Questions about Roth IRA?

Question

I am a full-time student with no job. I opened a Roth IRA account with USAA(military-friendly bank), this month that automatically takes $20/month into it. My husband is the main provider, and I will be getting a job later on. Bank says it is NOT FDIC insured, no bank guarantee, may lose value. I understand the value will fluctuate(it's in a medium risk stock), but is it really a good idea to have this account long term for retirement purposes when it is NOT FDIC insured? How does this work really?I am thinking of making the monthly allotment to $50 or $100.month, but I want to know my money will be there when I want it later down the road.Sorry, new to finances-so any suggestions or comments Thanks.

So, would you recommend that I leave my Roth IRA with USAA and up the monthly allotment from $20 to $100/month. I am 24 now. After age 59 1/2 am I able to withdraw from it?We paid taxes on it already, so taxes are not charged again, right?Do I just pay taxes on interest when I take it out?

Answer 1

If you are invested in stocks, you can never be FDIC insured. Stocks are a slightly risky investment, but they are perfect for a retirement account if you are in your 20's. Historically, stock prices have risen 2/3 years and gone down 1/3 years. In other words, occasionally your stock value will go down, but more often it will go up. If you can not freak out when it goes down and keep investing, you will end up with more money down the road than with other types of investments.

In order to minimize your risk, I suggest getting an index fund. Index funds invest in a bunch of different stocks (ex: the S&P 500 index follows the 500 biggets companies in America.) The beauty of index funds is that they should be low fee investments. You should never pay more than 0.5% in fees on an index fund. This means that you get to keep the profits from your investments, instead of some money manager getting rich on your dollars.

To answer your later questions, the beauty of a Roth IRA is that you don't have to pay a penny of taxes on that money when you withdraw it.

I think you would really enjoy the book The Automatic Millionaire by David Bach. It's got great information for somebody just learning about personal finance. Good luck!

Answer 2

You may be new to finances but you are thinking along the right track.

Roth IRAs are excellent investments because they grow tax free and you do not pay taxes on their growth. You have already paid tax on the amount that you have invested.

I am not sure that you are using a Roth IRA properly. you can also check with www.bankrate.com which gives you
accurate information about the highest bank rates for CDs, money markets and savings accounts. I am not familiar with USAA and cannot advise you how risky that may be.

It seems that you are investing you money into a mutual fund account. If you are there is no guarantee on mutual funds even if you obtain then from a bank.

Apparently your husband is in the military. If that is so he should see what is open to him from the military. You indicated that you will soon become a working wife. Try to work for a company that has a good pension plan that provides matching funds.

I have listed below some good sites about Roth IRAs. You can access them by copying an pasting into your web browser.

Answer 3

No investments are FDIC insured, only "bank deposits". And they are only insured up to $100,000 per account.

Long-term, a Roth IS the safest place to put money, however; think about it, if you put $1,000 in a safe under the bed (what could be "safer", LOL?) then 60 years from now you are 100% sure to have....$1,000! If you put it in a mutual fund that tracks the Dow instead (and $1,000 is $20 a week for a year), in 60 years you'll have between $1.4M (worst case awful market scenario of 6%) and $44.8M (!!!!) (historical average long-term return rate from stocks of 12%)

If you can manage $100 a month, you WILL be rich! Remember, the market may go up and down, but ALWAYS goes up in the long run. The only way it won't is if society collapses completely, in which case all the cash in the world will be worthless anyway!

Answer 4

What do you mean by "minor?" Never heard of a "minor" IRA -- Roth or Traditional... The maximum annual contribution to all IRAs combined is the lower of your earned income for the year or $5,000. If you are age 55 or older you can kick in an extra $500 per year. If you kick $5,000 into the Roth IRA then you cannot put anything in the Traditional IRA and vice versa. Or you can split contributions between the two any way that you choose, up to the above limits. Any excess contributions attract a 6% excise tax for every year that they are left on deposit in the IRA. That's enough to wipe out any gains in many years so you want to avoid that.

Answer 5

FDIC is for bank deposits, not investments accounts. I bet anything the Bank is FDIC insured, is the type of account you have this in that is not. Look and see if the account you have is not SIPC (Securities Investor Protection Corporation) insured. Ask your bank to explain the difference to you.

As far as the Roth is itself, its a great idea. Roth is a tremendous vehicle for retirement savings, especially if you start early enough. Just make sure you diversify a little as you add more to the account. This is your retirement money, not money you should be speculating with.

Answer 6

Well, I would probably use a different bank that WAS FDIC insured. At the same time, the day something occurs that we need FDIC, I doubt the money would be worth anything anyway, lol. But I would definately have it an FDIC covered bank.

Answer 7

No mutual fund account is FDIC insured. Only bank accounts such as savings, money markets, and CDs are FDIC insured.
Unfortunately, those tend to pay a low rate of interest. Mutual funds, over the long run, pay better.

The odds of a mutual fund failing and you losing all of your money are slim.

Fyi....all of my retirement accounts (401k, IRAs) are in non-FDIC insured accounts and I can sleep at night......