Fellow Fools,

I want to start an RIRA on both myself and my wife. I will be using USAA to open the RIRA. They offer several ways to do this. I was thinking of a self managed RIRA for myself (using some of the Hidden Gems) and a Fixed Income Funds and Annuities (High Yield Bonds)RIRA for my wife.

What is your take on this for our RIRAs?

Thanks for any input.

Rob

I would recommend AGAINST putting any type of annuity inside an IRA. Why? Because one of things you pay for with an annuity is tax deferral. Why would you want to put a tax-deferred product inside a tax-free account?

How old are you? How many years do you have until you need this money?

JLP

http://AllThingsFinancial.blogspot.com

JLP,

This is the exact information I was looking for when I posted this. I had no idea that you pay for tax-deferral on an annuity.

To answer your questions: I am 34 years old and my wife is 35. I wasnt planning on touching this IRA money until retirement (65? 67?).

Thanks for any other help you can provide.

Rob

Rob,

I don't want you to misunderstand what I said. There isn't a "charge" for tax deferral in an annuity. Rather, it is the way the annuity is structured. What you are paying for in an annuity is adminstrative fees, which can be quite high.

Most people should really only consider an annuity if they have maxed out their 401k plans, and IRAs. Once they have accomplished those two and taken care of any other obligations, an annuity may make sense.

Now, since you and your wife are still young (my age, LOL), you have a lot of time before you need to access your money. Even if you retire at 55, you still have 20 years in which to grow your assets. The best way to grow your assets over the long run is with stocks. I suggest you read Jeremy Siegel's "Stocks for the Long Run." Therefore, I would avoid anything fixed-income oriented. Although, they may reduce volatility, in the long run they will only drag down your returns.

JLP

http://AllThingsFinancial.blogspot.com

JLP,

Thanks for your reply. This was very informative. You probably have saved this IRA newbie a great deal in the long run.

v/r

Rob

Texas98: Congrats on starting an IRA and thank you for your service to our nation. I am retired and my wife and I have had traditional IRA's for 20 years. My stocks in my IRA are GE, JNJ, XOM and PG. These are all blue chips, conservative, dividend payers. They have all grown their earnings and, consequently, their dividends very nicely. I also have my accounts at USAA and I have been very happy with their service. I don't know how many years you have been in the Army but chances are you'll have a second career after the service. If you want to sleep at night stocks like those I've mentioned above will afford you that luxury. USAA also offers an SP500 index fund with a very low investment fee so that could also be a good alternative to individual stocks and it would give you a broad cross section of the stock universe. Unless you want to trade your account often I would stay away from go-go stocks like Google and Ebay for an IRA. These stocks have wide swings and can cause considerable heartburn. I also don't think you should put any of your funds, at this time, in bonds or bond funds. You are young. Let the working years ahead of you provide the growth engine for increased wealth. Think about bonds in 15 years or more, or maybe never. I'm in my mid 60's, have no bonds and never had. I do have a federal pension, however, which is like my bond fund. You will have it too with your military retired pay once you end your military career. You will also have social security, or what's left of it. Think of these as your safe haven "bonds", if you will. If you haven't read William Bernstein's "The Four Pillars of Investing" I would recommend it. It makes a very persuasive case for index funds. Good luck to you.

You shouldn't look at these RIRA's by themselves. Instead look at all of your investments especially those that you intend to provide for your retirement and develope an overall asset allocation. Then determine which assets will go into which accounts.
Personally I am not in favor of individual stocks in tax advantaged accounts. I would suggest broad based mutual funds and especially index funds for these accounts. If your asset allocation called for equities in the account I would suggest something like an index fund tracking the Wilshire 5000 or perhaps the S&P500. If the allocation was for bonds then something like an intermediate term bond index fund might be considered.

Bob

Personally I am not in favor of individual stocks in tax advantaged accounts. I would suggest broad based mutual funds and especially index funds for these accounts.

Why? The only big disadvantage I see is that you can write off losses against any gains or your income taxes. The advantage of individual stocks in tax advantaged accounts is that you don't have to worry about taxes on large gains (Roth) or long versus short term tax rates. An index fund is generally tax efficient so it seems to me to make more sense to invest in an index outside the tax advantaged account rather than inside it.

IF

IF,

Yeah, I don't understand that either. It seems to me, if you have a choice, you would want income-producing and individual securities inside a Roth. It would also make sense that if you have to make a choice, that it would be smarter to hold index funds outside an IRA.

JLP

http://AllThingsFinancial.blogspot.com

The only big disadvantage I see is that you can write off losses against any gains or your income taxes.

Correction: The only big disadvantage I see is that you cannot write off losses against any gains or your income taxes.

IF