Roth IRA at ING?
August 22, 2006 8:48 AM   Subscribe

Is ING Direct a good place to have a Roth IRA? Other suggestions for easy, cheap plans? Can I do this without hiring a professional to advise me?

I want to open a Roth IRA, but I don't have a lot of money to start with (a few hundred initially and maybe $100 a month thereafter) and I want to get a good deal. Is ING Direct's Roth IRA a good choice compared to other Roth IRA plans that I could open and manage on my own without paying for professional guidance?

I'm investing in a 401(k) through work, but there's no match, and I want to minimize my taxable income in retirement. I have savings and checking accounts at ING and PNC Bank. I like to minimize the total number of institutions I have to keep track of, and ING's online interface seems to make things really simple. But I'm willing to go to an outside company if that's really what makes the most sense financially.

A few specific questions: Everyone says "choose a plan with low fees." How low is low enough? 1%? 2%? Also, is it safe to just invest in the "agressive" plan if I'm not planning to retire for 40+ years, or do I need to do something else to manage risk? Are there any other factors I should take into account when choosing a company or choosing plans within that company?

I know similar questions have been asked before, but the companies' offerings seem to change very quickly and I think some of the answers from a year or two ago are outdated. Thanks for your help!
posted by Amy Phillips to Work & Money (15 answers total) 16 users marked this as a favorite
Vanguard Roth

$10 annual custodial fee
You can set up an automatic monthly deposit

If you're not familiar with investments, the best choice is a S&P 500 Index fund - it beats roughly 80% of fund managers over the long term.

Good luck!
posted by jazzkat11 at 9:02 AM on August 22, 2006

I was going to suggest Vanguard too, but... "For most Vanguard funds, a minimum initial investment of $3,000 per fund to open a Roth IRA."
posted by smackfu at 9:04 AM on August 22, 2006

Amy - You have a lot of questions, and your best bet is going to be to consult with a financial planner. They're going to be better able to analyze your risk tolerance and your personal goals.

My basic answer for these kinds of questions is "do what works for you". Vague, isn't it? But it's the best advice I can give. What fees are low enough? It depends on what bugs you. Is it safe to only invest aggressively? It depends on your risk tolerance.

It's certainly very possible to open a Roth IRA by yourself without professional advice. People do it all the time. I did it earlier this year. I chose Sharebuilder because their fees are very, very low. Sharebuilder isn't as full-service as many of the discount brokerages. They're after a specific segment of the market. They try to make it easy for people to set up automatic investment plans. They're good for me, but may not be best for you. Sharebuilder has NO minimum investment amount. I opened an account with $100.

Besides getting advice from Mefites (who have historically provided pretty good answers on these sorts of questions), I'd recommend consulting a financial planner or, if you're self-motivated, reading some personal finance books. You'll be glad you did!
posted by jdroth at 9:15 AM on August 22, 2006

I have a roth ira with AmericanSkandia. It's supposed to be good so says my investor guy. o_O
posted by pcberdwin at 9:26 AM on August 22, 2006

If you don't have a desire to learn the intricacies of financial planning, picking a risk level and letting someone else handle the details won't steer you too far wrong. Investment advice given to non-professionals is legally restricted to being fairly conservative. You'll almost certainly be leaving money on the table, but that may be a good trade off against getting knee deep in modern portfolio theory.

If you can truly not touch that money for 40 years, choose the most aggressive strategy you can, just remember to start redirecting it into less volatile investments as you get closer to retirement.

I recommend moneychimp as a good intro to what this whole investing thing is about.

A potentially easier/cheaper strategy is to open a Roth IRA at etrade or similar and just set up an auto-contribution and auto-buy of an S&P Index fund. No fees and you get whatever return the market gets. volatile as hell though, so only for the long term.

I am not a financial professional of any type and this is not financial advice, etc.
posted by Skorgu at 9:31 AM on August 22, 2006

ING's a great savings location (I use it too) but their IRA fees are WAY too high. Vanguard is, as others said, the way to go.
posted by phearlez at 9:32 AM on August 22, 2006

I'm a little confused by your question.

