Author Topic: Roth advice for non money saavy friends/family  (Read 927 times)

SomedayStache

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Roth advice for non money saavy friends/family
« on: December 28, 2018, 09:03:39 PM »
Within the last three weeks I've been asked for advice on opening a Roth IRA from three different people in my life.

This caused me to realize that while I understand the basics and rules, and I have done enough reading to figure out what works for my specific family situation, I'm very unknowledgeable about how to recommend other people get started with tangible action steps.

The situation I would most like to actively offer real suggestions to is for a close low-income relative.  He can never manage to save money so the $1000 minimum investment at Vanguard (the place I have my Roth) seems difficult to surmount.  Once he gets something going he could contribute at most $50 /month.  Whatever he does end up doing would have to be a set it and forget it type deal and he would be unlikely to ever stop it simply because he wouldn't know how. (His money is mostly handled by his parents and when they pass will be my responsibility).

Where should I be looking? 

MDM

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ILikeDividends

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Re: Roth advice for non money saavy friends/family
« Reply #2 on: December 28, 2018, 10:12:48 PM »
Legally, there is no minimum amount needed to open a Roth account.  Some specific investments held within a Roth might well have minimums.  Make sure you are aware of the differences.  I am not a Vanguard client, so I'm not saying anything specific about them.

I would suggest questioning other large brokers on that specific question; "can I open a Roth IRA with a $1 deposit?"

In my view, a Roth account is such a valuable structure that even if opened for just $1 invested in a MM fund, it starts the five year clock ticking, and can later be used to convert tIRA funds into even if you later have no earned income to open a Roth account with.

Being in a low tax bracket now makes it an ideal time to plow as much money into a Roth as you can bear to save.
« Last Edit: December 28, 2018, 10:23:28 PM by ILikeDividends »

MTBmustachian

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Re: Roth advice for non money saavy friends/family
« Reply #3 on: December 30, 2018, 07:32:05 AM »
Quote
(His money is mostly handled by his parents and when they pass will be my responsibility).

This sounds like a horrible idea. I would recommend getting yourself out of this situation as quickly as possible! That includes not giving any advice on retirement... whatever happens, I don't see this ending well.

SomedayStache

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Re: Roth advice for non money saavy friends/family
« Reply #4 on: December 30, 2018, 09:36:31 AM »
Quote
(His money is mostly handled by his parents and when they pass will be my responsibility).

This sounds like a horrible idea. I would recommend getting yourself out of this situation as quickly as possible! That includes not giving any advice on retirement... whatever happens, I don't see this ending well.

We don't all have that option.  Family ties that bind and all.

SomedayStache

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Re: Roth advice for non money saavy friends/family
« Reply #5 on: December 30, 2018, 09:45:43 AM »
One possibility: Why choose a Fidelity Roth IRA? No annual account fees and no minimums to open an account.

I was considering Fidelity as an alternative, especially because I've  heard it's user interface is good.  However after doing some google searches it seems that he would need to be able to contribute $200/month. 
https://scs.fidelity.com/planning/retirement/content/10_ira_myths.shtml
"Fidelity's SimpleStartSM IRA process helps you automate saving and investing for retirement with one account application. The $2,500 minimum is waived when you enroll in automatic contributions depositing $200 a month in your IRA.4 Periodic investment plans do not assure a profit or protect against a loss in a declining market."

I'm leaning more and more towards encouraging him to save up that initial $1000 and invest in Vanguard.  Partly because I am familiar with their interface.

I was also looking into things like Acorns, but I feel like it would long-term be a less good choice.

MDM

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Re: Roth advice for non money saavy friends/family
« Reply #6 on: December 30, 2018, 01:33:28 PM »
One possibility: Why choose a Fidelity Roth IRA? No annual account fees and no minimums to open an account.

I was considering Fidelity as an alternative, especially because I've  heard it's user interface is good.  However after doing some google searches it seems that he would need to be able to contribute $200/month. 
https://scs.fidelity.com/planning/retirement/content/10_ira_myths.shtml
"Fidelity's SimpleStartSM IRA process helps you automate saving and investing for retirement with one account application. The $2,500 minimum is waived when you enroll in automatic contributions depositing $200 a month in your IRA.4 Periodic investment plans do not assure a profit or protect against a loss in a declining market."
Based on "© 1998 – 2015 FMR LLC." at the bottom of that page it appears to be at least 3 years old.  Fidelity's "zero" policy is new this year.

Not saying that Fidelity is automatically a better choice than Vanguard (or Schwab, etc.).  E.g., see Fidelity now offers zero-fee funds. What does that mean for you? - MarketWatch.


Hellohi

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Re: Roth advice for non money saavy friends/family
« Reply #7 on: December 30, 2018, 03:46:26 PM »
My advice would be to open a traditional IRA and make contributions until there is enough to purchase a total market index fund. With a Roth you can withdraw contributions penelity free. Traditional IRA’s have a penelity. Maybe the penelity will deter him from withdrawing before there is enough to purchase a index fund.

Also all you can do is educate and encourage. If this individual had not been able to save money by himself or with his parents help; your help, no matter how good it is, may not be enough.

Rob_bob

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Re: Roth advice for non money saavy friends/family
« Reply #8 on: December 30, 2018, 05:32:59 PM »
When I have loose change in my TDA account I buy SPTM Total Market ETF one share at a time commission free, currently at $30.58 per share.

No automatic investment with that so you would need to manage it yourself.