My 403(b) has no company matching (because they pay into a pension). So I max out a Roth IRA first because of lower-fee options and more choices. The rest goes in a Roth 403(b) (and toward pre-paying my mortgage).
I chose Roths because I'm guessing my taxes are going nowhere but up (I'm still in the 15% marginal tax rate). I stay in Roths because my pension is taxable, so my other money will be nontaxable--this will keep my future marginal tax rate lower. I also like the ability to pull principal from my Roth IRAs as a way to design my own early retirement. You can pull out all your money any time so long as you use an approved formula over an approved minimum length of time, but I like that I can pull out the amount I contributed without having to make sure it fits into an approved formula if I want to.
One more note: If you don't like your choices for your 401K, talk to your HR people and tell them what you like. Sometimes that actually helps. (We have Roth 403(b)'s available as well as regular 403(b)'s because people asked for them. HR thought they were a good idea but didn't feel like doing all the work involved unless they knew people wanted them.)
I have an issue with the 30% rule on housing. If you live in a decent (burglar bars not a necessity) area in Southern California, it's almost impossible to purchase a home on one salary if you stick to this rule. Unless you are very well paid it's impossible here, especially if you are single. Since detached homes are now built at about a minimum of 1,400 square feet, and all the older, smaller homes are being torn down to build new ones out to the lot lines, you can't purchase something smaller to keep down the cost. Please do note that I'm talking about a detached house, not a condo. I owned a condo for 8 years and do not ever want to consider living with shared walls and overly-restrictive homeowners' associations again!
I was fortunately able to purchase a home 12 years ago with 20% down (avoided PMI) and between insurance, taxes and mortgage it's still close to 40% of my income, and I didn't include cost of upkeep since I do most of the work myself - I'll be rebuilding part of my patio cover this weekend. Since I planned ahead and have no other debt it works for me, but the 30% "round number" doesn't take into account the reality of the cost of housing in all areas. I'd bet that people in other high-cost areas would agree (San Francisco and New York come to mind immediately). And I do save 10%. :-)
More options for a novice that doesn't know much about investing is actually a bad thing. They are better off picking a target date retirement fund or a mix of large cap, international equity, and bond funds.
Plan sponsors have a fiduciary responsibility to offer prudent investment selections. That is the primary reason you see few investment choices. That is also why fees should be low in most of the 401k options. Not saying that all plan sponsors are doing the right thing, but it's a shame to the uninformed participants if they aren't. I know for my company, the average expense ratio is 0.28%
At least there is going to be more visibility into fees with the new requirements from the Department of Labor.
This is a very though one to figure out, and part of it is based on speculation. Yes tax rates are going to rise, but it also depends on how close you are to retirement age, and what your tax bracket will be at the point you begin withdrawing! Not to mention all those years you could receive compounding interest on tax-free money, granted you will be taxed at some point, but while its in the account it gives you a higher prinicpal on which to earn interest...over the years this really adds up. Also, for those who contribute to a 401k just years shy of retirement, if you open up an IRA you wont be able to touch the funds for at least 5 years, and Im willing to bet this is an issue for some older folks.
Fort Lauderdale is a VERY hot place so I can see the need for this article. Something that can cut costs without being uncomfortable is buying a window AC unit instead of using your central air unit.
Great article. What you might make clearer, though, is that you can (and maybe should) contribute to both a Roth and your 401(k) up to the max allowable. If you can afford it, you don't necessarily have to choose, and both offer tax advantages over straight/non-retirement investing.
We should all pay particular attention to Reduce Reoccurring Costs. Budget killers are those items that we overpay for, even by a small amount, again and again and again. Pay very careful attention to any subscription or auto renewing purchase. Gym memberships, cable, insurance and cell phone plans are all expenses that we need to carefully review from time to time.
Ever since learning about the ROTH IRA, I've been putting money into mine.
Granted it isn't that big yet (only been working full time for 2 years), but it's definitely growing.
