amount.

Good for you getting started now!!

I'm sure you'll get replies from the many experts on IRA's who read BenefitsLink.

[Guest IRAnewbie]

Yes, after further research, I too found that although multiple IRAs for one individual is legal...the total contributed must not exceed $3000. Now that I've got that down, its now a question of where to set up my Roth. I hear you can do it at banks, online investors, and local brokerages. If so, what's the best and why? What would yield the greatest return? And if they're all the same IRA then why are there different rates and what not?

[papogi]

Check these previous threads. They should help out immensely for an overview:

http://benefitslink.com/boards/index.php?s...t=0entry77697

http://benefitslink.com/boards/index.php?showtopic=24759

http://benefitslink.com/boards/index.php?showtopic=22096

http://benefitslink.com/boards/index.php?showtopic=24151

[John G]

The above references to prior discussions covers a lot of ground. You will find some of my posts for beginners in the mix. If you don't think something is covered - then by all means post your questions.

There is no ideal answer to investment timing or investment choices. When your teachers refer to NOW, they probably mean procrastination is bad and over the long run equity investments do well. You can't prove the future, but it sure seems like market economies and capitalism work. (I get into some great arguments with my daughter about that... the one who spends the gains)

I applaud an 18 year old wanting to get started and that you might have more than 3k to invest is amazing. Besides fully funding your Roth, you can always have taxable investments in some type of brokerage account or mutual fund. But, I have two cautions. First, you say nothing about education and frankly, education is likely to be a huge factor in your future financial success. Second, you should always have some rainy day cash held in reserve for a lost job, car accident or other unpredictable event. At 18, perhaps your parents are part of your backstop. A few months living expenses or paychecks might be a start for you.

I would highly recommend that you spend $15 for an annual subscription to Kiplinger Fiancial magazine... it covers a lot of financial topics for folks in the 18 to 35 year range.... buying cars, loans, credit cards, college expenses, career advice, etc. There is not single book in a college bookstore that I would put ahead of an annual subscription in terms of practical info for young adults.

[dh003i]

IRAnewbie,

Like John said, it's great that you have so much money to invest for a teenager. And the sooner the better. Time lost is irrecoverable.

You do need some kind of emergency funds on hand, in case of a disaster. However, I'd recommend that you first try to max out your Roth IRA contributions. You can add money to your emergency fund any time you want, but for the Roth IRA, you are limited to 3k a year; so if you miss contributing the max one year, that's it -- you're done, and there's no opportunity to make it up.

So, max out your RothIRA contribution and then start scrapping together as much money as you can for an emergency fund. You should note that you can always withdraw the total dollar amount of your contributions to a Roth IRA. However, you should not think of Roth IRA funds as emergency funds that can be tapped. You should think of it as retirement funds. For the most part, if you can live without tapping into your Roth, then you shouldn't tap into it. If you get in a situation where you literally don't have enough money to survive, and where you would otherwise have to borrow money at very high interest rates, then it might be worth considering (consult a financial planner if you ever have to cross that bridge).

Another thing to consider is that you never know *if* you're going to have enough money from your job to contribute to a RothIRA next year, or the year after, or after. So, I suggest that, in as far as possible, you put aside as much money <I>right now</I> in a money-market fund as you can for future contributions to a Roth. Right now, the US government is in an enormous amount of debt, and it's very unlikely that taxes are going to stay as low as they are now; when taxes are raised, that will cut into your ability to fund your retirement. Thus, you should plan for that now (money you put aside now in a "taxable" money-market is only taxed on gains).

In any respect, maxing out your RothIRA contributions is a good idea. Because I'm not too optimistic about the market right now (inflation, an increase in the monetary supply, is rampant), I would suggest using caution when investing.

Some good website to look at:

FinancialSense.com

RothIRA.com

Fidelity Investors Weekly

Kiplenger's magazine is pretty good, although it includes lots of fluff (ads and irrelevant articles), but most websites include fluff too.