Graduated Learning: Life after College

I got my degree, I got a job…now what?

Where should you open your IRA account? April 9, 2014

Filed under: Uncategorized — Stephanie @ 9:47 pm
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This blog post is more of a survey for my readers and a reminder (to open/fund their IRA) than advice.  But I hope everyone who comments has some great insight!

Here’s the deal.  I’ve been obsessed with personal finance since I graduated college in 2006.  I opened a Roth IRA in 2007 and have fully funded it every year.  My fiance and I have also been together since 2007, and he’s read all of my posts about IRAs (Opening an IRA:  No excuses, Should Everyone Contribute to a Roth IRA? and even How often should I contribute to my Roth IRA?).  But he never opened one.  And until we were engaged, I thought “well, that’s none of my concern” and barely nagged him about it.  But now that we’re in this for the long haul, I realized I need to amp up my nagging and get him to open and fund an IRA before the April 15th deadline for 2013 (yes, that’s right, you can fund last year’s IRA up until this year’s Tax Day).  As a note, for 2013 and 2014, the contribution limits for IRAs is $5,500 (or $6,500 if you’re 50 or older).

I thought he had all the information he needed.  But he came back with one more question:

Where should I open my IRA?

It’s a valid question.  There are lots of companies out there.  Most banks, credit unions, and discount brokerages offer an IRA.  But they all have different fee structures and funding options.  Some will waive fees if you set up automatic contributions.

Unfortunately, I don’t actually have the answer for what company to go with.  I opened my IRA at Fidelity mostly because it was a company I had seen my parents using in the past, and it was a well-recognized name.  It later worked out that my new (current) job runs their 401(k) through Fidelity, which proved to be convenient for a number of reasons:  only one login to remember, and I could analyze my entire portfolio in one place.

I put out a quick tweet to seek advice for where to open an IRA.  From DQYDJ, I heard Fidelity, Scottrade, T. Rowe Price, and Tradeking.  Jeff Rose seconded the advice for Scottrade. (Then Scottrade chimed in with a link to an incentive to open an IRA with them).  My (real life!) friend Brian says he has his IRA with USAA, holding Vanguard funds (I agree with the Vanguard funds, I’ve heard really good things about their low-cost index funds).  Then the Debt Free Guys said they like their Schwab account.

So, I don’t know if that helps at all.  Unfortunately, my best advice is to shop around at different companies and see what sort of fees they have, what kind of funds they offer and what (if any) minimum investment requirements there are!  Some funds have very high minimum requirements, though the minimums may be waived if you sign up to auto-contribute to your account.

Lastly, check out the comments as they (hopefully) come in.  I’m always looking to friends for advice, and this is no exception!  Tell me what companies you like (and don’t like) for retirement accounts!  And share your insight for what else to look for in a company!

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A Graduate’s Guide to Being a Grownup: Retirement Plans June 30, 2013

This is the first in my “Graduate’s Guide to Being a Grownup” series.  I’m hoping to give some introductions as well as in-depth information to help newly minted graduates (and really, anyone who has questions) .

As a reminder/disclosure, I am NOT a financial advisor.  Nor am I an investing expert.  I’m just someone who has been there, done that, and (thinks I) know what I’m doing.

Retirement Plans.  They’re a big topic.  A confusing, frustrating, and sometimes depressing topic.

The basic idea is this:  You work for a while.  Then eventually you retire.  You want enough money to keep you going until you, erm, don’t need money anymore.  So you need to put money away now for WAY in the future, but you don’t really know how much, since expenses and prices will be different when you’re older, and you don’t know how long you’ll need money for.

See, I told you it’s a tough topic.

But here’s what you need to know about retirement plans.

Most of the ones that you get on your own or through work are ways to put away money now so that you’ll have money later.  The main benefit of most of these accounts (over a basic savings or investment account) relates to taxes.  Either you contribute money to your accounts with dollars that haven’t been taxed yet (like Traditional IRAs and 401(k)s) and then get taxed on the money you take out later, or you contribute money that has already been taxed (like Roth IRAs and Roth 401(k)s) and then get to take your money out tax-free when you retire.  For both of these, that means that you’re not paying taxes on the gains in your account EVERY YEAR at tax time.

