Is It Time To Switch To Roth IRA Contributions

Currently, I contribute all of my retirement contributions via my employer’s 401(k) plan.  I don’t quite max it out yet, though I’m working toward that goal.  However, I’m giving serious consideration to ceasing contributions, and instead contributing to my Roth IRA instead.  Here are a few considerations:

No Match

Right now, my employer doesn’t match anything, so there’s no discernable benefit to contributing even a penny to that plan as far as that goes.  They did a nice match for awhile, but cut it at the height of the recession, and all signs point to a continuation of the ‘no match’ policy.

Tax Considerations

One of the big reasons I’m thinking of switching is because of the eventual tax considerations involved between the two.  According to today’s rules, I’ll eventually have to pay income tax on my 401(k) withdrawls, but not so on the Roth IRA contributions.  Assuming that this policy holds true for the monies in the accounts, I think it would be good to have a balance between the two.

Contribution Amount

mb-money201308Because the 401(k) is pre-tax, whereas the Roth IRA would be post-tax, the up front effect would be that I’d be contributing less.  If I suspended contributions to the 401(k), I would take the resulting difference in my paycheck and contribute that toward the Roth IRA, so the net effect would be zero in terms of my ‘net pay’, though a $400 contribution today could be a $300 contribution tomorrow.

Market Effects

The market has performed so well that the difference has probably worked in my favor.  By contributing more, I’ve been able to take advantage of the gains with the extra money involved.  If I were to switch to a Roth IRA, I’d be betting that the massive gains would be tapering off, at least in the short term.  I’m starting to think that the market is ready for a breather, so this would be a good time in my mind.

Automatic Allocations

One thing that I like about the 401(k) is that my money is divided up between funds that I choose which give me a good allocation.  I’d have to discover how to make these allocations on a regular basis.

Transaction Fees

There are currently no up front transaction fees with the 401(k), but depending on what my investment preferences are, I could pay $10 per transaction, as my Roth is currently through Ameritrade.  They do have no-fee funds, but I’d have to do some research to see if they are comparable.  If I were to purchase anything with a transaction fee, I’d have to determine the threshold on when to make transactions.  I wouldn’t want to make a $300 investment every pay period, for example, and pay a $10 fee each time.  That would be a 3.3% investment fee right off the top.  Instead, I’d have to accumulate the cash to a point where it made sense.

Maintenance Fees

I do a regular check to make sure that I’m not involved with funds that charge over a 1% annual maintenance fee as I believe anything above that is too high. I’d have to carefully look at whether the fees and results are comparable with the options available.

More Options

Should I choose, I could invest in individual stocks with my IRA contributions.  Some argue that you should never do that with retirement investments.  I’d have to do research and give some serious weight of the pros and cons.  Right now, it’s an ‘out of sight, out of mind’ thought process.


Right now, my retirement allocation never hits my paycheck.  With the option of having it deposited and more ‘available’, would the temptation exist to defer some of the retirement contributions?  Regularly or even occasionally would be detrimental to the long term goal of a fully funded retirement.  Knowing myself and my financial personality, I believe the risk to be extremely low, but it’s still a factor worth considering.

There It Is

So, there’s the long and short of what I’ve taken into consideration.  I’m curious what you think, readers, and if any of you are in this boat, what you’ve done and how you go there.  Are there any factors I haven’t thought of or mentioned?


Tips for Getting a Personal Loan When You Are Retired

Living on a fixed income is not always easy. Unfortunately, retirees often encounter unexpected situations that they do not have enough money in their savings account to cover. It might be something simple like an appliance breaking, or it could be a medical emergency. While older people tend to have good credit scores, they also have a limited monthly income, which may worry lenders. If you need to apply for a personal loan, here are some tips to increase your chances of being approved.

Figure Out What You Can Afford

If you do not already have one, create a budget that shows your income and your expenses. For one thing, it will help you figure out how much of a loan payment you can afford. Secondly, it will also give you something to present to the lender that shows that you will be able to repay the loan. Even if you find out you can afford to borrow more money than you thought, only borrow as much as you need. Do not go any further into debt than you have to.

