What is all this I hear about Roth IRA's?

Question

Some lady told me that if you start when your 23 and put 4 grand a year away till your thirty you wont have to ever put any money in it again. And two other people told me that if you start when your 25 and put 80 dollars a month on it you can retire when your 50 and have a million dollars accumulated for it doubling every seven years and from gaining the interest. I don't know about all that but can someone tell me about it and if it is a good investment. what are some other good investments to start with a little amount of money? Like cd's and keep rolling them over?

Answer 1

Your math is really wrong. You need to put the maximum amount each year in the IRA to make any serious money. Starting early is the key.

One woman I know plays the lottery every day. She spends $30 a day. I told her if she put that money into an S&P mutual fund like Vanguard and the average return is 8% per year. She will have 1.2 million dollars in 26 years.

Answer 2

A Roth IRA is NOT an investment. It is an account that holds an investment.

It sounds as if the investment that was described to you buy this lady was a growth stock mutual fund. In other words you put money into your Roth IRA and then use those dollars to invest in a growth stock mutual fund.

Some folks will use their Roth IRA dollars to purchase things like CDs, bonds, stocks, mutual funds, etc.

I'd suggest you invest using a well diversified portfolio of stock mutual funds (which have historically earned over 10%).

Answer 3

roth IRAs, like all other investment choices, have good and bad characteristics that depend on your personal financial situation.

advantage: only gains from principal are taxed
disadvantag: contributions are not tax deductible

some of the math you've been told is not true. i suggest taking a personal finance course.