Category Archives: Personal Finance

Top Roth IRA providers for 2013

I have looked any many brokerage houses to select some of the best Roth IRA account providers for you to use in 2013. In this article we will cover the top Roth IRA providers where you

Roth IRA is a powerful retirement saving tool for everyone who can use it. You invest money in the Roth IRA account on an after tax basis but all eligible withdrawal are tax free, so your money grows tax free until you retire and start withdrawing your money. If you are eligible to open a Roth IRA account to open a Roth IRA, you should not wait any longer.

How to Select a Roth IRA account?

In order to select the best Roth IRA account, you should first review your requirements. Do you want to trade stocks in the account, do you want to invest in index funds and ETF, do you want to invest money in CDs? Roth IRA provided by various institutions will differ in the instruments you are allowed to invest in. For instance, a Roth IRA offered by bank may only offer the ability to invest in CDs (which are currently giving very low rate of returns), a Mutual fund provider can also act as a custodian for your Roth IRA account. Brokerage houses and discount brokerage houses also provide Roth IRA accounts. So which one should you go with?

After reviewing many account, I have concluded, discount brokerages offer the most flexibility in terms of the instruments you can invest in and also offer the lowest fees. Some mutual fund providers also offer very competitive accounts.

ETrade: ETrade is one of the nations leading online brokerage firms. They also have offices in many cities across USA. They are also a bank and offer good checking and savings account. ETrade is one of the companies which can help you have all your financial accounts under one roof. They are also economical when it comes to trading cost and other fees. Trades start at $9.99 and go down with volume.

TradeKing: TradeKing is one of the biggest discount brokerage houses that offer a Roth IRA account. There are no fees to open the account or no annual custodian fees. TradeKing also offers $150 as reimbursement for transfer charges when you transfer your assets to TradeKing from another brokerage firm. Stock trades are prices at $4.95 and is among the lowest in the industry for retail customers.

Vanguard: Vanguard is the default option when it comes to mutual fund providers and they also have a very good offering for Roth IRAs. If you know that you will primarily be dealing in mutual funds then Vanguard may be the place to go. Vanguard has some of the lowest expense ratio funds in the industry and pass on all profits to their consumers. Accounts at vanguard are free of charge if you meet some minimum balance requirements and opt for online statements.

Fidelity: Fidelity offer a competitive Roth IRA account among mutual fund companies. You need a minimum of $2,500 to get started with a free account or you must invest $200 per month (or else you may be charged a maintenance fee). You can trade free of commission in funds offered by Fidelity but you will have to pay a commission if you want to invest in funds operated by third party. One main drawback with Fidelity is the minimum $10,000 requirement to invest in index funds, however over time you can accumulate money in your Roth IRA account and then invest in Index funds, if you so desire.

What about the big bank? In my search I found that most of the big banks are charging either a high fee for trading, have minimum balance requirements and an unhappy customer base for Roth IRA accounts, so none of them made it to the top four we selected.

Do you already have a Roth IRA account at another place? It is never too late to switch to a better provider. In your experience, which Roth IRA provider has been the best for you?

How to Improve Your Credit Score?

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If someone offers you deal coupons which would save you a lot of money would you take it? For sure you will because everyone likes to save money. Well then why not to care about your credit score when you known that it could save you great deal when going for any type of loans or credit cards? It is very well known the better is your credit score is the better deal you get.

For instance, A has a credit score of 700 and B has a credit score of 600 then All else equal, A will likely have to pay lesser interest when going for a loan as compared to B who will likely have to pay a higher interest rate. So it is necessary to have good credit score to avail best interest rate. Here are some ways to improve your credit score.

1. Every month pay off your bills on time: Missing a payment has a negative impact on your credit sore and can stay on your report for a long time. If you have a low credit score, it is possible that you may have missed some payments in the past. As far as possible automate your bill payments to avoid a chance of missing your payments in the future. If you cannot automate a payment, set reminders or fix a date to pay your bills.

2. Don’t use all the credit available to you: An important factor in calculating your credit score is your credit utilization ratio (the ratio of how much credit you are using to the credit available to you). Secondly you can enhance your credit score by not using much of your balance in comparison to the amount that is available for you. If your credit utilization rate rises more than 50 percent your scores will suffer or it can be said that both credit utilization rate and credit score is inversely proportional to each other. So use lower balance of your credit limit.