 Try Alternative Lenders

Going into a traditional bank may not be your best option. Online loan referral websites allow you to fill out one application and then they match you up with potential lenders. You can easily evaluate the different offers to find the one that best suits your needs. Make sure that you get a fixed interest rate loan no matter which lender’s offer you accept. The last thing you want is for your loan payments to go up unexpectedly.

 Check Your Credit Report

Because they often do have good credit, senior citizens present a very attractive target for identity thieves. Pull your credit reports from Trans Union, Experian and Equifax and make sure there are no accounts on there that do not belong to you. Sometimes accounts between family members, such as fathers and sons with the same name, can get mixed up as well. Examine all three reports and dispute any errors if you find them.

 Secure Your Loan

Another way to help alleviate lenders’ concerns about your income is to use assets to secure your loan. Many people use their home as collateral. If you have a 401k plan or a ROTH IRA that you do not want to tap into, you may still be able to use that as collateral for your personal loan. Cars, watercraft, and even some investments are all things you may be able to use to secure your loan. Secured personal loans often come with better interest rates as well.

Getting a personal loan is difficult for most people, but it can be even more difficult to do after you are retired. However, do not let lenders intimidate you or try to talk you into loans that do not make good financial sense. If you have all your paperwork together and you carefully research your options, you will eventually be able to find a lender who will offer you a loan with reasonable terms.

Editor’s View: I agree that it is likely difficult to obtain such a loan for those who are retired, simply because income streams are usually not such to where a lender would consider you a good risk.  If you are not too far along into retirement and finding yourself in this situation, you may well want to re-consider whether you’re truly ready for retirement.  Obtaining loans will get increasingly difficult, and will have more ramifications on your overall retirement strategy the further into your retirement you get.

About the Author: Dona Collins is a personal finance specialist and writer with a passion for helping other succeed financially.

How Balanced is Your Retirement Portfolio?

This post contains guest content.

There is nothing more important than planning for retirement. Whether you are in your 20s or in your 40s, it is always the right time to start thinking about how you will support yourself in the retirement years. It is essential for you to think about the way in which you will distribute funds in a Roth IRA or 401(k) account. As you devise your portfolio strategy, here are some tips to consider.

1. If you’re young, choose high-growth stocks.

If you are young, then you have time on your side. Think about choosing some stocks that are considered a riskier investment. This does not mean that you should not look into the actual value of the company as well as its debt-ratio. You should still make sure that you are investing in companies that have high value. Just know that you can afford to invest in pharmaceutical, “green” or tech companies. These types of companies are set for high growth in the upcoming decades.

2. If you’re older, choose conservative stocks.

If you are in your mid 40s or older, then you should choose conservative stocks for your portfolio. Stay away from stocks that have a high risk. You need to have access to funds during your retirement years, so this should be your main goal. You do not have time to waste in losing funds from your portfolio.

3. Give mutual funds a chance.

Mutual funds can provide you with a great opportunity for growing your portfolio in a safe way. Try to find a mutual fund that has consistently performed in the past five or ten years.

4. Stay away from penny stocks.

Penny stocks are a great trap for people of all ages. Older individuals get lured into the idea of making “fast cash” with penny stocks. Younger people believe that they can keep their money in penny stocks for years and experience growth. The truth is that a majority of companies with penny stocks are going through bankruptcy. You should try to avoid investing in these companies.

5. Research the debt-ratio of a company before investing.

Lastly, always make sure to research the debt-ratio of a company before you put your money into the company. If a company has many outstanding debts, then it may be at risk for filing for bankruptcy.

When you invest, it is essential to keep these tips in mind. You will be able to create a solid portfolio by just remembering to consider your own circumstances. Another tip would be to meet with an investment service. You don’t necessarily need to pay someone to advise you on everything, but getting some professional advice might be wise decision.

About the Author: Jenna Smith is an online blogger who normally writes on the topics of personal finance and business. Jenna often writes on family finance and investment. You can read more writing by Jenna at

Figuring Out the “Where” Of Retirement

Planning for retirement involves asking – and answering – a number of important questions. When are you going to retire? How are you going to save money for your post-career life? What investment vehicles (IRAs, 401Ks, money markets) will you use to insure the optimal amount of savings? Certainly, there are plenty of questions to ask and factors to consider whenever retirement comes to mind.

