30 year old, dismal retirement fund. Advice appreciated

**Mr Nice Guy** · 01-11-2011, 10:04 AM

Welcome, you are in good hands here. I too know very little about retirement planning, but I do have some advice to get started.

-You need to develop goals (short, interim and long) and from those goals you can allocating funding to where it needs to be. for example, if you have no short term goals, all money could go to the interim and long, etc. How do you want your retirement to look?

-How do you handle risk? You are still young when it comes to retirement planning, so ideally you should have a higher risk tolerance than someone in their 50's. But if you don't, that is ok. Because it is more important to sleep at night. Once you find out how risk-tolerant you are, you can plan your investment strategy around that to maximize your returns.

Good luck

**snshijuptr** · 01-11-2011, 10:53 AM

Okay first thing you should know is that you cannot contribute more than $16,500 to your 401k combined. This is approximately 8.7% of your income.

My advice is to maximize your match. If one company offers a better match (like 100% vs 50% match), max out your matching there first (like 5% or 6%). Then put the rest of your money into the one with the lower match until that is maxed out. If you can still contribute more (because your companies offer around 3-4%) then put the rest of your money in the plan with better/more options.

IRA income limits are based on AGI (income minus adjustments), and unless you have some ridiculous student loans, you are correct that you do not qualify. This does not stop you from investing in a private brokerage account for your future. Money doesn't need to be tied up in a government designated retirement vehicle to be used for such a purpose. Just make sure you increase the tax efficiency of these investments (CAN OTHER PEOPLE HELP WITH THIS?)

Another possible investment is paying down the condo mortgage. Are you planning to sell it soon or keep it for the income?

I also agree with Mr Nice Guy that you should lay out short term and medium term goals for your life. Do you want wife/kids/picket fence? You can start a 529 right now in your own name and use it for your future children. Do you currently own your own residence? You could save for a down payment on that.

As for the various people:
Tax adviser - you want a CPA (certified public accountant). They can do your taxes and help you structure your income to lower your tax burden
Investment/retirement adviser - you want a CFP (certified financial planner). These guys often work with/for CPA's. You can find one at Certified Financial Planner Board of Standards Inc. - Search for a CERTIFIED FINANCIAL PLANNER™ Professional
You don't necessarily need either or both of these professionals, but sometimes they can make your life a whole heck of a lot easier. It really depends on your interest in learning about these topics vs wish to avoid learning about them (time vs money).

**DebbieL** · 01-11-2011, 10:59 AM

Is $5,000 your net monthly pay from each job after taking off just the taxes, or is that after retirement savings, etc, comes off? I just ask because even in Canada (high income taxes) the take home from a 95K annual salary would be more than $5,000 monthly.

I think you are in a great position to be able to start doing some serious retirement savings catch-up. I have to ask though, how long do you realistically think you will be able to work 2 full-time jobs (and obviously both of them are on about the same level, so it isn't like one is a "fun" weekend type thing? I currently work 1 full time job and 2 very part-time (2x month bookkeeping) type jobs, as well as going to night school. I have to tell you, after 3 years of doing this it is very draining. I sometimes question my sanity for getting myself into so much.

**TCubed** · 01-11-2011, 11:26 AM

Guys, thanks for all your responses,

Debbie,

actually, the $5k from each job is after taxes, but before I have contributed anything to any 401(k). I will start to shortly however. The reason for the dismal 401(k) is because I worked with tech startups from 06-now, and they were always not offering 401(k)s in the beginning. So thats why it became dismal.

As far as keeping them, honestly, Ive been doing it for a while, and its honestly not as bad as I thought it would be - my first job is work from home and time flex so that really helps. I can set my own schedule do be as productive/free as I need to be.

snshijuptr,

Thanks for the advice on the tax/financial advisors - question - where does one go to find a tax advisor/CPA though? Is there some website where you can also look up their ratings or some such measurement?

Spot on with the 401(k) - I had the exact same thoughts regarding that. After all its 'free' money when the employer matches, so might as well max that out. You and Mr Nice Guy are right about the goals - I honestly cant see myself wanting to get married until I am 40 - I do want kids someday, but ... thats a whole different topic, I see 60% divorce rates around me, people getting taken to the cleaners by what was once their lover, I mean, putting romance aside - just doesnt seem like that safe/sound of an investment...

