[torsoboy]

Why would someone invest in a mutual fund in an IRA vs not having it in an IRA (is this even possible?)? I am looking at changing the way I am investing and I am a little confused by this... what is the main drawbacks to not using an IRA? How do you buy them if you don't have a sales rep? What if I want to invest more than teh $4k a year that is allowed with IRAs?

This is a big new world for me and some accurate informational answers would be great. I will be getting a few books on this stuff I suppose (recommend any good ones?), but any quick information you have would be great.

What prompted me to start on this path is my Primerica rep just stopped by, and in looking at the funds they offer they all have 5.75% up front loads, but according to many many places on the web it seems that buying loaded mutual funds is a very bad thing. So now I am trying to see how it all works without a rep...

[Dork.]

I see two questions here.

First, what is the difference between investing in a mutual fund inside an IRA vs. outside an IRA? You are not liable for taxes stemming from mutual fund ownership if you hold the shares in an IRA, since all taxes are deferred until you withdraw. However, you pay a penalty if you withdraw money before you reach the right age. Holding the mutual fund outside the IRA opens you up to the yearly tax liability on distributions, but you can sell your holdings and pocket the cash at any time (and pay the capital gains taxes, of course....).

Second, should you buy a fund with a load? Probably not. Front-end loads are fees that are deducted from any money you put into the fund right away. If you invest $10,000 in that Primerica fund with the 5.75% load, only $9425 actually gets invested, and the other $575 goes into various people's pockets, including the rep trying to sell the fund to you.

If you find a front-end loaded fund that outperforms everything else out there, then it might make sense to buy it. But odds are that whatever fund you're currently looking at has a no-load competitor somewhere that performs just as well, and you'll find it if you look hard enough.

[wallinbl]

Are you employed? Does your employer have a 401k? If so, go with that first. After than, worry about other options. Look around at the different brokerages (Schwab, Merrill Lynch, Fidelity, etc) and compare the costs. I use ML, but I think Fidelity can be rather inexpensive.

[torsoboy]

Thanks for the replies guys. I am self-employed, so I don't have the 401k option right now.

Thanks for those answers Dork.

What are the fees for using some place like Merrill Lynch, and how are they any better than using a Primerica rep? Do you always need to go through a middle man and pay their additional fees, or can you somehow buy the shares yourself (if so, how?)? I checked out e*trade, but if you are only investing $100 a month then their $10 fee would be like a 10% front-load...

[peeb]

Motley Fool is a great site for figuring all this out.

[SpaceMonkey]

I don't really know very much about retirement plans for the self-employed, but some of your other options for tax-deferred plans in addition to a traditional IRA are:

* Keogh
* SEP
* Solo 401(k)
* Simple IRA

Pretty much any fund you buy from a sales rep can be bought for cheaper elsewhere. Beware sales reps!

[JohnPlantada]

If you are a member of USAA give them a shot.

[torsoboy]

Originally Posted by JohnPlantada 

If you are a member of USAA give them a shot.

Dang, that looks nice, but I don't qualify.

[RAILhead]

You need a Roth IRA so that your money will grow tax-free. You should also be putting as close to 15% of your income into retirement, so get to that figure as closely as possible. If the Roth contribution cap ($4000 (will be $5000 soon)) doesn't get you to your 15%, make up the difference by investing in long-term and established index mutual funds. Remember: if this is for retirement, you don't need to get rich quick. Retirement should be looked at as a crock pot, not a microwave.

[wallinbl]

Originally Posted by torsoboy 

What are the fees for using some place like Merrill Lynch, and how are they any better than using a Primerica rep?

They vary by the type of account you open. Some are transaction based fees (buying, selling, etc). Some are annual fees based on the value of the account (1% of value or some such number). Some are fixed fee.

I think for low dollar self employed investing, you're going to find Fidelity to be the cheapest, and Fidelity is pretty good anyway, so it's not like you're getting bottom of the barrel stuff.

Here's a link to their page on the Self Employed 401k: Fidelity Investments

[SVass]

Railhead is right as is Wallimbi! A Roth IRA lets you accumulate money in a fund that grows tax free and lets you withdraw later also tax free after you retire. Regular IRAs will tax you when you withdraw. Any good mutual fund company will open an IRA account of any kind if you ask. Fidelity above and Vanguard (www.vanguard.com) are two of the best known and the latter also has lower fees than anyone else. sam

[rozwado1]

Instead of mutual funds, why not build a diversified portfolio of ETFs? You'll be much more liquid as most mutual funds hold you to a 5-year term. And, no front end fees to pay.

