Investments - RothIRA, IRA, etc.

[DigitalCancer]

So...I'm 27 and getting scared from old age b/c my wife and I do not have ANY sort of savings. Our combined income is right at $60k right this second but, we both plan on going back to school sometime soon if possible.
We have (2) cars that are around $32k total (yes, I regret buying new) that are about 5yrs from being paid off. Other than that, just a $12k student loan from my wife's schooling.
We're both actually wanting to change professions all together and we're looking at room-mating with her sister this month (we've got an apartment already) and her sister is going to pay half of one of the car payments.

I'm wanting to find a good way to invest...I've heard that a RothIRA is the best way to go and I almost started one yesterday with INGDirect (I have a savings account with them) but it gave me the max of $5000/yr, I think I'm ok with that as long as I make under $120k right? It kind of confused me with some of the additional information it gave me.
I also cancelled b/c I would like my wife and I to invest in the same one, then we should have a max of $10k/yr right? Is there any benefit to investing in one together as opposed to separate ones?

I need some good ideas to invest, something that I can toss some money in and just let it sit and build over time.


Notes:
Wanting to invest for retirement...best way?
Income = $60k
CarDebt = $32k
OtherDebt = $12k

 

[krunchykrome]

Do either of your employers offer some kind of retirement plan (i.e. 401k)? If so, I'd start there, and contribute enough to get the max match from your employer.

 

[DigitalCancer]

Yes, my wife has a 401k but we don't know much about it (she plans on leaving this company this year if possible as well so I'm not sure that it's feasible?) What happens to the money in a 401k AFTER you leave the company?

My company has a 401k but from what I've heard it's not very good.

 

[Vette73]

First thing to do is find out the interest rate of your debt. If it is high then hit that first.
Then cut as much debt/bills as you can to fit your long term goal of school and job change.

ROTH IRA is good as you can take the principal out without any penalty, unless there is one in the plan.
IRA is good if it helps you get to a lower tax bracket but that does not seem to be a issue unless you are near a bracket for student loans/scholarships and they look at after tax money.
Any 401k match options at work? Those are the best to start with if there is a match.

 

[Vette73]

401k money just stays there. So you can roll it into a IRA for your control, roll into another 401k at new job, or leave at currnet 401k if they allow and it has lowwer fees than other options.

 

[Macamus Prime]

Def do 401(k) with the employer; especially if they match your contribution (usually up to 4-5&#37.

Roth IRAs are NOT tax deductible, but when you retire, they will not tax your investment earning once you retire and start pulling money.

Traditional IRAs can be tax deductible. However, when you do retire and pull money out (over $20K?) they will tax you.

I suggest 401(k) and Roth IRA.

Also, when your wife leaves her company, she will be able to roll it over to the new company's plan.

Please note, you WILL see your money get shit canned when the next "bubble" happens. Also, when you are old and grey, your retirement plan WILL dip as well; again, bubbles burst every 10 years or so. Unfortunately, there aren't any retirement options, with growth, that are not affected by the capital markets.

You can just save, but, your money won't grow much.

 

[DigitalCancer]

oh, so a 401k stays with you? I've not looked too much into them and assumed they were a company thing and if you left the company you had to take out the money or lose it.

 

[Texashiker]

Investments - RothIRA, IRA, etc.

My suggestion, invest into real property.

Over the past 10+ years I have been in several IRAs, and have lost money in all but 1.

The first company I worked for that had an IRA, when I set it up I told the person helping me that I wanted low risk guaranteed return. We talked about the plans available and their risk. I picked the absolute lowest risk that they offered, but with almost the lowest return. Somehow, everytime my report would come in it showed that I was losing 20% of my investment. So I called the company managing my 401k, they refused to disclose "why" my account was losing money. After going with something the financial advisers told me was a good investment, I still lost 15% - 25% of my investments. Finally, I told them to screw that and to give me what was left of my money back.

second company was not as bad as the first one. I think I only lost about 10% on that one.

Third company, finally, after years of trying, the 401k is giving something back.

Another company I worked for - but I did not join the 401k, they were losing 20% - 30% of the investments. But this was right about the same time that NAFTA was passed that the stockmarket was booming. All they had to do was invest into something like coke-a-cola and the comapny could have given the investors a nice return. But instead, they were losing money.

As far as I am concerned, most 401ks are a rip off. One month your doing good, and the next month you lost 25% of your investment - and the investment companies are not held responsible. When you contact them, they tell you its not "their" fault that they lost your money. But they are the ones managing your money.

At least with a 3% interest bearing CD, your drawing the same rate as inflation. And your not losing 20% of what you put in.

Do some research into how much money was invested when the government passed the 401k laws, and then read up on how much money the banks lost in the recent crash.

 

[Vette73]

oh, so a 401k stays with you? I've not looked too much into them and assumed they were a company thing and if you left the company you had to take out the money or lose it.

