The All Retirement Accounts Thread

[1NutMeg]

I'm 25 and have just started saving for retirement this year. I've been working at my full-time job for a little over a year. My company matches only 1% of your salary so that's what I put into their 401K. The rest goes into a Roth IRA. I'm not saving as much as I want to right now due to having to balance saving for the short term and paying off debts, but I hope to put in the max next year to my Roth. Compounding interest fascinates me and I'm glad I'm starting early to take advantage of it!

[barcreperie]

Nutmeg, you are very wise to do what you're doing! As long as you're contributing something, you're on your way and getting ahead. Kudos to you for starting so young - you won't regret it!

[plumaplomb]

1nutmeg I don't know if this would interest you but I highly recommend Roger Lowenstein's biography on Warren Buffett, followed by The Intelligent Investor. The biography is really funny, substantive, and interesting, and it will get the ball rolling in your head about dabbling in stocks with a decent background. The Intelligent Investor will provide that decent background. It's very conservative investing, in my opinion, but I like to keep it to a certain equation (explained in The I.I.) and not let emotions rule my actions. Go check out reviews on Amazon if you're interested.

[Lanier]

I'm 26 and I have a ROTH IRA that I started a couple of years ago. Luckily I switched my ROTH money from stocks to a money market fund before the recession and did not lose any money over the past year. I recently re-invested my roth $ into an oil trust stock and it's doing pretty well so far.

[dr. twiggers]

OK, so people have 401K which you can max out at a certain amount each year. Is it a percentage of your income that you can put in? Or a certain dollar amount based on your tax bracket?
Tax benefit here is that you are putting your money in pre-tax. Do you have to pay taxes when you withdraw it at retirement age?

Once you max out your 401K, then you switch over to starting to put money into a Roth or an IRA (thank you for explaining the difference Allison)? And there is a maximum amount that you can put into these every year? Does this money just sit in a bank? Or is it tied to the stock market?

What do you do when you max out those? Invest in the stock market? Just put it in a savings account?

What are the purpose of CDs? Not really retirement, right? Just a way to save money and earn interest?

[MsCandice]

I am 23 and started putting money in a Roth IRA a couple years ago. I don't have a 401K kind of job yet but I have now contributed $12,000 to my IRA. I can't wait for the market to get back into the 16000. My account has never seen that, so it will be exciting to see what my $$$ will look like then. It will happen right?

[qwerty822]

Originally Posted by dr. twiggers

OK, so people have 401K which you can max out at a certain amount each year. Is it a percentage of your income that you can put in? Or a certain dollar amount based on your tax bracket?

You contribute a certain percentage of your income (depends on the company how high you can go - mine was 15%, and they matched 50% of the first 6%, or 3%), and if your income is high enough, there is an upper limit ($16,500 for 2009).

Originally Posted by dr. twiggers

Tax benefit here is that you are putting your money in pre-tax. Do you have to pay taxes when you withdraw it at retirement age?

Yes, you have to pay taxes on it when you withdraw. The benefit to the pre-tax is that you are also earning interest/gains on the portion of the money that would have been taxes, AND that you are not taxed on any dividends or interest in the account until you withdraw it. Compounded over many years, that should theoretically make a big difference.

Originally Posted by dr. twiggers

Once you max out your 401K, then you switch over to starting to put money into a Roth or an IRA (thank you for explaining the difference Allison)? And there is a maximum amount that you can put into these every year? Does this money just sit in a bank? Or is it tied to the stock market?

There is a maximum of $5000 you can put in for 2009 (same limit for 2010). The limit may change (it used to be just $2000). The money can be invested any way you want, just depends on where you open the account! Mine is in a brokerage account, so I can invest in anything - stocks, mutual funds, bonds, have it sit in cash, whatever.

BTW, if you have a 401K, you can't contribute to an IRA pre-tax, so you might as well do a Roth (as long as you qualify). I personally don't think post-tax regular IRAs are worth it.

Originally Posted by dr. twiggers

What do you do when you max out those? Invest in the stock market? Just put it in a savings account?

Well, if you're maxing everything out, you probably have a decent income, so I'd personally invest in a good index fund or something. A savings account isn't going to do too much good, unless you have short term goals you're saving for. :-)

[plumaplomb]

Originally Posted by MsCandice

I am 23 and started putting money in a Roth IRA a couple years ago. I don't have a 401K kind of job yet but I have now contributed $12,000 to my IRA. I can't wait for the market to get back into the 16000. My account has never seen that, so it will be exciting to see what my $$$ will look like then. It will happen right?