Do you plan to open a Roth IRA, as in a straight bank-account (usually either a money market or a CD), or do you plan to invest in a Roth plan? For example, this plan from Fidelity clearly mentions that you have choices of the funds to invest in at the bottom. ING's marketing site is a little labyrinthine for me, but I couldn't determine if they are offering straight CD-IRAs or if they are offering an investment plan such as Fidelity (or Vanguard, for that matter). Most of these investment-type plans will have *some* fees involved.

If you don't really want to play the market, or don't care, there is almost nothing cheaper than a regular old bank IRA. Here is BankRate's 100 highest yields for IRAs. That's for CDs. This one, also BankRate, is for Money Markets. If you have ~$500, then you might look at a Money Market first, and then move it into a CD after a while, and then move that money into a Roth investment plan later. Given that you can get about 5% on a deposit in a CD for one year, guaranteed, I might take that over investing a small amount of money, but that would be my personal preference.

The cool thing about bank-based products is that 1) the bank needs your deposit. They want it, particularly the smaller regional or community banks and internet banks with smaller customer bases than say, Wachovia, because your deposit is cheaper for them to have on hand and pay interest than it is for them to go out into the institutional market and buy those funds to borrow against. Keep that in mind -- if you visit a local bank and they don't have as high a rate as you'd like, negotiate. They probably need the deposit; 2) because of 1, you can often get these accounts fee-free as long as you follow a couple of simple rules (make a certain deposit to the account/year or have a certain amount of cash on deposit with the bank over all).

I hope that was helpful. I used to deal with IRAs for a living (have since moved on in the financial world) but would be happy to help you if you have further questions.
posted by Medieval Maven at 9:33 AM on August 22, 2006

See this Morningstar article with recommendations on low-minimum IRAs, which lists four funds you can get into with $500.

As for your broader questions ... where to start? Generally speaking, the further away you are from retirement, the more aggressive you can be. (Which is not to say that your 401k plan's aggressive option is automatically a good idea.) Time is your friend when you start early.

I'd encourage you to read, read, read on investing at Morningstar, MSN Money, etc. The Vanguard Diehards forum at Morningstar can be very helpful for newbies and experienced hands alike.

And I highly recommend Vanguard, too, although that $3000 minimum sounds like a hurdle for you at the moment. But you can always transfer your money there later.

If you like simplicity, you might want to check out the funds designed for people planning to retire in a particular year. Many fund families have them; at Vanguard they're called "Target Retirement 20xx" funds, where "xx" is a multiple of 5. (If you're really 40 years out, you'd probably want to look at Target Retirement 2045, for example.) These funds start out more aggressive and automatically become more conservative as you get closer to retirement. They may be the closest thing to "invest and forget" out there ... not that you should really do that with any investment, of course.
posted by pmurray63 at 10:01 AM on August 22, 2006

I asked a similar question not too long ago, took the advice I got and moved all my IRAs over to Fidelity. I'm 100% happy with the decision. Great customer service, great site design, great interface, and a great array of investment choices.

Definitely check out the Fidelity SimpleStart IRA. No fee, no minimum initial investment as long as you contribute $200 a month, and you can get into any Fidelity mutual fund you want without a minimum balance fee. (You might be interested in their Spartan 500 fund, which has a very low overhead even compared to other S&P 500 index funds. They also have a line of "Freedom" funds indexed by the decade you're planning to retire; they are pretty much fire-and-forget, Fidelity manages the risk for you.)

Given that no-fee IRAs are available, 1% seems like too much to be paying.

Since Medieval Maven mentions CDs, it's worth knowing you can also get them through Fidelity, FDIC-insured, from a variety of banks. The rates are pretty competitive.
posted by ikkyu2 at 10:17 AM on August 22, 2006

Medieval Maven,
I may be even more confused than I thought I was. I had no idea there was a difference between a Roth IRA bank account and a Roth Plan. What's the difference? (the link you provided doesn't seem to explain the difference)

I guess what I really am looking for is the least possible effort on my part. I care about having money there when I want it, but I have very little desire to learn much about finance/investing, nor do I want to spend a lot of time managing my money. Does that just mean that I'm a good candidate for a professional financial planner? If so, how do I go about choosing a financial planner?
posted by Amy Phillips at 10:33 AM on August 22, 2006

What's the difference ... between a Roth IRA bank account and a Roth Plan?

