Counting My Pennies » roth ira

My taxes are almost done!

Megan — Tue, 31 Jan 2012 14:54:15 +0000

I am still waiting for one form from my former mortgage company so I can finish my tax returns. And things are looking good! Or bad, depending on how you view taxes.

I’m not sure how the state tax return is going to fall out, but it looks like I’m getting a significant chunk of change from the feds. I’m definitely pleased about this as it makes a great start to my Roth IRA contributions for the year. On the other hand, that’s money that could have been in my pocket throughout the year. Typically, I like to try to break even, but over the past couple of years, I haven’t been able to make that work.

So I have two options – I can change my withholdings again (I did it once when I bought my house) or I can just live with it and enjoy the extra cash every spring. I would definitely rather get money back than have to pay in, that’s for sure. And with interest rates as they are, I’m not really coming out that much ahead by getting the money and putting it into savings. So maybe it’s best to keep things as they are.

Check one off the list!

Megan — Mon, 20 Jun 2011 00:30:57 +0000

I had a pretty lazy weekend this weekend. Well, as lazy as one can be when starting the weekend with a ten mile race. But with Saturday’s race, my spring racing season has come to an end, and now I have time to really work on my house again.

And one thing I got done this weekend wasn’t a house-related thing. I finally set up my Roth IRA contributions for the year! Yes, I realize that the year is almost half over. The whole house buying thing sort of threw me off track and I didn’t set anything up. But I am okay with that. As I have mentioned, I use Vanguard, and they have $3000 minimums for some of their funds. I’m happy with the funds I’m currently using, but after a bit of research, I found another fund I wanted to add. Which meant a $3000 minimum. I always contribute the maximum ($5000), and was ready for this $3000, so all is good. Now let’s hope my research was solid.

Of course, I’m not going to need this money for somewhere between 30 and 35 years, so there’s plenty of time!

Don’t give up on retirement!

Megan — Wed, 08 Jul 2009 10:00:31 +0000

This article about being able to retire well caught my eye yesterday for a number of reasons. The first, of course, being the idea that people are panicked about the state of their retirement accounts, but they shouldn’t worry – they can still have a good retirement. I shouldn’t be one to worry, with 30+ years til retirement, but I like to plan ahead. The second thing that caught my eye was this quote:

“One of my daughters in her 20s said, ‘If I put it in the market I’m going to lose it, and if I put it in the bank I won’t make any money, so I might as well spend it.”

Clearly not the best plan, yet I know that it’s a plan many of my friends and co-workers are following. While I am putting money into my TSP and my Roth IRA, mentally, it’s difficult to do, especially when the accounts are falling. 2008 was a hard year to invest, but I did it anyway because I know that 30 years down the road, I will be glad I did it. For the most part, I try to not think about my retirement accounts. I won’t need them for years and years, so I should just keep socking money away and not think about what’s going on with the money. Of course, you can’t just invest blindly, but I know that my money is in good solid funds, so I need to just trust that things will turn out. And if the status of the funds I have invested in starts to change, then I will have to rethink my plan.

I admit, I’m a little obsessed with retirement calculators. I want to know what that magical number is and what I need to do to get there. And then, as soon as I find out what that number really is, I panic. How in the world am I ever supposed to save that much money? This article addressed that as well.

“To begin with, stop making a fetish of The Number — that fearsome string of digits some online calculator or investment adviser said you need to retire comfortably. Retirement is not an all-or-nothing contest like a basketball game, where losing by one is just as bad as losing by 40.”

That’s something we should all remember. While we all want to save as much as possible so that we never have to worry in retirement and possibly even leave some money for our heirs, you do what you can. If you come up short, you’ll make it work. Just don’t come up too short.

I’ve gotten better about not checking the status of my retirement accounts every day. I might glance at them once a week, just to see the general movement. If it goes up, great. If it goes down, oh well, things will improve later. Besides, I still have a lot of years to work. Might as well focus on the present and not the distant, distant future.