Some additional benefits can include contributions to your account from your employer (often correlated to how much you contribute).

There are usually quite a few options for what to put into these accounts.  They might be mutual funds, individual stocks, bonds, or even just cash savings.  Basically, you’re saving and investing within an account, just as you would with regular saving and investing accounts.

There is a limit to how much you can contribute per year to different kinds of accounts.  There are income-related limits for some of the IRAs.  And there are maximums allowed for many accounts, though there are catch-up amounts allowed if you’re closer to retirement age (over 50 years old).

Most of these accounts will not let you take out the money until you’ve hit retirement age.  If you do, you may be required to pay penalties or additional taxes.  It’s NOT recommended in most cases to take the money out, though there are some exceptions (depending on account, the reason you are withdrawing)

I’ll go into more detail about the different retirement plans available (in the U.S.) in future posts.  This is just to get you started thinking about saving for your retirement.

For now, you can check out my past posts on IRAs and 401(k)s.  Once I finish the next posts, I’ll link to them below.

Short version:

Retirement plans are accounts you save and invest money in.

A main benefit over regular savings accounts or investment accounts is that you can save on taxes either when you contribute or when you withdraw your money (after you retire).

There are some limits to how much you can contribute each year.  There are maximum contribution limits as well as (in some cases) income limits.

The earlier you start saving, the (likely) better off you’ll be, thanks to compounding interest, or gains on top of reinvested gains.

Your balance can go up or down.  If you’re invested in pretty much any stock, bond, or other tradeable asset, there is risk involved.

This money is meant for your retirement, so there are penalties associated with early withdrawal.

Okay, how’s this so far?  What questions do you have (about retirement or any other post-graduate topics)?  Did I cover everything?  Miss something?  Let me know what you’d like to see in the next Graduate’s Guide to Being a Grownup!

 

Was my Traditional to Roth IRA conversion a mistake? May 17, 2013

Filed under: Personal Finance — Stephanie @ 9:28 pm
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Remember last year when I went through all the reasons I was going to convert my rollover IRA (from an old 401(k)) into my Roth IRA?  I had plenty of good reasons.  It wasn’t going to be that much money either way.  I wanted to have all my money in one place so I could buy funds with higher initial investments.  And of course…THE FISCAL CLIFF.  No one knew exactly what was going to happen on January 1, 2013.  I definitely didn’t.  But in retrospect, I should have known that congress would just kick the can down the road.

So on December 31, 2012 (seriously, I’m a bit of a procrastinator), I went ahead and converted my IRA to my Roth IRA.

Then, a few months ago, I sat down to fill out my taxes online, and I entered in all my numbers.  Now, don’t get me wrong, I knew I was going to have to pay taxes on the conversion amount.  But I hadn’t predicted how this added “income” due to conversion was going to impact eligibility for certain tax deductions.  Not that I should complain!  But apparently there’s a strict cut off for eligibility of the Student Loan Interest Deduction.  And with my conversion, I’m over the threshold.   There is a range where your increased income decreases the deduction.  But over the threshold, you’re out of luck.

I did check to make sure my conversion wasn’t going to put me into a new tax bracket.  I knew there was no danger in that happening.  But I hadn’t considered the Student Loan threshold (or any other tax deduction/credit cutoffs).

It’s not the biggest issue.  But in looking back, I probably could have planned out a little better how much of my IRA to convert so that I wasn’t over the limit.  In the end, it wasn’t a lot of money that I could have gotten back with the student loan deduction, but it would have been nice.  I’ve never really been the type of person to base financial decisions on tax liabilities…I figured that’s a problem the super wealthy have to deal with!

What tax and money decisions did you make leading up to the end of 2012?  Did you make any mistakes with your money decisions?  Are you already over it?

 

Converting my IRA to a Roth IRA December 16, 2012

Filed under: Personal Finance — Stephanie @ 9:03 pm
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Back when I was laid off from my old job in 2008, I took the money that was in my 401(k) and rolled it over into an IRA.  And since 2008, I’ve had my Rollover IRA just sort of sitting there.

