what do i do and how much does it take to open a roth account?

[Guest eric anderson]

I'm 25 and a police officer. although I have a retirement plan, I know it will not be enough to support me in the future. so I want to start an roth account but i have no clue about what steps to take.

[John G]

First, congratulations of thinking about investing at the age of 25! Starting early gives you a longer period of compounding and a happier retirement. Given your age and occupation you should meet the income requirements for opening a Roth IRA and should be able to set aside UP TO $2,000 a year... and you still have time to start with tax year 2000. If you can't do 2k then start with a smaller amount. For example, you might want to consider a systematic approach of putting $100 dollars each month into an IRA.

You need to think about two things on the front end: who is your custodian, and what type of investments am you likely to make. Custodians can include banks, brokerages, mutual fund families, etc. Many of the brokerages such as Ameritrade, Fidelity and Etrade give a chance to buy stocks, bonds and mutual funds. You can find out more about most firms on the internet. But you can find custodians in home town banks too. When talking to a couple of potential custodians, ask them for their "beginner" literature.

Banks used to have fairly conservative choices (CDs) but are starting to offer more options and you may value face-to-face service. You may want to read the March issue of Consumer Reports or subscribe to Kiplinger Personal Finance mag. Both a good sources for a young worker.

Ask about fees. There are many firms that do NOT charge annual fees for IRA accounts. Others charge $10-20 per fund or per account. Some eliminate the charges if you just ask, or when your assets grow.

My suggestion for beginners: invest in a growing future by putting your IRA funds into a general stock mutual fund and a very good version of these is a broad based index fund like on that mirrors the S&P500. Why? Easy to track, easy recordkeeping, market performance, diversification and low cost/expense. After 4-5 years of contributing and letting this account grow you may want to split your assets between a couple of funds. When you pass the 100k mark and know more about investing you may want to own 8 to 12 individual stocks.

Equities (aka stocks) are an investment in growth. Sure, stock markets go up and down. But good years out number bad years by anywhere from 5:1 to 8:1 and over many decades equity investments will do a better job (much better than CDs) of growing above the general rate of inflation. The general rule is that reward (returns) is correlated with risk. Supposed risk free investments (they are not truely risk free because they may not keep ahead of inflation) like CDs generally offer the lowest annual returns. Unlike stocks, there is not really a growth component to the investment, they are just IOUs, often insured against loss of principal.

Good luck with your career in law enforcement.