This year was my first year participating in the UBP from 5 minute for mom and I learned a lot (and ticked off google, they apparently do not like blog parties).
I was able to read of ton of financial blogs that I would not have found and now have many more people checking out my blog as well. I will be participating in the blog party next year, I hope. I now check a few more blogs on a regular basis, for example: 5 minutes for mom because of how they create a blogger community; frugally fabulous mom for all of her deal especially for children (I am a planner and we plan to have children soon after the wedding which is in 2011); and of course A Maui blog for all the information about Maui to help me plan my honeymoon.
This blog party has been so great for me, I have gotten great new contacts, a new information for both my present and future in all aspects of my life, so thanks to the great bloggers at 5 minutes for mom!
1 Million Dollars
Friday, April 23, 2010
Thursday, April 15, 2010
Investing/ Retirement Saving Part 3
Taxable accounts are the third type of account you can use to save for retirement. Taxable accounts are basically everything not mentioned in that two articles. Bonds, stock, saving accounts, all of it can be a taxable account.
Most often it is not recommended to save in a taxable account unless you are maxing out your other options or for non-retirement saving like an emergency fund, down payment for a house, things like that. However those are all goals that are short term which means you should be saving in savings account or CD account. When would you start putting money in bond or stocks/mutual funds in taxable accounts?
Never hold bond (except government bonds) in a taxable account, only stocks/mutual funds. Government bonds have tax savings all their own so have some of those outside your tax deferred or tax advantage account is fine but if you hold a mutual fund or stock for more than a year, taxes when you sell it are lower than any other type of income tax. For example, the max right now you can pay on a stock profit (if you have held it for a year) is 15% vs 30% or so. However corporate bonds do not get that discount are taxed just like everything else so but corporate bonds in the other two types of accounts and put mutual fund/stock in a taxable account.
To do this you can go to the same companies you used for your IRA, T Rowe Price, Vanguard, or Fidelity and they can help you set an account up. If you want to buy individual stocks, not mutual funds you can still do it there but there are better options but you don't want to start there yet.
So basically when you are earning enough to max out all the tax deferred and tax advantage accounts you have start dropping a little bit in taxable accounts. When you retire it will allow you to live better on less taxes and it also gives you another emergency fund.
Most often it is not recommended to save in a taxable account unless you are maxing out your other options or for non-retirement saving like an emergency fund, down payment for a house, things like that. However those are all goals that are short term which means you should be saving in savings account or CD account. When would you start putting money in bond or stocks/mutual funds in taxable accounts?
Never hold bond (except government bonds) in a taxable account, only stocks/mutual funds. Government bonds have tax savings all their own so have some of those outside your tax deferred or tax advantage account is fine but if you hold a mutual fund or stock for more than a year, taxes when you sell it are lower than any other type of income tax. For example, the max right now you can pay on a stock profit (if you have held it for a year) is 15% vs 30% or so. However corporate bonds do not get that discount are taxed just like everything else so but corporate bonds in the other two types of accounts and put mutual fund/stock in a taxable account.
To do this you can go to the same companies you used for your IRA, T Rowe Price, Vanguard, or Fidelity and they can help you set an account up. If you want to buy individual stocks, not mutual funds you can still do it there but there are better options but you don't want to start there yet.
So basically when you are earning enough to max out all the tax deferred and tax advantage accounts you have start dropping a little bit in taxable accounts. When you retire it will allow you to live better on less taxes and it also gives you another emergency fund.
Thursday, April 8, 2010
Post for ultimate blog party 2010
The ultimate blog party is mostly for moms but I hope I can join given that a lot of what can be learned here is for college student AND their parents. So lets join in and see what we can learn! At the end of the week I will be posting my favorite blogs and why.
My blog is about saving money for the young adult, so many blogs focus on middle age adults but the sooner we learn the money money will will save and have.
So I hope everyone likes my site and that they find other sites to enjoy as well.
There a ton of prizes to win as well, my favorites are US7- Tupperware, US 30- Nesting pillow, US 32- Target gift card and US 39- A 2 night stay at the Hilton Garden Inn (I could use that for my wedding night.
My blog is about saving money for the young adult, so many blogs focus on middle age adults but the sooner we learn the money money will will save and have.
So I hope everyone likes my site and that they find other sites to enjoy as well.
