Posted: 4/24/2005 3:34:04 PM EDT
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My wife has an IRA from a college job that is sitting in the bank earning a whopping 2.9%. It is at about $30,000. What can be done with that? What types of higher yeilding options are there for that money and can it be moved witout a huge penalty? I gotta get edumacated on these things! |
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My understanding is pretty limited, but I'm pretty sure that when you take stuff out of an IRA early, you BOTH pay taxes on it, AND you pay a penalty of some kind - so it's usually a pretty bad idea. In a lot of IRA you can (as far as I know) exert some control over how it is invested. I know that's how my 401k (well, technically a 403b, but essentially the same thing) works. I can choose why kind of mix of conservative and risky investments I want my 403b to be - how much bonds, how much index stocks, risky stocks, etc. If she has no control over HOW it is invested, to figure out if it's worth it, you should find out what kind of yield you could get elsewhere, and then compare the benefit of that increased yield to the cost of the penalties and taxes. Technically, you might want to calculate some NPV (net present value) figures for each alternative, and then compare the two. You should be able to figure out what interest rate you'd need in an alternative investment to make it worth the up-front cost of switching. Sorry I can't tell you how to do the exact calculations, but if you know anyone with a college finance textbook, it shouldn't be too hard to figure out. |
| Transfer the monies to a low cost broker. From there as long as it stays in a IRA you can buy funds that offer more for a little more risk. Basic Materials XLB, Oil and gas producers XLE or XIC, Utilites pay about 3 % XLU. All of the above pay a dividend and those monies are taxed at a lower rate. |
LOL! Let 'er ride, eh?  Digesting the other advice... Thanks! |
Yup - CPA here -if you pull it out and don't reinvest it, you'll pay ordinary income taxes on it, plus a 10% penalty if you're under the retirement age. |
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The tax considerations having been addressed, I'd certainly think about investing it in stock mutual funds for the long term. The market has been a difficult place to make money since it tanked a few years ago, but long term it's still the best place to invest for the most competitive returns. Do your homework, stay committed to the plan, and don't try to micro-manage the managers who are managing the plan. By that, I mean don't try to pick when to pull out of the market and when to stay in-stay invested. As the account grows through capital appreciation and with new monies being added, you can change the overall weightings to fine tune it, e.g. less international, more domestic small cap growth, etc. I'm making these suggestions without knowing the age of your wife, so it's fairly generic. Age is important, but it still wouldn't affect my overall larger recommendations. Don't be afraid to seek out a qualified professional either. |
+1. Don't withdraw it as you'll pay penalty taxes on it. Instead, roll it over to a low cost Mutual Fund company or broker (I use Waterhouse) that allows you to invest your IRA contributions in stocks or MF's. |
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CFA here. Open an IRA account at a discount broker (Schwab...Fidelity, etc.). Whenyou fill out the new account forms, you will have the option to do a transfer of account or a rollover. Make sure you pull the account from the bank to the new brokerage, instead of pushing it, if you know what I mean. There is less chance of it getting messed up. Once you have it away from th bank, your choices increase a lot. If you have 20+ years until retirement and you want to buy the market return, I suggest you look at the Rydex S&P Equal Weighted Index (symbol RSP). It's an exchange traded fund (trades like a stock) that has an equal weighting of all 500 stocks in the S&P 500 index. GTG - Put my daughter to bed and read books. BRB |
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There are three main decisions to make here: 1) what kind of account (Rollover IRA, Roth IRA, annuity, none) 2) where to have the account (Schwab, Fidelity, Vanguard) 3) how to invest it (what stocks / funds / whatever to put it in. Actually, there have been some good suggestions here.
Here are suggestions on items 1) and 2). Re: 1) Cabby is recommending a rollover IRA, which essentially means your money gets transferred to another account but is done with the appropriate magic so that it doesn't count as a "withdrawal." You could also just flat withdraw it, but you'd have to pay income tax on it now. Another option is a Roth IRA, which I suspect Cabby might discuss. Re: 2), Cabby has recommended "discount" brokers, which is good. A "full service" broker will have nice artwork in their lobby but won't be interested in an account with only five digits. Guess what. You can buy shares of, say, GE stock with either one. But one will charge a higher commission.
OK, this is a #3) recommendation. Once you've got your account set up you can buy / sell stocks, bonds, mutual funds, etc. Edit to add: I'm expressing no opinion on RSP, but based on the rest of the good info Cabby gave, it's probably worth considering. |
Yes, do what he says, a rollover into a firm that gives you more investment options. But the stock market has been moribund for the last few years. Big investors like Buffet consider it overvalued and foreign investors are skittish about investing n dollar-denominated assets with our currency slide. The real bull market today right now is in commodities. Find a managed fund like Goldman Sachs that has an indexed commodities fund. Right now, the American stock market doesn't look so great for growth. |
