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Government doesn't determine IRA rates

Dr. Don TaylorDear Dr. Don,
Is the rate on a Roth IRA fixed by the government, or is the rate at the discretion of the bank with whom you are investing? Thank you. -- Derek Dilemma

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Dear Derek,
The government determines who is eligible to contribute to Roth or traditional IRA accounts. It doesn't set the interest rate the account can earn. The rate is determined by the financial institution offering the account or the investment returns on the account's investments.

You don't have to invest with a bank. Most banks now have a separate brokerage services arm, so you'll need to decide whether to invest in an IRA account that is an FDIC-insured deposit account or in a brokerage account with the bank. You can also open an IRA account with a full-service or discount brokerage firm, or invest directly with a mutual fund family.

So there's a difference between where the account is held and how the account is invested. The tax code provision on contributions and distributions is the same across account types.

My recommendation is for you to decide how you want to invest the money over time, and then find a financial institution that offers the investment. Keep your eye on account management fees, sales commissions and investment management expenses. Keeping a lid on fees and expenses means more of your money working for you.

If you're just interested in a high-yielding CD in a Roth IRA account with a bank, you can shop rates on Bankrate.

-- Posted: March 15, 2005




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