By retirement, you will have far more than $16K. Great job in investing in your future. I know how hard it is to stay patient -- I check my portfolio at least once a week

[plain jane doe]

Okay, I tried to read up a little bit, and I am pretty confused.

There is always some kind of penalty for withdrawing early, correct?

I am reading that there may be some exceptions if you leave the company. I am a contractor and my current contract runs through next year. So if next year I leave the company, do I have the option to draw out the account without paying 10%?

[bedhead]

^^ No, if you leave the company you can roll over your 401k into an IRA with no penalty, but you can't just withdraw it without the 10% penalty, plus taxes on the amount you withdraw.

If you have over a certain amount in the 401k, your former employer has to keep the account for you indefinitely, even if you can't contribute to it anymore. (That amount used to be 3k, but I don't know if that has changed.)

[kmh1190]

Ok this is probably a question that can be easily answered/searched but here it is: I need to reduce my AGI this year (already maxing out work plans). Will contributing to a traditional IRA decrease my AGI?

[Allisonfaye]

Originally Posted by dr. twiggers

OK, so people have 401K which you can max out at a certain amount each year. Is it a percentage of your income that you can put in? Or a certain dollar amount based on your tax bracket? Tax benefit here is that you are putting your money in pre-tax. Do you have to pay taxes when you withdraw it at retirement age? Once you max out your 401K, then you switch over to starting to put money into a Roth or an IRA (thank you for explaining the difference Allison)? And there is a maximum amount that you can put into these every year? Does this money just sit in a bank? Or is it tied to the stock market? What do you do when you max out those? Invest in the stock market? Just put it in a savings account? What are the purpose of CDs? Not really retirement, right? Just a way to save money and earn interest?

Ok. I will give this a shot. You can put up to $16.5k into your 401k in 2009. That amount changes every year. YOu can put in any percentage of your check that you want as long as the $$ amount doesn't exceed that. You do pay taxes on all the $$ as you withdrawal it. People usually withdrawal a little a time so they don't bump up their tax rate. You can start withdrawing it at 69.5 but by law, you MUST start at 70.5.


Yes, there are limits on IRA's. I have to review to find out what they are. We exceeded the limits so we didn't do it in the past but now we can do it. There is a way you can put it into a traditional IRA then convert it over and it doesn't matter what your income is. I will find the limits.

Your next question is where you might be getting confused. You can put it anywhere you want. You can go to a bank, or open a brokerage account, CD or mutual fund. But you HAVE to set it up as an IRA. You don't have to invest it in the stock market at all if you don't want to. So, say you, Twiggers, say to hell with hubby. You want to start an IRA. You take say, $2k and start an IRA. I would probably do a mutual fund. In spite of everything that has happened, I still think at a young age, the stock market is the way to go for retirement savings. When you fill out the paperwork to start it, it will say Twigger's IRA or Twiggers Roth IRA.

CD's are considered very safe and are backed by the govt FDIC. You typically don't earn a high rate of interest. If you are very risk averse, you might use these. Or if you are older and you want to make sure your money is safe. As you move up in age, you typically take less and less risk. So a 20 year old, might invest 100% of their portfolio in the stock market because they have a long time horizon and plenty of time to recover from any market corrections. An older person should be systematically taking $$ out of the market and putting it in more secure investments, like CD's. Also, you might want to be more liquid and secure if you have a big event coming up in your life. Say you want to build a house or pay for your kid's college and you need that money to be safe. You aren't going to make much in the way or returns but it is safe and secure. Get the idea?

Did I answer your questions? Is any of it confusing?

[Allisonfaye]

Originally Posted by plain jane doe

Okay, I tried to read up a little bit, and I am pretty confused. There is always some kind of penalty for withdrawing early, correct? I am reading that there may be some exceptions if you leave the company. I am a contractor and my current contract runs through next year. So if next year I leave the company, do I have the option to draw out the account without paying 10%?

Yes, the penalties are big. But you can do a rollover IRA. YOu take the money out and put it into an IRA and you don't have to pay the penalties. The key is, you have to do it within 60 days of taking the money out. But I don't even take it out. YOu can call the company you want to transfer it to and they will send you the necessary forms. I would recommend Vanguard.

[Allisonfaye]

Originally Posted by kmh1190

Ok this is probably a question that can be easily answered/searched but here it is: I need to reduce my AGI this year (already maxing out work plans). Will contributing to a traditional IRA decrease my AGI?

Yes!

[barcreperie]

Originally Posted by Allisonfaye

You can start withdrawing it at 69.5 but by law, you MUST start at 70.5.

Allison, I think you meant to say 59.5 here, right?