There a ton of prizes to win as well, my favorites are US7- Tupperware, US 30- Nesting pillow, US 32- Target gift card and US 39- A 2 night stay at the Hilton Garden Inn (I could use that for my wedding night.
Wednesday, April 7, 2010
Investing/ Retirement Saving Part 2
The next type of retirement vehicles is the Roth. The Roth comes in two varieties, the 401k and IRA. They have the same max as their traditional counterparts, $16,500 and $5000 respectively. They also allow extra to be put in them after age 50, $5000 and $1000 respectively.
The biggest reason to put your money into a Roth IRA or 401k is that, because you pay taxes on the money you put in, you do not pay taxes when you taxes when you take it out after 59.5 years. This means that a Roth is the best place to put your money as a young person. Your income will go up as you age, as you get raises and promotions, therefore when you start out you are paying the least in taxes. However most companies do not offer a Roth 401k, though they are becoming more popular. Therefore most people should focus on maxing out their Roth IRA as soon as they can. You can open a Roth IRA at the same places as a traditional IRA.
Another advantage of the Roth IRA is that after 5 years of opening the account, you can remove the money you have put in without a penalty. For a 401k, traditional or Roth and a traditional IRA, you would pay a 10% penalty plus the taxes. The exemption on the penalty is only for the money you put in, not the earnings/interest. This can be helpful also when you want to buy a house. For your first house you can take up to $10,000 out a IRA, traditional or Roth for the down payment, but for a Roth you can take out the up to $10,000 of the interest/earning plus all the money you put in. It is a great way to not pay taxes on the interest on the money you are saving for retirement.
I did it that way, I put 10% away in my 401k when I worked as a student and saved another $7000 in an IRA for my first house. I was lucky though, we moved to a very cheap area for my fiance's graduated school and our duplex only cost $60550, so my IRA covered most of our $12,110 down payment.
You can also use the Roth IRA as a secondary emergency fund after it has been open for five years or more. However money in your retirement accounts normally cannot be gone after so think long and hard before cashing out your retirement for bills now.
The next article will be about how to invest/save in taxable accounts and why you would save there as well as the tax differed and tax advantage accounts.
The biggest reason to put your money into a Roth IRA or 401k is that, because you pay taxes on the money you put in, you do not pay taxes when you taxes when you take it out after 59.5 years. This means that a Roth is the best place to put your money as a young person. Your income will go up as you age, as you get raises and promotions, therefore when you start out you are paying the least in taxes. However most companies do not offer a Roth 401k, though they are becoming more popular. Therefore most people should focus on maxing out their Roth IRA as soon as they can. You can open a Roth IRA at the same places as a traditional IRA.
Another advantage of the Roth IRA is that after 5 years of opening the account, you can remove the money you have put in without a penalty. For a 401k, traditional or Roth and a traditional IRA, you would pay a 10% penalty plus the taxes. The exemption on the penalty is only for the money you put in, not the earnings/interest. This can be helpful also when you want to buy a house. For your first house you can take up to $10,000 out a IRA, traditional or Roth for the down payment, but for a Roth you can take out the up to $10,000 of the interest/earning plus all the money you put in. It is a great way to not pay taxes on the interest on the money you are saving for retirement.
I did it that way, I put 10% away in my 401k when I worked as a student and saved another $7000 in an IRA for my first house. I was lucky though, we moved to a very cheap area for my fiance's graduated school and our duplex only cost $60550, so my IRA covered most of our $12,110 down payment.
You can also use the Roth IRA as a secondary emergency fund after it has been open for five years or more. However money in your retirement accounts normally cannot be gone after so think long and hard before cashing out your retirement for bills now.
The next article will be about how to invest/save in taxable accounts and why you would save there as well as the tax differed and tax advantage accounts.
Saturday, April 3, 2010
Investing/Retirement Saving
I know that when you are in school and right after the last thing you have is money to invest for retirement which is 30/40 years a way. But as you get older you will have more bills to pay and the sooner you put money away for retirement the less you have to put away.
There are a few ways to save for retirement, you can put money in tax deferred accounts, tax advantage accounts or taxable accounts. This may sound complicated but really it is not, tax deferred is when you don't have to pay tax on it when you put it in a pay it when you take it out. The types of tax deferred accounts are traditional IRA, SEP-IRA, 403b or 401k. The 403b or 401k are the same type of account but a 403b is for government workers and 401k is for the rest of us.
