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Can I afford an IRA?

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Anonymous
Not applicable

Re: Can I afford an IRA?


@OmarR wrote:

OP,

 

If I woke up in your shoes tomorrow, I would concentrate on building an emergency fund and paying off the 401k loan. The gains lost (due to the loan) would bother me enough to try and get rid of it quick.


+1

 

You already have a loan against one of your retirement funds (meaning you had some sort of expense and no cash on hand to withdraw) and otherwise have no type of emergency savings.

 

As mentioned above, I would definitely gear savings towards a general savings and not a retirement based one for more ease of access/availability and pay off the loan (frees up more to save and one less expense) and that in turn enables you to contribute more towards retirement and/or savings and less towards making up what you have had to borrow (and lost gains) and will help keep you from the cycle of having to take from it and repay again, reducing your savings potential, no matter the type.

 

I have been in this position before with a healthy retirement and no savings, plus a loan from 403B. Once I finally disciplined myself to budget for not only my retirement accounts, but also investment and general savings accounts, I have been able to breathe much easier. Things have come up and I have now had the ability to handle it without even considering to dip into my retirement and investment accounts and it has saved time and stress. It is still a work in progress and I have had to rebuild my emergency savings more than once, but it was there when I needed it, and I hope to continue to grow it. Now, like you, I am focusing on building a down-payment for a house in the next few years, so I am shifting savings goals and fund allocations. It can feel like a bit of a balancing act, as there is only so much to spread around. You are certainly more disciplined than I am and have definitely inspired me to trim down my budget further!

 

Good luck on continuing to build your future!

Message 11 of 19
longtimelurker
Epic Contributor

Re: Can I afford an IRA?

Is your 401(k) traditional or Roth?   If your employer offers Roth, I would put at least part of your contribution into that.   Then I would agree with some of the others, let that handle retirement and build an emergency fund/savings outside an IRA.

 

Not to say that a Roth IRA isn't good, especially if you know you will not need the funds (contribution + growth) within 5 years, but it also depends on the investments and fees, i.e.  a  good IRA is good, a bad one isn't!  (A certified financial planner would charge you lots for such wisdom!)

Message 12 of 19
Anonymous
Not applicable

Re: Can I afford an IRA?

I ditto the starting of an emergency fund, if it were me I'd open a HYSA and sock Money away ever pay period. If needed it's there without a removal penalty, well other than whatever transaction limits are set on the account per month. Then at the end of the year you can decide to place a portion of that amount into an IRA. 

Message 13 of 19
Credit4Growth
Senior Contributor

Re: Can I afford an IRA?


@coldfusion wrote:

@1prettyorchid wrote:

38 y/o single woman. I make 44k year and I've been at my job for 5 years now. Employer matches 6% for 401k and pension after 5 years invested. 

After my deductions, I net around $2300 (401k, taxes, ins, daycare, 401k loan, etc)

 

After my bills are paid (rent, utilities, cell phone, car pmt, TV subscriptions, and internet) i have about $720 left over. This is not including gas or food. I currently work from home and my son (15) stays with dad a majority of the time and daughter (2) with me. So these expenses vary.

 

I would like to contribute $250/ month to a roth ira. Is this wise or do I need to wait until I'm in a better position? I currently have no savings. 10k in my 401k (loan 5k). And would like to use this as a savings acct for retirement and/or a new home in the future. 

 

 


I am going to assume that you are currently putting in at least $220/month (6% of your gross earnings) into your 401K in order to maximize your employer's 401K contribution. 

 

A Roth IRA is not necessarily a good platform for general savings because for the first 5 years you have to keep track of your contributions vs. your earnings.  You can withdraw your contributions without penalty but withdrawal of earnings is more restrictive.

 

You might want to start off with opening a Roth IRA and funding it with say $50/month so you have established a habit of saving for the long term and then a regular savings with the remaining $200 month as your contingency fund for when you have an unexpected.unbudgeted expense.

 

 


^^^^ I like that advise.  That is exactly how I started out over 20 years again!  $50 per month.

Message 14 of 19
Credit4Growth
Senior Contributor

Re: Can I afford an IRA?

You have alot of good advise in several post here.
Things do look very tight with the info you provided.
Some type of emergency fund and getting that 401K loan down to a $0.00 balance is important, IMHO, it will.free up funds and possibly reduce some stress.
You already opened an account. I have no idea which type, Roth or Traditional.

Also going off of what I know, you have a goal of buying a home 🏡 in just a short time. I would not have recommended a Traditional IRA for the sole reason that it appears you have a Traditional 401K. It provides good enough coverage as stated by another member. I
f my post, this post was prior to you opening an account because you really felt or wanted to do so I would recommend a Roth account and as show the withdrawal restrictions and penalties are different.

Best of luck to you!
Please let us know which type of account you opened.
Message 15 of 19
1prettyorchid
Contributor

Re: Can I afford an IRA?


@Anonymous wrote:

@OmarR wrote:

OP,

 

If I woke up in your shoes tomorrow, I would concentrate on building an emergency fund and paying off the 401k loan. The gains lost (due to the loan) would bother me enough to try and get rid of it quick.