A goal I do want to attain though is to make sure I at least have a retirement amount right now, that is 'on par' with what I would have had if I was contributing to retirement as early as I should have, and by as much as I should have. I mean at 30 years of age, what should the value of my 401(k) typically be for a healthy retirement? 40k? 50k? 70k?

To answer your question, no student loans here. The only loan I have is the car loan worth about $8k. As far paying down the condo, I actually just did that - I put down $40k against it 1 week ago, and got an interest rate of 3.625%. (Refi). I will be breaking even with it as of February this year.

You also said:

Money doesn't need to be tied up in a government designated retirement vehicle to be used for such a purpose. Just make sure you increase the tax efficiency of these investments (CAN OTHER PEOPLE HELP WITH THIS?)

Thanks so much for this - I didnt know that this was even possible - I mean, what options are there regarding this? People have told me about going with T.Rowe.Price for example, and having them invest your money for those short/medium term goals - is that an option thats ok?

Thanks again guys, appreciate your time.

**jpg7n16** · 01-11-2011, 11:32 AM

If you're taking home about $120k out of your $190k income, then you should def be maxing out your REGULAR 401k.

As you're single, you're in one of the higher tax brackets. So save on those taxes today. Max you can do for the year is $16,500.

And then you can't contribute to a Roth or deductible IRA, but you can contribute to a non-deductible IRA - then convert it to a Roth. So that's another $5k/year of retirement savings. (and technically you have until April 15th to contribute for 2010, so that's be $10k this year)

That will accomplish 2 things:

1) Save for retirement
2) Save on taxes

Both of which are your two goals from post 1.

As far as looking for a planner in your area. Try through the CFP board's website:

Certified Financial Planner Board of Standards Inc. - Search for a CERTIFIED FINANCIAL PLANNER™ Professional

Or through the NAPFA (National Association of Personal Financial Advisors)
Find an Advisor - Locate a Fee-Only Financial Advisor

**jpg7n16** · 01-11-2011, 11:35 AM

Originally posted by TCubed View Post

I now know after some research that as long as I have 2 jobs I cant qualify to contribute to a Roth IRA

Oh and just to clarify - this is wrong.

You cannot contribute to a Roth because your income is too high. Not because you have 2 jobs.

(although maybe you meant your income is too high because of your 2 jobs, then you're correct; but it's based on income not number of employers)

**TCubed** · 01-11-2011, 11:54 AM

JPG,

Yes sorry, I meant because of my income due to the 2 jobs. :-)

And then you can't contribute to a Roth or deductible IRA, but you can contribute to a non-deductible IRA - then convert it to a Roth. So that's another $5k/year of retirement savings. (and technically you have until April 15th to contribute for 2010, so that's be $10k this year)

Thanks so much for this - could you however explain in more detail this part about the non-deductible IRA and the conversion to Roth etc in more detail please? I am not sure I get that part...

**jpg7n16** · 01-11-2011, 12:25 PM

Sure thing

All IRAs have tax deferral. A basic traditional IRA lets you deposit today, and withdraw later and get no tax in the meantime.

There are income limits for the IRAs that offer the best tax benefits: Roth (tax deferral AND tax free withdrawals) and Traditional deductible (tax deferral AND tax deductible today). But there is no income limit for a Traditional Non-deductible IRA (tax deferral only). Warren Buffett could fund one if he wanted to.

Now usually there is also an income limit on who can convert from an IRA into a Roth IRA. (previously set at $100k) This year (and last) that income limit has been waived. So anyone, anywhere can convert from a traditional (deductible or not) IRA into a Roth.

That creates a loophole that you (who does not qualify for a Roth, but does qualify for a non-deductible IRA - since anyone does) can create the non-deductible and then convert into a Roth (because the income limit for conversions usually in place has been removed this year).

I don't know if there's a waiting period or not; But I don't think there is. So I believe you can fund a traditional IRA today, then convert it to a Roth tomorrow. And essentially, you are just funding a Roth. That gets you the tax free withdrawals you otherwise would not have received.

