This year has been full of fiscal ups and downs. After making a solid salary at a full-time job, I was laid off in February and ended up picking up part-time gigs which, while paying great by the hour, didn’t cover enough hours to meet my prior salary. And then I interviewed for a bunch of jobs and got a few offers. In the end, I landed a six-month contract with very strong hourly pay.
A few months ago, I started a 529 plan for myself. Since I plan to go to grad school within the next 4 years, I figured it couldn’t hurt to start saving with a tax advantaged plan. I’m going a little bit higher risk than I should given my short time frame, but I’m fairly diversified, and I figure worst case scenerio I’ll just have to take out the full loan I would have had to take out if I didn’t save any extra money.
So far I have only $680 in the account. I have $100 going in to it automatically each month. Come tax time, if I have a rebate this year (which I think I should since I’m estimating my networth minus $15k in assumed additional taxes. Some of that will be taxes from my freelance work, but I haven’t done that much freelance this year, so I will have a larger net worth than my estimate at the end of the year, hopefully.)
Then, I just have to figure out how much money I really should put into the 529. Besides the fact that I may, for whatever reason, end up not going to graduate school, my bigger concern is that I can’t use the money for anything else without a major penalty, except education for my not-yet-existent kids. If I don’t have kids, well, then that money will go to my sister’s not-yet-existent kids, or I’ll just donate it to my cousins. I’m sure one day SOMEONE can use it. And starting to save now for my kids’ accounts is not such a bad idea… that’s quite a long time for the money to grow, with all the earnings tax free (as long as the tax code stays the same, another worry.)
So at the end of the year, when I get my tax refund, first I’ll put $3000 towards my 2010 Roth IRA, like I did last year. Any extra money left over… I need to figure out if I should put all of it into the 529 plan, or if that’s stupid. I have a few months to decide. In the mean time, I best get studying for the GREs, which I’m taking next month!
It has become increasingly clear to me that in order to pursue the career I want to have, I’ll either need a miracle or a masters degree. I’m mostly looking forward to the latter, after all, my undergrad years were tainted by depression, self-doubt, immaturity, and academic confusion. It really is time for me to go back to school, focus on what I want professionally, and hopefully thrive.
The cost of thriving, however, is keeping me questioning if grad school is worth it. There’s also plenty of other options that may work out just as well in the long run in terms of my professional life. I can take classes, read lots of books, teach myself, work my way up in the world. But I’ve done that with my current career and while it’s been fun, I don’t think I could stand to start from scratch entirely. The programs I’m looking at offer great connections and job prospects (esp if the economy starts picking up by the time I graduate. If it doesn’t i’ll prob be unemployed anyway.)
All that said, I am still freaked out about the cost of grad school. Sure, as of May I will likely have about $35k in savings, but that’s for my retirement and emergency fund. School will cost me about $100k for two years if I count in the cost of living. I may be able to work part time to offset some of those costs, but still, even if I could get it down to just the cost of tuition (about $60k total) that’s, like, double what I’ve been able to save in the past 25 years of my life. And I’ll be losing upwards of $120k for two years that I would have made if I remained employed. So the whole thing would cost me $200k or more. Yikes!
Those numbers are enough to keep me out of grad school. I’m so jealous of my boyfriend, who is going to get a free ride to grad school, courtesy of his frugal mother who doesn’t spend money on anything. So she’s saved up enough for him. In a way I want to pay for myself because it will be worth more. I think my undergrad education felt like a free ride. My parents were paying, it was what I had to do, it wasn’t for me, I didn’t understand the value of an education in line with my professional development.
Do any of you have experience with 529 plans? They sound like they might be a good idea to start saving for grad school… if the market starts to go up. Esp if I can put in a lot of money now while we’re in this recession (I feel really bad for the people who put money in before the recession and lost 30% or more). In California the tax savings on a 529 isn’t that great… well you don’t get a state tax deduction (same with the HSA) – but you do get the federal deduction. And the money you use for education can be spent tax free. I can’t figure out if that’s as good of a deal as it sounds.
Also, there is still the chance that there will be a miracle and I won’t end up wanting to go to grad school at all. Then my 529 plan will be stuck. I can use it to fund my children’s college education – but then I have to have kids. 🙂
I don’t understand how anyone has the balls to go into debt for grad school. Not sure if I do.
I’ve been going on and on about how I don’t know where to put my savings. I’ve been trying to save and invest, but right now I have a feeling my portfolio breakdown is not advisable. I still need to open an HSA and money needs to start going into that ASAP, but other than that I’m not sure where to invest.
