Grow, little IRA

January 23, 2016 1:57 AM

This seems like a dumb question but it's earnest. I have an IRA in PNC Bank with about $4,000 in it. It never shows any interest income. It's been the same for years. Not even the tiny amounts of interest my regular savings account gets. This seems wrong, doesn't it?

I don't know what kind of an IRA it is. Roth, CD, traditional, I don't know. I set it up a few years ago and haven't thought about it since. I can call PNC and possibly find out what kind of IRA it is; I moved away from where the branches were.

But what I really want to know is:
What should I tell them to do with it?
If I roll it over into a new IRA, it will start to show interest right?
Or should I just leave it where it is?

I do have a regular 401k so this isn't my only retirement thing.

posted by bleep to Work & Money (8 answers total)

what is your IRA invested in? An IRA isn't like a conventional savings account that has an assigned interest rate which will automatically generate income over time. Like your 401k, it's an account where you can put in cash that can be invested in something (stocks, bonds, mutual funds that contain a mix of stocks and bonds), and it has to be invested in something in order to work.

It is possible that when you setup the IRA, you just put the money in there without designating an investment, which means it's just sitting as a cash reserve that isn't generating interest. You should be able to order your bank to invest your IRA cash in something like an index fund that tracks the S&P 500. Then at least your IRA will grow according to how the overall stock market grows (or doesn't as the case may be, as you can in the linked chart, the S&P was pretty much flat during all of 2015, but those fluctuations will at least be reflected in your overall IRA balance.) You could also invest in Treasury bills, which will at least give you a rate of return comparable to (or higher than) your savings account.
posted by bl1nk at 2:13 AM on January 23, 2016 [7 favorites]

This was my exact situation when I set up my IRA--I initially didn't realize that I had to actively choose how to invest the money I was putting into the account. Otherwise it just sits in a sort of "holding account" and doesn't change in value. I was able to explore ways to invest my IRA funds on the bank's website but you can (usually for a fee) get personal investing guidance from your bank as well.
posted by bookmammal at 4:22 AM on January 23, 2016 [3 favorites]

You probably have it in cash or a money market fund earning .05% interest.

On the other hand, if you'd had it in a stock index fund for the last 5 years, even accounting for the correction of the last few months, you'd have made about 10-11% on your money.

The key question is how old you are. If you've got a long horizon, put it in a no-load/no-fee stock index fund, add the maximum you can to it every year, and leave it alone. Compounding interest and growth over a long period of time is the single and only key to turning a modest savings into a retirement plan.

Now is the exact right time to do that. The markets are way down. It won't last.
posted by spitbull at 4:58 AM on January 23, 2016 [2 favorites]

Vanguard index fund.
posted by notned at 5:39 AM on January 23, 2016 [6 favorites]

Hm. Resisting the urge to scold you here. No, can't hold back.

Look, to be financially successful you must be in charge. You must be proactive about where your money goes and what it's doing. You must ask questions, and if you don't like the answers then make changes.

You wrote: "I don't know what kind of an IRA it is. Roth, CD, traditional, I don't know. I set it up a few years ago and haven't thought about it since. I can call PNC and possibly find out what kind of IRA it is..." This is about as passive as a person can possibly be when it comes to money.

Hell yes, call them up and ask them what kind of IRA it is! Ask them what it's invested in! Ask them what it would take to invest in something else and how you'd go about moving the IRA to another institution! Do not set up accounts like this and then ignore them. What's the point? You might as well put cash under your mattress.

How do you start taking a more active role with your money?

• First, read up on what an IRA is. This isn't tough. Google is your friend. IRAs aren't complicated or confusing, and there's plenty of info about them.
• Second, figure out what your financial goals are. How you invest the money in your IRA should be determined on what you want to use that money for. If, as is likely, the money is for retirement, then your best bet is probably to invest in the stock market. Based on what you've told us, the other commenters are right. It sounds like the money is currently earning minimal interest in some other kind of account. That doesn't meet your goals.
• After you learn what an IRA is, what kind of IRA you have, how the money in the IRA is invested, and figure out what your goals are — then make an informed decision about what do do with the account. Don't base your decision on the advice of random internet strangers but on what you want and need.

I know I sound a little cranky or bossy here, but that's because I want you to do this yourself. Because it's something so easy to do yourself. Taking care of this will help you build financial confidence, which will in turn help you to tackle other financial issues that come up.
posted by jdroth at 5:48 AM on January 23, 2016 [49 favorites]

Seconding that you should be doing some independent reading right now to learn these very basic personal finance concepts. This stuff is not rocket science. Go to the library and spend an hour reading a book on retirement savings. It's your future, after all. If all this is really too confusing for you, consider hiring a financial advisor to handle it for you.
posted by deathpanels at 6:09 AM on January 23, 2016 [1 favorite]

Best answer: Call up Vanguard and roll it over into one of their Target Retirement Funds. They do the rebalancing (stocks/bonds allocation) as time goes on so you truly don't have to think about it. And then start adding to it! You can put in up to $5500 a year, and Vanguard lets you do regular, automatic transfers from a checking or savings account. I've been with Vanguard since about 2003 and have nothing but great things to say about them.
posted by jabes at 8:24 AM on January 23, 2016 [6 favorites]

Nthing moving it to a Vanguard Target Retirement Fund for the year you expect to retire. Then you won't have to think about it again for a long time.
posted by Jacqueline at 11:38 AM on January 23, 2016 [2 favorites]