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Let Me Hit You with Some IRA Knowledge

September 14th, 2006 at 08:51 pm

I received this really great question about IRA’s: “What kind of IRA should I get? Do you think I should just put my money in a fixed IRA?”

Even though I think this is a very easy question to answer many people do not really know what to do with their IRA. First, single individuals with modified adjusted gross income (MAGI) of $95,000 or less should contribute to a Roth IRA. There are so many benefits to the Roth IRA such as tax-free earnings, borrowing from the plan (I do not recommend this), and there are no minimum distributions during your lifetime.

The second part of the question can be answered using this calculator. Let’s say you save the maximum annual contribution of $4000.00 a year which is ~$333.0 a month (in this example assume the contribution rate stays the same).

Fixed plan with the highest paying APR of 5.12% (according to Bankrate):
In 30 years you will have a total amount of $284,583.00 with total paying interest of $164,702.00. This is still pretty good return because all you invested was $119,880.00

Growth plan using the S&P average return of 11% over 80 years of data:
You will have a total amount of $942,466 with a total paying interest of $822,285.00
While still putting in a total of $119,880.00

It seems incredibly self explanatory doesn’t it? Well unfortunately, I know more people in a fixed IRA then a mutual fund IRA. So if you are in a fixed get out of it! Open one up using an online brokerage firm like INGDirect, Fidelity, and Vanguard.

Please email me at admin@efipo.com if you have any financial questions that you would like me to write about on eFIPO.com.

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