Tag Archives: ira

Investing, Retirement

Roth IRA Eligibility & Non-Fixed Income

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In 2014, one is eligible if their AGI is under $114,000 as a single person and $181,000 for a married couple ($5500 per person max.) For a single person, between $114k and $129k your contribution amounts begin to phase out, with no contribution allowed when you earn over $129k. [estimate your AGI here]

Sans contributing a bunch of money to charity, getting your AGI down is a bit of a challenge and mostly impossible. Trust me, when I was in my early 20s and making $50k a year I would have loved to have this problem, but given cost of living is so high where I live (our 825 square foot 1 bedroom is $2250 a month without any utilities included!) monthly income disappears fast. Your AGI includes any income received from employment AND dividends (so us dividend investors have even higher AGIs even if we automatically reinvest any proceeds, which sucks.) Then you get to deduct only your IRA/401k contributions, student loan interest, alimony, moving expenses, 50% of self-employment tax, and a few other things that aren’t relevant to most working people. In other words, outside of the $17.5k maximum for a 401k, you can’t really lower your AGI.

Investing in a Roth IRA is one way to get some tax advantages for a long-term retirement account. I’ve already maxed out my 401k for 2014 ($17.5k) which reduces my AGI but probably not enough to qualify for a Roth. Meanwhile, a traditional IRA benefits phase out at much, much lower income levels, so investing in a traditional IRA as a “high” income earner is almost pointless (even though you can’t take a deduction, if you open a traditional IRA you can still earn tax-free growth until you take you your money later in life, but it really isn’t a great benefit and you are locking your money away for the long term vs just investing it in a taxable account.)  Continue reading Roth IRA Eligibility & Non-Fixed Income →

Investing

High 401k Fees: Time to Rollover to Vanguard

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For the past three years, I’ve let the ~$25k accumulated in an old company 401k account sit there after I left the company. I knew the expense ratios were probably high, but wasn’t paying that much attention and also thought it would be a hassle to rollover the account to an IRA.

Then I recently realized the expense ratio on my $25,000 was an average of 1.50% over four different funds (whereas my Vanguard expense ratios are around .20%) — Yikes! I took a few minutes out of my lunch hour today to figure out how difficult it would be to rollover the accounts to Vanguard. It turns out this wasn’t hard at all (or at least it didn’t seem to be, it’s all in transfer right now so I’ll let you know if it was as easy as it seemed.) Continue reading High 401k Fees: Time to Rollover to Vanguard →

Investing

Wikinvest / SigFig Teaches Me About Investing

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Incredibly enough, I’ve added nearly $150k to my investment accounts across my IRAs, 401ks, and taxable accounts. While I’m still not sure if taking the “select companies” vs index fund route makes a lot of sense, I know I end up putting more money into investments when I feel like I have some control over the fate of my networth, and at the very least, an opportunity to learn more about business and how public markets work.

Of all the finance sites I use, my favorite is Wikinvest (soon to be SigFig, which I received an Alpha invite to this week.) Wikinvest is awesome because, as seen above, it offers a really easy way to track your stocks (and ETFs), including information on P/E, Rev Growth, P/S, etc. These are probably fairly basic things to look at when deciding to purchase a stock. Above, you will see the six stocks I own with the lowest P/Es (and how many shares I own of each).

It’s fun to look at how AAPL, while $493.42 a share, still has a relatively low P/E and its revenue growth was 67.6%! Now, I wish there was more data here regarding what that revenue growth represents (Qtr over Qtr? YoY?) but regardless, this data shows that AAPL stock, despite being pricey per share, may be worth a lot more than some other stocks. I’m still concerned AAPL will lose value (can it sustain such growth) but seeing that it made $3.60 per share vs say, GE’s $1.35 per share makes me feel confident in a long-term AAPL investment. As you can see, I’ve made $15k on AAPL (on paper) with just 79.94 shares.

Let’s sort by my stocks owned by P/E in the other direction. AMZN has the highest P/E — 135! Compared to AAPL, it’s Revenue Growth was only 40.6%. Even Google, which has a P/E of 20.50 (not too bad, but still higher than AAPL) only increased 29.3%. But it also has a P/S of $5.20, which is better than AAPL. This is where my knowledge lacks and I don’t fully understand the factors which make that possible, or our P/S is determined. More research on my end is required.

