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Helping Ashley Start Her IRA
By MP Dunleavey Monday February 01, 2010
We recently heard from Ashley, 25, a documentary filmmaker in Seattle: "How do I get started on an IRA? Or a Roth? I want $340,000 in 30 years!"
We offered to help Ashley launch her retirement account, and she agreed to share her saga, as it unfolds, right here.
In addition to that all-important decision to get started, Ashley also had an initial savings goal: $340,000 in 30 years.
To meet that target, Ashley would need to save $3,000 per year, or $250 per month.
There was drama from day one: Unbeknownst to Ashley, her mom had already opened a Roth IRA for her. The Roth was at a bank in Ashley's hometown in Oregon. There was about $400 in the account, in a mutual fund.
Ashley had about 12,000 questions—which is the standard amount. Here are three:
Where exactly is the money? Is it invested in the bank or the Roth IRA?
All retirement accounts (401ks, IRAs, 403bs) are like big, empty trucks. You drive your truck to the loading dock (i.e. bank or brokerage house) and say: "I'd like to put in the following mutual funds and other investments."
You hand over some money; they stack some boxes on your truck. That's your retirement account.
Mom already put one mutual fund in my account. What is it?
You need the ticker symbol to look at the information.
What's that?
Any investment (stocks, bonds, mutual funds, etc.) is abbreviated with a ticker symbol, which resembles the call letters of a radio station: JABAX, FFFFX, WNEW-FM (kidding). You need the ticker to learn about each investment product, and decide which you like or don't.
Tune in next time to find out... What mutual fund did Ashley's mom pick? What is the ticker symbol? Did Brett sleep with Adrianna?
Comments
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Written by kate, February 01, 2010
OMG!!! I have been needing an article about this! I, too, have no idea how to start an IRA. All the other articles everywhere just talk about how much you need them, but never go into exactly HOW to get one!
Written by Patty, February 01, 2010
How ofter can deposit money in an IRA or Roth? Monthy? Yearly? Is there a minimum amount you can deposit?
Written by Erin, February 01, 2010
I too have been so curious about starting a retirment fund. I'm not even sure where to go to get started. Would you go to a bank or an investment company? Any suggestions?
Written by Jaime, February 01, 2010
Way to go Ashley! It is great that you're starting this so early in life.
@ Patty - mostly it depends on the IRA. You can set things up to have an automatic payment drawn from your account on a monthly basis or you can make less frequent deposits. You should also be able to setup an account that you can deposit as little as $25/mo, though I don't think you can go lower than that and again, it depends on the IRA. Most IRAs have a maximum amount you can deposit per year, per IRA. I don't have those number off the top of my head and if I remember correctly, this limit is imposed by the government (IRS) rather than the IRA.
@ Patty - mostly it depends on the IRA. You can set things up to have an automatic payment drawn from your account on a monthly basis or you can make less frequent deposits. You should also be able to setup an account that you can deposit as little as $25/mo, though I don't think you can go lower than that and again, it depends on the IRA. Most IRAs have a maximum amount you can deposit per year, per IRA. I don't have those number off the top of my head and if I remember correctly, this limit is imposed by the government (IRS) rather than the IRA.
Written by Kate G., February 01, 2010
I can recommend the Roth. True, the contributor pays taxes on the money before contribution, BUT the principle (money contributed, not interest earned and compounded) is available for withdrawal after five years and is not taxed at withdrawl.
IRA's are taxed upon withdrawal, BUT their contributions can be useful to lower year-to-year income tax since the money contributed to an IRA is pre-tax.
I'm not an advocate of dipping into retirement savings, but each vehicle has its uses. I have a Roth as a back-up safety net as well as a SEP-Ira (self-employed IRA) as the freelance version of a 401K. It doesn't take much to start the retirement savings habit. Your post is a good first step.
IRA's are taxed upon withdrawal, BUT their contributions can be useful to lower year-to-year income tax since the money contributed to an IRA is pre-tax.
I'm not an advocate of dipping into retirement savings, but each vehicle has its uses. I have a Roth as a back-up safety net as well as a SEP-Ira (self-employed IRA) as the freelance version of a 401K. It doesn't take much to start the retirement savings habit. Your post is a good first step.
Written by Amanda Steinberg (DailyWorth founder), February 01, 2010
Hey Erin,
You may notice on DailyWorth that it's rare that we ever mention specific products or investments. I'm not yet clear on the legality and liability (can DW be sued if we recommend an investment that tanks?), so I haven't yet invited our experts like MP, Manisha Thakor or Galia Gichon to make any specific fund recommendations. That being said, you can start by reading up on Vanguard's offerings because they have an excellent reputation.
https://personal.vanguard.com/us/whatweoffer/ira
ALWAYS do your own research and learn how to reach the performance charts. We'll do more here on how to evaluate a mutual fund/ IRA.
