Suze Orman likes Roth IRAs

Wednesday, March 1st, 2006
Categorized as: Savings Bonds and competitive investments

I sometimes watch the Suze Orman show and she always brings up that everyone should pretty much just invest in a Roth IRA. She rarely brings up anything about Series I bonds. Could you briefly explain the differences between the two.

Tom’s response

First, let me agree with Suze; if you can, you should fully fund a Roth IRA before investing in Savings Bonds.

The major difference between them is that although Savings Bond interest income is tax-deferred, you have to pay the tax someday. What a Roth IRA earns, on the other hand, is income tax-free if your redemptions occur under any of these conditions:

  • your age is over 59-1/2
  • you are disabled
  • you die (your heirs receive the money tax-free)
  • you use the funds to buy or build a first home

However, money you put into a Roth IRA has to come from a job or alimony. For example, you can open a Roth IRA for a child, but the child must have wages of some kind. If a child earns $2,000 mowing lawns in the summer, the child is eligible to deposit $2,000 into a Roth IRA.

For 2006, the maximum amount you can put in a Roth IRA is $4,000 if you are less than 50 years old or $5,000 if you are 50 or over. However, not everyone can contribute this much – the maximums are limited not only by the compensation requirement, but also by how high your income is and by how much you put into a regular IRA.

For example, for 2006, the amount you can contribute starts to phase out when modified adjusted gross income reaches $95,000 for a single person or $150,000 for a couple filing a joint return.

The IRS provides complete tax information on Roth IRAs in its Publication 590.

Savings Bonds also have a maximum annual contribution, but the limits are much higher and there are no requirements regarding the source of the funds or your total income.

A final difference between the two is that once you set up a Roth IRA, you still have to decide what you’ll invest the money in. With Savings Bonds, Savings Bonds are what you invest your money in.

You can set up a Roth IRA with a bank, mutual fund, or brokerage company. You can invest your Roth funds in a bank CD, stocks, government or corporate bonds, or almost any other investment; however, Savings Bonds cannot be held inside a Roth IRA.

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FDIC Insured Certificates of Deposit can pay 1 or 2% more than savings bonds when held for a similar length of time. See top CD Rates Below:

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June 1, 2010

After six years, over 400 posts, 3,680 real comments, and over 90,000 spam comments (thank you, Akismet, for making managing a blog with comments possible), I am closing public comments on Savings-Bond-Advisor.com. I will contine to update the main articles on this site, but not the comments.

Virtually every question about Savings Bonds has been asked and answered on this site multiple times. Use the search feature (see the box in the gray area near the top of this page) or the detailed menu on the lower part of the home page to find the information you're looking for. If you have a copy of Savings Bond Advisor, you can ask me a question here.

Tom Adams

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