Best place to open a Roth?

[Guest mark_s_mullen]

I am ready to start a Roth IRA, but I wonder. Is a Roth set up similar to a 401k plan where you decide to invest funds? If so, do you recomend a great place to open the Roth where you have the greatest range of choice, return, and access? Thanks.

[John G]

You literally have thousands of choices. Banks, brokerages, mutual funds, etc. Just like IRA choices. If you are new to investing I would recommend that you stash you new funds in a mutual fund. Use Money or Kiplinger or even Consumer Reports. Pick one with a reasonable (<$20 annual) fee or no fee. If you are young, consider a more aggressive stock fund. NO LOAD is the key phrase, you don't want to be paying front or back end fees. If you already have investment accounts somewhere, they may waive the fee and report activity on the same statement you are now getting. A good starter mutual fund would be an S&P index fund, almost every fund family has something like this.

Yes, like a 401K you can manage your own investments. BUT, you can't buy much for $2000 and commissions on small sales hurt performance. That is why I suggest starting with a no load fund. After a few years of adding 2K and watching it grow you can transfer the funds and take advantage of other options.

Splitting up $2K between funds is probably not a good idea. Keep it simple.

[Guest Guacamole]

A good place to open a Roth:

I would recommend Waterhouse (www.waterhouse.com). I have a Roth IRA that I just opened there, and if you are going to be a self-directed investor, it is a pretty good deal.

They have no fee to open the account. They have no fee to maintain the account. They provide a large variety of no-load mutual funds, including some S&P 500 index funds. Their commissions are also very low should you choose to invest in individual stocks.

I have had no problems with them in terms of entering orders or receiving information when I need it.

If you're just starting out and you plan to plop your cash into a no-load fund, they'd be a great place to go, since you'll basically have a no cost Roth, and with a maximum contribution of $2,000, keeping costs low is pretty important.

Guacamole

[Guest Guacamole]

Mark:

I realized that my post didn't answer your first question, which asked what the Roth IRA is like as an investment vehicle.

It is basically an investment account which you cannot withdraw from (without penalties applying) and against which you cannot borrow. In almost all other respects, you can do anything with the money in it that you want.

You could operate it like a 401(k) if you wanted. It sounds like the company you work for provides a selection of x number of mutual funds and it is up to you to choose which ones and in what percentage to purchase and they take care of everything.

There are, as mentioned by a previous poster, literally thousands of people willing to help you do almost anything with an IRA (for a price, of course). Go to Forbes.com and search for "Kinky IRAs" to get a feel for some of the more unique things you can do with a Roth IRA.

If you are not interested in actively managing your IRA and you want it to act like your 401(k) plan, find out which mutual funds your firm invests your money in and look around on the internet for an on-line broker that permits you to open a no-fee IRA with a wide selection of no-load mutual funds. Check to see if the funds are the same and invest the money in your Roth in those mutual funds and forget about it to the same extent you would forget about your 401(k). When the time comes to make your next contribution to your Roth, simply send them another check for $2,000 and purchase the mutual funds you are interested in.

For someone starting a Roth IRA from scratch (I'm in the same boat), investing in no-load funds at an on-line brokerage would be a very cheap way to be invested and it would act very much like your 401(k) plan except that there are usually no automatic deductions from your payroll to fund it.

On the other hand, there are some places that will allow you to set up an automatic debit from you checking account as a means of funding your IRA. This would probably be less painful than writing the $2,000 check and it would provide the opportunity for dollar-cost averaging over the year. I think that there are some on-line brokers that will do this for you. If they do, check the fees.

An interesting resource for you to investigate when looking for a broker that suits your needs is www.gomez.com -- they have a broker scorecard designed for consumers to use. Also see the area on selecting a broker at the Motley Fool (see fool.com).

I hope that this helped you more than it confused you.

Guacamole