I thought since we were entering the final quarter of the year I'd ask this question. Melissa emailed me and asked me to post something here of a financial nature and I could think of nothing more basic to everyone's financial security. If you have an IRA set up already, congratulations! If you don't, right now is the second-best time to do it. The best time was earlier. ;o)

In keeping with the family oriented nature of this board, I'll tell you that making plans now for your retirement is one of the best things you can do for your children. If you prepare now to take care of yourself in your retirement your children won't have to. They can take care of themselves and your grandkids.

I realize if you're 100% self sufficient and have no income whatsoever you won't qualify for an IRA. I can't imagine too many being in a position where they can't earn $40 a week to contribute, though. Believe it or not, a mere $40 a week will allow you to fund an IRA to the $2,000 limit each year.

I sincerely hope everyone who reads this either already has and IRA set up for each working parent or will do so NOW. It's truly the single best retirement savings vehicle available to every working American. You put money away today tax-free and it grows tax-free for as long as it remains in the account. It's only taxed as you take it out in retirement at what will likely be a time when you're in a lower tax bracket. It's a wonderful deal, folks.

-- Gary in Indiana (gk6854@aol.com), October 06, 2001

Answers

I will ask a very basic question. Who should or could you see to set up an IRA? My husband has a retirement fund through his union, and that is all we have so far. We were thinking of buying bonds. Are these better, or safer than an IRA? We don't need much money now and I anticipate that as the kids get older we will probably need less, so keeping the money safe is very important to me.

-- Melissa (cmnorris@1st.net), October 06, 2001.

Gary, I've been wondering for a while. Are you the Gary who writes the dollar stretcher site. I think it is great. If not you really write like the Gary there.

Alison

-- Alison Homa (alisonhoma@aol.com), October 06, 2001.

OK, I'm using a fake name because I'm going to give some personal facts. We're a single income family and my husband, late-thirties, has not once made $20,000 in a year. I would hope we're in a higher tax bracket by the time we "retire". Usually $40 a week is grocery money. Any thoughts or advice pertaining to IRA's for our particular situation?

-- fakename (somewhere@home.com), October 06, 2001.

For Allison; I'm flattered you think I might be someone who is a professional at financial writing. I'm not. I've not even seen the site you mention. If you send me a link or the URL I'd be interested in seeing it, though. Thanks for the compliment and in advance for the link/URL. ;o)

-- Gary in Indiana (gk6854@aol.com), October 06, 2001.

For Melissa; First, let me clear up what I percieve to be a misconception on your part. An IRA's funds can be invested in anything... stocks, bonds, mutual funds or a simple savings account. One of the big things I look for is a place where I can open an IRA and have all of those options available to me. An awful lot of IRA's which are "sold" by banks, insurance outfits, etc., don't have much flexibility at all. With those, you can buy anything THEY sell at whatever commissions prevail at the time.

Another thing I want is someplace with no up front or ongoing fees. This is especially important because, by law, any fees pertaining to your IRA have to be paid out of your IRA funds. In other words if you make your $2000 maximum contribution and there's a $25 fee you can't just send a check for that. It come out of your $2000 right away. I know that may sound trivial but consider this. Taking that $25 out of an investment at age 35 that earns 10% per year reduces your retirement nest egg by about $500 at age 65. Worse yet are situations which have annual maintenance fees. I'm sure you can see how a rather inoffensive sounding $25 initiation fee and $25 annual maintenance fee can add up to thousands you don't have at retirement.

Now, all of that having been said, I've finally got to answer the tough question; "Who could or should I see... ?" Once again, let me say I'm no expert and don't claim to be. All I can do is tell you what I did and what I'd do today. I have no vested interests in anything here. If you do what I did and aren't happy, don't come and kick my dog, OK? ;o)

I currently use Datek and Ameritrade. These are two among many online deep discount commission brokers which offer self-directed IRA accounts, wherein you decide where, when and how to invest your money. If you stay in cash, they pay interest. You can buy mutual funds and stocks and, I believe, bonds as well. A market order stock purchase with either is under $10. I've been pretty happy with each of them over the years. There are cheaper ($5 is the lowest I've heard thus far) but I'm not sure the reduction in service and support would be worth the little savings you'll see.