I started the rollover IRA with $5,026.80

I bought a bit of a target date fund (2045, so it would be different from the 2050 fund in my Roth…because I thought that would be diversifying…whoops!) and kept the rest in the Cash/Money Market fund.  When it started, the return on the money market was around 2.4%.  Now it’s 0.01%.  Bleh.  And then I never touched the account again.

So, with the ups and downs of the market, after 4 years, as of this posting, I now have $5,308.69 in that account.  So my money has grown ~5.6% total in the past 4 years.  It’s not terrible.  Especially considering the financial crash.  But it’s not fantastic.

But here’s the thing.  I want to do more with this money.  Not crazy “invest in the next bubble” more.  Just put it into something normal like an index fund.  And apparently most low-cost index funds available to me in my IRA have minimum investments of $10k.  Which is hard to do if you only have $5k.  So I’d like to roll over my IRA into my Roth IRA.

Another reason I want to roll my IRA over is because I assume my 401(k) will remain larger than my Roth IRA, since 401(k) plans have higher contribution limits, AND my company puts money in through a match and a defined contribution plan.  So I’d like to be able to diversify my tax liability when I retire (you know, have more options on what distributions to take and when), and so the more I have in my Roth, the better!

Lastly, there’s the taxes themselves.  Everyone’s freaking out about the Fiscal Cliff. I’m honestly not sure what tax rates might change to in 2013.  They could stay the same.  Or they could increase due to phasing out of tax cuts we’ve enjoyed for years.  I honestly don’t know.  What I do know is that if any of the tax rates go up, I might as well convert now, just in case.  Plus, I’m still in a pretty low tax bracket at this point in my life, so I might as well take advantage of these rates as well.  (yeah it’s only taxes on a tiny bit of money.  So I might as well do it now!  And I guess it wouldn’t matter much either way).

As a reminder, I’m not a financial advisor.  I’m just sorting out my personal finance thoughts on this blog.  So please don’t take this as financial advice.  I mean, you can still convert an IRA to a Roth IRA if you want.  But talk to your own tax/money people!

Saying that, here is something I learned from my tax/money people (i.e. customer service at Fidelity):

“At the time of your conversion, you will have the option to have taxes withheld. Many investors choose to pay the taxes due on the conversion from another source, as any taxes withheld from the conversion will be considered an IRA distribution and will be subject to any applicable taxes and an early withdrawal penalty if you are under the age of 59 1/2.”

I am planning on paying the taxes using another source.  The taxes I have to pay on this conversion I will pay for out of my regular bank accounts.  The other (not preferred) option is to pay the taxes out of the money you’re converting…which just seems like a horrible idea, because you have to pay a withdrawal penalty for that amount, and you’re lowering the amount of money you’re putting into your retirement account.  I guess some people do it if they have no other option.  Though I’ve also heard of people only partially converting to a Roth so that they can pay taxes on it bit by bit.

As a reminder:  Converting or contributing to a Roth IRA isn’t for everyone.  Depending on your income, your age, your tax liabilities, and plenty of other issues, you might stick with a traditional IRA or try something different.

What tax-related steps are you taking before the end of the year?  Is the drama over the Fiscal Cliff impacting your decisions?  Have you ever converted one retirement account type to another?  Do you agree with my decision to convert my IRA to go into my Roth IRA?

 

Opening an IRA: No Excuses March 28, 2012

Filed under: Personal Finance — Stephanie @ 12:06 am
Tags: , , ,

When I was younger and didn’t feel like doing the dishes, I’d make excuses.  The top excuse usually was “I don’t know how to do it!”  Of course we know that’s a ridiculous lie.  And I’d still have to do the dishes.

We all make excuses.  It’s too hard!  I don’t know how to do it!

No.  No more excuses.

I’ve talked before about how it’s a good idea to open an IRA.  And I’m especially keen on the Roth IRA as a good way to diversify my tax liabilities when I retire.

So, I’m here to show you that there are NO EXCUSES.

Disclaimer:  I’m not a financial advisor or other money professional.  I’m just a blogger.  But I want you to pay attention to what I say anyway.  You don’t have to.  But that’s all I can offer.

Excuse number 1:  I don’t have any money to do it!