You may notice on DailyWorth that it's rare that we ever mention specific products or investments. I'm not yet clear on the legality and liability (can DW be sued if we recommend an investment that tanks?), so I haven't yet invited our experts like MP, Manisha Thakor or Galia Gichon to make any specific fund recommendations. That being said, you can start by reading up on Vanguard's offerings because they have an excellent reputation.
https://personal.vanguard.com/us/whatweoffer/ira
ALWAYS do your own research and learn how to reach the performance charts. We'll do more here on how to evaluate a mutual fund/ IRA.
Written by MP Dunleavey, February 01, 2010
You can open a retirement account at a brokerage firm or investment bank, and some commercial banks and credit unions. In Canada, these are call RRSPs. Here we call them IRAs, with various distinctions (like SEP or Roth).
If you want to follow along with our series, call Fidelity, Vanguard or Charles Schwab TODAY and open an IRA or Roth or RRSP if you're in Canada. That's the easy part. Just start saving the money in a money market fund in the account--you have to set up an auto transfer--that's basically like putting cash in a savings account. Then, when you decide what you want to invest in, you simply transfer that cash to purchase the mutual funds you want. That's where Ashley is headed next.
If you want to follow along with our series, call Fidelity, Vanguard or Charles Schwab TODAY and open an IRA or Roth or RRSP if you're in Canada. That's the easy part. Just start saving the money in a money market fund in the account--you have to set up an auto transfer--that's basically like putting cash in a savings account. Then, when you decide what you want to invest in, you simply transfer that cash to purchase the mutual funds you want. That's where Ashley is headed next.
Written by SewEnglish, February 01, 2010
Can I tell you how much I love, LOVE double love daily worth and how you explain things ... I'm SO digging it! And curious, to find out this plot is going to unfold. Anxious to hear if it's possible to roll an old 401k into a (new) roth IRA.
Written by Petunia, February 01, 2010
Good for you, Ashley. You've made a very smart decision to start planning now for your later years. I wish I had started at age 25.
Written by BittersweetBoo, February 01, 2010
Oh I love this! I am 23 with a family of my own and am anxious to learn as much about this as possible...I want to save for my future in the most beneficial way...thanx DW
Written by jdrider, February 01, 2010
I love this website! I also have a Roth IRA as well as a rollover IRA from a previous job. My HUGE question is: "How, oh HOW, do I choose which funds to purchase for my Roth IRA?????"
Written by Lisa, February 01, 2010
This is a good reminder. I have an IRA rollover to do and I have been putting it off for months and months...
Lisa
www.singleparentsavings.wordpress.com
Lisa
www.singleparentsavings.wordpress.com
Written by MP Dunleavey, February 01, 2010
Well, hang in there, folks! The saga continues and while it will be weeks before we know the truth about Brett and Adrianna, I can safely reveal: a) you can roll over one IRA into another--even a 401k into a Roth and b) we will discuss how to choose funds! The most important part! Amanda's suggestion that you look into Vanguard is an excellent idea, and a good place to start. I am not endorsing Vanguard funds specifically, k? Just sayin'.
Written by kateh, February 02, 2010
Another quick question from someone new in the IRA world - how did Ashley come up with the $340,000? I am contributing 5% of my income to my Roth IRA and 5% to a 401K, but I am having trouble with such solid goals - where did she get her goal? What is a good way to set one?
Written by Cathy, February 02, 2010
Thanks for the info.....I am much older than Ashley and am fairly new to IRA....I have always participated in a 401k or 403b now....but it is scary to think how much money one will need to live comfortably in retirement! Go for it Ashley.....and keep this improtant info coming!
Written by Jaime, February 03, 2010
@kateh .... I don't know how Ashley arrived at her number, but if you just google "retirement calculator" you will come up with lots of sites that will give you a quick calculation. You can play around with those to get a general idea of what you might need. For something more specific to your situation, you would probably need to talk to a financial professional who will take more factors of your situation into account.
Written by pam, August 27, 2010
HELP!! I too have money I NEED to put into an IRA or 401k plan. It's aprox. 224,000 from settlement but its considered retirement money. Long story short, old boss tried to steal employees money, he was sued, had to pay money back. Since then company was sold so we have to take one lump sum payment but so we're not penalized have to decide what to do with it. Can i still open a Roth IRA, will I have to pay the taxes before I put it in? Also I'm unemployed and right now am on first extension of unemployment claim, if I need some of that money maybe next year how much will i be penalized for?? Any help will be appreciated.
