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Fellow Fools,
Let me start off by stating the obvious. I'm new to retirement investing. I also just turned 21. I'm interested in opening a Roth IRA. I would like to know HOW IRA's earn money. Is it a government thing so the rates are all the same? Or is it based on a CD that a certain bank offers? These questions arise from a discussion I had with two diffent bank employees. It didn't seem like either really knew what they were talking about, or maybe they just did a poor job of explaining it.
I know I can invest the money from a Roth IRA into CDs, stocks, mutual funds, and whatnot. But what happens if I just leave the money there? Does it need to be invested? If it isn't invested, do I just get the savings rate offered by the bank?
All of the information that I've been able to read about the Roth IRA are regarding it's requirements and restrictions. Any insight to HOW it makes money would be greatly appreciated.
Thank you,
Nick Singh
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No. of Recommendations: 2
Let me start off by stating the obvious. I'm new to retirement investing. I also just turned 21. I'm interested in opening a Roth IRA. I would like to know HOW IRA's earn money. Is it a government thing so the rates are all the same? Or is it based on a CD that a certain bank offers? These questions arise from a discussion I had with two diffent bank employees. It didn't seem like either really knew what they were talking about, or maybe they just did a poor job of explaining it.
I know I can invest the money from a Roth IRA into CDs, stocks, mutual funds, and whatnot. But what happens if I just leave the money there? Does it need to be invested? If it isn't invested, do I just get the savings rate offered by the bank?
All of the information that I've been able to read about the Roth IRA are regarding it's requirements and restrictions. Any insight to HOW it makes money would be greatly appreciated.


The IRA is like a regular account at a bank, broker or wherever. The difference is that earnings are tax free (I've ignored the difference between traditional IRAs and Roths, OK) If you put it in a CD, you earn CD rates tax free. Put it with a broker and any gains on stock sales or dividends are tax free. Losses are also not deductible, but's the price you pay for tax free gains. You can also transfer the money from one type to another. It earns just like any other account.

As far as what you can invest in, about anything your trustee will let you. Gold coins and art is out, but CDs, stocks and mutual funds are fine. A lot of people recommend an index fund for starters.
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Nick,

I have attached the URL for an excellent post addressing this very issue from a few months ago:


http://boards.fool.com/Message.asp?mid=14644332

We have MarkOYoung to thank for this outstanding explanation about types of accounts and the investments in those accounts.

WiseNLucky
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