In a related note, I am annoyed that I have .44 shares of FTR. That happened when VZ split  with them. .44 shares is pointless, to sell them will cost $8 (more than they are worth) and they just clutter up my account. Looking at FTR, however, they seem to have a 79.7% revenue growth, I wonder if I should just purchase $100 worth of FTR shares and see if they can run up enough where I can sell the stock so it doesn’t clutter my portfolio and I don’t lose $8 on it.

In case you’re wondering, in my taxable account, here are the stocks and ETFs which have been performing best so far:

Investing, Retirement

How to Convert a Traditional IRA to ROTH IRA?

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I’m currently trying to figure out how to convert my traditional IRA to a ROTH IRA. The only reason I contributed to a traditional IRA for the last two years was because I thought each year my income would exceed the income limits for a ROTH IRA.

Well, it turns out the income limits for a traditional IRA are lower than those for a ROTH contribution. Thus, I’ve invested $10,000 into a traditional IRA for the last two years and put post-tax money into the account, and will be paying tax when I retire later in life and take the money out of the account. I think that’s probably a bad idea, so I want to convert the $10k to a Roth.

The question I have is… how do I do that? Sharebuilder has a form for this, but it seems to assume you put the funds in pre-tax. I’ve heard if you paid tax of money in the account already, then you only will have to pay tax on the interest in a conversion. Given I still have 30+ years before retirement, it probably makes sense to convert the funds now, especially if I only have to pay tax on the $1k.

Do any of you out there in cyberland know how I can do this without paying tax on the entire $11k in this account?

Investing, Retirement

My IRA Breakdown

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I’ve received a few emails lately at hereverycentcounts@yahoo.com asking what the breakdown is of my Sharebuilder IRA that I started last year. While my taxable account is focused on individual shares, I require all funds that go into my IRA to be index funds or ETFs for long-term diversification.

Account Total: $9281.23 (+$1,021 (14.19%))

AGQ: [Shares: 4.65 | Loss $216.34 -43.27% ] — silver leveraged, selling
DVY: [Shares: 28.8984 | +$194.51 +14.73%] — dividend etf
GLD:   [Shares: 8.25 | +$403.26 +40.33%] — gold w/ collectible tax
SDY:   [Shares: 47.76 | +$193.89 +8.28%] — dividend etf
SLV:   [Shares: 26.71 | +$ 348.39 +69.68%] — silver w/ collectible tax
VNQ:   [Shares: 10.40 | +$403.26 +9.19%] — REIT tax
XRT:   [Shares: 10.40 | +$48.67 +40.33%] — retail ETF, prob should be in taxable account, dividend is not too high, but holding long

What do you hold in your IRA?

 

Investing, Retirement

IRA or 401k? Is it too late?

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When I realized I would be earning too much this year to qualify for a Roth IRA, I cried a little bit. Ok, that’s overly dramatic, but I have been so proud of myself for saving my pennies each year of my $20k to $50k / year income to max out my Roth IRA that I felt a little empty knowing my savings this year could not be invested in tax-free growth.

So I thought I’d do the second-best thing… open a traditional IRA and deduct the money now, pay taxes on it later. Not the best option in the world, but at least I’d get to deduct the money from my rather high single tax rate.
This morning I found out that I was completely wrong about that. I admit it’s my fault for not doing my research appropriately, but now I’m totally bummed. Apparently the income you’re allowed to have to get the benefits of a traditional IRA is LOWER than that of a Roth IRA. This makes absolutely no sense to me right now because why would anyone want to invest in a traditional IRA if you are in a low-ish tax bracket?
I guess if you do not have a retirement plan at work you are allowed to deduct up to $5k for your traditional IRA in each tax year. Funny how this is the first year of my life I will have access to a retirement plan… a 401k (no match or anything, of course, god forbid I work for a company that would match my contributions.) I signed up for it, and I am supposed to start making contributions in mid July. I wanted to max out my 401k and my IRA for the maximum deduction to reduce my AGI. But it looks like that’s not happening.
The only reason I can see a traditional IRA having some benefit is that I think I can still put up to $5k in there each year and $16.5k into the 401k and later, when I’m not making a lot of money over the year, I can convert both of those accounts to a Roth IRA and pay taxes in a lower tax bracket. Given that I obviously don’t understand tax law very well, I may be off on this logic as well. At least then I can see why a traditional IRA has some value. But as this conversion thing is fairly new – why would anyone want to open a traditional IRA? Is there ever a good reason for this?
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Shooting Through My Glass Ceilings

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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.