3. File dispute of inaccuracies on credit report: It is known that many credit reports consist of errors and these errors can take a toll on your score. Thus, it is imperative to keep a check on your credit rating so if any inaccuracy occurs you need to dispute against the error. You can obtain a copy of your credit report for free using the Annual Credit Report website.

4. In short time period avoid applying for numerous loans: Every time you apply for a new loan your credit history is being checked. If you apply for many loans within a short time period, it may be a sign of financial distress. There is a built in protection for lenders to indicate them of such patterns. The more times your credit history is looked up is a short time frame, the lower your credit score will be. So avoid applying for many loans in a short period of time.

5. Don’t close your old credit card accounts: Whenever you close any credit account it means you are lowering the amount of credit available to you which in turn increases your credit utilization ratio and negatively impacts your credit rating. So rather than closing your accounts you need to use them for small expenses to keep them active which will in turn increase your credit score.

These are some of the ways to improve your credit score. Share your experience of improving your credit score if you have managed to increase your score. What steps did you take, what worked and what did not?

What is credit score and how is credit score calculated?

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Have you ever pondered over the ease with which you can log on to a website and get your credit approved almost immediately?

Or when you got prequalification for a car without the company even bothering to ask how much you earn. Or when you get a different interest rate on a loan compared to your friend. Well the answer is simple – these companies check your credit score before making the all-important decision about lending you money.

A credit score by definition is a number calculated using the information present in your credit report based on a mathematical formula. This information is compared to the information of millions of other people in the country and a score is generated that is used at many places to judge the credit worthiness of an individual.

Why is the credit score important?

Your credit score is important because your financial health is estimated based on it. A high credit score signals to the lender that your credit history is good where as a low score indicates that your credit history may be of concern.

When you apply for a loan or any forms of credit, the lending organizations check your credit score and the higher it is, the more likely it is that your loan or credit will get approved.
You will also have to pay a lower interest rate on loans or credit if you have a high credit score.
If one person has a credit score of 520 and another person has a credit score of 720, the difference between the interest rates that both will get can be as much as 4.36 percentage points, as per the web site of Fair Isaac Corp (the company that provides the FICO score). This means that if you are opting for a 30 year mortgage of $100,000, the difference in the interest charges that both these people pay will be $110,325. The monthly payment itself will be different by about $ 307, which is a large amount.
If you have a credit card and want an increase in your credit limit or want to request a lower APR, your credit card company will check your credit score to decide whether or not to increase you line of credit and whether to increase your rate of interest or decrease it.
Employers look at your credit history and credit score before hiring you and it is necessary to have a good credit score if you want to land a good job.
A land lord will also look at your credit score before renting out his or her property to you and if you want to live in a comfortable house, it will be necessary to have a good credit score.

What is a credit score and different categories of scoring:

Many different models of scoring are used by lending organizations to take the decision of approving your loan application or rejecting it.
The FICO scoring model is the most popular among lenders to calculate your credit score.
The scale of the FICO score ranges from 300 to 850 and most people fall between the range of 600 and 800.
According to the data obtained from a California company which developed the credit score for the first time and also developed the FICO score for Fair
Isaac Corp, if you have a scoring of 720 or more on the FICO scoring model, the chances are that you will get the best interest rates on mortgage.
The three different credit Bureaus in the United States each use their own scoring system. Equifax uses the BEACON score, TransUnion uses the EMPIRICA score, and Experian uses the Fair Isaac/Experian Risk Model.
The credit scores calculated by these three bureaus can be different because they use different formulas to calculate the score. The difference can also be present because of varying data in credit reports submitted to these different bureaus.
This situation could change because all the three credit bureaus got together to develop a uniform scoring method called VantageScore. If this scoring model becomes the standard model used by all the three bureaus then the credit scores provided by all three of them will be the same for the same individual.

How is your credit score calculated?

Since different reporting companies use different methods, let us take a look at how the FICO score is calculated:

The credit score is calculated with the help of many parts of the information that are present in a credit report.