Anyways, think you had a few great points. Because taxes will most likely increase, a ROTH makes sense. Plus, as you get older you will most likely be making more money than you do now, right? That means a higher tax bracket.
I do put some money into my 401K equivalent, but it isn't matched so there's not a huge incentive to put it all in there.
Great article. I definitely agree that after you meet your employers Match you should put all additional funds towards your Roth IRA. My problem is finding the extra funds to contribute to my roth. :)
Regarding #15 Most modern cars hit peak economy between 50-70mph. It isn't the speeding that costs you at the pump, but the braking and then needing to accelerate again to get to rate of traffic.
You don't need to be a hyper-miler (in fact many hyper-miler tips are downright dangerous) just remember that a constant rate of travel leads to better efficiency. So try to avoid unnecessary braking, don't tailgate, pick routes with few traffic lights, and avoid stop and go traffic whenever possible.
Correct; covered that in the article. It's the incremental $5K you might normally just "automatically" plop into the 401(k) or equivalent, when it might be better off in a Roth IRA.
Filing for bankruptcy has much more dire consequences than simply borrowing and replacing funds in many cases. I borrowed from my 401(k) once in my early years. It worked out fine. I paid the interest back to myself and the market hadn't moved at all during the payback period.
It's a personal decision. As long as people understand the consequences of either option, they should be able to make a sound decision.
In "extreme need" you shouldn't withdraw from Roths or 401(k)s--you should file bankruptcy. Your debts will be discharged and your Roth and 401(k)s are exempt from your creditors.
The only "extreme need" justifying raiding your ERISA-qualified accounts would be to ransom a family member....and then only if you REALLY liked that person ;)
If I already had filed my tax return, can I still do it for the 2010 tax year? I mean would I have to file an amended tax return, and if so would I also get additional tax refund?
That depends on whether you count Ooma as a land line. If I could get AT&T DSL here instead of the crappy slow-to-a-crawl-every-freaking-night-like-clockwork Comcast I would probably have a land line with them as well...but alas, it's not available here.
I have heard a lot of hype about Straight talk. What phones do you recommend I get if I am a heavy texter and like to take a lot of pictures. I am looking at the straight talk unlimited plan but am having trouble choosing the right phone for me.
HI,,I am 62 and granted I shoud not be driving at nite,but do not have a nite restriction code on my S.D.L...I Havr sleep apnea which over the yrs has messed up my memory and instant thought process which also leads to bipolar dpressivi behavior..I am a good samaritan and always donating my time money and help to friends,needy and complete strangers.
I calso have night vision problems which means I delibertly drive slower than the highway speed limit.I was cruissing 55 in a 65 ands got pulled over near Red Oak Ok about 9:30pm.I asked the officer why I was pulled over and he said I was going 55 ion a 4o.I told him I did not see a speed sign much less a city limit sign,he said he had to write me a tickit and threatened to have my Arkansas liescene revoked if I failed to pay the 125 dollars..
I was pissed of course since I was on my way home from helping some people who were living in a tent after their house had burned down,and I felt like crap,now I feel like a traffic cop hater..I love peace keepers,but prediters that are just out fishing for the elderly or impoverished folks are worse off than crimminals and I hope they rot in hell.
It's not about the money,but I was wondering if I go thru this town of 450 dring at 5mph and give the constable the peaace sin with my left hand that is missing 2 fingers.So ion shor my middle finger is intact.gET MY DRIFT.Is it against the law to drive to slow in the city limits if they don't have a min. speed limit posted???
Thanks for bur time
Mad Bastard Hillbilly from Arkansas
My 403(b) has no company matching (because they pay into a pension). So I max out a Roth IRA first because of lower-fee options and more choices. The rest goes in a Roth 403(b) (and toward pre-paying my mortgage).