A traditional IRA allows a employed person or a stay at home spouse to deposit $5000 pre-tax per year into an account. If you are over 50 you can deposit an additional $1000 each year. These accounts are through your bank or broker, not your employer, however you may not put in more that you have earned from work. The best places in my opinion to but a IRA are T Rowe Price, Fidelity, and Vanguard, all of which have websites that you can use to open an account. The benfit of T Rowe Price is you can open an account for $1000 or $50/month, the downside is that they will charge you a fee of $10/year if you have an account with less that $5000 in it. Fidelity allows you to start an account with $200/month or $2500, the downside is if your account gets less that $2000 for any reason you will get a fee. Vanguard only allows you to open accounts with $3000 or more, however they normally have the lowest fees so a lot of people like them. Keep in mind these minimums are per fund, not per account, therefore most people go with a target date fund instead of having a bunch of funds. We will go over target date funds and others in a later article.
A SEP-IRA is a bit weird even for the government. SEP-IRA are IRAs for the self employed and their employees. Basically within a SEP-IRA 25% of the employees wages up to a cap ($49,000 is the cap for 2009) and the employee or employer can contribute the money to the SEP-IRA. For the owner is gets a little more complicated, it is 18.587045% of net profit also up to a cap. SEP contribution limits are computed, not from net profit, but from net profit adjusted for the deduction for self-employment tax. This is half the 15.3% FICA tax, levied on net earnings, which are 92.35% of net profit. Thus adjusted net profit (net profit minus deduction for self-employment tax) is 92.935225% of net profit. And 20% (the max percent for the owner) of that would be the 18.587045% number. After that 401k and 403b will be a snap to understand.
You can put $16,500 of pre-tax money in 401k or 403b per year, if you are under 50, if you are over 50 you can put another $5000 in pre-tax money in the account each year. The amount you can deposit can go up with inflation and is announced every year.
Next post will continue with the other types of accounts.
There are a few ways to save for retirement, you can put money in tax deferred accounts, tax advantage accounts or taxable accounts. This may sound complicated but really it is not, tax deferred is when you don't have to pay tax on it when you put it in a pay it when you take it out. The types of tax deferred accounts are traditional IRA, SEP-IRA, 403b or 401k. The 403b or 401k are the same type of account but a 403b is for government workers and 401k is for the rest of us.
A traditional IRA allows a employed person or a stay at home spouse to deposit $5000 pre-tax per year into an account. If you are over 50 you can deposit an additional $1000 each year. These accounts are through your bank or broker, not your employer, however you may not put in more that you have earned from work. The best places in my opinion to but a IRA are T Rowe Price, Fidelity, and Vanguard, all of which have websites that you can use to open an account. The benfit of T Rowe Price is you can open an account for $1000 or $50/month, the downside is that they will charge you a fee of $10/year if you have an account with less that $5000 in it. Fidelity allows you to start an account with $200/month or $2500, the downside is if your account gets less that $2000 for any reason you will get a fee. Vanguard only allows you to open accounts with $3000 or more, however they normally have the lowest fees so a lot of people like them. Keep in mind these minimums are per fund, not per account, therefore most people go with a target date fund instead of having a bunch of funds. We will go over target date funds and others in a later article.
A SEP-IRA is a bit weird even for the government. SEP-IRA are IRAs for the self employed and their employees. Basically within a SEP-IRA 25% of the employees wages up to a cap ($49,000 is the cap for 2009) and the employee or employer can contribute the money to the SEP-IRA. For the owner is gets a little more complicated, it is 18.587045% of net profit also up to a cap. SEP contribution limits are computed, not from net profit, but from net profit adjusted for the deduction for self-employment tax. This is half the 15.3% FICA tax, levied on net earnings, which are 92.35% of net profit. Thus adjusted net profit (net profit minus deduction for self-employment tax) is 92.935225% of net profit. And 20% (the max percent for the owner) of that would be the 18.587045% number. After that 401k and 403b will be a snap to understand.
You can put $16,500 of pre-tax money in 401k or 403b per year, if you are under 50, if you are over 50 you can put another $5000 in pre-tax money in the account each year. The amount you can deposit can go up with inflation and is announced every year.
Next post will continue with the other types of accounts.
Subscribe to:
Posts (Atom)