This information data is divided into five groups viz. – Payment history, Amounts owed, Length of credit History, New credit, and Types of credit used
The weightage given to these five groups in computing the FICO score is as follows:
- 35% is given to Payment history
- 30% is given to Amounts owed
- 15% to Length of credit history
- 10% to New credit
- 10% to Types of credit used
These percentages are based on how important each category is for the general population and especially the lenders in evaluating credit worthiness.
The credit score takes into consideration both negative as well as positive information in a credit report. Late payments of loan installments and utility bills will lower your credit score, but if you have a good track record which says that you make payments on time it will enhance your credit score.
The importance of the five categories for different people is different. For instance, if you are a person who has not applied for or used credit for a long time the implications of these 5 categories will be different than a person who uses credit often and has done so in the recent past.
The importance of each individual factor in the calculation of your credit score also depends on the other information present in your credit report.
For some individuals one particular factor may have a different impact compared to another person who has a different type of credit history.
Your credit score will also change according to the changes in your credit report and so will the importance of every different factor while calculating your credit score.
Hence we cannot really determine how important one factor is in the calculation of your credit score without having a look at the entire credit report as a whole.
The levels of importance given to the different factors as mentioned earlier are meant for the general population. However, different weight may be given to these factors for different people according to their different credit profiles.

Although lenders tend to look at additional factors like your monthly or annual income while deciding whether to give you the loan or not, it cannot be denied that your credit score plays the most important part in the taking of this decision. This is the reason that you should make an extra effort to maintain a high credit score.

photo by: Andres Rueda

How to Get Finances in Order After You Get Laid Off

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Lost your job? Must be a tough day. With this loss of the primary source of income you may be in trouble. Sorry to tell you this, but your day might just get a whole lot worse. If you don’t get finances in order, life will get very, very difficult. Lucky for you, there are many ways to get the finances straight while you don’t have a job.

CONSULT WITH SOMEONE WHO HAS BEEN IN A SIMILAR SITUATION

Consulting with a knowledgeable, trustworthy, and helpful persona who has been in a similar situation will help you understand the challenges they faced and steps they took to get their finances in order. Learning from others experiences is a good way to avoid silly mistakes people make when they are attempting something for the first time.

GET WHAT YOU DESERVE

Even after you get fired, money that belongs to you may not be fully paid out by the company you worked for and the government. Check to see if you had a final paycheck, severance packages, and government benefits that may come about from you getting fired. Check to see if you are eligible for unemployment benefits. You may still be eligible for health care from your old employer.

CREATE A HOUSEHOLD BUDGET

A household budget can easily take off some weight off your back from getting laid off. A household budget is basically creating a plan to manage household expenses, and dealing with debts that might come about from sustaining your home without a job. The bare bones basics of creating a household budget are getting debts in order (especially credit card debt) and creating a simple budget plan for your family by saving money and cutting costs on things you don’t need.

May be you can get rid of the data plan on your phone or cut the cell phone altogether if you have a landline. If you have a cable subscription, you can downgrade temporarily. If you have two cars, maybe be you can cancel the insurance on one of them and share a car with your spouse for the time being. If you have balance on High APR credit card, look at options for lowering the rate. You can call your credit card company and ask them to reduce the rate, it works. You can also try to transfer balance to a new credit card.

WORK AS A FREELANCER

You can pick up some freelance positions via craigslist, Elance.com or Odesk.com for the time being. This will keep some income flowing through. It may not be as much as what you made on your full-time job but it will keep you engaged professionally and may be it can be the way you find your next job. Also working on assignments will provide you with small wins that will keep you motivated.

DON’T LOSE HOPE

If you do not get a job after prolonged periods of time, don’t ever lose hope. An opportunity will come around soon enough, and when it comes, grab it. There’s no time to be whining about losing a job, another one will come by your way.

Why wait till you lose a job to get your finances in order, get on it now.

How to Buy a Used/Old Car

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Buying a new car is almost always much more expensive than buying a used car. Everyone knows that a car loses the most value in the first year. In fact the moment you drive the car out of the dealership, your car is now worth a lot less.

Let’s say you are a person desperately in need of a car. And, let’s just assume that you don’t have the dough to throw on a shiny, new car to drive around in (which will be foolish if you did). So what is the obvious solution? Buying a used car, of course!

