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Thoughts on the ROTH

April 15th, 2009 at 08:28 am

I changed our retirement contributions around.

I made my last 2008 contribution on Monday. We maxed out 2007 due to a windfall but didn't even bother trying in 2008. But I always put as much as I can into the prior year. So if we were to have another windfall, or dh were to return to work, we don't let go of ROTH contributions foolishly.

Anyway, since January I have been contributing $350 per month to MY ROTH simply because it was the only financial institution I Could figure out how to make 2008 contributions to automatically, during 2009.

Dh and I view our retirement (As everything else) merely as "one." That being said, he does not work and I have a pretty awesome retirement plan at work. The only downside, and it is a big one, is that if something happens to me, dh only gets something like 50%. I didn't even necessarily realize this until rather recently when I updated my paperwork to add my children as secondary beneficiaries.

Anyway, so between those 2 factors, I think it is a priority to plump up his ROTH. I will probably get $8k in my work plan this year. We will probably only put $4k-$5k into the ROTHs. Seems fair that it should go to him. (In the meantime, life insurance makes up for this unfortunate fact).

That being said, my boss will retire in a few years and I can roll my work retirement into an IRA. So this is certainly not the situation forever.

I am contributing $50/month, going forward, to my ROTH. Just to keep it rolling. I am contributing $300/month to dh's ROTH starting in May. I just set it all up for automatic contributions. Since the last couple of years we have only been contributing around $100/month max, we have stuck to the "retirement funds" and "Total stock indexes." As I changed things around my $50 continues to go to a "retirement fund" and dh's contributions are 50% total stock index/ 25% international index / 25% balanced fund. We haven't bought much international since the market dropped, so it's good to jump back in at lower prices.

I read something the other day like those Retirement funds are risky. Some are down 50%! Well, sure, if you just contributed once, at the peak, and never looked back. Dollar cost averaging significantly smooths those bumps. My "retirement fund" is down 20% today. I have contributed every month since mid 2007. I became a fan of dollar cost averaging when I had my 401k at my last job. It REALLY helps when the market slides anyway. We've unfortunately contributed most of our retirement monies in 2000-2001 and 2007-2008. Great! Right before the busts. But the dollar cost averaging makes it manageable. The losses are significantly muted. Being able to continue to contribute while the market is in the toilet, does pay off in the long run. WE are literally about breakeven - the balance in our retirement today reflect the initial contributions we have put in the last decade. Which kind of sucks that we don't have gains - but happy to say we truly have not "lost" much.

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This year has been good to us. We met our 15% gross to retirement and 10% gross to cash savings goals in one fell swoop. I was hoping to meet these goals when LM garduated preschool. Our home refinance and his unplanned switch to a much cheaper school has made these possible about 18 months of schedule.

So I have been stepping back and looking at our startegy. My goals are clear. The best way to achieve them are not.

Maxing out the ROTH (basically, maxing out a second one) is clearly a priority. WE are still in a virtually zero tax bracket and we would be crazy not to take advantage.

Other goals are to save for college and to pay down the mortgage ahead of schedule. I will put up with a mortgage that is reasonable and cheaper than renting, in the short term. In the long run we are extremely debt adverse and want it paid off well before retirement.

I am worried about affording our health care, as usual. But besides those types of expected expense increases there is not a lot on the horizon. WE are very content with our "Wants" spending at present. I know dh wants more gadgets and we talk about more grand vacations when the children are older. But those things can wait for a second income or a big raise. In the meantime we are quite content. The nice thing for our wants wish list is most of them are one time expenses. Nothing we necessarily need a permanently increased income for.

I have personally been tempted to stop or greatly reduce ROTH contributions just long enough to get our cash savings up to snuff. It is TEMPTING!!!!!! IF we had $30k in the bank I think our current $5k annual cash contributions would suffice. But with the market in such a tizzy, dh and I decided to continue the ROTH contributions as is. We are instead nearing $20k in the bank, and so have a decent amount of cathing up to do. But for now we are optimistic we can max out one ROTH and get our savings up to snuff in the next year or 2.

As far as maxing out the second ROTH? If we can avoid using our medical deductible, we can max out a second ROTH, maybe in 2010. We could contribute that money to a HSA but I like HSAs about as much as 529s. Lots of fees and little flexibility. Which leaves me of the opinion that HSAs and 529s will be our friend when my spouse returns to work and we have more savings than we know what to do with (& when our income tax rates are higher). In the meantime? Not ready to contribute to a HSA or a 529. They make little sense for people in our situation.

Which leads me to thoughts on college. No one in my family has spent much on college, and prices are still quite reasonable in California. In fact, my parents did not save a dime of money for me for college and since dh's parents are huge college money gifters, my kids have about as much money as my entire college education cost (a whopping $10k) at age 3 & 5. IT's not something I particularly sweat, and is another reason I would not save TONS in a 529. BEcause you get penalized on the money that is not used for college.

I have been thinking about it and maxing out our ROTH would put us about 25% contributions to retirement. Clearly more than necessary (we have always put away 10% - 15%, since we graduated college). As long as we are in this position I have decided not to contribute more money to the kids. The one exception is I may contribute a little more so I Can diversify their funds a bit more. (Since every fund needs a certain minimum). Aside from that, the ROTHs will become triple purposed. They hold some of our cash emergency fund, they hold a decent amount of our true retirement funds, and now they will hold a decent amount of investments for college in the offchance our kids "must" go to Stanford or something along those lines. In the meantime, truth is, their college will probably be paid for by the grandparents anyway. So even if dh returned to work, not sure we would go the 529 route... I view it more as contributing to retirement, but I can still sleep well at night if I am REALLY wrong about the whole college thing.

Which means simply, after thinking about it, the only true goal we have once our retirement vehicles are maxed, is to pay off the house.

Dh's income literally went about 100% to our house when he worked (down payment). & I think we will resume this plan when/if he returns to work. Literally, take his paycheck and pay down the house. It's amazing to me what a huge difference a mere $5k a year in income could make. That would be quite a dent. But yes, I think we have come full circle.

I tend to be extremely idealistic so we shall see. One thing at a time...

I just wanted to share my thinking with my current goals. They always seem to be evolving as circumstances change.

1 Responses to “Thoughts on the ROTH”

  1. Analise Says:

    You made a good point regarding the cost of college in CA. Both the CSU and UC systems are more reasonable than private universities and have excellent programs. Your kids will probably continue to get college $$ from grandparents, so I think focusing on your retirement and mortgage pay down makes good financial sense.

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