I chose Roths because I'm guessing my taxes are going nowhere but up (I'm still in the 15% marginal tax rate). I stay in Roths because my pension is taxable, so my other money will be nontaxable--this will keep my future marginal tax rate lower. I also like the ability to pull principal from my Roth IRAs as a way to design my own early retirement. You can pull out all your money any time so long as you use an approved formula over an approved minimum length of time, but I like that I can pull out the amount I contributed without having to make sure it fits into an approved formula if I want to.
One more note: If you don't like your choices for your 401K, talk to your HR people and tell them what you like. Sometimes that actually helps. (We have Roth 403(b)'s available as well as regular 403(b)'s because people asked for them. HR thought they were a good idea but didn't feel like doing all the work involved unless they knew people wanted them.)
I have an issue with the 30% rule on housing. If you live in a decent (burglar bars not a necessity) area in Southern California, it's almost impossible to purchase a home on one salary if you stick to this rule. Unless you are very well paid it's impossible here, especially if you are single. Since detached homes are now built at about a minimum of 1,400 square feet, and all the older, smaller homes are being torn down to build new ones out to the lot lines, you can't purchase something smaller to keep down the cost. Please do note that I'm talking about a detached house, not a condo. I owned a condo for 8 years and do not ever want to consider living with shared walls and overly-restrictive homeowners' associations again!
I was fortunately able to purchase a home 12 years ago with 20% down (avoided PMI) and between insurance, taxes and mortgage it's still close to 40% of my income, and I didn't include cost of upkeep since I do most of the work myself - I'll be rebuilding part of my patio cover this weekend. Since I planned ahead and have no other debt it works for me, but the 30% "round number" doesn't take into account the reality of the cost of housing in all areas. I'd bet that people in other high-cost areas would agree (San Francisco and New York come to mind immediately). And I do save 10%. :-)
More options for a novice that doesn't know much about investing is actually a bad thing. They are better off picking a target date retirement fund or a mix of large cap, international equity, and bond funds.
Plan sponsors have a fiduciary responsibility to offer prudent investment selections. That is the primary reason you see few investment choices. That is also why fees should be low in most of the 401k options. Not saying that all plan sponsors are doing the right thing, but it's a shame to the uninformed participants if they aren't. I know for my company, the average expense ratio is 0.28%
At least there is going to be more visibility into fees with the new requirements from the Department of Labor.
This is a very though one to figure out, and part of it is based on speculation. Yes tax rates are going to rise, but it also depends on how close you are to retirement age, and what your tax bracket will be at the point you begin withdrawing! Not to mention all those years you could receive compounding interest on tax-free money, granted you will be taxed at some point, but while its in the account it gives you a higher prinicpal on which to earn interest...over the years this really adds up. Also, for those who contribute to a 401k just years shy of retirement, if you open up an IRA you wont be able to touch the funds for at least 5 years, and Im willing to bet this is an issue for some older folks.
Fort Lauderdale is a VERY hot place so I can see the need for this article. Something that can cut costs without being uncomfortable is buying a window AC unit instead of using your central air unit.
Great article. What you might make clearer, though, is that you can (and maybe should) contribute to both a Roth and your 401(k) up to the max allowable. If you can afford it, you don't necessarily have to choose, and both offer tax advantages over straight/non-retirement investing.
My advice is to not default unless you would like to be foreclosed on. It happened to too many others.
Yes, we do.
No - no landline here. Just now worth the cost.
We should all pay particular attention to Reduce Reoccurring Costs. Budget killers are those items that we overpay for, even by a small amount, again and again and again. Pay very careful attention to any subscription or auto renewing purchase. Gym memberships, cable, insurance and cell phone plans are all expenses that we need to carefully review from time to time.
Ever since learning about the ROTH IRA, I've been putting money into mine.
Granted it isn't that big yet (only been working full time for 2 years), but it's definitely growing.
Anyways, think you had a few great points. Because taxes will most likely increase, a ROTH makes sense. Plus, as you get older you will most likely be making more money than you do now, right? That means a higher tax bracket.
