Dec 19

Question by Derek: Roth IRA???
A mutual fund roth IRA doesn’t make interest compared to a Roth IRA? Mutual fund Roths Depends on the Mutual fund? Where can I get a Roth IRA that just gets interests not mutual funds?
Well, i just wanted to know… I thought mutual funds performed however you invested and based on your contributions you got interest on that. I already have a mutual fund Roth… I just expected to get interest too.

Best answer:

Answer by Nelson_DeVon
Any bank.

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6 comments so far...

  • Thin Kaboudit Said on December 19th, 2010 at 5:30 pm:

    I suspect that you do not quite understand what an IRA, a Roth IRA or a “mutual fund” actually are. My apologies if I am mistaken.

    An IRA is an “individual retirement account” into which you are allowed to put ‘pre-tax’ dollars, ie money taken out of your ‘gross’ earnings before you pay any taxes. This money can grow tax-deferred until after you are 59.5 or older. You will pay regular income tax when you withdraw it after that age.

    A Roth IRA is funded with ‘after-tax’ dollars, ie you pay tax on your pay-check, and then invest some of what you have in the Roth, and you will pay NO tax on it when you draw it out in retirement.

    Inside either an IRA or a Roth IRA you can invest the funds as you see fit; the younger you are, the more ‘potential risk’ you should take for potential gain. “Interest-only” investments are best-suited to retired people who cannot afford a few months of poor returns, but will only ever yield 3-5% a year, whereas “high-risk” investments (like stocks) typically yield 8-12% a year on average, over longer (10-20 years) periods.

    If you are under 30, paradoxically, “safer” investments are much higher risk, because you will get only guaranteed low returns; while a stock mutual fund might ‘bounce around’ if you look at day-to-day or week-to-week performance, over any longer period you will always earn more money. Always.

    If you are under 30, there is almost no good reason to own interest-bearing instruments inside your IRA.

  • Derek H Said on December 19th, 2010 at 5:54 pm:

    “Thin” hit the nail on the head. There is no reason to be looking for interest bearing Roth IRA accounts, especially if you’re young. Over time, the market will give you MUCH better gains and provide you with a much better retirement base.

  • vegas_iwish Said on December 19th, 2010 at 6:34 pm:

    You do NOT want an IRA that just gets interest. No point in having 1. Bank instruments and bonds do not beat inflation and inputed taxes. They are not safer if you understand what safe means. It is safe to say you will fail to retire well if you don’t go into equity – stocks. If your money does not work you can’t stop. Get this notion out of your head that if you nominally have mor emoney you are ahead. If you get 4% interest and pay 25% tax on the money before it goes into IRA (likely more) that is 3%. If inflation (trur – not cpi) is 3.5% you r money is shrinking – not growing. Don’t hurt yourself and your family by not understanding this as a fact. ADX PEO EWA – has the options even if you just use 1 of thier Target Retirement funds. The Roth just holds the investment. The investments must be the right 1s or don’t even bother having 1. Please feel free to contact me with further qs before you move forward.

  • jebediabartlett Said on December 19th, 2010 at 7:17 pm:

    Derek, you are being a ” panic seller”…relax give your funds some time!
    The markets have taken two hits since your purchase and I’d guess your even in one and up a few bucks in the other…give it time ..” investing” is not the roulette table…you don’t win – bing- bang bananas…you win in the long run.
    IRA’s taken out last April fell terribly in a May sell-off…things were down 10 and 12 percent…..just by holding ( and not going into a panic) they finished the year UP 16%.
    You won’t get that with any bank/CD type investment.

  • Kitty Said on December 19th, 2010 at 7:46 pm:

    An IRA whether Roth, traditional or simple are simply buckets that you fill up with things for your retirement. A mutual fund is one of those things you can put IN an IRA.

    The best part of any IRA is that YOU get to choose what you want in it, so make it a good one !!

    : )

  • gosh137 Said on December 19th, 2010 at 7:48 pm:

    Equity (stocks) mutual funds distribute capital gains and dividends, not interest. Mutual funds that invest in bonds, individual bonds, & money market mutual funds distribute interest.

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