Yesterday on a Money 911 segment of the NBC Today Show I answered a viewer’s question regarding her individual retirement account. If we had more time I would have also gotten to the second question below, but since we didn’t, I thought I’d at least share my response here with our Credit.com readers.
Viewer: I am a 34-year-old freelancer. I have never had a 401(k) so I recently opened a Roth IRA through my bank, which doesn’t allow automatic contributions and charges a fee every time I contribute to it. Is that normal? What are some suggestions for IRAs that allow free and automatic contributions?
Here’s my advice: Call up your bank and ask about ways to possibly lift those contribution fees. It may be that you have to maintain a minimum amount in the account or contribute a minimum amount each month in order for the fees to get waived. If not, no worries: just move your business elsewhere. Roll over your account to a bank or brokerage that won’t nickel and dime you. And they do exist! Shop around for what are called “no-fee ROTH IRAs.” You can find them at many local credit unions. Search for a credit union at findacreditunion.com and bankrate.com. Also find no-fee ROTH IRAs at big brokerages like Fidelity, Vanguard and E*Trade. There are no fees for maintaining the account, as long as in some cases you keep a minimum dollar amount in the account or contribute a minimum each month. You can also make automatic deposits and you won’t get charged for making contributions or transactions.
Note that you may STILL get charged a commission for trading certain funds or stocks within your ROTH IRA. So my advice there – when you pick your investments go with what are called no-load mutual funds that don’t charge broker fees or sales charges.
Fees, as we know, are running rampant, as banks scramble to make up for lost revenue in the wake of financial reform. It’s important for all consumers to review any changes or announcements their bank has made regarding checking and savings account fees.
Viewer: My husband and I have $16,800 in credit card debt, $19,000 left on our auto loan and $123,000 ($28,000 private) in student loan debt between the two of us. We are going to be getting $3000 back on our tax returns and was wondering what the best thing would be to put that $3,000 on. We need help!
Do you have any emergency savings? If not, then I think you want to save that $3k just so that you can create some stability for yourselves before upping your debt repayment. Savings rates are zilch, but the point is you want to have some cash on hand in case of an emergency. Now, if you do have a savings cushion then I would say it’s okay to then allocate that $3k towards your credit cards, which presumably have the highest interest rates. From there continue to at least maintain the monthly minimums on your other loans. Once you’ve paid off your credit card debt, get more aggressive with either your auto loan or your student loans, again, whichever carry the highest interest rate. Keep in mind — The worst debt to fall behind on, in my opinion, is your student loan debt — because not only will you see your debt level double or triple due to delinquency, creditors will literally garnish your wages to collect the money that’s owed to them. I’d also check to see if you can reduce your monthly loan minimum on your federal student loans by pegging it to your income. Check out IBRinfo.org for more information on that.
Miss the show yesterday? Watch the replay here:
Video clip courtesy of NBC’s Today Show.