It's the difference between a bank account and a brokerage account. The bank is going to lend out your money and pay you part of the interest. The brokerage is going to let you buy shares in mutual funds as well as individual securities. The bank is FDIC insured and very safe; you will not lose your money. The brokerage is not; you may lose money. The bank is going to pay you a relatively low rate because it's very low risk. The brokerage, over time, will let you earn a higher rate of return because of the risk. The bank isn't going to charge you a lot of fees because their profit model is to charge interest on money they lend out, and they want your deposit so they can lend it out. The brokerage is going to charge you various fees because their profit model is to earn transaction and service fees.
posted by kindall at 11:16 AM on August 22, 2006

Think of the Roth IRA as the tax category, not a specific investment. You can put your investment into a CD, money market, mutual fund, stocks ... lots of different things. Which you should pick depends upon factors such as your risk tolerance, how much effort to want to expend managing it, etc.

Here's a more basic "how to" article, and more reading. (Note that these are several years old, so they may not reflect the current limit, which is $4000 in 2006 (or $5000 if you're over age 50, which doesn't seem to apply to you). The basic overview is still good, though. And naturally Wikipedia has a decent overview.
posted by pmurray63 at 1:35 PM on August 22, 2006

kindall and pmurray have got it. However, if you don't have a lot of money, a brokerage account Roth IRA may not be right for you. We had a lot of clients start small with an IRA Money Market, build that up to an amount that they funded into a CD, and then later, when they'd built up the amount they wanted (or by whatever benchmark they'd set, eveyone is different) they'd take those funds into a brokerage. If one of your concerns is to preserve a small amout of money while you build it up, a bank-based IRA might be the way to go. (My impression was that you had a small amount to start off with that you meant to build up over time.) The bank also guarantees you a certain return (right now, as I said, you can get 5% and slightly more) whereas there is not guaranteed return with a brokerage, although thier long-term performance is generally good.

Fidelity is a pretty good place to start. As for a financial planner, if you have any friends who have one they like, and you trust those friends/colleagues, I'd go with a personal rec on that one. A personal financial advisor would be able to look at what you actually have to invest and point you in the right direction. Just keep in mind what kindall says . . . the brokerage's profit model is to make money off of fees. If you think you will get fee'd to death, then I would strongly consider bank-based IRA CDs or Money Markets.
posted by Medieval Maven at 1:36 PM on August 22, 2006

Go read the second page of this article by Kiplinger's at MSN. The most relevant paragraphs for you (links to MSN tools omitted in this excerpt -- go to the site for them):
You can invest your Roth IRA in almost anything -- stocks, bonds, mutual funds, CDs, or even real estate. It's easy to open an account. If you want to invest in stocks, go with a discount broker (Here’s a comparison of brokers). For mutual funds, go with a fund company. For CDs or money-market accounts, you can go through your bank.

Because you're young and have a long way to retirement, you'll want to invest in the stock market to get the highest returns over time. Rookie investors should stick to mutual funds that invest in stocks. They're easy to understand, you leave the stock-picking to the pros and they make it easy to spread your risk around several stocks or bonds without putting all your eggs in one basket.

Most mutual-fund companies even lower their minimum investment requirements when you open an IRA. T. Rowe Price, for example, requires $2,500 to invest in a taxable account, but IRA investors need only $1,000 to get started -- or as little as $50 a month if you sign up with its automatic investing program.

Use Fund Finder to search for funds with low investment minimums and that meet your other criteria. Stick to no-load funds with low expense ratios (the average expense ratio for stock funds is about 1.5%). And check out How to invest with $500 or less for some specific low-cost fund recommendations, and for more information on diversifying and evaluating your investment options.

Many fund companies will let you open an account and make contributions online.
posted by pmurray63 at 1:41 PM on August 22, 2006

I've had a Vanguard Roth IRA since 1998, as long as they've been available. Wonderful folks. After you've completed your reading assignments give them a call -877-662-7447- their support people are very easy to talk with and non -sales oriented. They will also send you more information then you can imagine with no obligation.
posted by ptm at 2:02 PM on August 22, 2006

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