+1

 

You already have a loan against one of your retirement funds (meaning you had some sort of expense and no cash on hand to withdraw) and otherwise have no type of emergency savings.

 

As mentioned above, I would definitely gear savings towards a general savings and not a retirement based one for more ease of access/availability and pay off the loan (frees up more to save and one less expense) and that in turn enables you to contribute more towards retirement and/or savings and less towards making up what you have had to borrow (and lost gains) and will help keep you from the cycle of having to take from it and repay again, reducing your savings potential, no matter the type.

 

I have been in this position before with a healthy retirement and no savings, plus a loan from 403B. Once I finally disciplined myself to budget for not only my retirement accounts, but also investment and general savings accounts, I have been able to breathe much easier. Things have come up and I have now had the ability to handle it without even considering to dip into my retirement and investment accounts and it has saved time and stress. It is still a work in progress and I have had to rebuild my emergency savings more than once, but it was there when I needed it, and I hope to continue to grow it. Now, like you, I am focusing on building a down-payment for a house in the next few years, so I am shifting savings goals and fund allocations. It can feel like a bit of a balancing act, as there is only so much to spread around. You are certainly more disciplined than I am and have definitely inspired me to trim down my budget further!

 

Good luck on continuing to build your future!



Thank you for that! I have now started to do some "gig work" (uber/lyft/instacart) to make addl funds. I worked Uber all week and made $532. $400 went towards my emergency fund. Hopefully I can set aside a minimum of $200/week for savings doing that.

 

Good luck on your journey as well. 

4/29/21 After BK
EX 578 EQ 573 TU 477

8/15/21 EX 640 EQ 637 TU 614

Capital One QS1 $4000

Navy Federal secured $300

Discover $1800
Message 16 of 19
1prettyorchid
Contributor

Re: Can I afford an IRA?

I opened a Roth account. Simply because I do not want to pay taxes on it when I need it in the future.

 

And now, I am putting $50 pay period in that account until I can afford to do more. 

 

Since I am trying to save and pay off my car loan sooner I don't want to overwhelm myself trying to pay off my 401k loan just yet. I will try to pay it off asap to free up an addl $85/month because I could use the extra money for other things. 

 

The replies and advice is amazing. Thanks all!

4/29/21 After BK
EX 578 EQ 573 TU 477

8/15/21 EX 640 EQ 637 TU 614

Capital One QS1 $4000

Navy Federal secured $300

Discover $1800
Message 17 of 19
Credit4Growth
Senior Contributor

Re: Can I afford an IRA?


@1prettyorchid wrote:

@Anonymous wrote:

@OmarR wrote:

OP,

 

If I woke up in your shoes tomorrow, I would concentrate on building an emergency fund and paying off the 401k loan. The gains lost (due to the loan) would bother me enough to try and get rid of it quick.


+1

 

You already have a loan against one of your retirement funds (meaning you had some sort of expense and no cash on hand to withdraw) and otherwise have no type of emergency savings.

 

As mentioned above, I would definitely gear savings towards a general savings and not a retirement based one for more ease of access/availability and pay off the loan (frees up more to save and one less expense) and that in turn enables you to contribute more towards retirement and/or savings and less towards making up what you have had to borrow (and lost gains) and will help keep you from the cycle of having to take from it and repay again, reducing your savings potential, no matter the type.

 

I have been in this position before with a healthy retirement and no savings, plus a loan from 403B. Once I finally disciplined myself to budget for not only my retirement accounts, but also investment and general savings accounts, I have been able to breathe much easier. Things have come up and I have now had the ability to handle it without even considering to dip into my retirement and investment accounts and it has saved time and stress. It is still a work in progress and I have had to rebuild my emergency savings more than once, but it was there when I needed it, and I hope to continue to grow it. Now, like you, I am focusing on building a down-payment for a house in the next few years, so I am shifting savings goals and fund allocations. It can feel like a bit of a balancing act, as there is only so much to spread around. You are certainly more disciplined than I am and have definitely inspired me to trim down my budget further!

 

Good luck on continuing to build your future!



Thank you for that! I have now started to do some "gig work" (uber/lyft/instacart) to make addl funds. I worked Uber all week and made $532. $400 went towards my emergency fund. Hopefully I can set aside a minimum of $200/week for savings doing that.

 

Good luck on your journey as well. 


I would think that is a goodnstep toward forward progress solely because it increases your income.

Be prepared for the taxes in your gig work.  If needed then hire an accountant/ CPA to place your self in a position to not only maximize deductions but also to make sure all tax obligations  are met in a timely manner without penalties.

 

You can do this 💪 and you are doing it.

Keep you faith and continue moving forward.

 

Maybe checking into an entity formation, sole Prop.or llc for your side gig might be able to help with the deductions. Ask about this with tax professional.... they will not shoot you!

 

Best regards! 

Message 18 of 19
privacyadvocate69
Contributor

Re: Can I afford an IRA?

IMHO, no.

 

You would be better off establishing an emergency fund with that money anyway.

 

Try to save it in a regular liquid account for 2 years and see how you do.

Message 19 of 19
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