NT: Official Personal Finances Thread

[capital sb]

Your confusion had me all confused

if your employer is matching 3% of your total salary, you have to contribute 3% to get that. If the total match is only 40% of what you've contributed, then you're contributing much more than 3% of your salary. Henny it looks like you're contributing ~7.5% of your salary right now (of which 3% is being matched)

Out of curiousity, do you know what firm is in charge of your company's 401k plan? For instance our company uses Merrill Lynch and I've found their online platform extremely easy to use. I can adjust my investment selections, contribution rate, etc etc online in a couple clicks. Extremely handy if you need to adjust your contribution rate especially.

Henny was responding to me , but its funny because you are exactly right. I was contributing 7% into the roth 401K that was just from 3.5 months of contributing. Fidelity is the firm in charge of the plan I am very familiar with changing the rates and looking at my portfolio performance. The site could be much better though.

 

[hennessy]

Ok I think I understand. So if you were just contributing 3%, it would be a 100% match each pay period. So they pre-factor in how much 3% is and only match that 3% for each pay period no matter if you contribute more. Correct? So beezy and I are showing ~40% match currently instead of 100% only because we contribute more than the 3%. But over the course of a year, we will get the same match as long as we save at least 3% each pay check.

 

[capital sb]

@Hennessy  Yeah I believe that is exactly what he is saying. If the match is 3% just contribute 3% all year and they will match 100%.

 

[timcity2000]

Who do ya'll invest with?

I have about $800 from my tax refund I was just going to invest. Vanguard, who my parents have good experiences with, requires a couple thousand to open an account while other places only require a couple hundred. 

Should I go Vanguard and wait? Or invest immediately?

My Roth IRA and employer 401k are through Wells Fargo. (And my mortgage, for that matter...)

I also have a USAA account with individual stocks, funds, etc.

 

[pdino]

 
I am trying to decide what best case scenario would be for me when it comes to 401K , roth & traditional IRA contributions.

"Company matches 100% of employees’ contributions up to the first 3% of eligible compensation they save for the first five years. After five years, Company

matches an additional 1%, for a total contribution of 4%. You are immediately 100% vested in the company match."

I know that I have contributed $1347 and the company has contributed $577. Which seems to be much more than matching the first 3% , so I am confused as to the the max I should contribute to get the 100% match.

My plan is to contribute 3% (max for 100% match) into my 401k I can go traditional or roth. Not sure which one to go with here, I am thinking traditional because of the match.

Then to place an additional 7% into an outside Vanguard account also not sure if I should do roth or traditional here.

Some things to consider:
There can be a one-time deduction of 10,000$ from your IRA accounts for purchase of a home with no penalties. Also you can take out for school (paying for you, your children, any family basically). I like the idea of using your IRA account as a down-payment-save-up account. You can save a couple grand by putting away 10k (over 2 years [5,500$ annual contribution limit] into a traditional IRA), then taking it out for your home purchase versus leaving it in a savings account to do the same thing.

Traditional vs Roth is do you want to save now (traditional) or later (Roth)? People who think they will be in a significantly higher income bracket when they are retired, usually choose Roth. Another thing to consider is there are income limits and phase outs for both, for traditional IRA: modified adjusted gross incomes (AGI) between $61,000 and $71,000. The AGI phase-out range for taxpayers making contributions to a Roth IRA for singles is $116,000 to $131,000. The ranges are different if you're married. It all depends..

 

[capital sb]

@Pdino  I didn't know that traditional IRA had a limit I am already over the limit to get tax deductions from a traditional IRA with my starting salary right out of school 

.

Okay so since this is the case I might as well only contribute to a Roth for now until I get phased out of that too?

 

[Fozz]

I save around $500.

I stop buying shoes. I want to save more.

I am paying a mortgage though.....


Side note: My wife needs to chill with this renovation project

.

She's looking at a $6000 front door.

There has to be alternatives to that $6k door. Yikes.

 

[tsamshox]

Lots of good stuff in here NT. Repped

I do have a ? though....I am thinking of paying off the rest of my loan for my car (the quote is for $5500). Should I pay it off, and use the money that would be for the car note and put it into my savings? Or should I continue with the car note (for another 18 months) and invest some of my liquid funds? The interest for the loan is 2.9%.

THANKS a bunch NT

 

[HankHill]

Lots of good stuff in here NT. Repped

I do have a ? though....I am thinking of paying off the rest of my loan for my car (the quote is for $5500). Should I pay it off, and use the money that would be for the car note and put it into my savings? Or should I continue with the car note (for another 18 months) and invest some of my liquid funds? The interest for the loan is 2.9%.