March Net Worth Update (+9.96%)

Megan — Thu, 02 Apr 2009 10:00:58 +0000

March was a great month for my net worth! It increased 9.96%.

I have to be honest. The majority of that increase was due to some very generous family members who like to share their wealth among the 20-somethings in our family. I am so thankful for their support. That money goes straight into savings, of course, and ideally, will be saved and allowed to grow and benefit others (is it too soon to start a tiny college fund for my hypothetical children?).

But even without that generosity, my net worth still would have increased this month. This month, it was mostly due to investments. My cash accounts increased very minimally, but my investments seem to be on a bit of an upward trend. I can’t say whether or not this will continue, but it’s nice to see a bit of a bump.

It’s especially nice to see in my Roth IRA. I started my automatic contributions this month, putting in $500 a month for the next 10 months, and my Roth is currently worth about $900 more than it was at the end of February, meaning that it’s gone up about $400. Oh, it’s still worth significantly less than it would be if I had just shoved all of that money into a savings account… or into a box under my bed… but it makes me feel much better about the decision to start automatic investments. Sure, it might start to tank again next month, but for now, I’m going to enjoy this little upward bump.

Who should get your retirement money?

Megan — Thu, 24 Jul 2008 13:28:03 +0000

I had an interesting conversation with a friend a few days ago, and got her permission to discuss it here. She is engaged and I was very pleased to hear that she and her future husband have been discussing how they plan to deal with their finances after they wed. I am not sure of all of the details, just that they seem to have agreed on all but one minor thing – their retirement accounts.

Right now, my friend has her retirement accounts (401k and Roth IRA) set up so that if she dies, the money in the account is distributed equally among her three siblings. As a single woman with no children, I have done the exact same thing with my accounts. While discussing these accounts with her betrothed, she commented that until they have children, or at least until the situations change, she would like to keep it that way.

Clearly, since I’m writing about this, you already know that he did not agree. In his opinion, they should each make the other the beneficiary of these accounts. He did make some good points, one being that changing things now would prevent forgetting to change them later after a child is born.

In her opinion, for the next few years at least, her siblings would benefit the most from the money. Her siblings are in college and high school, while her to-be husband has a good job and a retirement account of his own. Additionally, as they agreed, everything else she owns would go to him in her will (aside from some family heirlooms he has no desire to keep).

I am not sure how they resolved the matter. It wasn’t a huge sticking point between them, she was just surprised that he reacted so strongly to the matter. Additionally, at this point, they’re not talking a huge amount of money. She’s only been in the workforce a few years, and over the past year, her retirement accounts have taken a hit thanks to market fluctuations.

I did think it was an interesting debate. Were I getting married and having this discussion, I don’t know what I would do. As I said, I also have my retirement accounts set up so that my siblings are the beneficiaries, and I know that one of my siblings has done the same (the other is still a college student who I cannot convince to start a Roth IRA).

Anyone want to weigh in?

A downside for the ladies

Megan — Thu, 10 Jul 2008 10:00:00 +0000

Yesterday, an AP article discussed that “Women should factor longer life into retirement.”

According to the article, women live an average of 22 years after retirement, while men only live 19 years after retirement, and given the increase in medical costs, women therefore need to save 2% more than men every year for 30 years to maintain their standard of living.

Doesn’t sound too terrible, does it? But there’s more.

On average, women start saving later than men (by 2-4 years), invest less (7.3% rather than 8.1%) and are often in and out of the workforce more than men due to family reasons.

Ladies, we need to step up!

One thing that surprised me was that 25% of women don’t contribute enough to their employer’s retirement plan to take advantage of the company match. It’s free money! Of course, I do realize that many people are living at their means and really can’t afford to contribute more to their retirement accounts. But if you can, you absolutely should. If you make a few small sacrifices now, you will be rewarded for it in the future.

I was frustrated by one of the tips in a sidebar to this article. “Start investing two years earlier and increase your nest egg by 18%. Four years earlier boosts it by 23%.” I suppose this might spur into action people who haven’t started saving for retirement yet. But I wonder how many people who could start contributing to their retirement accounts today are thinking about retirement enough to have actually read this article.