All are differant so ask HR. Some will make you take your money out or kick it to a IRA if it is not enough to stay.

 

[edro]

Yes, my wife has a 401k but we don't know much about it (she plans on leaving this company this year if possible as well so I'm not sure that it's feasible?) What happens to the money in a 401k AFTER you leave the company?

My company has a 401k but from what I've heard it's not very good.

If your company matches ANY percentage, it is worth it to invest in 401k.
Even if your wife is planning on leaving, go ahead and start it anyway.
It is free money you are throwing away.

If your company doesn't match your contributions, then you might be better off using a non-corporate 401k/IRA, or simply using a RothIRA through ING.

I agree that a 401k is the best starting point for investing, since the company match is free money and it is simple to contribute because it is withdrawn from your paycheck automatically.

If you leave your employer before you are fully vested (usually 5 years), then you keep the amount you contributed and the company takes back whatever they matched.
You can keep it in the same account and let it grow, or you can roll it over into your new 401k with your new employer, or into a private IRA of your choosing. You don't "lose" anything.

Also, I agree that property is one of the best investments. Not HOUSING, obviously, but property is.
Unfortunately, you are not financially able to invest in property yet.
Stick with IRA/401k or simple SAVINGS for now.

 

[aldamon]

I prefer traditional IRAs to Roths because I don't believe Roths will be tax free in 25 years when I retire (long time for the government to stay honest). I prefer to get the tax benefit and have more money to invest now. Some people prefer getting both to hedge.

Anyway, if you're looking for good investments, try to pick index funds with extremely low fee ratios. That way you're not paying someone with your profits. Very few fund managers can beat the index funds.

 

[Bignate603]

oh, so a 401k stays with you? I've not looked too much into them and assumed they were a company thing and if you left the company you had to take out the money or lose it.

Your contribution (the money that you put in) to it should always remain yours. However if the employer does any matching that may not remain yours until some conditions are met. For example, for my employer if you leave before working there for 3 years you lose their contribution. This varies based on your employer so you should ask for information from HR.

There are ways to roll the money into other accounts to avoid paying taxes for withdrawing it so that shouldn't worry you.

 

[purbeast0]

in order of what to invest in IMO, and i'm NO expert at all at investing, but this is just a rule of thumb I've heard from numerous places.

1. Max out 401k.
2. Max out IRA/Roth IRA
3. Mutual Funds

And this is all after making sure you have some kind of cash/emergency savings.

 

[highland145]

snip

Sounds familiar. Welcome to the largest ponzi scheme in America, Wall St.

 

[Blieb]

Roth IRA limits ...
$5k per person max - so you can do 10k, you can't do them "together" ... the I stands for Individual. So you can have your IRA, and your wife has hers. Thinking of them as one is ok, but they are separate.

2010 limits:
AGI < 105k for single filing
AGI < 167k for joint filing

That means if you make more than the limits, they start phasing out your ability to contribute (you could still do regular IRA).

http://www.money-zine.com/Financial-Planning/Retirement/Roth-IRA-Contribution-Limits/

 

[nickbits]

I prefer traditional IRAs to Roths because I don't believe Roths will be tax free in 25 years when I retire (long time for the government to stay honest). I prefer to get the tax benefit and have more money to invest now. Some people prefer getting both to hedge.

Anyway, if you're looking for good investments, try to pick index funds with extremely low fee ratios. That way you're not paying someone with your profits. Very few fund managers can beat the index funds.

But you don't what the tax brackets will be for a traditional with you withdraw the money. With the USA heading towards socialism, they could be up to 50% (top marginal rate in Canada) by the time you retire.

I have a lot more faith that they won't mess with the Roth IRA, at least for existing accounts.

 

[Blieb]

I prefer traditional IRAs to Roths because I don't believe Roths will be tax free in 25 years when I retire (long time for the government to stay honest).

Agree and disagree. I already paid the friggin' taxes on my ROTH money! I dont' expect them to get me for what I've already done, but I could see them getting rid of the ROTH category and not allowing new accounts or contributions.

 

[ichy]

An IRA is not an investment, it is a type of account that you place investments in.

 

[stargazr]

My suggestion, invest into real property.

Over the past 10+ years I have been in several IRAs, and have lost money in all but 1.

The first company I worked for that had an IRA, when I set it up I told the person helping me that I wanted low risk guaranteed return. We talked about the plans available and their risk. I picked the absolute lowest risk that they offered, but with almost the lowest return. Somehow, everytime my report would come in it showed that I was losing 20% of my investment. So I called the company managing my 401k, they refused to disclose "why" my account was losing money. After going with something the financial advisers told me was a good investment, I still lost 15% - 25% of my investments. Finally, I told them to screw that and to give me what was left of my money back.

second company was not as bad as the first one. I think I only lost about 10% on that one.

Third company, finally, after years of trying, the 401k is giving something back.

