Lux Investing
ROTH IRA versus DRIP fund?
What are the advantages and disadvantages of both...Me and my wife already have 401k's.that we fund.Right now I have a Drip set up through sharebuilder.com investing in PG,MSFT,BAC,MCD,PEPJNJ.. Do we really need a Roth IRA also.Do not plan to sell stock anytime in next 30 years and we put in about 150-200 dollars a month in it.Thanks. I use sharebuilder.com and get 20 free trades per month for $20..and each addtional one for$1.Sharebuilder.com also has a tax preperator to help keep up with you aqusitions.
Public Comments
- Comparing the DRIP to an ROTH IRA is apples vs oranges. 1st..... I think your DRIP choices are excellent. It still may be wiser to put the max into a ROTH IRA. Any money in a ROTH IRA will be free of any federal tax FOREVER!!!!!!..... If you purchased stock or stock mutual fund (via a broker or DRIP) you have to pay capital gains on any earnings once drawn....... So if you make $100,000.... you'll owe $20,000 based on today's capital gains rate. Given the exact same scenario with a ROTH IRA total tax would be: $0.00............................... enough said!
- As long as you don't exceed certain income limits, absolutely fund a Roth IRA! If you don't plan to sell those stocks for over 30 years, that means you probably don't need those funds for anything else, so having it tied up in a ROTH account should not be a problem for you. You can can still do monthly purchases in a Roth account at sharebuilder.com. The advantage is that you will NEVER have to pay taxes on any gains (and dividends) in the Roth account. As it is, if you make the monthly purchases in a non-retirement account you will have to pay annual taxes on the dividends you get every year, AND you will have to pay capital gains taxes once you do sell the shares. Don't forget that funds in a Roth IRA can be given to your beneficiaries upon you and/or your wife's death, and they still will NEVER pay taxes on those funds.
- In my drips which are direct with companies I do about $250/mth in drips yet other than initial start of the drip I pay $0 per month and over a years time that $20x12 - would pay a extra months of investing. In my case that would be $20x12x10yrs=$2400.00 To me thats too high a price as my total cost for the nonshare part of drip'ing... was $25 per transaction only once. I now have five drips in similar stock as yours and that total cost of dripping was $125 (excluding the cost of the shares themselves by dollar amt). The difference of $2275, is in drip stocks and I can guarantee that even if we dripped the same $$ and stocks that I would have a greater amt per the lower costs.
- Any DRIP is a good idea...nice convenient way to steadily increase funds... BUT... a ROTH IRA is the single most advantageous plan you can be part of !! TAX-FREE money at the end of the line...believe an old guy, what a difference that can make! Besides, if you open your ROTH with a good investment company and make it a self-directed IRA...you can choose the same dividend paying investments that you use now. All that accumulation of divvys and the " snowball effect" it creates will be creating a nest-egg that YOU can use as YOU wish...with no " cut" to the politicians...you know, to hire their nephew or study rodent behavior or build a bridge " to nowhere"...that coincidentally is being built by campaign contributors. Check this calculator: http://www.finishrich.com/free_resources/lattecalculator.php? ...just see how much your $ 200. monthly contributions can add up to...and then think how much you would owe IRS if it is in any normal investing plan. ... also consider putting SOME of the money in the ROTH into slightly more venturesome funds ( international? energy?).. if you can move that " average percentage" up even two or four points..you would be amazed to see the difference in total returns. Good luck
