Contributory Roth Ira

[Guest Marcel]

What does this mean Contributory Roth Ira for 1998 should be set up by 4/15/99. Does this give you a tax break if I contribute $500-2000 by the deadline.

[Guest John R Grossmann]

There is no front end tax break on a Roth IRA, the real benefit is that you do not pay any income tax on the original contributions or the accumulated earnings/gain when you make withdrawals after age 59 1/2. With a standard IRA, you still have tax free compounding of your investment, but eventually are forced to take distributions which are taxed as ordinary income. (Note, another Roth benefit is that you are not required to take any distributions.)

You see lots of advertisements urging you to open a Roth by April 15 -- this refers to your opportunity to still open a Roth for the 1998 tax year. You can also contribute to your 1999 Roth at the same time, assuming that you satisfy the income thresholds. Early contributions starts the tax free compounding earlier! A good thing, as Martha Stewart might say.

[Guest TSmith]

please give an answer to this Question:if one sets up a roth ira with a particular fund for 1998,must he make a contribution ONLY to the same fund in 1999,or can he contribute to,say,a different fund every year?Must ALL roth ira holdings be in one basket?

I have received three different answers from three different fund spokesman,and wonder if any of them know what they are talking about.Help!

[BPickerCPA]

Not only can you contribute each year's Roth IRA contribution to different funds, you don't even have to contribute each year's contribution to ONE fund.

Subject to a particular fund's minimum deposit requirements, you can split the $2K amoung 2 or more funds.

Any fund person telling you that you must contribute your '99 contribution to the same fund is either ignorant, or wants your money. Makes me wonder, in either event.

[John G]

Many mutual funds have lower minimums for IRA accounts, and you can split up your ROTH assets as you wish. Be sure to ask about annual fees for IRA accounts. They can be as high as $50 per account. Some fund families offer you a break or even eliminate fees when your IRA assets exceed $10,000. If your reason for multiple funds is to achieve some level of diversification, you may be better served initially in having just one mutual fund that is very broadly based such as a total-market fund or and S&P500 index.