Another company I worked for - but I did not join the 401k, they were losing 20% - 30% of the investments. But this was right about the same time that NAFTA was passed that the stockmarket was booming. All they had to do was invest into something like coke-a-cola and the comapny could have given the investors a nice return. But instead, they were losing money.

As far as I am concerned, most 401ks are a rip off. One month your doing good, and the next month you lost 25% of your investment - and the investment companies are not held responsible. When you contact them, they tell you its not "their" fault that they lost your money. But they are the ones managing your money.

At least with a 3% interest bearing CD, your drawing the same rate as inflation. And your not losing 20% of what you put in.

Do some research into how much money was invested when the government passed the 401k laws, and then read up on how much money the banks lost in the recent crash.

There is no a relationship between 401K's and IRA's advantages/disadvantages and actual performance to your actual performance. Whether or not you're successful depends on the investment choices made, and when.

Sounds like someone else did the decision-making. Did you have the option to pick your investments online? The only bad thing about a 401k would be if there were only 4 or 5 funds to choose from. Wal-Mart plans are like this, the only individual stock you can buy is Wal-Mart!

These financial devices are excellent because the deposits are tax deferred, no tax till withdrawal. All the better if your employer contributes.

When you leave a job, most instances require that you withdraw your funds. I would recommend it. Why leave your money in their fund?

You can roll them over to an IRA. If done properly you will not pay the income tax until withdrawal at retirement.

 

[aldamon]

But you don't what the tax brackets will be for a traditional with you withdraw the money. With the USA heading towards socialism, they could be up to 50&#37; (top marginal rate in Canada) by the time you retire.

I have a lot more faith that they won't mess with the Roth IRA, at least for existing accounts.

Yeah, I don't know what the tax bracket will be but what I do know is I'll be "making" far less money then so it's not going to be much of an issue. Also, my IRA will be dwarfed by my 401K, so we're really only talking about no taxes on a small percentage of my entire portfolio at retirement.

A tax break now, and more money compounding for the next 25 years, is a sure thing. I'm also more disciplined and aggressive about funding my IRAs when there's a tangible benefit at tax time.

I guess this difference of opinion is why both products exist.

 

[chusteczka]

I see a combination of school, work, debt, and investing in what you have written.

Paying off debt may be better than investing if your auto loans are at 5&#37; and your investments bring less. The tuition loan may not need to be paid if your wife (loanholder) returns to school fulltime.

Will you or your wife return to school full-time or part-time?

If you are willing to work while going to school, it may be beneficial to see if your employer has a paid tuition benefit program. If not, it may help to find an employer that will pay your tuition while you return to school.

If you consider returning to school full-time, I would not consider investing any money. During full-time work, any money you have needs to be focused on living expenses and meeting the monthly payments for the debt (auto loans).

EDIT:
If you invest, start first with meeting the minimum match by your employer in your work 401k. This is typically between 3% and 6% of your salary.

For an employer offered 401k program, the quality of the program depends entirely on the quality of the funds available to the program.

 

[DigitalCancer]

We will both be going part-time most likely (we got's bills!)

I will work for another 5yrs and then I need 1.5-2yrs of no work for me so that I can focus on finishing my degree. (CRNA is what I'm going for and the last 2yrs are impossible to work and pass I hear, and there's some clinical's involved). My wife will most likely only be going for 4yrs (RN).

I would like to get out of at least one of the car's but I have no idea how to. One is 13&#37; and the other is 15% interest...I went through a BK (due to a previous divorce, filed with a 750!) and the wife has little credit. We're both almost in the 700's now so, we're doing better.

 

[Capt Caveman]

I would like to get out of at least one of the car's but I have no idea how to. One is 13&#37; and the other is 15% interest...I went through a BK (due to a previous divorce, filed with a 750!) and the wife has little credit. We're both almost in the 700's now so, we're doing better.

Jesus Christ, pay those suckers off or sell/trade into a cheaper vehicle. Are your work commutes long? No public transportation/car pool/car sharing options?

Based on your current income, debt and need for savings for school - first find out if your companies offer 401k matches. If they do, contribute up til the maximum match. Though if your wife is leaving her work place in less than a year, then she might not receive any match. Outside of that, I would start a Roth IRA. If you don't know much on investing, I'd suggest an index fund or target date retirement fund.

 

[DigitalCancer]

Jesus Christ, pay those suckers off or sell/trade into a cheaper vehicle. Are your work commutes long? No public transportation/car pool/car sharing options?

I would love to but we owe too much (we've had them about a year on one and less than a year on the other).

 

[DigitalCancer]

If you are willing to work while going to school, it may be beneficial to see if your employer has a paid tuition benefit program. If not, it may help to find an employer that will pay your tuition while you return to school.

My employer now does this, but only for an IT degree.

I'm looking to go into the Medical field, not really sure how to bust into that unless I go for a CNA? I would take an insane pay decrease and I would most likely be working more and odd hours that possibly wouldn't work out with school? Might be something for me to look into though...