Right now, my savings breakdown is:
$2167 — liquid checking to pay off debts, rent, bills, etc (checking, liquid savings & paypal)
$19,599.34 — pre tax non-retirement, non liquid savings (CD #1 & #2, Sharebuilder, Vanguard, Prosper)
$7067.75 — Roth IRA (down from $7300 of initial investment. Have $1700 more to invest in 2008)
-$1037.88 — debt (to be paid from checking as soon as the deposit fully clears in my checking account)
-$450 — to go to taxes
TOTAL NET WORTH: $27,346.21
So that means right now 71.6% of my total portfolio is taxed once, then is put into a pre-tax account to be taxed again when it take it out one day down the road.
Savings wise, here are my priorities to save for…
1. My Health (As I have a high deductible health insurance, I need to make sure my HSA savings at least covers that deductible. Hopefully I’ll never have to use it. Right now I don’t have an HSA account set up. I need to do that pronto.) This also covers general dental care, yearly cleanings, etc, and vision expenses (I’m not sure if an HSA can go to vision costs or not, I’ll have to find out. But I need new contacts!)
2. A House (I’m 24 now, I’d like to purchase a home by the time I’m 30)
3. Grad School (I’m pretty sure I want to go back to grad school one day, either for directing — a huge expense –, an MBA, or a degree in computer interaction design. I want to do this by the time I’m 27.)
4. Cosmetic Dentistry (my teeth make me so sad. I’d love to be able to get them fixed at some point!)
5. Travel / Gifts / Fun / Gadgets (I’d like to save for enjoyment expenditures and gadgets, so I can buy things like a DSLR camera without feeling guilty.)
6. Laser Hair Removal (due to having polycystic ovary syndrome, I have excess hair that grows on my face and it drives me nuts. I also spend a small fortune buying tweezers and razors every other day. If laser hair removal really is permanent then this expense might be worth it. I’ll probably have to save about $5000 to get it done, or maybe just $2000 or something for my face alone.
7. Marriage & Kids (I want to get married when I’m 33 or so and have three kids. Well, one to start with and I’ll go from there. The cost of getting pregnant, thanks to having PCOS, will be huge. I’ll have to get drugged up and do in vitro, probably, over and over again. This is going to be majorly expensive. If I don’t start saving now, I might never be able to have children. Even adopting is expensive, so either way I’ll need the money before I can have a family.)
So I’m looking for creative investment ideas once I max out my Roth IRA for the year. One option is a SEP IRA or a Keogh Plan, but I don’t really want to save that much for retirement right now. I’m in my 20s and yes, it’s important to put away a lot of money for retirement but I feel like on my salary $5000 a year is enough. (Maybe I’m wrong, but regardless, that’s my current thought.)
The stock market, as we all know, is a giant toilet bowl right now, and it feels like putting money in it is just as bad as walking into a Vegas casino and flushing your money away. The hope is that it will go up over the long term. And it probably will, though no one can say what the rate of return will be, of course.
Besides starting an HSA Plan (which I should do, like, yesterday — but figuring that out is a whole other blog post-o-fun), I’m thinking that it might be a good time to start saving for my kid’s college education.
What kids, you say?
OK, so I don’t actually have any kids yet. I don’t plan on having kids until I’m 30, and that’s 6 years away.
But college prices are so expensive… and if I have kids at 30, they’ll be going to college when I’m 48 (wow, I can’t even imagine being 48). Anyway, that’s 28 years from now. Putting money away now to compound for that long will probably eek out a nice return, especially if I invest in some basic Vanguard index funds.
I’m also considering going to grad school at some point. So I’d start a 529 Plan in my name and if it turns out I never go to grad school, I’ll put the money towards my kid’s plans when I have kids. If I don’t have kids, well, then I’ll just give the money to my sister’s kids. If she doesn’t have kids, I’ll give it to my cousin’s kids. I’m sure someone in my family can use it!
Does this seem like a silly idea? I’m trying to find out more about 529 Plans.
The government site explains them a bit…
There are fees and expenses associated with 529 plans, and I won’t jump into the investment without fully understanding them. Right now it all seems like a bunch of jumbled numbers to me.
Some interesting points from the gov site…
“Under current tax law, an account holder is only permitted to change his or her investment option one time per year.”
“While each educational institution may treat assets held in a 529 plan differently, investing in a 529 plan will generally reduce a student’s eligibility to participate in need-based financial aid.”
“Before you start saving specifically for college, you should consider your overall financial situation. Instead of saving for college, you may want to focus on other financial goals like buying a home, saving for retirement, or paying off high interest credit card bills. Remember that you may face penalties or lose benefits if you do not use the money in a 529 account for higher education expenses. If you decide that saving specifically for college is right for you, then the next step is to determine whether investing in a 529 plan is your best college saving option. Investing in a 529 plan is only one of several ways to save for college. Other tax-advantaged ways to save for college include Coverdell education savings accounts, Uniform Gifts to Minors Act (“UGMA”) accounts, Uniform Transfers to Minors Act (“UTMA”) accounts, tax-exempt municipal securities, and savings bonds. Saving for college in a taxable account is another option.”
