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Choosing the Best Roth IRA

by Jeremy Holcombe

Utilizing the Roth IRA is one of the best ways to save for retirement. If done properly you can end up with quite a bit of money when it comes time to retire. There are different Roth IRA’s to choose from, but learning to choose the right one does not have to be hard; it just takes a little research. Lets take a look at some points to consider when choosing the best Roth IRA for you.

One Size Does Not Fit All

Oftentimes I hear people say that there really is a “best Roth IRA” out there. While the one you choose may fit you the best, there isn’t a “best” Roth IRA. It isn’t a one sizes fits all thing. It is your job to do some research, talk to your financial manager, and gain a better understanding of which Roth IRA will work best for you.

Invest Wisely

Some of us invest without really thinking about the investment, or about where the money may end up or how the money may grow. Not paying attention to things like this could lead you down a road where you end up losing a lot of money. Always pay very close attention to where your money is being invested and how it is performing. Here are a couple of things to keep clear of when investing your money:

  • Stock Brokers: There is nothing that legally binds them to you, or compels them to make proper investments that will help you reach the retirement goals you want to achieve.
  • Annuities: They simply carry too many fees to deal with.

Where Should You Invest Your Money?

So where should you invest your money? I will stop short of actually telling you what to do, as each situation is different and you should definitely have a professional helping you make those decisions. However, a quick suggestion of something to look into would be mutual funds, which are generally a pretty safe bet. There is always risk, but a mutual fund holds much less risk than other investments.

Share Class, Break Points & Fees

Three important aspects of proper Roth IRA investing are share class, break points and fees. Make sure you understand all three and what each means for you.

Share Class: A share class determines how fees are paid on a mutual fund. There are three very common share classes used:

  • A Shares
  • B Shares
  • C Shares

Which share class do you choose? Well, that all depends on how you want to pay fees. Here is a breakdown of how share fees are paid:

  • A Share fees are paid upfront.
  • B Share fees are scattered out over time and paid slowly.
  • C Share fees usually allow you to get a lower sales charge, but have higher fees over time.

So, how do you choose the right share class? Again, that will depend on personal preference and overall outlook of what you may be trying to do. I prefer the A Share class because all of my fees are paid and done upfront. However, many prefer fees to be paid over time, and others prefer a lower sales charge. Again, there really is no “best Roth IRA,” just a lot of choices to help you build the right one for you.

Break Points: This is the amount of sales charge you pay based on the amount of capital you have invested. The more you invest, the lower the sales charge. You will pay a lower sales charge on an investment that carries $50,000 or more, than you would on an investment that only carries $20,000. Make sure you understand the break points and are fully aware of the sales charge you will pay. This may directly affect the Share Class you choose to go with as well.

Fees: We all know what fees are — we all hate that they are tied into our investments, and we all hate paying them. That being said, they are still a part of investing and they are a part of Roth IRAs. Here are some common fees you will come across when you invest in a Roth IRA:

  • Break Point (sales charge): See above.
  • Annual Expense Fee: The fee the account holder pays the institution to manage the account.
  • 12b-1 Fees: Some companies charge this fee to pay for things like advertising and brochures. Stay away from any companies that use this fee, even if their other fees may be a bit better, as you will probably pay more anyway.

The above info should at least get you on the right track to investing in the right Roth IRA for you. Remember, there isn’t one “perfect” Roth IRA. There are several ways to invest and pay, and with the help of a professional and some research, you should be well on your way to choosing the right Roth IRA for you.

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