One very scary point to the article: one expert recommends that workers will need to replace 126% of their salary after retirement to maintain their lifestyle due to inflation and rising medical costs. I wonder if that number factors in the expenses one does not have when not working (such as the contributions to retirement, for example). Either way, that’s a big number.

I don’t know when I’m planning to retire. If I stay with the government, I’ll be eligible to retire in 30 years at age 57. That’s 10 years before what the Social Security Administration calls full retirement age for someone born after 1959. That assumes fairly steady work, as I’d have to put in a full 30 years with the government first. While retiring at 57 seems appealing, it also seems a little scary. Given my family history, I hope to live at least another 30 years after that, maybe even longer. So I think the odds are good that I’ll be working past age 57, especially if I find myself in a job that I love.

Maybe I should be saving more money. With my Roth IRA and my TSP (government retirement plan), I’m putting away between 12% and 13% of my salary every year, plus a 5% match. Of course, both accounts have lost money over the past year, but I’m choosing to not think about that. I’m definitely not putting the limit into my TSP though. Depending what happens over the next few years with my job and my living situation, maybe I’ll think about bumping up my contributions. A few dollars here and there could make a world of difference in 30 years.

Abundant Life Spending Spree – $102,400
These purchases are getting more and more random. But that’s the fun part, right? For today’s purchase, I would buy a Weebee and some really beautiful land to put it on.

What I Wish I Had Known

Megan — Mon, 30 Jun 2008 12:00:00 +0000

At work, there has been an influx of fresh faced young employees over the past few weeks. Some just out of college, others just out of grad school. I’m enjoying meeting all these new people, and it’s always great to have new, enthusiastic employees.

There has been a lot of talk as of late as to what sort of personal finance information recent college grads and recent high school grads should know, and as I watched these new employees arrive, I started to think about what I did and didn’t know when I started my first job after college.

I was lucky in that I knew a fair bit about personal finance when I first started working. I had held a credit card for four years, I was good about paying my bills, and I understood the benefits of a 401(k) plan. I didn’t contribute to my employer’s 401(k) plan at my first job for a few reasons – I knew I was leaving in a year to go to grad school, and I needed every penny for grad school, and they didn’t start matching until you had worked there for over a year, so I knew I would never meet eligibility.

Perhaps not the best decision, but not a bad decision and not one I regret. The one thing I wish I had known though was that I could contribute to a Roth IRA. I really didn’t learn about Roth IRAs until I was 26. I could have made contributions to that instead. Sure, I did need money for grad school, but I could have contributed a few hundred dollars at least. I didn’t make much during grad school, and again, I needed that money to pay for fun things like textbooks, but I wonder how much a few hundred dollars might have grown over the years.

I’m not sure how I missed the boat on Roth IRAs. And I don’t think that not contributing for those few years really hurt, because the contributions wouldn’t have been huge. But I still suggest Roth IRAs whenever I get the chance.

Abundant Life Spending Spree – $1600

$1600 would go to a year long gym membership along with a bunch of personal training sessions. I’ve been sick the past few weeks and I can tell by how my clothes fit that I’m quickly falling out of shape. I could use someone to kick me into gear!

May Net Worth Update (+8.22%!)

Megan — Wed, 04 Jun 2008 12:00:00 +0000

This month was a great month for my net worth. It increased by a whopping 8.22%!

Ok, so that was mainly due to a very generous gift from a family member that is being tucked safely away.

Aside from that though, my investments are continuing to rebound. It’s slow going, but it’s at least moving in the right direction. My cash accounts took a bit more of a hit this month, thanks to vacation, but those were planned expenses.

With this generous gift, my net worth is up 7.68% from the beginning of the year. My goal for the year was to increase my net worth by 20%. I thought it was a tight goal, but possible. With the markets as they are, I just don’t think it’s possible to make that goal. Doesn’t mean I’m not going to try though!

