Savings Account vs. Other Options

[gamegrrl]

I've been looking at what's offered by Navy Federal Credit Union (NFCU). I just needed to do something fast (before April 15th), for just a three year term. They're offering $100 right now for opening the IRA, too.

I don't really see myself getting too deeply involved with IRAs because after the 2013 tax year, I won't be able to take a full tax deduction for them as I can my 401K.

[gamegrrl]

BTW, my 401K is Target retirement fund. I'm really happy with how it has performed over the past year.

[coterotie]

You are correct, 59.5, however given that you're 57+ your risk is only 2 years at most.  I would take that risk given what you posted in your original posts.  I'm not saying put all of your emergency fund there, but given the tax advantages (25% return on ivestment the year the contribution is made, and the tax deferred return) I would take the risk, especially if you have some credit lines that could bail you out of an unexpeced car breakdown or ER visit.

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@gamegrrl wrote:

I thought I couldn't draw from my IRA until age 59 1/2.

And income-wise, this will probably be the last year that I can fully claim my IRA deduction because of income limits.

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[coterotie]

Sharebuilder.com doesn't charge any transaction fees for dollar cost averaging IRA accounts.  There is also a no-commission trading web site that just started up as well.  For education savings upromise doesn't charge commissions either.

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@Revelate wrote:

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@gamegrrl wrote:

I thought I couldn't draw from my IRA until age 59 1/2.

And income-wise, this will probably be the last year that I can fully claim my IRA deduction because of income limits.

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To clarify another post, the $100 / wk "dollar cost averaging" doesn't work out given the transaction fees most brokerages charge (between $5-$10); personally if it's more than 1% of the dollar amount I intend to transact on, I won't do it.  My minimum transaction currently is $1000 for $7.95, doing that on $100 is a whopping 7.95% right off the top, or approximately a year of gains if we look at historical market averages: make certain that the amount you're investing in any one transaction makes sense.

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[Revelate]

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@coterotie wrote:

Sharebuilder.com doesn't charge any transaction fees for dollar cost averaging IRA accounts.  There is also a no-commission trading web site that just started up as well.  For education savings upromise doesn't charge commissions either.

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@Revelate wrote:

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@gamegrrl wrote:

I thought I couldn't draw from my IRA until age 59 1/2.

And income-wise, this will probably be the last year that I can fully claim my IRA deduction because of income limits.

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To clarify another post, the $100 / wk "dollar cost averaging" doesn't work out given the transaction fees most brokerages charge (between $5-$10); personally if it's more than 1% of the dollar amount I intend to transact on, I won't do it.  My minimum transaction currently is $1000 for $7.95, doing that on $100 is a whopping 7.95% right off the top, or approximately a year of gains if we look at historical market averages: make certain that the amount you're investing in any one transaction makes sense.

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That's handy information, thanks!

[bobebob]

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@mongstradamus wrote:

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@gamegrrl wrote:

I thought I couldn't draw from my IRA until age 59 1/2.

And income-wise, this will probably be the last year that I can fully claim my IRA deduction because of income limits.

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If its an Roth IRA you can withdraw your contributions tax and penalty free. Just be aware that your contribution will be taxed.

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That is true.  But only IF the Roth account has been open for a minimum of 5 years.

My understanding of the 5 year rule is that to be considered a "qualified distribution" (I.E. tax and penalty free for contribution only or contribution and earnings if over 59.5), you must have held the account for a minimum of 5 years before the distribution is made.

So if the OP is just now opening a Roth account at age 57, he will have to wait until he is 62 (or 63 depending on his birthday and when the account was opened) to withdraw ANY of the contributions OR earnings tax OR penalty-free.

Given that traditional 401K withdrawals can be made penalty-free at 59.5, it seems pointless to me to have the OP put his money  in a Roth account where he will be penalized for withdrawing it for 2-3 years longer than in a traditional 401k.

I applogize for the incorrect information.  According to IRS publication 590, withdrawals from the Roth IRA contributions are not subject to the 5 year rule.

[compassion101]

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@bobebob wrote:

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@mongstradamus wrote:

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@gamegrrl wrote:

I thought I couldn't draw from my IRA until age 59 1/2.

And income-wise, this will probably be the last year that I can fully claim my IRA deduction because of income limits.

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If its an Roth IRA you can withdraw your contributions tax and penalty free. Just be aware that your contribution will be taxed.

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That is true.  But only IF the Roth account has been open for a minimum of 5 years.

My understanding of the 5 year rule is that to be considered a "qualified distribution" (I.E. tax and penalty free for contribution only or contribution and earnings if over 59.5), you must have held the account for a minimum of 5 years before the distribution is made.

So if the OP is just now opening a Roth account at age 57, he will have to wait until he is 62 (or 63 depending on his birthday and when the account was opened) to withdraw ANY of the contributions OR earnings tax OR penalty-free.

Given that traditional 401K withdrawals can be made penalty-free at 59.5, it seems pointless to me to have the OP put his money  in a Roth account where he will be penalized for withdrawing it for 2-3 years longer than in a traditional 401k.

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Incorrect. The 5 year rule only applies to the earnings that the account made, not the contributions (unless they are rolled over from a traditional IRA)

She can withdraw all contributions without tax implications at any time.

[ptilda]

I'm surprised no one yet mentioned that this should be a high-yield savings account. I use Barclays which has one of the best APRs of 0.9%. Better than your money just sitting there doing nothing!

Also, think about taking $25 a week and buying alternating logn and short-term CDs. That way they'll start maturing consistently every week in a couple of years in case... I have some 10-year and some 1-year which will start maturing end of this year and I can use it or re-invest it.

These ideas might sound simple (and they are, since I'm just starting over in this game... also after years of attempting to get ahead as an artist), but I think they are a good balance for the IRA/401K ideas.