So let’s get started on the best ways to go about buying a used car:

Avoid Shady Deals

When buying a used car, the dealer is the one person you should be able to trust, since he or she is clearly the one that is offering you the vehicle. Unfortunately, people are and will always be corrupt, especially when it comes to selling automobiles. In the market of selling cars, a huge slice of it is dealers that just want to grab some quick cash from innocent, first time car buyers who just want a vehicle. You can check reviews online to see if the dealer you want to buy the car from is a legitimate and honest person. You should not go with your gut here. Another way to see if the dealer is legitimate is to ask if you can have the car checked by a repairman who will thoroughly look at the car (remember, NOT a repairman that works for the dealer). If the dealer rejects, do not take the car.

CARFAX reports are always a good idea, and only cost $25. One rule of thumb as old as time that definitely applies to buying a used car is “if it sounds too good to be true, it probably isn’t.” If the dealer promises what you suspect is too much for a used car, then maybe there is something the dealer is hiding. It’s not worth the headache you will get later from buying an over hyped car.

Which will it be?

Many cars are different in their own way, but you must decide which car is best for you. This is not important for people who have already chosen a car to buy, but for those of you who haven’t, read on. Would your fantasy car be a luxury sports car, or a roomy minivan fit for friends and family? Either way, make sure to buy the car that is right for you and the situation on your hands. Have kids? Don’t go for the two-seater. Live by yourself or with one other person? Don’t waste the money on a minivan.

Safety First

You don’t want to suffer an accident by buying an unsafe vehicle. Auto Safety provides great information about automobiles, and lists safety recalls, defects, and other stuff that would prove useful in your car shopping experience. Another way to be safe is to check the charts: which models are suffering the most accidents? If you see a pattern, don’t get the car. Better safe than sorry.

Money, Money, Money

Financing is an important part when buying a used car. Before purchasing the vehicle, check to see what your budget is. Set a price limit, and be loyal to it. Overspending is never good, especially with an automobile. Research your financing options, whether it’d be loans, direct deposits, or a secured financial plan set out by a third party company.

What factors do you look at when buying a car? Did you buy a new car or a used car?

photo by: Tom Wolf | Photography

How to Buy a House/Apartment you want to live in

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Buying a house is probably one of the biggest decisions in your life. After all, one of the necessities of survival is to actually have a location to live. Of course, you don’t just want to survive, you want to live, you want to enjoy where you live and have it be convenient to you. So, how do you find a place to sleep and be content with it? Here are a few tips:

“Buying is house is a decision you have to live with.” (click to tweet).

Know What You Want

Remember, every single problem needs to be taken into account when buying a home or an apartment. One of the most important things to look for (in apartments, especially) is overall sanitation. Is the place a dump? If so, it is probably not a good idea to live there unless you have the skills to fix it. Even if the apartment itself is tidy, remember, it’s still part of the building. If the building is stuffed to the brim with garbage and other unsanitary elements, do not go for it. Always inspect the basement of the building when making a decision. Another thing to look for is size: a large family, a couple, a guy who plays video games for a living, and everyone in between is going to need different amounts of living space. A single person shouldn’t get a huge apartment taking into account costs for cleaning, rent, and utilities for the big place (unless the person is rich, which in that case, good for him/her). There are many, many other things to take into account, but in the end, remember: know what you want. Because if you don’t, chances are you won’t find what you’re looking for.

Go Back to School

Figuratively. Why did you even go to school? What was the point? You probably might not know, but one of the most useful things school and the demonic practice of going to class probably taught you was asking the right questions. That’s right. If you should remember one aspect of the classroom, it should be asking questions to the teacher. This is similar to buying a home/apartment, except there are no tests (no difficult ones, at least), no detention, and no lectures. It’s just homework, and asking questions on the homework. Ask as many questions as possible: are the utilities working okay? Is the garage equipped with lighting? Have pets been in this apartment? Etc., etc. Do your homework, too. Research how old the house or apartment building is, the past owners, anything that might be useful in finding out if your crib is going to be the perfect living environment for you. Deciding these things can be very difficult, but with the right amount of work put into researching and learning about your future home/apartment, you will get there.

Location, Location, Location

You’ve heard the old adage:

“In establishing the value of a house, what are the three most important factors?”

“Location, location, location.”

