Funding IRA vs Savings

phillywife2007 · March 2015

Hey guys,

I'm kind of late in starting an IRA(29 and H is 34), self employed so no 401k, and curious as to what everyone is putting towards retirement. Currently, trying to slowly make changes into my budget, seems like as our income increases, so do our expenses, so hard to stay on track and we don't even have kids yet !
I'm contemplating a second job to fund ira/savings, if need be.

Any suggestions/advice is welcomed !

Thanks for looking, Erin

als1982 · March 2015

Our employers match 5 and 6% percent respectively, so we put that much in our work IRAs. Additionally, we each max out a ROTH, which is about $915 a month deducted like clockwork on the 15th of every month. We prefer a 'set it and forget it' approach.

Do you have debt? Other savings?

hoffse · March 2015

Conventional wisdom is that if you start in your 20's, you need to aim for 15% of gross income. If you start later, you need to save more than that.

IRAs have fairly low contribution limits (only $5500/year per person), so you may need to use regular investments too that you just mentally designate as retirement and do not touch for anything else.

I strongly suggest looking at using Roth IRAs instead of traditional IRAs at your age. You make your contributions with after-tax money, but then it grows tax free. You don't pay taxes on the earnings when you withdraw it during retirement. WIth traditional IRAs you will get a tax deduction in the year you contribute, but then you pay taxes on the earnings AND the initial contribution amount when you withdraw it during retirement. I suggest doing everything you can to afford the Roth option.

vlagrl29 · March 2015

DH and I are both self employed and we each have our own IRA that we put money into each month. I set aside extra money and basically divide it in half so we each have some to invest. We also have a few saving accounts. The money you contribute to your IRA is tax deductible. The most you can deduct from taxes is about $5k, but you can put even more in there if you want, you just won't get the tax deduction. I hope to be doing that one day

vlagrl29 · March 2015

Also - don't get a corporate job to just fund a 401k. If you love what you do stick with it and try to make more money in what you already love doing. That's what we do.

vlagrl29 · March 2015

vlagrl29 said:
DH and I are both self employed and we each have our own IRA that we put money into each month. I set aside extra money and basically divide it in half so we each have some to invest. We also have a few saving accounts. The money you contribute to your IRA is tax deductible. The most you can deduct from taxes is about $5k, but you can put even more in there if you want, you just won't get the tax deduction. I hope to be doing that one day

I think I got confused. With a normal IRA the max is $5,500, but with a self employed IRA you can put more into it than that. It's basically for people like us who only have themselves to contribute to retirement. Not sure the limits but it's a lot more than 5k. I plan on rolling my IRA into one once we max out our current limits, but we aren't close to that yet. one day.

ETA - its called a solo 401 (k) and contributions are around $17k each year.

JoanE2012 · March 2015

hoffse said:
Conventional wisdom is that if you start in your 20's, you need to aim for 15% of gross income. If you start later, you need to save more than that.

IRAs have fairly low contribution limits (only $5500/year per person), so you may need to use regular investments too that you just mentally designate as retirement and do not touch for anything else.

I strongly suggest looking at using Roth IRAs instead of traditional IRAs at your age. You make your contributions with after-tax money, but then it grows tax free. You don't pay taxes on the earnings when you withdraw it during retirement. WIth traditional IRAs you will get a tax deduction in the year you contribute, but then you pay taxes on the earnings AND the initial contribution amount when you withdraw it during retirement. I suggest doing everything you can to afford the Roth option.

Subject to income limits. And the Roth has income limits too, so it may not be an option for everyone.

phillywife2007 · March 2015

Als1982:

Are you doing $915/month for both of you or individually ? We do have debt, two car payments, a student loan for me, nothing too crazy. Currently, we typically have about anywhere from 1k-1200 extra to put towards savings and ira per month. However, that will be increasing in 2 months to about 400 more, but we also want to do a vacation, so I'm trying to gauge what should be going where.

phillywife2007 · March 2015

Hoffse:

Thanks for the info, I was unaware of the 15% estimate, thats painful, but doable haha. I have familiarized myself a decent amount with all my ira options and the income and contribution limitations. Like you suggested, I am leaning more towards the Roth IRA, definitely seems like the better option for us, thanks for the input !

als1982 · March 2015

The $915 is for both of us. The amount ends up totalling right at $5,500 per person annually.

phillywife2007 · March 2015

vlagrl29: No worries on me getting a corporate job ! I certainly love what I do, and would stay in that field. Going to hold out alittle longer on the possible 2nd job, until a couple things are paid off to free up more money, although if our medical insurance keeps increasing I wont have a choice ugh !

vlagrl29 · March 2015

phillywife2007 said:
vlagrl29: No worries on me getting a corporate job ! I certainly love what I do, and would stay in that field. Going to hold out alittle longer on the possible 2nd job, until a couple things are paid off to free up more money, although if our medical insurance keeps increasing I wont have a choice ugh !

what about getting on the ACA. We have a family plan that only costs $159 per month with a very low deductible.

hoffse · March 2015

JoanE2012 said:

hoffse said:
Conventional wisdom is that if you start in your 20's, you need to aim for 15% of gross income. If you start later, you need to save more than that.

IRAs have fairly low contribution limits (only $5500/year per person), so you may need to use regular investments too that you just mentally designate as retirement and do not touch for anything else.

I strongly suggest looking at using Roth IRAs instead of traditional IRAs at your age. You make your contributions with after-tax money, but then it grows tax free. You don't pay taxes on the earnings when you withdraw it during retirement. WIth traditional IRAs you will get a tax deduction in the year you contribute, but then you pay taxes on the earnings AND the initial contribution amount when you withdraw it during retirement. I suggest doing everything you can to afford the Roth option.

Subject to income limits. And the Roth has income limits too, so it may not be an option for everyone.

There are ways to get around the income limits with the Roths.

Funding IRA vs Savings

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