I also made my full Roth IRA contribution for 2008 this month. Sadly, it is already worth less than when I invested the shares. But it’s money I won’t need for years, so I’m not too concerned. Just got to keep on keeping on.

Retirement funds – DCA or no?

Megan — Mon, 05 May 2008 12:37:00 +0000

Thanks to a generous family member, I came into a bit of money in the past week. It was enough to fund my Roth IRA for the year with a bit leftover. So of course, step one was funding my Roth. I couldn’t decide whether dollar cost averaging was the way to go or not. I did know that I wanted to add a fund to my IRA – a fund tracking the international markets – and at the financial institution I use, that required a minimum of $3000 to open. So that was an easy decision. I decided to just use the additional $2000 to purchase additional shares in a fund I already own. I thought about it for a while and decided to just drop all $2000 at once rather than do dollar cost averaging. Basically, I just wanted to have it done and not worry about it anymore.

With the market fluctuating as it has the past few months, I’ve really been ignoring a lot of my investment accounts. I know that I have chosen good funds for my Roth IRA. I know that I’ve chosen good funds for my TSP (not that there are a lot of options). The market is what is is, and I can’t change it, so I might as well not worry about it. Besides, these are retirement accounts. I’m 27. I won’t need them for quite some time.

When the market is good, it’s fun to check in on retirement accounts and see how they are growing. But when the market is not so good, it can simply be added stress to log-in to an account and see how much money you’ve lost in the past few days. I’ve decided that’s not added stress I need.

I do check my retirement accounts every month when I calculate my net worth for the month. And when the value is up, I’m happy, and when it’s down, I just shrug and know that things will get better.

So that’s why I decided against dollar cost averaging for the last $2000. I don’t want to have to worry about it. There’s no way to predict which method is better, though my hope is that the market is on a rebound and will keep bouncing back. But for my mental health, it was the right choice.

(Of course, what to do with the rest of the money is another story for another post.)

Roth IRAs as Emergency Funds?

Megan — Tue, 11 Mar 2008 20:15:00 +0000

I have seen a number of personal finance websites suggesting that people keep their emergency funds in a Roth IRA. After all, the point of an emergency fund is to never have to touch it, saving for retirement is good, and one of the benefits of a Roth IRA is that you can take out the money you put in without any sort of penalty (of course, you can’t touch your earnings until you’re 59 1/2).

I’m still not sure whether or not I think this is a good idea. I have to admit that when I thought about starting a Roth IRA, one of the things I considered was the fact that if an emergency happens, I can pull that money. But I also have an emergency fund with enough money to cover almost 10 months worth of normal expenses.

I don’t think it’s a good idea to have all of your emergency fund in your Roth IRA. But it might not be a bad idea to put some of it into a Roth IRA. Let’s pretend that your monthly expenses are $3000. Now let’s say you’ve managed to save 6 months worth of expenses, meaning you’ve got a high yield savings account with $18,000. To fully fund your Roth IRA for 2008 would mean a deposit of $5000. That would leave you with $13,000, enough to cover you for over four months. And if things got bad, you could pull from your Roth IRA.

But wait. Roth IRAs aren’t like savings accounts. They aren’t even like stuffing the money under your mattress. They’re not guaranteed to make money over time. Mine lost $500 in the first six months. If I was depending on that money for my emergency fund, I’d be out of luck.

I think my opinion has to do with how big your emergency fund is. As I said, mine is nearly 10 months worth of normal expenses, much of which could be cut in an emergency situation. So yes, I would be fine with putting some of that into a Roth IRA. But do I think your entire emergency fund should be in your Roth? Absolutely not. If you want to make it work for you, tie it up in CDs. Sure, you’ll take a small hit if you have to redeem the CD early, but nothing like the hit you could take from a Roth loss.

Of course, Roths are designed to grow, so it’s possible you could deposit $5000 of your emergency fund into it and discover that your retirement fund has grown.

I think this is a decision that everyone has to make, but I still think that everyone should try to have three to six months worth of expenses in an emergency fund, preferably closer to six. Where you put it is up to you. Just be aware of all of the benefits and the risks.