No.  You do.  You just don’t realize it yet.  Depending on what company you end up opening an IRA with, you’ll have a certain minimum initial or repeating investment.  If you don’t have enough for the initial investment, start stashing away $10 or $20 in a savings account.  Maybe you’re getting a tax refund this year?  There’s some money you can use!  When you build up enough, go for it.  As I said, it depends who you open an account with, which leads me to excuse number 2…

Excuse number 2:  I don’t know how!

As I mentioned before, that’s a lame excuse.  And if you honestly don’t know how, guess what?  It’s easy.  You pick a discount brokerage or bank (I’ve used Fidelity, I know Vanguard is highly recommended, I welcome other good suggestions in the comments).  Check out their website to find out minimum investment requirements, fees, benefits, etc.  If you’re still confused, call them up.  Tell them what you want to do, find out what is required of you to avoid fees, taxes, etc.  Then do it!

Excuse number 3:  I don’t want to lose money!

Guess what?  NOBODY DOES!  You don’t go to Las Vegas hoping to “strike it poor”.  Yes, investing in the stock market (and in bonds, ETFs, etc.) has risks.  There’s no guarantees.  That ridiculous 2008 downturn?  I remember it too!  But here’s the thing.  An IRA is a really good idea.  You’re putting money away for your retirement.  There are tax benefits to having an IRA.  And if you follow the theories of John Bogle, buying low-cost index funds and invest over the long-term, you’re pretty likely to come out ahead over the long run.  And if you consider that keeping money in a regular savings account doesn’t really keep up with inflation, the market is a good way to go.  Which leads me to:

Excuse number 4:  I don’t know what to invest in!

As I said before, I’m not a financial advisor.  As they said in this Marketplace Money interview, the most important part is just starting that account.  You can start by contributing whatever you can (up to $5k, or $6k if you’re over 50 years old) each year.  Your best bet to start is to invest in a low-cost index fund or life cycle fund.  As you build your account, you can start learning more about investing (by reading books, magazines, blogs, listening to podcasts/radio shows), and diversify as you see fit.  If you want, you can always talk to a fee-only certified financial planner or advisor to get some advice.

So.  What do you think?  Any other excuses you can come up with?  Anything I got wrong here or left out?  Where do you find your investment advice?  Let me know!

 

Would you pay for someone to manage your portfolio? November 24, 2011

Filed under: Personal Finance — Stephanie @ 11:00 pm
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The other day I got an envelope in the mail.  It was an offer (through my 401(k)) to sign up with a retirement advice company.  My employer signed up through them to offer a retirement portfolio management service.

My first response was:  No Way.  I’m not paying some people to do something I could do for free!

But then I read the paperwork they sent me.  Apparently I have two options available to me.  I can use their site for free to continue to manage my 401(k) on my own.  Or I can pay a fee to have them plan out, monitor, and rebalance my portfolio. Of course, the paperwork tries to point out how much better things would be if I did pay them for help.  They included stats/graphs showing that if you get their help, you’re likely to improve your return over the long run.

So, will I sign up?  Turns out they’re offering a few free months to hook you onto the “paid” plan.  The fees actually aren’t horrible, and it’ll be nice to actually talk to someone about my fund selection.  Plus, I can import my other retirement accounts (like my Roth IRA and rollover IRA).  I’ve tried out their free program, and it has some decent advice (like how to reallocate my funds to have a slightly more aggressive portfolio) and what other funds I could invest in within my IRAs.  It also told me to increase my contributions from 5% to 7%.  So, I actually already changed the contribution amount.  It was an easy change that made sense.

As for the fund recommendations, they aren’t quite right.  For example, one of the funds they suggested I invest my Roth IRA in has a $1million minimum investment.  Um, no.  But it’s putting me on the right track, I guess.  I could look for similar funds that don’t have outrageous minimums or high fees.

I think I’ll try out the paid program, get my portfolio in order, then switch to the free advice system.  It sounds like Krystal is also thinking about briefly trying a financial advisor, then continuing to manage her portfolio herself.

