I just put $4000 into a Roth IRA (2 days ago) and...?

Question

...today my balance is $4014.43. How exciting!! Is this typical? (I'm pretty embarrassed to be so ignorant to all of this but hey...better late than never, eh?)

Answer 1

Goodness there is a lot of bad advice being given here (no offense). First off, what is typical depends on what you are invested in. Most Roth IRA's allow you to invest in just about any stock or mutual fund. Assuming that you are invested in all stocks based on historical averages you can expect 4-5% per year after fees are accounted for. Be aware that about 2% of that historically comes from dividends so if you are invested in non-dividend payers you are further handicapped. The person who quoted 10% is way off base. Stocks did return much more than 5% during the 80's and 90's but that was far from typical. There is good evidence out there that suggests over the next 10 years you can expect stocks to return a sub-par 2-3%. Not pretty but better than losing money. And don't expect much more from bonds either.

Roth IRA's differ from tradition IRA's mainly in that the money you put into them is after tax. That means you have to pay payroll taxes on the money that is taken from your paycheck and put into the Roth. Whatever interest and capital appreciation that occurs while your money is invested can be withdrawn without any taxes at retirement. In a traditional IRA the money is put in tax deffered. That means you are NOT taxed on the money that is taken out of your paychek and then put into the IRA.

Why would you choose one over the other? It depends what you anticipate your tax rate to be when you retire and what you plan to do with the extra money you save based on the tax rate. Say you have $1000 to put into each. Also assume your marginal tax rate is 25%. If you put the 1000 in a Roth you are taxed on the full amount so you will have to pay $250 in taxes at year end. If you put the same $1000 in a traditional you would save the $250 in taxes and could invest that elsewhere.

Finally there is the issue of whether you trust our government to honor their promises in the future. Just because the law now says that you won't pay taxes on any Roth earnings doesn't mean the law can't change. Similar things have happened throughout U.S. history. Some feel that taking the tax break of a traditional IRA up front is safer than waiting to see if the government honors it's pledge for the Roth in the future.

Answer 2

Yeah that is crazy. Well the good news here is that you used a Roth IRA. Most people try to put money into 401k or a traditional IRA. These should be the last place to put money not the first. Taxes will ruin an investment more than below average returns.

With your Roth IRA you will never have to pay taxes on the money. With 401k and traditional IRA's you pay income tax when you withdraw the money. Don't we try to avoid income tax at all cost? Then why put our money away and just be income taxed on it later - especially when we don't have deductions in retirement?
Traditional planning is dead but most financial advisors are classically trained.

Answer 3

Depends on what it's invested in. I assume it's in stock, probably some kind of mutual fund. The market has had some very good days lately, so that would not be unusual - just don't panic if tomorrow it's at $3999,13 or something, it'll come back. Checking it every day probably isn't a real good idea - will just drive you nuts watching it go up and down.

Answer 4

whilst making an investment in IRA, you would be in it for the long haul. in case you took out the money, you may pay early withdrawal penalities. additionally, "waiting till the economic gadget gets back on that is ft" is a approach that gets a lot of human beings in concern. do no longer attempt to time the markets. make investments a series quantity each month into you retirement account(s) and don't difficulty approximately short-term losses. do no longer withdraw any money out of your IRA till you're retirement age. desire this enables.

Answer 5

over the last 100 years, the stock market on average makes a 10% gain a year. some years it loses money and some years it makes much more than 10%. don't worry so much about the short term gains and losses, instead focus on investing as much as you gain each year into that account and be a good saver and some day you will have a ton of money

Answer 6

No, its not typical. your return implies a 60+% annual gain, so be prepared to it not to go up or go down. Expect between 8-12% annual gains over the long term. Some years it will be much higher than that, some years you can lose money.

Answer 7

That's because stocks went up a crazy amount but it will slow down

Answer 8

Confucius he say, What goes up, must go down.