THANKS a bunch NT

Do you have enough in savings already and in your budget that can take care of random emergencies? I'd probably just double the payments if to keep some cash reserved.

@crcballer55 usually has good credit advice.

 

[based mod]

Lots of good stuff in here NT. Repped

I do have a ? though....I am thinking of paying off the rest of my loan for my car (the quote is for $5500). Should I pay it off, and use the money that would be for the car note and put it into my savings? Or should I continue with the car note (for another 18 months) and invest some of my liquid funds? The interest for the loan is 2.9%.

THANKS a bunch NT

Might be an unpopular opinion, but I would continue with the car note since interest isn't all that high and put your funds into the market (whether through a Roth or brokerage account).

 

[drew]

In this thread. Better than most of the trash on General recently.



-Drew

 

[pdino]

 
@Pdino  I didn't know that traditional IRA had a limit I am already over the limit to get tax deductions from a traditional IRA with my starting salary right out of school 

.

Okay so since this is the case I might as well only contribute to a Roth for now until I get phased out of that too?

Seems like Roth is a good option for you. If you have tax shelters like a home, school, kids, investment properties, your adjusted gross income might be considerably lower than you think. Ex. You make 80k (AGI), you bought a house that costs you 1.1k mortgage (roughly 90% going to interest we'll make it an even 1k). Since mortgage interest is tax deductible you'll be making 80k AGI - 12k mortgage interest (1k/month for a year)=68k

- Another long haul investment is Peer to Peer lending. Basically, it's people lending people money, takes out the banks. Many people turn to peer to peer lending because they can consolidate their loans, or make a purchase. #1 is refinancing at a lower % to pay off CCs. Loans can get as low as 6% IIRC, people are screened based on income, credit score, etc. As an investor, the system is set up with 25$ notes that are invested in several different loans to people so there is diversification. You can choose the risk tolerance and screen the notes you want to lend to if you want to take a conservative approach for a lower return on investment, or you can go riskier for a higher return. Default rates are around 2%. Lendingclub.com and prosper.com are the leaders in the field. Disadvantages are that when you lend out your $, you're slowly getting the $ back (as the borrowers are paying it back monthly), so this investment strategy is not as liquid and not for everybody. Depending on your investment strategy, 10% return on investment is not rare. Many people find the idea of lending $ to help people and get a return appealing.

 

[capital sb]

@Pdino My student loans grace period ends in July, and I won't be closing on my home until September, so I guess it looks like I can get a deduction from the IRA with the mortgage and student loan interest deducted from my income. Thanks for the info I will look more into this.

I am also interested in P2P lending in the future. If anyone reads MMM (mrmoneymustache) blog he is getting a stable 12% return on P2P Lending.

 

[jthagreat]

I am trying to decide what best case scenario would be for me when it comes to 401K , roth & traditional IRA contributions.

"Company matches 100% of employees’ contributions up to the first 3% of eligible compensation they save for the first five years. After five years, Company
matches an additional 1%, for a total contribution of 4%. You are immediately 100% vested in the company match."
 
I know that I have contributed $1347 and the company has contributed $577. Which seems to be much more than matching the first 3% , so I am confused as to the the max I should contribute to get the 100% match.
 
My plan is to contribute 3% (max for 100% match) into my 401k I can go traditional or roth. Not sure which one to go with here, I am thinking traditional because of the match.
Then to place an additional 7% into an outside Vanguard account also not sure if I should do roth or traditional here.

https://www.fidelity.com/retirement-ira/ira-comparison

unless you are already making over $100,000 a year (based off you contributions you shared i will assume you are not) you want to get a ROTH ira.

IRA's are Individual Retirement Accounts. hence they are to be used upon/near retirement. With a ROTH (what i have and recommend) your money is taxed up front. It is better to be taxed up front when youre making small change (beginning of your career) than to be taxed at the high tax rate that we all hope to have near retirement age.

Also, with a ROTH, if you ever experience a TRUE emergency, you can withdraw your money penalty free, this is not the case with a Traditional IRA.


Also, get started as soon as possible, this vehicle of investment is what they are speaking about when they say you could have $1 million bucks blah blah blah.

Also, I have a 401K with my company, and have my own personal ROTH IRA on my own (that part confused me with your post.)

 

[capital sb]

@jthagreat Thanks for the info. I don't see how you could possibly have 1MM in a roth with a max contribution of $5500 a year. Even if I could contribute for the next 20 years its only $110,000 contributed. I will be phased out of the roth ira well before then , so I am trying to understand how you could possibly get 1MM in a roth.

