Thursday, September 14, 2006

Saving for Retirement

Looks like my Roth IRA was finally opened today. I opened a Roth IRA at Citibank online last week. I did a lot of research to find the best deal for the buck.

Why I choose to contribute to a Roth IRA?

I don't earn enough to benefit from contributing into a Traditional IRA. Traditional IRAs in my view are for individuals who are making a lot of money and would benefit by putting money away from pre-tax dollars and thus paying lower taxes when they actually use the money when they retire. Here is a list of benefits of the Roth IRA from Citibank's website:

Tax benefits. Although your contributions are not tax deductible, earnings are tax-deferred and withdrawals are free of federal income tax if you're over age 59½.3
Compounded earnings. Your contributions may earn interest, dividends, and capital gains, which are then reinvested, so your money has the potential to grow even more.
Contributions. Individuals can contribute up to $4,000 for each of the tax years 2005 and 2006. If you're married and filing jointly, the annual cap is $8,000 ($4,000 each) for tax years 2005 and 2006.4
Distributions. There's no required age at which you must start taking distributions.
-You can withdraw your contributions any time without paying a 10% federal tax penalty.
-You can withdraw earnings without paying federal income tax if your Roth IRA has been open at least five years, and (1) you've reached age 59 ½; (2) in the event of death or disability; or (3) you use the money for a first time home purchase ($10,000 lifetime limit).
-In certain circumstances, you can withdraw earnings early without a federal tax penalty.

What was I looking for?
The critieria I used to decide where to open a Roth IRA is as follows: No annual fee, No "custodian" fees, FDIC insured, CD and Money Market accounts, and high interest rates. I researched many banks and found Citibank to be the best deal. Although they do have a $75 fee only if you move the IRA to another bank which I don't plan on doing.

What rates did I get?
I opened with $250 (the minimum amount for a CD) a 6 month CD at 5.50% APY! Their 5 year CD was at the timebeing at 4.60% which is also a great deal. I plan on contributing $250 a month. I can only contribute upto $4000 according to the cap for 2006.

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