I do put some money into my 401K equivalent, but it isn't matched so there's not a huge incentive to put it all in there.
Great article. I definitely agree that after you meet your employers Match you should put all additional funds towards your Roth IRA. My problem is finding the extra funds to contribute to my roth. :)
5. Shop on a Full Stomach and 18. Pre-Drink at Home really hit home.
I always buy too much if I go grocery shopping while hungry. Also, pre-gaming isn't just for college kids!
Regarding #15 Most modern cars hit peak economy between 50-70mph. It isn't the speeding that costs you at the pump, but the braking and then needing to accelerate again to get to rate of traffic.
You don't need to be a hyper-miler (in fact many hyper-miler tips are downright dangerous) just remember that a constant rate of travel leads to better efficiency. So try to avoid unnecessary braking, don't tailgate, pick routes with few traffic lights, and avoid stop and go traffic whenever possible.
Correct; covered that in the article. It's the incremental $5K you might normally just "automatically" plop into the 401(k) or equivalent, when it might be better off in a Roth IRA.
Filing for bankruptcy has much more dire consequences than simply borrowing and replacing funds in many cases. I borrowed from my 401(k) once in my early years. It worked out fine. I paid the interest back to myself and the market hadn't moved at all during the payback period.
It's a personal decision. As long as people understand the consequences of either option, they should be able to make a sound decision.
You can't deduct Roth IRA contributions, so any time up til Apr 15, you can make prior year contributions with no regard for tax return filing status.
Thanks Ken, glad to hear you agree! I just wrote my check to top off last year!
Incredibly clever (and yet informative!) article. Well done!
but you can only put a max of 5000 in roth when you could put as much as 23000 in 401b
In "extreme need" you shouldn't withdraw from Roths or 401(k)s--you should file bankruptcy. Your debts will be discharged and your Roth and 401(k)s are exempt from your creditors.
The only "extreme need" justifying raiding your ERISA-qualified accounts would be to ransom a family member....and then only if you REALLY liked that person ;)
If I already had filed my tax return, can I still do it for the 2010 tax year? I mean would I have to file an amended tax return, and if so would I also get additional tax refund?
That depends on whether you count Ooma as a land line. If I could get AT&T DSL here instead of the crappy slow-to-a-crawl-every-freaking-night-like-clockwork Comcast I would probably have a land line with them as well...but alas, it's not available here.
I have heard a lot of hype about Straight talk. What phones do you recommend I get if I am a heavy texter and like to take a lot of pictures. I am looking at the straight talk unlimited plan but am having trouble choosing the right phone for me.
HI,,I am 62 and granted I shoud not be driving at nite,but do not have a nite restriction code on my S.D.L...I Havr sleep apnea which over the yrs has messed up my memory and instant thought process which also leads to bipolar dpressivi behavior..I am a good samaritan and always donating my time money and help to friends,needy and complete strangers.
I calso have night vision problems which means I delibertly drive slower than the highway speed limit.I was cruissing 55 in a 65 ands got pulled over near Red Oak Ok about 9:30pm.I asked the officer why I was pulled over and he said I was going 55 ion a 4o.I told him I did not see a speed sign much less a city limit sign,he said he had to write me a tickit and threatened to have my Arkansas liescene revoked if I failed to pay the 125 dollars..
I was pissed of course since I was on my way home from helping some people who were living in a tent after their house had burned down,and I felt like crap,now I feel like a traffic cop hater..I love peace keepers,but prediters that are just out fishing for the elderly or impoverished folks are worse off than crimminals and I hope they rot in hell.
It's not about the money,but I was wondering if I go thru this town of 450 dring at 5mph and give the constable the peaace sin with my left hand that is missing 2 fingers.So ion shor my middle finger is intact.gET MY DRIFT.Is it against the law to drive to slow in the city limits if they don't have a min. speed limit posted???
Thanks for bur time
Mad Bastard Hillbilly from Arkansas