Which are better mutual funds or ira's?

Question

I recently bought an index fund and I wanted some feedback. In my opinion I think the mutual fund is better because Im 24 and I plan on retiring around 45 or 50. I dont want to wait unitl im 59 and a half. The one thing is I have to pay taxes for the mutual fund.

Answer 1

What you should do is have both. The IRA for when you reach 59 1/2 and outside investments for earlier expenses. If you invest in index funds the tax consequenses are minimal because there are very little realized capital gains. Be very selective in which index funds you pick though. Some have a much better performance history than others and I expect that will continue over the long term. IRA accounts are great for debt securities because you get taxed full amount on interest anyway. They are not so good for capital gains accounts, except of course with a Roth IRA.

Answer 2

Mutual funds can be owned under the IRA or Roth IRA tax rules set up by the IRS; the underlying investment vehicle is the mutual fund (a portfolio of stocks and bonds managed by a team of CFAs, etc), or you can own the same mutual fund by itself as a taxable account (dividends and CG, even if reinvested, are taxed ever year) If you set up a Roth, you can't deduct the contributions from your taxes, but leave it alone until 59 1/2 and you won't pay any taxes ever, even on earnings. If you need to, you can take out your contributions at any time without tax or penalty. As far as index funds go, they are great for low fees, but will never beat the market. Actively managed funds offer much better returns, but more of your money goes to paying the managers (100 bp compared to 500 or so). You get what you pay for, for the most part.


So to answer your question, open a Roth IRA, max it out every year (currently $4000/yr) Make sure your Roth portfolio is balanced 30% int'l , 30 US growth, 30% US value, 10% emerging markets, for now. Most of the money in large cap, and stay away from bonds for now. Don't chase returns, just let it sit. Otherwise, check out an asset allocation fund, basically the fund managers do all the work. I'd pick PAEAX at Putnam. I probably wouldn't buy a mutual fund in a taxable account, after sales charges and fees and taxes, there isnt much left. Get a good broker, do some research, and buy individual stocks so you can maximize on short term flucuation.


If you have enough to retire at 45, you should have enough money outside of your Roth to let the Roth sit til 59

Answer 3

wow you must be making lots of money to be able to retire at 45-50 If your talking about a 401k type account you take the money pre tax and put it in the fund now and when you reitre it is then taxed. A Roth IRA is money you put in after your income taxes are taken out

Answer 4

Get into a Roth IRA. you don't get a tax write off but if you keep it for five years or more all of the profit you make is tax free when you retire. That means no federal taxes on all your profit. Search for more info on the internet.