Roth IRA Questions - (new member here)

[Guest MackSt.Louis]

Hello everyone. This is my first post, so I apologize for my ignorance. After browsing these boards, I see there is so much information and smart people out there, its overwhelming.

My name is Mack and I have a few simple (probably stupid) questions about my Vanguard Roth IRA.

The account is titled "Vanguard 500 Index Fund Investor Shares (Roth IRA)". Is this the type of Roth IRA that everyone is talking about? I haven't contributed to it since I opened it, so the balance is not very high. My question is, should I be putting $4,000 annually into this one account? Is that the best use of this account for retirement savings?

I also have a Vanguard Windsor Fund (R/O-IRA) which I understand that I cannot contribute to right?

I'm prepared to invest $4k to an IRA and I want to make sure that if I place it in my exsisting Vanguard Roth IRA I'm doing the smart thing.

Thanks so much for any advice. Mack

[Alf]

You need to decide if you want to (or can) make a contribution to a ROTH or a traditional IRA.

You have one of each and which one you use will depend on the answer to the first question.

[John G]

Qualification to contribute to a Roth depends upon a combination of total earned income, plus the combination of income and filing status limitations. Please specify your tax filing status (single, married filing jointly, married filing separately) and your approximate income. I will assume that you have more than 4k of earned income (wages, payroll).

On choice of investment, there is no easy answer. I will assume that you have limited investment experience, but can you post your current age, when you hope to retire and if this is your only retirement plan (no company plan?). I can get a rough idea about your marginal tax bracket from your income/filing status but if you know your marginal rate post that too.

Please explain when you opened the Roth and amount of your initial contribution and current balance. It would also help to have a general idea about you IRA assets and your profession. Sorry about all the prying, but the answer to your questions can vary depending upon you likely career path, retirement goals, etc.

Vanguard is a well respected mutual fund operation, based in Pennsylvania. They are best known for their index funds and very low operating expenses. You can typically own most Vanguard (or any other funds) either in IRA, ROTH, 403B, 402K, Keogh as well as standard taxable investment format. You have apparently chosen Vanguard to be your custodian for both an IRA and a Roth. More than likely you could contribute to either account (perhaps over 90% of all adults would qualify for both). I tend to favor the Roth, all things being equal, because of the flexible withdrawal schedule, no future taxation and some potential inheritance features.

If you are just getting started, having just the two mutual funds is probably just fine for a few years. Mutual funds are, by their nature, a diversified investment. An index fund should give you near "market performance", that is the result of the fund should closely echo the market the fund mimics (500 big US firms, all NYSE, 5000 biggest companies, etc.).

I tend to recommend keeping things simple until you get the urge to evaluate another fund. Simple means less paperwork to track and potentially lower annual fees. Owning a dozen mutual funds if your assets are even 50k is kind of silly. There is a tremendous amount of overlap... they are all likely to own Microsoft! You compound the amount of time you need to track you investments which multiple mutual funds.

Enough background.... I can say more after you post again.

[ElGuapo]

The account is titled "Vanguard 500 Index Fund Investor Shares (Roth IRA)". Is this the type of Roth IRA that everyone is talking about?

Yes, that's the one.

I also have a Vanguard Windsor Fund (R/O-IRA) which I understand that I cannot contribute to right?

Well, you can, but then you've "commingled it" and it loses its rollover (R/O) status, which frankly would not likely matter to you. In fact, you might ask the Vanguard rep about converting this small account right into your Roth so it's all in one place. That's a taxable event though so make sure you understand what it does to your taxes before you do it.

Best,

ty

[John G]

Sure, lots of folks talk about the Vanguard 500.... but it is up to you to decide what kind of investment vehicle is appropriate considering your: risk tolerance, understanding about how to invest, how much time you care to devote to "research" or monitoring, and retirement goals.

The chief benefits of the V500 include: low admin fees/expenses, gives you the S&P500 version of market performance, and less time spent on research and monitoring. For many people, market performance is sufficient to meet their long term objectives. You will never have the "hot" fund, but will never have the worse fund of the year either. If that works for you at this time, then there is nothing wrong with going V500. You can always shift/diversify/split your assets at a later date.