**TCubed** · 01-11-2011, 12:38 PM

JPG,

Ahh I see - but then question: Lets say I did open a traditional IRA today, put x dollars in it, and then convert it to a Roth IRA tomorrow. Would I still be able to contribute to it next year and the year after that assuming my greater-than $120k/year income? How would that work? And why did you say 10k this year in your post before last? How did you arrive at that number?

Thanks again,

**jpg7n16** · 01-11-2011, 01:28 PM

Ok. Here's what I meant: You get to do $5000/year. But for each year, you have until April 15th (before you file) to make that contribution.

So you still have until April 2011 to decide if you want to make a contribution for 2010.

So if you so choose, you can add $5000 to a non-deductible IRA for the year ending 2010, and also another $5k for 2011.

That's what I meant by 'technically... that'd be 10k this year'

As far as what to do next year, you would see what you qualify for in 2012. For the year ending 2012, do you meet the income limit for a Roth? Yes or no. How about a tax-deductible IRA? Yes or no. If no, then you will always qualify for a non-deductible IRA. So you can contribute $5000 (or whatever the 2012 limit is) to your non-deductible IRA.

Can you then convert your IRA balance to a Roth? well that depends on if they reinstate the income limit on conversions or not. If no, then you can convert again. But if they do reinstate the income limit, you likely wouldn't be able to convert. But you could keep your money growing tax deferred in the IRA.

**elessar78** · 01-11-2011, 05:50 PM

Can you then convert your IRA balance to a Roth?

I've personally looked into this and it is possible albeit, what's the point? The thing with the IRAs is when you pay taxes on them. Traditional IRA, you pay upon retirement and Roth, you pay now. So in theory, by converting a Traditional to Roth you're circumventing paying taxes on the money. But Uncle Sam isn't so generous. I think there's a "penalty" or you have to pay taxes on the money retroactively.

Do you have an accountant? They can def be helpful since it looks like you generate a great cash flow.

**jpg7n16** · 01-11-2011, 10:26 PM

Originally posted by elessar78 View Post

I've personally looked into this and it is possible albeit, what's the point?

There are actually 3 types of IRAs:

Roth (you mentioned)
Tax-deductible IRA (you also mentioned)
and a Non-deductible IRA (meaning no tax deduction today, and earnings will be taxed when withdrawn)

People with high incomes (like the OP) do not qualify for 1 or 2, but do qualify for 3.

By leaving the non-deductible IRA as a non-deductible IRA, you get no tax break today and no tax break when withdrawn. By converting that money to a Roth, you still don't get a tax break today, but you do get one when withdrawn.

So the question then is, "since you cannot deduct the contribution today, would you like to be taxed when you withdraw the money or not?"

**DebbieL** · 01-12-2011, 12:46 AM

If it isn't too nosy of me to ask, I'm very curious about what field you are in? Your pay (from both jobs) sounds great, and to be able to make 95K from a job at home is amazing to me. I'm currenly studying accounting myself. It will (most likely) lead to a 6 figure income (in time), but it will take me a while to get to that level.

**TCubed** · 01-12-2011, 08:26 AM

DebbieL,

Sure, but I would rather say the details over PM - and there doesnt seem to be PM capabilities on this forum... no matter, you can email me at ayakalam at gmail dot com

JPG

I think I now see what you are saying about the roll-overs/conversions. But let me get this straight:

Lets say I open a non-deductible IRA today, put 10K in it. Call this account 'A'. Then tomorrow, I convert it to a Roth. Call this account 'B'. So now account 'A' no longer exists, but is now account 'B'. (taking advantage of the new no-income-limit-for-conversion-law this year). Very good. Now, 2012 rolls around, and I still don't qualify to put anything into my Roth (account 'B'), since I make too much. In this case now, are you saying I can just open a new non-deductible IRA, (call this account 'A2'), and then also roll it into the already existing 'B'? And basically repeat every year? In other words, open non-deductible IRA A2, A3, A4, A5... every year, and then just roll them over into 'B' always? (Assume above law still exists).

Thanks again guys.

30 year old, dismal retirement fund. Advice appreciated