[Art Vandelay]

To clarify on the Traditional vs Roth IRA:

You pay taxes on both. The difference is when you pay taxes. With a Tradtional IRA, you pay taxes when you withdraw because money invested in it is tax deductible (depending on eligibility). With Roth IRAs, you pay taxes upfront because the contribution is not tax deductible. So the withdraw is tax free.

If you know you will be in a lower tax bracket when you retire, then go Traditional. If you know you will be in a higher bracket, then go Roth. If you don't know at all, then do both to hedge your bets.

Vanguard has a nice comparison tool.

[SpaceMonkey]

Originally Posted by rozwado1 

Instead of mutual funds, why not build a diversified portfolio of ETFs? You'll be much more liquid as most mutual funds hold you to a 5-year term. And, no front end fees to pay.

The only mutual funds that I've seen do that tend to be tax-managed funds, sector-specific funds, or some other exotic fund. The basic investor-level funds from companies like Fidelity, Vanguard, T. Rowe Price don't lock you in in any way, and they don't have any front-end fees.

ETFs can be a disadvantage if you are investing money at a fairly high frequency, like putting away a certain percentage of your income every month into a retirement plan, as you might end up paying more in brokerage fees on the ETF trades than you would in the expense ratio of a mutual fund. If you are investing with less frequency, like dumping several thousand dollars into a fund at the beginning or end of every year, then an ETF might be more advantageous. ETFs are also generally more advantageous in taxable accounts, because you can identify specific shares to sell (another reason why it's more useful to buy them in larger amounts at once) to minimize your tax burden.

[Patrick]

If you contribute to an IRA and/or 401(k) and your adjusted gross income is under a certain amount (depending on your filing status), you can take a retirement savings contribution credit on your tax return. Saves a few bucks on taxes, if you're eligible.

[torsoboy]

I currently have a Simple IRA that is just sitting (and hopefully growing) from a previous employer, and a ROTH IRA that we have been putting money in from the Primerica rep every month (this is the one with a 5.75% front end load, plus their maintenance fee), and some money in the Money Market so that it is fairly liquid.

I am looking at stopping the investment in the Roth IRA through Primerica because of their fees, so I guess that account will just sit there (and hopefully grow) as well. And since my online savings account at Emigrant Direct earns 5% I am thinking of moving away from the money market fund to just have it in my savings.

Once that stuff is done, based on your advice and yahoo finance advice, I am thinking that the Vanguard mutual funds look pretty nice (no load and only .21% maintenance fee)... should I put the new mutual fund(s) into another Roth IRA? And 15% would definitely be more than $4000 a year, so would the same company (possibly Vanguard) handle both my Roth IRA and the indexed funds on the same account?

So many questions lie ahead for a newbie like me... thanks for your suggestions so far everyone! MacNN isn't normally a financial advice forum, but with the range different people on here I think it is helpful.

[passmaster16]

I have a Roth IRA with Vanguard right now. You're right about their low expenses and no loads. I suggest to do what other have already recommended, max out retirement plans at work if they offer a match. Then max out your Roth. If you are married and your spouse is working, you should be able to open two Roths, one in each of your names. Your contributions to Roth can be withdrawn early without penalty in an emergency situation -- earnings on the Roth would be penalized for early withdrawl.

On top of this, it's advisable to have a least 3 months liquid savings as an "emergency fund" in case you have car trouble/house issues/job loss. Also, if you have any high interest debt, you should consider paying it down as soon as possible -- credit card debt especially as your 8-10% earnings on retirement funds get quickly wiped out if you have 10%+ interested on credit cards or other loans.

[RAILhead]

Crap yes, there's no reason whatsoever to pay anyone to manage your money for you -- not until you're in the six-digit range (IMHO). Move that Roth into a Vanguard Index 500 or some other large cap fund and contribute the max each year.

I ❤ compound interest.

[torsoboy]

Okay, so if I decide to go with the Vanguard Index 500 do I just go to Vanguard.com and create an account, or is there some better way of doing it?

[Art Vandelay]

That's pretty much it.

[torsoboy]

Well that doesn't sound so hard

[peeb]

It's not - Vangard is a great place to start, but really, check out Motley Fool - they have masses and masses of info for the beginning investor.

[torsoboy]

Thanks for the advice. I have been checking out Motley Fool since you first suggested it... they suggest Vanguard in many of their articles, and that is what kind of made me pick them more concretely.