Money

[Macheath]

When you ask people "what should I do to make myself rich?" they always give you a list something like this:

1. Pay off your credit cards
2. Pay off any other high interest loans (i.e. not student loans)
3. Contribute as much as you can to your 401(k) if you have one, maximizing your employer's match if possible
4. Open a Roth IRA

That's from memory, I might be missing a step somewhere. But the point is, they always arrive, eventually, at the hallowed Roth IRA. Bow down to the glorious Roth IRA.

I have a Roth IRA, and at today's interest rates... why bother? I made an initial deposit many years ago, and I haven't put another cent into it, because for a while CD accounts were more convenient as I was saving up for a house, and then interest rates had plunged so far as to make such a thing pointless. My Roth IRA has an interest rate of 0.15 percent. Jesus, my savings account at BOA has a rate about half that (~0.07 percent). I could put every ounce of my savings into my IRA, have it locked up for the next thirty years and be unable to make use of it, and thereby make a couple extra bucks per month. Give me a break.

So: Roth IRA, myth -or- just a myth during the current poor economy? Because they're definitely a myth right now.

Same goes for CDs. You can shuffle your money around like a madman, in and out of CDs and IRAs, all for the sake of an extra $25 annually. Or you can go like Drewbie and play the stock market, I guess, but I hate gambling.

[Drewbie]

Correct me if I'm wrong, but can't you direct investments with the value of your Roth IRA? Cause if you're just leaving it in a money market account when you could be doing anything else with it, well, that's not the Roth's fault.

As far as the whole concept of "how do I make myself rich?", you're list really only covers, "how do I do my best to ensure that I've got the most money possible when I retire." If you want to be rich you've got three options:

1. Get lucky (lottery, friend who starts a company and takes you along, etc.)
2. Make connections (move up in a company or hop from company to company, always increasing your title/responsibilities and your salary)
3. Work your ass off and start your own company

#1 isn't happening to me anytime soon so I'm focused on #2 while I try to firm up what I'd do to start #3.

[Macheath]

Correct me if I'm wrong, but can't you direct investments with the value of your Roth IRA? Cause if you're just leaving it in a money market account when you could be doing anything else with it, well, that's not the Roth's fault.

Hell if I know. I put like 1500 bucks in it when I got my first job out of college around 8 years ago, and immediately realized I needed my money for paying rent and stuff. So I never put any more money into it, or investigated what I could do to "direct" it. It's 1500 bucks, who cares? But today, I happened to glance at it and notice the pitiful interest rate, and thought it was ridiculous and posted a thread.

As far as the whole concept of "how do I make myself rich?", you're list really only covers, "how do I do my best to ensure that I've got the most money possible when I retire."

Yes and no. My list covers getting yourself out of debt and then giving yourself a retirement, and any "get rich" plan starts with getting yourself out of debt. Hard to become a millionaire when you're making minimum payments on a $10k debt to AmEx. The point of the list was to get to the Roth IRA.

1. Get lucky (lottery, friend who starts a company and takes you along, etc.)

Oh, well I'm set, then!

[nynnja]

Mac, I think you're seeing the effects of our craptastic economy. Interest rates are really just that pitifully low right now. www.bankrate.com is currently showing 30-yr mortgages at < 4%, that's still in record low territory. Otherwise you're spot on with your plan.

Have you considerd a more moderate approach to "gambling" with the stock market? Over 20 year spans the stock market has generally beat any other investment.

[liuv]

You are IRAing wrong. It may not be your fault.

Drew has it right. An IRA is an investment account. Depending on who your IRA is with you likely have different investment options. When you created your account you probably "elected" (whether you knew it or not) to put your money into some kind of cash account, or maybe an annuity of some sort. However you may not have had a choice.

My credit union offers a "Roth IRA" that is essentially just a savings account. No investment options, just a flat interest rate. That makes it a crappy IRA.

Who is your IRA with?

http://en.wikipedia.org/wiki/Roth_IRA

[Macheath]

Mac, I think you're seeing the effects of our craptastic economy. Interest rates are really just that pitifully low right now. www.bankrate.com is currently showing 30-yr mortgages at < 4%, that's still in record low territory. Otherwise you're spot on with your plan.

Speaking of those interest rates, I really want to refinance my mortgage. However, I have a mold problem to deal with in an outdoors closet off the patio (that's a separate thread; look for fun pictures in a couple weeks) before I bother getting the place reassessed, and until I do that I won't even know how much of my down payment has gotten swallowed up by depreciation in the past 2+ years. So, one thing at a time. In a few months, if the interest rates are still sub-4%, I will definitely have to consider revisiting the possibility.

I'll need to make a considerable cash payment to get down to 79% LTV or whatever, I imagine. But that would get me out from under PMI and give me an interest rate perhaps as much as 1.5% lower. Worth it? I think so.

Have you considerd a more moderate approach to "gambling" with the stock market? Over 20 year spans the stock market has generally beat any other investment.

Sure. I'm financially conservative, not a complete idiot. I think if I really dug in and spent a lot of time in the care and feeding of a stock portfolio, I could do some real damage. It's hard to find that much extra time and motivation lately, though, so I'd more likely hire a broker or investment group to handle it for me; in which case, I'm hardly controlling my money, am I?

My credit union offers a "Roth IRA" that is essentially just a savings account. No investment options, just a flat interest rate. That makes it a crappy IRA.

That's probably what I've got.

Who is your IRA with?

Bank of America.

[brien]

From what I understand, the real value of a Roth IRA is not so much in the interest it earns, but in how it is taxed, or rather, not taxed. Your investment can grow tax-free, and if you withdraw during retirement, your withdrawals do not count as income, so you won't have to pay tax on the withdrawal.

[bret]

The only thing that sucks about retirement, is that by the time you are that old you can't do anything fun anymore.

[landolin]

six years ago I put $1,000 into my Roth IRA and have not contributed since. Its currently at $5300 due to investing in Apple and BP right after the disaster. You need to actively manage your IRA and not let it sit.

[Macheath]

Except I don't think I can.