It’s almost funny how just a year ago I was writing about how what I was making then would give me so much extra to save, and then I quickly found that I while I had money to save, the cost of doctor’s bills and life kept my savings per month low. And now, looking at the next few months of income, I’m more excited than ever about helping my networth move out of being stuck in $35k. My goal, by the end of 2010, was to have a networth of $50k. Now, I’m aiming for $75k.
What will that take? Mostly, being amazing at my job, which I plan to do. Also, I can’t look at the number I’m taking home and get as much out of my bank account into savings accounts before I have a chance to get near a mall or travel website.
I’m not going to complain about how much I will make because I’m thrilled that I’ll be able to save for grad school and a house (MBA, here I come), but it makes savings a lot more complicated. I don’t know how many of you can relate because there’s a chance this year I’ll hit six figures. I’m not sure it will happen — I will only really know for sure next winter. It’s certainly possible for the first time in my life.
With that type of income I move out of the average American household and hit what many people in America would consider rich for a single person. In the least, there’s a chance I will make over the limits for a Roth IRA. For the past five years my Roth IRA has been my primary retirement savings vehicle. I’m not really sure where else to save money for retirement. I might be able to set up a 401k but it’s going to be kind of messy to do that since I’m a contractor. None of the companies I’ve worked for in the past have had 401k funds, so if I am able to participate, even without a match (there won’t be a match), I will. I probably should put a good amount of my monthly income into a 401k if I can open one. I can always max out my Roth IRA at the end of 2010 if I don’t end up making the higher end of my potential earnings. Or a traditional IRA if that makes more sense. I also may put a lot more into my 529 plan for grad school, though I’m nervous about putting too much in that account as there’s a chance I’ll never end up going to grad school. I do want to have children, so I’d like to think if I don’t spend my 529 plan for me, I can pass it on to my children one day. But that’s a long time off, it’s tough to put more than $100/month in that account without worrying about wasting money on that account. I can always take it out for something else, but I’ll have to pay a fine. And in my state the money put into that account is only tax deductible on the federal level, not state. Still, it’s probably worth it this year to put a larger amount than normal in that account, since I may not have access to a Roth IRA.
It is hard to plan when the amount you may make over the year is not set in stone. On one hand, it’s kind of exciting. It makes me want to work extra hard to prove myself and earn as much as possible. As I grow in my career, my blog title becomes more and more misleading. I’m not going to be overconfident with this as so much is up in the air. When I’m 10 years out of undergrad (in 2015) I will write a post on how my income fluctuated over the years. I’d love to know what will be in that post, but I like being surprised by life too.
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Is Grad School Worth It? Financially Speaking.

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I’ve been obsessed with the idea of applying to / going to grad school lately. Not for the earning potential post graduation, but for the chance to focus on an area of study and build up my skills so I feel like an expert in an area (at least until those skills are out of date.) But then I wonder… financially speaking, is grad school worth it?

