How does a Roth IRA make you money?

Question

I know that you don't have to pay taxes when you retire... but say for example...I contribute $3000 for 30 years... how much approximately could I expect at retirement? ... how does it gain money?...interest? mutual funds?..etc??

Answer 1

In General:
Here is where I try not to look like I am sucking up to the Yahoo people and say check out the Yahoo personal finance section (see below). It has TONS of good basic advice and calculators for questions such as this.

To your question:
One of the posters had a good analogy, i.e. the shopping cart, so let's address the other questions.

"how much approximately could I expect at retirement?"
--It depends on how much your saving earn. At a conservative 8%, saving $3000 per year for 30 years will give you about $350,000. A more realistic 10% return (think stocks) will give you about $500,000 for the same invested amount. As you can see, 2% difference means a LOT in the end.

"how does it gain money?."
--It gains money depending on the type of investment.
Bonds= get mony from interest payments.
stocks=money from increased value and/or dividends (dividends= a tiny share in the profits that the company makes, but only if the company makes a profit)
mutual funds= a large pool of money from lots of people that holds large amounts of stocks/bonds/ other investments

With all investments remember this ONE thing: risk=return

If someone promises you a 20% yearly return, that is either a scam or a VERY risky investment.

There is MUCH MUCH more to it, so take the time to read the personal finance section.

I am studying for a masters in accounting, have taken tons of courses in finance, and still find good ideas there.

Tip:
Find someone who answers a lot of questions like these, click on their picture here, and follow that to other questions they have answered. You are not alone in wondering how to start, and the people who give good advice will be fairly obvious. I do this sometimes when I find someone who gives good advice.

If you have any other questions, feel free to ask them here. Your next question should be: "What kind of mix of investments should I have?" and this topic has also been addressed here and on the Yahoo finance section.

Answer 2

A Roth isn't an investment in and of itself. It's just a place to stick investments for favorable tax treatment. (Imagine a grocery store where the groceries are investments and the Roth is a shopping cart for which you can place your groceries and receive big discounts.) You can invest in CDs, bonds, mutual funds, stocks, etc., inside a Roth.

There are plenty of calculators online that will allow you to get an idea of how much money you could end up with over time. Here's one:

http://www.moneychimp.com/calculator/compound_interest_calculator.htm

If you invest in the stock market as a whole, say, an S&P 500 index fund, you could expect an annual return in the neighborhood of 10%, on average.

Answer 3

you won't be able to convert "from" a Roth IRA to an IRA (till you undo an IRA to Roth IRA conversion with a recharacterization the comparable year because of the fact the conversion). So i think you initially had a typical IRA and switched over it to a Roth IRA. look at something related to the account and spot what variety of account it presently is. in case you probably did convert from IRA to Roth IRA you may could desire to pay earnings tax on the quantity switched over the year it replaced into switched over. in case you withdraw a switched over volume in the previous 5 years bypass, you may get hit with 10% penalty. in case you made Roth IRA contributions, contributions could properly be withdrawn at any time (without penalty) and come out of a Roth IRA first. yet while the full element replaced into an IRA to Roth conversion you won't be able to do this with no penalty till 5 years after the conversion. it fairly is all defined in IRS e-e book 590.

Answer 4

YOU choose the way in which it is invested... and in a bank or CD it's just interest....in mutual funds you are invested in companies that profit, grow, pay dividends, plus the interest....you are much better of with an investment company Go to Fidelity's website...read, learn.
Also go to http://www.finishrich.com
When you get there click on the " latte calculator"....put in a few different figures to see where you'll be down the road...
The interest rate is one of the important numbers...the bank rate would probably be right around 5%....the funds anywhere from 9% on up to almost 20%

Answer 5

It works like magic... compound interest! Buy stocks or mutual funds and you get the money from the interest and dividends.

$3000 for 30 years at 12% interest = $826,721

Answer 6

Stop thinking & start doing - now! Never in a bank - ever. Brokerage. Equity is how money is made. Easy to put togther a proper index fund portfolio. Do it today!