My Retirement Account Update 

It’s been a while since I shared how my Roth IRA was doing. I checked my retirement account in October 2008 and shared how it went down over 20%. That certainly stung, but I didn’t withdraw money in reaction to the market. 

Since I’m investing for the long term, I realize that sometimes you have to accept the losses.

I’m happy to say things can climbing back up slowly. Here’s a screenshot from Mint of my Roth IRA’s returns for the last 6 months:

It looks good, but I’m anticipating more ups and downs with this market as I invest for retirement. 

Talking a bit more about the fluctuating returns of the stock market, here’s some information from Behaviorial Gap on the average returns from the stock market:

Having an individual retirement account (IRA) can help you get started with retirement. Retirement planning is usually one of the furthest things on the minds of college students and new graduates. However, it’s a lot easier than many people think.

Individual retirement accounts allow you to easily set aside money for your retirement with some tax benefits.

What is the difference between a Roth IRA and a Traditional IRA?

Wikipedia defines Traditional and Roth individual retirement accounts:

• Roth IRA – contributions are made with after-tax assets, all transactions within the IRA have no tax impact, and withdrawals are usually tax-free. Named for Senator William Roth.
• Traditional IRA – contributions are often tax-deductible (often simplified as “money is deposited before tax” or “contributions are made with pre-tax assets”), all transactions and earnings within the IRA have no tax impact, and withdrawals at retirement are taxed as income.

As you can see, Roth IRA withdrawals are tax free while traditional IRA withdrawals are taxed.

How much can you contribute your Roth IRA?

The IRS has specific income limits with contributing to Roth IRAs. Right now you can contribute $5,000/year to a Roth IRA if your modified AGI is :

• $169,000 for married filing jointly or qualifying widow(er),
• $116,000 for single, head of household, or married filing separately and you did not live with your spouse at any time during the year, and
• $10,000 for married filing separately and you lived with your spouse at any time during the year.

How much can you contribute your traditional IRA?

Traditional IRAs have a different income limits with contributions. Right now you can contribute $5,000/year to a traditional IRA if your modified AGI is :

• More than $85,000 but less than $105,000 for a married couple filing a joint return or a qualifyingwidow(er),
• More than $53,000 but less than $63,000 for a single individual or head of household,
• Less than $10,000 for a married individual filing a separate return.

Where can you open an IRA?

The good news is many banks, brokerages, and credit unions offer both traditional and Roth IRAs. Some charge a flat fee for the year, some take a fee for each transaction made, others can take a percentage, and some do all of this.

The idea is to keep your fees as low as possible and get the best performance.

Some online options for opening an IRA:

• E-Trade (Annual fee and minimum are waived when you sign up for electronic statements)
• Vanguard (Some funds require $3,000 minimum)
• T. Rowe Price
• Charles Schwab ($1,000 minimum is waived if you direct deposit $100/month)
• Sharebuilder (No minimum to open; no admin annual fee)
• Zecco( No minimum to open; $30 annual fee)

The sooner you start the better. It’s generally accepted that the sooner you start the better compound interest will treat you.

More Information on Individual Retirement Accounts

• Which IRA is the Best Deal? (Get Rich Slowly)
• The world’s easiest guide to understanding retirement accounts (I Will Teach You to Be Rich)
• Save Now, Retire Rich (Free Money Finance)
• How Much Money Do You Need For Retirement? (The Simple Dollar)
• Determine your Retirement Needs in 3 Easy Steps (Moolanomy)

My Retirement Account Update 

I checked my retirement account today, just to see what shape it is in. I knew it was going to be down, but I didn’t he an exact number. I check my portfolio in detail about once a quarter. So far this year, my portfolio is down 21.07%. I’m not happy about it, but I’m not panicking. 

Looking at the big picture we see that the average return from the stock market has been 11.69% from 1928 to 2007. Past performance doesn’t predict future prospects with certainty, but it does give us an idea of what to expect. 

Another reason I’m not going to pull money out of my retirement fund is because I’ll be hit with tax penalties.

How Dollar Cost Averaging with Investing Helps

Each time you invest, you’re buying a bit at a time. Many choose to automate their investments at a fixed rate. The same amount is spent but the amount of shares you buy changes. I like index funds and when the price is low, I can get more shares for the same price I’ve been putting in.

As time progresses, I’m hoping that overall my investments will grow and put me in a better position to retire (either earlier or have more cash).

Photo Credit:  NessieNoodle

Ok, so we finally mailed the paperwork to rollover my husband’s 401(k) into a Vanguard Roth IRA. The actual process took around total of 30 minutes. Sending out the paperwork? Over 2 weeks. We want to make sure his retirement investing goes further as we rollover his 401k account. 

Here’s how we rolled over my husband’s 401(k) into a Roth IRA:

Organized his old account’s paperwork. Before you rollover a 401(k) account, make sure you have the old account information by your side to save some time. I was still missing some information, so I also had to log in to the old account’s website.

Opened An Account At Vanguard. We went to Vanguard’s to start the process. You can fill out the paperwork online, but you have to print, sign, and mail it.

Chose Initial Investments.  Vanguard has wonderful index funds to choose from that are low cost and perform well long term.

Took 17 days to mail the paperwork. Someimes you’re just your own worst enemy.

Lesson learned

If you’ve been putting off getting your finances in order, get it down now. Don’t wait like we did.

Photo Credit: Strevo

We’re doing alright preparing for this move. I’m dead tired, but once this is done, I’ll be able to rest easy. Something that I’m keeping in the back of mind for now is the plan for our retirement funds.

We both have 401(k)s with our employers. My 401(k) is considerably less than my husband; one reason being I just got qualified this year.

What to Do with Your 401(k) When You Switch Jobs

There are basically three options for us (and everyone else in this situation).

• Roll it over to your new job’s 401(k) or to your IRA. This isn’t a hard process, but it takes some time to fill out the paperwork. Since I already have an IRA it’ll be less paperwork than my husband if he decides to go this route.
• Keep it at its current spot. I can’t do this as I don’t have enough vested to have my employer keep it in there. My husband has to decide if he wants to do this option. If he’s happy with the service and selection that he has, this is fine.
• Spend it. (DO NOT DO THIS!!!!!) You’ll be taxed for early withdrawal and you’re undo the work you’ve put towards retirement. If you spend your retirement money, it will also effect your income when you d your taxes.

We haven’t made a decision on either the first or the second option. We haven’t even discussed it since we’re more concerned with more immediate needs like making arrangements for the moving truck and turning on utilities.

Hopefully, I’ll be able to relax on Monday.

Photo Credit: Zzzack