Really what I need to look at is how much I will have when I retire. I figure I should have at least $1.5M in my bank account when I “retire” (although I plan to work at least part-time well into retirement, but at this point I want to be able to travel and freelance and not have to worry if I get sick and can’t work.)
At the moment, if I can live up to my quasi-frugal savings plans for the year and maintain my current job and occasional freelance income (say $70k per year pre tax) and save $20k each year, according to the compound interest calculator if I start with $30k today and save $20k a year for 30 years at a modest average interest rate of 3% I will have $1.052M in savings by the time I’m 56 and $1.65M by the time I’m 66.
It almost seems silly then to add in the cost of grad school, which will put me into debt and for many reasons, not guarantee I will make more than I am now later and certainly will not allow me to comfortably save $20k anytime during or after graduation from a graduate program.
Additionally, if/when I have children, it will also become increasingly difficult to save $20k per year, if not impossible. This variable could effect both the non-grad school and grad school potential scenarios. And since my 27-year-old boyfriend refuses to work a full time job or put an ounce of his occasional earnings into a Roth IRA, it’s likely that I’m saving for the both of us and our families. Which makes that $1.65M, esp with inflation, seem like a few dimes and a penny.
That brings me to wondering if I should just keep living like I’m living now for the rest of my life. No kids (they’re expensive.) Roommates. A small room. Living in an area where heat isn’t necessary. Cheap bills otherwise. Saving $20k per year. Cutting back when needed to make that possible. Retiring single at 66 with $1.65M (some of it would be taxed, of course, but that’s still not bad.)
Then again… why should I be living life to save for retirement? I can’t imagine ever wanting to fully retire — I see my grandmother at 80 spending her days in the casino and I think if I had the mental capacity she does at 80 I’d be working. I might be limited in my job choices but still, I’d be working because I don’t want to be the type who just sits around and “enjoys” retirement.
Going to grad school is probably an easier choice when you’re making $35k or less. But once you’re making $70k it’s a hard trade in. I’m looking more and more at MBA programs (my career counselor seems to decided that I should consider this path and is in awe of my knowledge of social networking and certain aspects of the tech business) but I don’t know. I don’t see myself ever really following an MBA path — working 100 hours a week, traveling more than I’m staying… I could do that maybe for a few years but not my whole life. How much more can I really earn with an MBA vs. 2 more years of experience that I can gain through my current or next job? Alas, these days I’m liking numbers a lot more than I used to… and I think I’d like studying applied math. I like spreadsheets.
The debt truly freaks me out. People go into debt all the time for school but I don’t know if I can. Partially its because I don’t know if it will actually be worth it for me to go to grad school. It would probably make more sense to give a loan to someone more focused than I am and more dedicated to getting a high salary, pay for THEIR grad school, and earn interest on that… then for me to go to grad school.
And, anyway, I read that in 25 years a dollar today will be worth $.32 which means that my $1.65M when I’m 66 will not be enough to get me through retirement (unless natural causes like stabbing myself help me reach those goals.)
How much are you saving for retirement? How much do you think we will need to retire in 2050?
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Roth IRA: Just Maxed Out 2008, down $5000

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Today, I put the last $300 into my Roth IRA for 2008. It feels rewarding to know that I’m saving for my future, yet the $5000 in losses to my Vanguard Portfolio due to current economic conditions isn’t exactly a fun “reward” to look at in my accounts.

Still, I’m investing with the hope… and faith… that the economy will recover again. I think it will, eventually, but it’s going to take a while. Had I followed my faith a year ago that the stock market was going to keep tanking, I would have possibly shorted some stocks and cold have been much better off now… but I don’t have time, or the heart, to deal with such “high risk” behavior. Instead, I put my money in the stock market, knowing it’s going to tank now, hoping it will rise in the future.

The question I have now is when do I invest in my Roth for 2009? Usually I put a large chunk of money in up front (money left over from taxes). By “usually” I mean over the last two years, since that’s how long the account has been open. I like to just get it out-of-sight, out-of-mind before I start thinking of myself as wealthy enough for luxuries. The stock market seems pretty bad right now, so I’m not too worried about adding another few thousand once I get my tax return back. Still, this all begs the question whether I should spread out my investments ($440 a month) or put a bunch in up front and finish up over the later half of the year (like I’ve been doing.) Dollar cost averaging is always the recommended way to go… but, eh, when the market is this down, maybe it doesn’t matter as much?

Also, as far as retirement savings go, I decided to do the HSA for my healthcare. In addition to my company putting $100 in the account per month, I’ll be putting $100 in. So that’ll be $2400/year for healthcare *or* retirement. I’m just worried my frugal save-for-retirement self will avoid doctors in order to save for my retirement, and I’ll end up killing myself slowly in the meantime. (Not that I ever go to doctors, even when I have full insurance, I’m too lazy and busy). In any case, the savings rate for the HSA is so sucky – 2.1 or something – and w/ the taxes in California taken out of that it isn’t a huge savings. But I’m going to look at it as a traditional IRA that’s being overtaxed by my bankrupt state. One that I can dip into if I need to go to the doctor for antibiotics every once in a while.

The HSA does have the option to invest with Ameritrade, so I’m probably going to look into setting that up soon. I won’t put all the money in stocks, but I’d like to diversify my retirement portfolio outside of Vanguard and I do want to get some Gold/Silver ETFs in it… since they don’t get taxed at the ridiculous collection tax rate if they’re in an IRA. Well, I don’t know how that works in an HSA… esp since it doesn’t get taxed federally but it does get taxed in CA. Hmm.