Plenty to think about. I really should be saving for a house. But it just seems like it couldn’t hurt to start saving for grad school and/or my kid’s college education. Right?
By now, I’ve read plenty to scare me into investing as much as possible for retirement as soon as possible. Last year I maxed out my Roth at $4000 (put some of my savings into that, since my income didn’t allow pulling from that) and this year I’m already up to $3300 of my $5000 limit. I’m trying to put in $300 a month, which will get me to my limit in a few months.
Ok, so the question is, after I max out my Roth IRA, where do I put my money?
*I am a freelancer so I don’t have access to a 401(k).
I’m diversifying my investments away from my Roth right now as the case may be, but I’m not sure if that’s the ideal situation. I’ve got about $1300 in my Sharebuilder (non roth) account which kind of seems foolish. What seems more foolish is my heavy investment in the GLD (gold) ETF, since, despite it making nice gains, is a terrible play for long term. Ok, so I should have researched this before investing in it, but I recently found out that GLD, because it’s investing in gold bullion and not the gold mining companies, actually counts as a collectible after a year, which means it gets taxed at 28 percent instead of 15 percent if you hold it long term.
Well, at this point Sharebuilder is starting to seem like a huge rip off. I do like the idea of dollar cost averaging, and I am using up all of my six “free” investments each month, putting $300 a month into my sharebuilder account as well.
My question is… while I could max out my Roth IRA sooner by skipping over my Sharebuilder account altogether, I’m definitely on track to max out my roth one way or another (yeay) and then… what should I do with the rest of my savings? What’s the smartest place to put it for growth and tax purposes?
Here are some options I’ve recently discovered and am considering. Let me know if any sound like a brilliant idea because at this point I’m completely confused.
1) 529 Plan
Part of me wants to go to grad school one day down the line, although I’m not sure of this, and putting savings into a tax advantaged 529 plan would make sense if this were the case. Worst scenerio, one day I probably have kids and they get to take advantage of my 529 plan that never got used, since it can be transferred within the family. Not a bad idea, I guess. Worst, worst case scenerio, I never have kids and someone else in my family gets the money. But this won’t help me save for a house/condo, which is really want I want to be saving for right now, as grad school is a maybe and house is a definite sometime in the next 10 years.
I still need to open my HSA account, as my health insurance IS HSA eligible. While I can’t withdraw that money until retirement (so it’s less flexible than a Roth) I can use it to invest. And there are some tax advantages (that I don’t entirely understand) available for the HSA as well.
I’ve had great success with Propser in the few months I’ve been using it thus far. I’ve only put in $200 and lent to 4 people ($50 each), but the first three at least are paying on time and I’m getting my 8% return, for now anyway. Of course I’ll have to pay tax on all that, but it’s still a nice return. I just worry about my borrowers defaulting, since one default will take out a huge chunk of the money I’m lending. With $200 in loans, it’s not that scary. If I start lending out lots of money, it could get scary.
I already have $12k tied up in CDs that are ending over the next six months. I’m considering putting $5000 of that into my Roth IRA for 2009 when the time comes, but that still leaves $7000 plus whatever savings I manage to make over the year. Where do I put that? Back in a CD? CD and savings rates are so crappy right now (thanks economy!) so it seems like a bad idea for the short term.
5) Put extra savings into my ING Direct high interest savings account and put it into a Roth IRA next year, and the year after, and the year after that. Don’t touch it for anything else.
That leaves me with…
6) Keep the money in Sharebuilder and grow my non roth ETF investments. Figure out what the deal is with my GLD investment taxwise and sell before it moves into the higher tax rate. Probably break even on that if it performs as well as it might. Oh boy. What a bad investment! I wanted to hold it long term, but now it seems silly given what a high rate it will be taxed when it take it out. So I plan on focusing my Sharebuilder account on emerging market ETFs. Either they’re do awful and I’ll lose all that money or over the years they’ll do well and with a low fee percentage, I might make some money. It will be taxed when I take it out, sure, but at least it will be a way to grow my savings after my Roth is maxed out. I might sell off my three individual stocks too. I’m a bit confused on dividends, but it seems that if they’re going to get taxed each year and then be reinvested and my stocks keep losing money, that’s a bad situation for me, no? I don’t have that much money invested in individual stocks at the moment (about $300 in three stocks, the largest holding being MCD, and all three of these stocks have gone down since I started investing in them, yet I still owe tax on the dividends).
I like investing in Sharebuilder because it gives me a chance to learn all this. Still, if I want to buy a house one day, I need to be somewhat careful. I know I’m young now and I can take changes, but there’s no reason to be stupid about things.
So, faithful readers, help! What should I do with my savings after I max out my Roth IRA?