Why is it so famous? Because it is true, of course. The one most important, most paramount aspect when buying a property is its location. This is because location is the factor for so many other things that should be taken into account when buying your dream house or apartment. If you have kids, where would your kids go to school? Is there a grocery store nearby? If you have a pet, can I take care of my pet where I live? Is there a library nearby? What kind of neighborhood will I live in? All of these questions branch from the location of your property. Because of this, location should always be on your mind when buying the living space you have always wanted.

What other factors do you consider before going for a house? Already made your big purchase? Did you miss out checking on something? Share with us in the comments section.

photo by: archer10 (Dennis)

How to Create Budget in Five Minutes

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One of the reason people often cite for not make a budget is the time it takes to create one. You don’t want to miss out on the immense benefits a budget offers just because it takes time? However if you are not ready to put in the time to create a budget from scratch, I am going to show you how to create a budget in about five minutes.

We will use a template and some guestimates to cut down the time you have to invest in making a budget. On an ongoing basis, this budget will take even less time to manage.

Make a list of all your income sources from your pay check, assignments, freelance work and investment income like dividends, rental income if any. This should take you under a minute to accomplish using the template. You don’t have to be through here. Making a budget is not about getting the last dollar right, it about making a financial plan that puts you in the right direction.

Not down all your major recurring expense like rent or mortgage payment, electricity and gas bills, phone bills. To these add your other expenses like entertainment, education and other expenses based on your personal situation. Be sure to note down all major expenses. Based on the amount of guesses you have made, add an ‘other expense’ section to the list and make an allocation for miscellaneous expenses. Writing down expense is one of the two places it generally takes people most time but if you make these simplifications, you should be able to cut down the time it takes to two minutes at most. The template already has sections for you to fill out most common expenses. If it takes more time, you are not simplifying enough.

Spend the next minute making allocation for saving, which you can later split in to retirement accounts, brokerage accounts and allocations for your long term goals. Trying to get the allocation right for all account is not the focus of our five minute budget. We want to get a high level view of how the coming month will look from a financial perspective. We can add more details and enhancements as the month progress, but the five minute budget should serve as a good starting point.

In the next minute or so, combine all the components – the cash inflow, the expenses and the savings allocations. You should try to balance out the cash inflow (all income sources) with savings and expenses. So if you have a cash inflow of $5,000 this month, your savings allocation and expense allocation should add up to $5,000.

Are you willing to commit five minutes in your financial future? Have you made a budget before? Did you meet your budget targets? Where do you spend most of your time in making a budget?

Please let me know in the comments section.

The Benefits of a Budget

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A budget can help you create smart habits where you are aware of the impact of the financial decisions you are making, eliminate guess work and make you more confident about your finance. Budgets don’t have to be complicated; they have to be simple for them to work. We have created an easy to use budgeting template for you to get started with creating your first budget that works.

Benefits of a personal budget

These are some benefits of making a budget:

Pay your bills on time: Planning in advance for the bill that going to be due in the upcoming month will help you pay your bills in time and help avoid any late fees. It’s a great way to organize at the beginning of the month and be stress free throughout the month.

Reduce surprises: A budget will force you to think about all the expenses that are likely to come up in the month. This exercise alone will help eliminate most of the surprises as you will be thinking in various directions like is there any fees due, is a bill payment coming up, is any tax due this month, do I pay for some services this month, etc.

More control: Making a budget will give you more control of your finance. You will know where any why you are spending money and the result you expect from it. A simple budget can put you in the driving seat when it comes to spending your money wisely.

Align priority: Often financial decisions are a balancing act. You are always trying to balance the amount of money that should go for savings, short term spending and big ticket purchases. A budget will help you make those choices simpler as you are thinking about all those expenses at one time and not in isolation.

Help build savings: Following a budget, you can direct a portion of your income to your savings and investment accounts every month and build your savings over time. A budget can help you achieve long term goals and work towards big purchases.

Move towards a target: Keeping provision for long term goals in your budget – like buying a house, buying a car, etc. will help you save for down payment and move towards those goals.

Benefits for a small business to create a budget

Not only individuals business also benefit from creating a budget. However many times, small business and freelancers ignore making a budget. Some benefits you get by making a budget are:

Optimize your spending: Creating a budget will help you optimize the use of one of your most limited resources – Money and also time. You will be able to prioritize your spending, something which can make a big difference to your business.

