Tag Archives: ira

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Women Need to Get Retirement Act Together

December 27, 2008 Joy 2 Comments

My mother has no idea how much money she has available for her retirement, and she’d prefer to remain ignorant.

She’s apparently not the only wife out there who prefers to avoid discussing finances. State Farm recently released findings of a national survey revealing that while 74 percent of American women feel anxious about their retirement and financial futures due to the recent economic decline, only 15 percent have made major changes to their financial plans.

More than two in five (41 percent) of survey participants admitted that going to the dentist is less excruciating than talking to their spouses about their daily finances. “The State Farm survey indicates that women are more aware of their retirement needs, however, too many of them are not taking the necessary actions to secure their financial futures,” said Susan Waring, executive vice president and chief administrative officer of State Farm Life Insurance Company.

Women tend to make less than men through their lifetimes, which means they usually save less for retirement than men, Business Week reported in August. In a 2008 survey of more than 1,300 workers or retirees over age 25 by nonpartisan Employee Benefit Research Institute (EBRI) and Matthew Greenwald & Associates, 68% of women and 76% of men said that they “had” saved for retirement.

Vanguard, a mutual fund company that also manages retirement plans, reported that in 2007 the average account balance of more than three million participants in their 401(k) plans was $56,723 for women, compared with $95,447 for men. More recently, Hewitt Associates consultants surveyed nearly 2 million participants in large-company 401(k) plans the company manages and found that women had an average of $56,320 in their accounts, compared with over $100,000 for men.

State Farm advises women to act now and take the following steps to ensure their financial profiles are ready for the unexpected:

* Review credit cards and checking accounts to assess all purchases,large and small, and tally where money is spent. Then, prioritize to identify where to cut expenses.

* Calculate monthly expenses and make sure to have enough money insavings to cover at least three months of costs.

* Seek financial advice from an expert to ensure financial plans are secure.

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Frugal October

October 31, 2008 Joy 1 Comment

My goal this year is to save 50 percent of my income for “taxes” (as a self-employed person I have to pay my own taxes; I do not get any money taken out of my paycheck throughout the year.) While I am unclear what my actual tax rate will be, I doubt it will be the full 50%, thus I will have additional saved funds to put towards larger purchases or saving accounts.

I’m a little behind on my target, which is scary because if my tax rate ends up being 50% after my 15% self employment tax, then I would be screwed. Well, I think I have enough time to catch up, but that means my trip back east is going to have to be frugal, and I’m not going to be able to take any days off of work (I’ll be working remotely from the east coast.)

I try to put $3000 into my Roth IRA right after I pay my taxes, if I have the money available, which leaves $2000 to put in throughout the year before I hit my limit.

However, I’m wondering now if I should be funding a Roth IRA at all. Besides the poor performance of the stock market, the Roth IRA may no longer be the “smart” choice for me. I make about $60k, give or take, before taxes. I think my tax rate right now is high enough where doing a Roth is kind of dumb. Sure, I get to take my money out tax-free when I retire, but if my taxes right now are higher than what I will pay when I retire, then this is a dumb move. Not sure how to figure this out, though. Do any of you know?

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Almost maxed out my Roth IRA, now where do I put my savings?

March 4, 2008 Joy 2 Comments

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.

2) HSA
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.

3) Prosper
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.

4) CDs
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?