So, like Krystal asked, would you pay for someone to manage your portfolio?  Would you pay for just advice?  I’ll admit, while I think I’ve got personal finance stuff covered, I’m not very confident about my investing skills.  So, trying this out to start, but then trying to learn more along the way (and shifting back to the free plan after the trial period is over) is the best way for me to approach this.

 

Should everyone contribute to a Roth IRA? November 10, 2011

Filed under: Personal Finance — Stephanie @ 5:26 pm
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The short answer?  No.  It’s not perfect for everyone.  And actually, not everyone is eligible for it.

Roth IRAs are the Big Thing these days for younger people looking to save for retirement.   We’re all encouraged to open one, and contribute to it.  Seems like it doesn’t matter what fund you buy.  Your mission (from the personal finance gurus) is to put money in there.  Put all $5k in there if you can.  If you’re doing that and contributing to a 401(k) up to at least any employer match, you are on the right track (according to gurus, and to be honest, according to me, too!)

My younger sister is currently in grad school.  She sent me a message the other day, with the basic question:  Should I open a Roth IRA?  What are your thoughts on this?

My response?  A combination of advice and general information.  Read on:

They’re a good idea.  It’s good to start saving for your retirement now.  Plus with the stock market down, you buy funds “on sale” 😛

I maybe sound like a salesperson.  Ooops.

You can contribute up to $5000, or your income (what shows up on your W-2s), whichever is lower.  But I’m assuming your stipend is more than $5000!

Also, not sure what your stipend is, but if you make less than $27,750, you can get up to $1000 tax credit if you contribute to a retirement fund

The benefit of contributing to a Roth IRA right now is, of course, “The Power of Compounding”.  There’s a common example that if you contribute now and for only a few years, you’ll have more money than if you start later and contribute longer.  Magic.  Assuming the markets go up!

With a Roth IRA, you’re paying in money that was already taxed (through your employer), so when you contribute to your Roth, it can now grow tax-free (and be withdrawn tax-free when you retire).  And since your income level isn’t super high right now, your tax rate is relatively low.  Presumably, in the future, your tax rate will be higher, so if you had used a traditional IRA, while you don’t pay tax now (or you get a tax refund now, depending on how you do the IRA), you’d have to pay taxes on the money you take out of the account (when you retire).  So taxes might be higher then.  It’s a bit of a hedge, because it’s hard to know for certain what rates will be.

Lastly, if you’re mildly freaked out by the idea of putting a lot of money into an account, don’t worry.  Two parts make it less scary:  1.  You are able to withdraw your CONTRIBUTIONS at any time without penalty.  So, you can take out that money.  2.  You don’t have to put the whole $5000 (or however much you decide to contribute) all at once.  I contribute 1/12th of the total amount every month, and buy into a fund every month.  The idea of “dollar cost averaging” will work in your favor, here.  The basic idea is that you buy some of the fund every month, and you buy more when it’s “cheaper” (when the stock price is down), and less when it’s more expensive.  That way you don’t have to worry so much about putting all your eggs in one basket and trying to time the market perfectly.  Because that’s basically impossible.

As for what fund to invest in, most companies offer a fund geared at your particular retirement year.  So you can just contribute to the 2055 fund or something like that, and it’ll start out being more aggressive, then transition to being more conservative as you get older.  Another good option (often with much lower fees) is an index fund.  You’ll want to put your money in a fund with a low expense ratio (read:  cost) so that more of your investment goes to you and less to fees.  Usually it’s hard to buy certain other funds or individual stocks/bonds when you’re just starting out, because you need to have a pretty large minimum amount.  So you can build up your retirement fund until you have enough money to diversify, or you can just keep it in the lifecycle fund that fits your age or an index fund.

So.  If you want to start saving for your retirement (and you should!) I think Roth IRAs are a really good way to start, and it’s good to start now when you make less money (you can’t contribute if your AGI is over $107k…you know, SOMEDAY you might make that much!) and while you’re in a relatively low tax bracket.  It’s hard to know where the markets or tax rates will go, but I’ve found my Roth IRA to be a great balance to my employer’s 401k plan.

(Reminder, I’m not a financial advisor…I’m just a girl who likes talking about money!  But if you have any questions, I’ll answer them!)

Do you have a Roth IRA?  Traditional IRA?  Do you max out your contributions every year?