Regulate flow of funds: A good budget will help you identify the inflow and outflow of cash. This will help you regulate the flow of cash in your business and will ensure you don’t run out of liquidity. This is especially useful for small manufacturing oriented business.

Financial goal setting: A budget should be part of the financial goal for your small business. Setting a monthly budget will give you a guideline to follow for the rest of the month and aid you in setting other goals and targets for your business. It will help you save time and avoid mistakes by making informed decisions.

Identify wasteful spending: You can see patterns of spending which are not evident otherwise. Do you have too many magazines subscriptions? Are you paying for products you are not using? Do you have business memberships that are not helping you grow your business?

Make difficult decisions upfront: Making a budget will help you make difficult choices upfront at the time of planning for the whole month. This will give you a good picture of what to expect going into the month.

I am purposefully not writing on benefits a large corporation can have by making a budget, all large corporation make budget by many individuals and small business leave it to estimations.

Some Common Drawbacks of a Budget

Making a budget also has some drawbacks, but in our view the benefits outweigh the drawback significantly.

Making a budget takes time: By making a budget, you are investing time not wasting time. Once you get in to the habit of making a budget, you can reuse most of the work you have dome in the previous months and make your next month’s budget quickly. You will also find a simple template on the resources page to help you get started quickly.

Budget target will likely be missed: If you make a very strict budget, you are likely to miss your budget targets. However the thing to understand is that budget is a soft target, you are trying to move as close as possible to the target, rather than hit the target.

Cannot plan for unknown expenses: It’s true that you can have unknown expenses in any given month but over time, these will average out and you will be in a better position to know. By putting aside money for planned and unplanned expenses every month you will develop skills to better estimate surprises.

Update: The article has been updated to add more detailed benefits and some drawbacks of making a budget since it was originally published.

No-Fee Roth IRA Accounts

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This is another article in our Roth-IRA series. In this article we will go over a list of the best No-Fees Roth IRA account and the criteria to select your Roth IRA trading account. Fees can take a significant portion of the returns you earn on your investments. There are various types of fees a custodian can impose on you, some common fee types are:

Annual Account maintenance fees

Some Roth IRA custodians charge you custodial fees or account maintenance fees which could range from $50-$200 per year. However many financial institutions and low cost brokerage houses have now started offering Roth IRA accounts which do not have annual fees or minimum balance requirements.

Trading fees

If your Roth IRA account provider provides the ability to ability to trade in individual stocks and ETF, they will charge you a fee on each transaction you perform. The fee will vary from one financial institution to another and will depend on whether you are placing the order online or placing a broker assisted order. These fees can range from $5-$50 per transaction.

Management fees on Mutual accounts

Mutual funds cover their expenses by taking a slice from your investment in the fund as management fees. The fees that is been charged can be seen in the expense ratio published by the mutual fund. Also many funds charge a fee when you invest some money in the fund, upfront (known as front-loading) and when you withdraw money from the fund (known as back-loading). However there are some funds which will not charge you such fees either upfront or on withdrawal. Such funds care called No-load funds. When selecting a Roth IRA account, revive how many no-load mutual funds are available for investment.

You should ideally go for a Roth IRA account which does not require a minimum balance and has no annual maintenance fees. However there are more considerations to select a Roth IRA account provider:

Additional service to consider when choosing a Roth IRA provider

When you open a Roth IRA account it is likely that you will stick with the account provider for many years, so you must take some time to perform the initial research.

Research and investment tools: If you are just starting out with your first investment account, the amount of financial data available will intimidate you but you will soon get comfortable with all the key data to look at. Access to good quality research and tools in your retirement savings account will help you make better investment decisions.
Real time quotes: Real time quotes will offer you the ability to know the current prices of your investments and help you make better decisions about your transaction
Range of assets: Not all financial institutions allow you to trade all instruments in the Roth IRA. Also the range of mutual funds and ETF permitted may be limited at certain financial institutions. Please check with customer support about the asset classes and the type of
Overall services provided by the financial institutions: It is likely that the company you select as your Roth IRA account will also be your choice for other types of retirement and trading accounts. Plus it is easier to manage accounts under one login and not having to deal with multiple systems. At some late point you may decide to convert one account type, for example Traditional IRA to Roth IRA, having both accounts with the same custodian will make the conversion process simpler.
Ease of fund transfer: If you can maintain your checking account with the same financial institution, you will be able to transfer funds quickly between your checking account and Roth IRA account when needed.
Customer support: Good customer service representative are informed people who can help you setup your account, answer your questions, move your account or point you in the right direction.

