the Guppie Life

By now, I hope all my guppie readers know the basic benefits of a Roth IRA and why you should have one. If not, go read this primer on the benefits of the Roth by my power-lesbian crush Suze Orman. (But note that the 2008 contribution limits for Roth IRAs have changed.)

For my fellow homo-gay-sexuals, the gist of the Roth is this:

1. You put after-tax money in the Roth. (You can contribute up to $4,000 by April 15 for fiscal year 2007, and up to $5,000 in 2008.)
2. Wait until you get old and wrinkly (59.5 years old), or maybe just old if you’ve had some work done
3. Withdraw bunches of money tax-free, then move to Florida to live in a McMansion with your much younger lover

I opened my own Roth IRA only last week. Admittedly, the markets are pretty crazy right now, but I’m investing for the long haul, so I needn’t worry about a possible recession in 2008.

The entire process of opening the Roth was easier than those two weeks in college I spent folding clothes at Abercrombie & Fitch, which is to say, pretty damn easy.

In fact, from start to finish I only needed 15 minutes, and I’m sure it could be done even faster.

Here’s how you can start your own Roth with a minimum commitment of time and energy:

(Please note that I’m in no way, shape, or form a qualified financial advisor, so please don’t get snippy with me in the unlikely event that you lose all your money. Investing involves risk.)

1. Choose a home for your Roth

   I chose Vanguard, because they don’t charge sales commission and offer a wide variety of low-cost mutual funds. Fidelity is another good choice. Honestly, there’s not a whole lot of difference between the two for an average investor.

2. Open an account

   First you enter some basic personal information, including Social Security number. You’ll also need bank account information to fund your first transaction.

3. Decide how to invest

   The easiest, most brainless, hands-free method is to pick a target-date retirement fund. You just pick the fund with a target close to your expected retirement date, but not too early, because you can’t withdraw earnings until the year you turn 59.5 years old. As you approach retirement, the fund automatically shifts its allocation away from risk (i.e. stocks) towards safer investments (i.e. bonds).

   I chose the Vanguard Target Retirement 2045 fund. It requires a $3,000 minimum investment, but if you don’t have that you could start out with the Vanguard STAR fund, which is basically a mutual fund made up of other mutual funds. It has a $1,000 minimum.

   The STAR fund isn’t as good of a choice for young investors as the target retirement funds, because it’s less aggressive, but it’s a hell of a lot better to invest in the STAR fund than nothing at all.

   Fidelity has a system similar to Vanguard, but in many cases Fidelity will demand a lower initial investment if you sign up for automatic recurring contributions.

4. Sit back and relax!

   You’re all done. Just check your account in a few days to make sure everything was set up correctly.

   And keep pouring money into that Roth! Your future self will thank you.

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