You can see what each has to offer by going to their respective web sites. Try www.ameritrade.com and www.datek.com to see which you like. I hope this helps.

-- Gary in Indiana (gk6854@aol.com), October 06, 2001.

This is for 'fakename'; First, $40 is no magic number. If you can't put in $40 a week, put in what you can. Put in $20 or even $10 but try to be consistent. I know that a lot of times this is easier said than done. The only other solution is to do something to increase your household income.I don't know your or your husband's particular situation so am hard pressed as to what to suggest (not that knowing would necessarily help me). My first thought in most cases is always to suggest a part-time job. Even one day a week somewhere would cover $40. I hope this helps.

-- Gary in Indiana (gk6854@aol.com), October 06, 2001.

Anyone who can afford it, should take advantage of IRA's. I believe the amount is being increased and next year you can put in $3,000 instead of $2,000 and that is per person. So a married couple could deposit $6,000. Not only does this lower your taxes it might, as it did us put us in a lower tax bracket which was a big savings for us.

-- Barb in Ky (bjconthefarm@yahoo.com), October 07, 2001.

Two questions from me Gary:

1.) What are the advantages of the Roth IRA vs. standard IRA? I've heard that the Roth is taxed now, then interest accumulated is tax free. That true?

2.) My wife and I couldn't deduct our IRA constributions because of our income bracket ($60,000 combined). Because of this, my wife got ticked off and now refuses to add to her IRA's. I still do contribute, and wonder how if I should convince her to do otherwise. She already has teacher retirement, and various other long term financial deals already in place. Thanks in advance for your input.

-- j.r. guerra (jrguerra@boultinghousesimpson.com), October 08, 2001.

j.r., here are the differences I know between the regular and Roth IRA. Money put into a regular IRA can be deducted from your taxable income as it's contributed. Money put into a Roth IRA can not. Each has it's respective earnings grow without being taxed through the entire time the money is there. The difference comes when you take the money out at retirement. Money taken from a regular IRA account is taxed as income at whatever your rate is then. Money from a Roth IRA is not taxed as it's taken out. It's essentially a case of "pay me now or pay me later" on the taxes.

Here's a part of the math. If you're in the 28% marginal tax bracket you have to earn $2778 to have $2000 after-tax to put into a Roth IRA. If you're in the 38% marginal bracket that $2778 becomes $3226. With a regular IRA it's $2000.

On the other end, assuming your IRA investment grows, you'll likely be paying tax on more money as it comes out. The sixty-four dollar question is, 'What will your tax bracket be then?'

I've read arguments for the regular and for the Roth IRA. I wish I had a definitive answer for you on what you should do (Heck, I wish I had one for what I should do). I don't.

I'd suggest you read about them both. Talk to people who believe in each over the other and decide what's best for you. You may decide to establish one of each type and contribute to the regular in a higher income year and the Roth in a lower income year. That's probably not a bad idea at all, actually (of course, I say this not having actually done it yet).

The advantage of that would be that, at retirement, you'd have two wells from which to draw. When your retirement tax rate is higher, you could draw from the Roth. When it's lower, you could draw from the regular IRA. (The more I think about that, the better I like it.)

As to your second question, I'm not familiar with the tax laws that would preclude your wife from deducting her IRA contribution from her taxable income but have not doubt there's a situation where that might occur. In that scenario, however, a Roth IRA would be a perfect vehicle for her. Since she couldn't take the deduction now, she'd be able to have a Roth IRA she could draw from tax-free at retirement. She might want to consider something like that. I hope this helps.

-- Gary in Indiana (gk6854@aol.com), October 09, 2001.

Definitely more than I knew before . . . Thanks Gary.

-- j.r. guerra (jrguerra@boultinghousesimpson.com), October 09, 2001.