Some good no-fees and low fees Roth IRA account providers are

ETrade
Fidelity
Vanguard
Charles Schwab
Scottrade
Option Express
TDAmeritrade
ShareBuilder

If you have any question please let us know on the FAQ page for Roth IRA.

Roth IRA

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Note: (Updated on 8th January, 2013)I have tried to make this the most comprehensive single article on Roth IRA. After reading this article you will know what is a Roth IRA? Is Roth IRA right for you? Where to open an account? How much you can contribute and how does it compare with other retirement saving plans. If you have any questions, please leave in the comments. Our team of active reader will help you out.

Roth IRA Basics

Roth IRA is type of retirement plan (IRA – Individual Retirement Arrangement) which an individual can use to save for retirement. Roth IRA differs in many ways from other retirement plan like Traditional IRA and 401K.

Roth vs. Traditional IRA

Unlike Traditional IRA, you do not get tax deduction on contributions you make to a Roth IRA account. However, all (qualified) withdrawals are tax free. This includes any earnings you have on your contributions to the account.

Roth IRA Rules

Distributions from Roth IRA

You can start taking distribution from your Roth IRA account at the age of 59 1/2. Your account must be open and the first contribution must have been five years ago. There are also qualifying distribution that can be made before the age of 59 ½ as long as the plan has been open for at least five years.

Distribution for qualified first time home purchase or to build a first home.
Distributions if you become disabled (as per the IRS code).
Distributions made to your beneficiary or to your estate, after you die.

Eligibility Criteria for contributing to Roth IRA

There are no age restrictions to invest in a Roth IRA account, however there income and contribution limits which apply.

Roth IRA contribution limits

Since Roth IRA offers you an opportunity to save for retirement and without paying taxes on your earnings, there is a limit to how much one can contribute to it. Also there is a maximum income limit for one to be eligible for Roth IRA. Each year Roth IRA contribution limits are reviewed for inflation

Roth IRA contribution limits 2013

For 2013, you can contribute a maximum of $5,500 (up to $6,500 if you are age 50 or older). The contribution limits have been raised by $500 from 2012. 2013 Roth IRA contribution limits also state that the contribution cannot be higher than your earned income in the year.

Roth IRA contribution limits 2012

The Roth IRA contribution limits were unchanged between 2008 and 2012. For 2012, you can contribute a maximum of $5,000 (up to $6,000 if you are age 50 or older). 2012 Roth IRA contribution limits also state that the contribution cannot be higher than your earned income in the year.

Roth IRA contribution limits 2011

The Roth IRA contribution limits were unchanged between 2008 and 2012. For 2011, you can contribute a maximum of $5,000 (up to $6,000 if you are age 50 or older). 2012 Roth IRA contribution limits also state that the contribution cannot be higher than your earned income in the year. Income limit for Roth IRA

In order to contribute to a Roth IRA account, your modified adjusted gross income (MAGI) must be below a certain level. The income limits and the contribution limits are reviewed every year for inflation.

For more details see our article on Roth IRA Income and contribution limits.

Opening a Roth IRA

Opening your Roth IRA account is easy. Nearly all traditional brokers and online discount brokers offer a Roth IRA account. But not all accounts are made equal, some have minimum balance requirements and some charge a fee to maintain your account.

Vanguard, Fidelity and T.Rowe Price are good place to start looking for a no fee or a low fee account to get started.

Roth IRA Contribution deadline

The contribution deadline for Roth IRA coincides with the tax filing deadline. That is great because you can make contribution for the previous year in the current year. 2012 Roth IRA contribution deadline is April 15, 2013. The 2013 Roth IRA contribution deadline will be April 15, 2014.

You can contribute to both a Traditional and a Roth IRS in any given year, but the contributions limits apply to both as an aggregate. This is also true if you have multiple Roth IRA accounts.

Please refer to the Wikipedia entry to learn more about the history of Roth IRA.

Additional Articles on Roth IRA

Roth IRA Income Limits and Contribution Limits
Roth IRA Conversion
Frequently Asked Questions about Roth IRA
Where to open no-fees Roth IRA accounts?