But while you’re busy answering the whens, hows, and whats of retirement planning, make sure not to forget an important but oft-overlooked question: the “where.” Specifically, where do you envision retiring when the time comes? You don’t need to have concrete and detailed plans, but it’s important to have a good conception of your retirement location when planning savings and spending during your work life.

The first step in addressing the “where” is to determine whether you plan to stay in your current home, move elsewhere (i.e. to a condo or smaller residence) in your local area, or move to another region of the country or the world altogether. Most people choose to stay in their local area out of contentment, familiarity, and family ties. If this sounds like a situation that you may find yourself in, you then want to determine whether you stay in your home or try to downsize your residence. My wife and I could never imagine leaving our home once our mortgage is finally paid off. Others, however, want to seek out a smaller living space or a more vibrant neighborhood once their careers are over and their children are grown. And still others, of course, will choose to move across the country in search of warmer weather and a more retiree-friendly lifestyle.

So what’s the value of figuring this all out now? While it’s always good to plan ahead from a logistical perspective, the real benefit of location planning is much more real: it allows you to answer the “how” question and determine exactly how much money you’ll need for retirement. The general consensus is that a retiree will need 70 to 80 percent of their annual income in order to retire comfortably. Use this number as your starting point. Then, factor in the “where.” If you plan to stay in your current home, expenses will generally be lower and you can bump down your estimate to as low as 60 percent. You may also be able to save less if you plan to move to a college town or to a rural area where the cost of living is lower. On the other hand, a move to a condo downtown or to a highrise in San Diego will likely push you to the 80 percent level and beyond. This isn’t simply the result of housing costs; it also reflects higher entertainment and meal expenses, two areas where retiree spending falls on all parts of the spectrum.

All this is to say that location matters when retirement is concerned, and that you can best plan and prepare by considering location sooner rather than later. You may find that your location allows you to save less than you originally thought. Or you may need to save more or retire later in order to live comfortably in your desired location. Either way, it’s good to ask the “where” of saving now so that you can enjoy the “where” of retirement later.

This is a guest post.

Does The Savings Rate Include Retirement Savings?

I’ve always been curious on what the personal savings rate actually includes.

The personal savings rate has been a newsmaker for the last couple of years.  Before the recession, we were actually saving in the negative territory, with the difference largely fueled by taking loans against (phantom) home equity.

Now, we’ve returned to a positive savings rate, which is good except for when economists complain that spending is necessary to fuel the economy (I’ll save that paradox for another day).

When I look at what our savings rate is, the short answer is:

I have no clue.

Usually answers to questions like that are pretty straightforward if you know how to search Google. When I did a Google search, some answers said yes, some said no, some said it all depends.

If our 401(k) contributions are to be counted, we are well above double digit savings rate.  If not, then we’re well below that.  I’m personally comfortable with this, but as to whether the government statistics would say so, who knows?

Does anybody have a definitive answer after wading through all the rhetoric on whether retirement savings are considered part of the savings rate?  Does it even matter?

How Do You Switch From Saving To Spending?

Sometimes a commercial catches my eye as one that really delivers on the message it’s trying to get across.

One group that I’ve seen lately is the Fidelity ‘green line’ commercials, where there is a ‘green line’ guiding someone down the path to their financial goals, and of course that green line is the input and help that Fidelity offers.  They seem to be focusing on the ‘end of the green line’ leading towards retirement.

I don’t know why but the commercials work for me.  I don’t use Fidelity for anything and have no immediate plans to use the type of services that they’re offering, but I can see how they would be appealing to those who would.

It made me think.  I wonder if they offer, not only the best way to save and get to the goal of retirement (though I won’t be able to retire by 40 *sigh* but one can dream), but how to make the transition once you get there.

Since I’ve started working, I’ve been focused on saving.  The goal is to build wealth, save money, and work so that you can accomplish big things along the way but also eventually have a retirement.

That seems like it would be a very big switch.  You have been tooling along for decades trying to save and save, and now suddenly your goal is no longer to save, but to spend.

You actually expect your net worth and savings/investment accounts to start going down in value.

That alone seems like a very scary prospect to change that mindset, but it’s all part of a personal finance plan that should be in place if you’re ready to retire.

I wonder, do these firms offer any guidance on the psychological, as well as the financial, aspects that go along with retirement?  If you’re retired, how did you make this switch?  If you’ve got retirement on the horizon, how do you prepare for this?