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Roth IRA or Reward Checking Account?

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rlashure
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Roth IRA or Reward Checking Account?  Reply with quote  

I'm 23 and I've been thinking about opening a Roth IRA account. I also have a retirement through my employer - I contribute 9.25% and my employer contributes 6.5%. However, the more I have been thinking, the more I'm wondering if I would be better off to let my money grow in my checking account, rather than opening a Roth IRA. I say this because my checking account is a "Reward" account. If I satisfy all of the qualifying factors each month, I get an interest rate of 1.50% APY, rather than 0.10% APY if I do not qualify - I've qualified every month since I opened the account, and since the requirements are so simple, I don't see myself ever not qualifying for the reward rate.

Would a Roth IRA give me better interest? I really don't know much about them. The other thing that I've considered is that if I keep the money in my checking account, I won't be subject to an additional tax like I would with an IRA.

Which route will earn me the most money? Or perhaps there is an alternative route that I am overlooking? Please let me know your thoughts! Thank you.
Post Tue Dec 16, 2014 8:50 pm
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littleroc02us
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Before you go any further you need to educate yourself on what a Roth IRA is, because I don't suggest you investing in anything until you can tell me what a Roth IRA is. Google Roth IRA once and see what it is.

I love Roth's and they are an amazing investment vehicle, whereas a checking account isn't an investment and is used to save money or use for daily purchases.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Tue Dec 16, 2014 9:10 pm
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rlashure
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I know what a Roth IRA is, and I understand that a checking account is not an investment. I guess my main question here is what percent can I earn on my money if I am contributing to a Roth IRA? I have done quite a bit of reading on Roth IRA's already, but it seems as though everywhere I look just says the same information, and little to none of it is about what can be earned, rather mostly about how much can be contributed. I have yet to find much about, 1. What percentage can be earned. 2. If it is a standard percentage that everyone gets. 3. If the percentage varies from one financial institution to another. Or 4. If it varies depending on how much money you have in the account. Or something else?

I am very conservative with my money, and would never put it somewhere that I wasn't sure about. I simply want to make sure that wherever my money ends up, it's in a place where I'm going to earn as much as possible. I simply want to get some input from people with more experience than I.
Post Tue Dec 16, 2014 9:46 pm
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oldguy
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The most important thing for your future wealth is 'return".

Checking/savings/CDs are for 'storing' money, a wage earner cannot build wealth with 'storage' accounts, they merely offset inflation for you. For 'wealth building' you need equities, they grow at a longterm average of 11%/yr - ie, they outpace inflation and the purchasing power of your money grows.

A Roth is just an account name - you can put CDs, stocks, savings, bonds - whatever you want inside the account - that's why you can't find any info about Roth returns.

Getting back to "returns". Say that your 15.75% equals $8000/yr. If you invest that at 11%/yr for 35 yrs (age 5Cool it will be over $3,000,000. Conversely, if you keep that money in 1%/yr savings accounts it will be $335,000 in 35 yrs. The point is - what you choose to invest in is the key factor (rather than what account you keep it in - Roth, Traditional, 401k, or taxable fund). Remember, $3M is $3M, who cares what account you keep it in?

To answer your question about Reward Checking - no - keep that account small and allocate your extra into one of the 11%/yr accounts. We're retired and wealthy - and our checking account seldom has more than $4000 in it - if we need a larger amount, we sell some of our taxable SP500 fund.

What a great future you have - the "time-value" of money is such a benefit - and you guys have almost 'forever' - most people are very surprised when they see the power of compounding - and very few 23 year-olds even know what it is. Congratulations on your planning skills!
Post Tue Dec 16, 2014 11:36 pm
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rlashure
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Thank you very much for the information! I really appreciate it.
Post Wed Dec 17, 2014 12:21 am
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