One on One With Jeff Carney, president of Fidelity Personal Investments
Wednesday, April 12, 2006
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SUSIE GHARIB: Now, if you don`t have a pension, there`s another way of saving for retirement: do it yourself. One easy way is by putting your money in an IRA, an individual retirement account. And there`s still time to set one up. The deadline for investing is Monday, April 17. Joining us now with some advice, Jeff Carney, president of Fidelity Personal Investments. And Jeff, thank you for coming on our program tonight.
JEFF CARNEY, PRESIDENT, FIDELITY PERSONAL INVESTMENTS: Thanks for having me, Susie.
GHARIB: Let`s begin by you just telling our viewers why people should consider opening up an IRA.
CARNEY: Well, more and more we`re being asked to take personal responsibility for our savings. And IRAs have been created by the government to incent us through tax incentives to take advantage of this vehicle and so I think it`s important that people that offer up.
GHARIB: A lot of people might be thinking my company already provides me with a 401(k). Maybe I don`t really need an IRA. What do you say to somebody who would bring that up?
CARNEY: Based on where we think people need to be when they retire, it`s important that you take advantage of your 401(k) first because a lot of companies offer incentives including putting money into your 401(k) for you or matching your contributions. But we also think you need to save outside of your IRA and both the traditional IRA and the Roth IRA are good vehicles for doing that.
GHARIB: I`m glad you brought that up. I think there might be some confusion about what exactly is a Roth IRA. What is a traditional? How are they different and what`s the best way to go?
CARNEY: That`s a great question. The traditional IRA which was the first one that came out, when you make your contribution with which this year you can contribute $4,000, you can deduct that from this year`s tax return if you`re eligible. That can be an incentive for people who are looking for short-term money to come back into their wallet. With a Roth IRA, you don`t get that initial deduction, but later in life when you start taking your money back out, you not going to pay any taxes on those gains and so it really comes down to your view of where taxes are going. If you think they`re going up, a Roth IRA might look more favorable. If you think they`re going down, then you might want to look at traditionals.
GHARIB: And what do you find at Fidelity, which one is more popular?
CARNEY: Roth is winning these days. About 54 percent of our new accounts that have been opened are Roth IRAs.
GHARIB: And you mentioned that the most that you can invest is $4,000. Is that true with both the Roth and the traditional?
CARNEY: Yes and it depends on your earnings levels. There is a top- off provision for people who are over 50. This year it`s an additional $500 and in 2006 it`s about.
GHARIB: I think one of the critical questions for many people is, all right, now I`ve set up my IRA and I`ve got this money in there. How do I manage it? What advice can you give?
CARNEY: That`s a great question. One of the things that we created was something called a simple start IRA and you can open an account for $200. A lot of people think that you just have to contribute $4,000 to actually open the account but you can open an account for $200 and then you can set up a monthly contribution coming out of your bank account so it brings some discipline to your savings. Then from there we offer the opportunity to you to invest in a freedom fund which is basically a fund that refers to your age and when you want to retire. And it automatically does all the investing and rebalancing for you. So it`s really trying to simplify what creates a lot of stress for people around market volatility and what are the best things that I should invest in. And freedom funds this year for us are up 84 percent over last year because I think the appeal of that simplicity and giving you that diversification that you need is compelling.
GHARIB: Jeff, to wrap it up here, what would you say are common misconceptions that people have about IRAs and can you clear it up for us?
CARNEY: One is you can actually make your contribution for 2006 now and take advantage of having that tax shelter for a longer period of time so a lot of people don`t realize that. Two is the amount. A lot of people think that you have to invest $4,000 but obviously with us you can start with $200. And any amount that you can contribute is important and it`s important to do it before that April 17th deadline because you lose that opportunity forever with the 2005 tax year. And then I think people don`t realize that the diversity of choice when you invest in an IRA and the ability to build a plan that makes sense for you.
GHARIB: OK. That`s all very good advice and still a couple of days to sign up for one. Thank you very much, Jeff.
CARNEY: Thanks for having me.
GHARIB: We`ve been speaking with Jeff Carney, president of Fidelity Personal Investments.