 

[pdino]

 
@Pdino My student loans grace period ends in July, and I won't be closing on my home until September, so I guess it looks like I can get a deduction from the IRA with the mortgage and student loan interest deducted from my income. Thanks for the info I will look more into this.

I am also interested in P2P lending in the future. If anyone reads MMM (mrmoneymustache) blog he is getting a stable 12% return on P2P Lending.

Student loan interest is deductible up to 2500$, phase out range is from 65k-80k. If you just paid for school this last year, should be deductible and hopefully lower you into that range for both the loan interest and IRA.

 

[jthagreat]

@jthagreat
Thanks for the info. I don't see how you could possibly have 1MM in a roth with a max contribution of $5500 a year. Even if I could contribute for the next 20 years its only $110,000 contributed. I will be phased out of the roth ira well before then , so I am trying to understand how you could possibly get 1MM in a roth.

The scenarios they give will have you contributing for more than 20 years (retirement age, so say 35 years) using the outlandish and not typical return of 8% a year and the big thing COMPOUNDING INTEREST.


I am horrible at math so i wont even attempt....http://www.moneychimp.com/calculator/compound_interest_calculator.htm

Take your annual $5500, then 5500 every year till you plan to retire (62) most of the advertiesments give a hypothetical 8%. i disagree tho. its doable, but take the past 8 years, the economy sucked.

the whole idea is that you have the money you gained from interest the previous years, and then it multiplies each year.

Where's @CRCBaller55

phased out of a Roth IRA why? cause you make for than the $100k+ threshold? even they i think you would just change it to a traditional ira? not sure what you mean.

 

[based mod]

@jthagreat
Thanks for the info. I don't see how you could possibly have 1MM in a roth with a max contribution of $5500 a year. Even if I could contribute for the next 20 years its only $110,000 contributed. I will be phased out of the roth ira well before then , so I am trying to understand how you could possibly get 1MM in a roth.

You're underestimating the power of compound interest and starting early. You should also take into account your 401k which should bump up your yearly contribution number.

 

[jthagreat]

Yall were confusing the hell out of me with the Roth 401k talk.

basically something your job does for you ... http://en.wikipedia.org/wiki/Comparison_of_401(k)_and_IRA_accounts

I will definitely look into it more, but i prefer having a 401k through my job and then a Roth on my own. (helps me understand what my gf was talkin bout too)

I asked earlier, but was hoping to get some insight on
"Question, although buying index funds is long term, when or what strategy to you guys use when determining when to pull out? Things go up an down, and this is the long term, but a repeat 2007 is not my thing. ??"

 

[hennessy]

In addition to the $200 I put in company 401k, I'm about to get a Roth on my own and just dump like $500/mo into it. Especially if this is true what you guys are saying about no penalty withdrawls for down payments on houses, cars, college.

I've just seen my company 401k grow pretty substantially with all the matching and what not since I started a few years ago and don't know why I'm not doing a Roth on the side as well. Diversify my savings Wu-tang style.

 

[timcity2000]

I hesitate to post this because there are SO MANY variables, and everybody's situation is unique... but here's a general guideline that fidelity came up with a few years back outlining how much money you might reasonably need to have saved in your retirement account(s) by a certain age:

View media item 1552195

 

[timcity2000]

I hesitate to post this because there are SO MANY variables, and everybody's situation is unique... but here's a general guideline that fidelity came up with a few years back outlining how much money you might reasonably need to have saved in your retirement account(s) by a certain age:

View media item 1552195

... and yes, I realize I'm one of only a handful in here who have actually crossed the 35 mark haha.

 

[sneaksoy]

Lots of good stuff in here NT. Repped

I do have a ? though....I am thinking of paying off the rest of my loan for my car (the quote is for $5500). Should I pay it off, and use the money that would be for the car note and put it into my savings? Or should I continue with the car note (for another 18 months) and invest some of my liquid funds? The interest for the loan is 2.9%.

THANKS a bunch NT

It really depends on the rest of your financial situation, but 2.9% is pretty low and if you have other savings goals I would recommend investing that $5500 instead.

Can you make more than 2.9% by investing that money? If that's the case (and there are somewhat liquid avenues to do that), you're better off investing the money and continuing to pay the monthly car payment.

 

[hennessy]

This peer to peer lending sounds pretty interesting.

 

[capital sb]

jthagreat Ohhh didn't know you can convert a roth into a traditional IRA. I will try to max out the roth then put any extra in my 401K. My company has an option of contributing pre-tax,after-tax, and roth. So far I've been contributing roth money.

based mod I understand the power of compounding interest and starting early. I didn't know you could convert from roth to traditional once you hit the income limits.