roth ira question

garden_graphic_galSeptember 16, 2008

If you open a Roth IRA with $2000 (minimum to open) into a CD rather than mutual funds, can you continue to add to that IRA until you reach the max/year?

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haus_proud

That depends on the financial institution with which you open the account. You need to find out if they are flexible enough in their procedures to enable you to add to your Roth account. You probably cannot add to the CD that you started with because CDs typically go for a certain period to maturity, and then they "mature," which means you need to open another one at the new prevailing interest rates. Adding to an existing CD, say, a few hundred dollars a month? I do not think so, but you can probably open a different account to enable you to do that.

A question of strategy: Roth IRAs are tax free, which means that, although you pay tax on the initial contribution to the account, everything it earns after that is tax free. They are an excellent long term investment, money you just put in there and don't pay too much attention to it for a long, long time. Since your time horizon for a Roth is (or should be) at least 10 years, you can afford to take on more risk than a CD. To take advantage of the tax free feature, you need to keep the money in the Roth for a minimum time (I think at least 5 years, but I'm not sure of that). It therefore makes sense to think long term and take on more risk, say, an index fund of the whole stock market, or something like that.

    Bookmark   September 22, 2008 at 9:24PM
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garden_graphic_gal

Thanks haus proud.I have other CD's and 401b but was looking for another way to save some money for later. Just having a huge concern about starting a roth in mutual funds with the market in flux at this time.

    Bookmark   September 29, 2008 at 7:58PM
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haus_proud

The market is down right now, and common wisdom says it's time to go in because you can get some good bargains. Money in a Roth is for the long term and very tax advantaged. I'm putting fresh money into a Roth and a SEP IRA in broadly diversified stock index funds, but that's money I will not need for a long, long time, so I can leave it there and let it grow.

    Bookmark   September 29, 2008 at 9:49PM
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