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Can I afford an IRA?

1prettyorchid
Established Member

Can I afford an IRA?

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. 

 

 

4/29/21 During bankruptcy
Ex. 581 Eq. 596 TU. 584
Message 1 of 13
12 REPLIES 12
Save-n-Invest
Frequent Contributor

Re: Can I afford an IRA?

Your budget is tight. Would you consider establishing an IRA and contributing less than $250 per month?

 

 

Message 2 of 13
1prettyorchid
Established Member

Re: Can I afford an IRA?

It is tight. I opened one and funded $50. 

4/29/21 During bankruptcy
Ex. 581 Eq. 596 TU. 584
Message 3 of 13
coldfusion
Community Leader
Super Contributor

Re: Can I afford an IRA?


@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.

 

 



(4/2021)
FICO 8 (EX) 815 (TU) 822 (EQ) 808
FICO 9 (EX) 827 (TU) 826 (EQ) 832

$1M+ club

Artist formerly known as the_old_curmudgeon who was formerly known as coldfusion
Message 4 of 13
1prettyorchid
Established Member

Re: Can I afford an IRA?

Yes you assume right. I contribute 6%. I will definitely try what you suggested. Thanks all!

4/29/21 During bankruptcy
Ex. 581 Eq. 596 TU. 584
Message 5 of 13
TGG_1976
Contributor

Re: Can I afford an IRA?

Since you already are putting funds towards retirement (401k), I would recommend you focus on building an emergency fund next. You have a tight budget and you mentioned you have no savings. 

An emergency fund can be as low as 1k but in a perfect world should cover 3-6 months of expenses. It gives you the peace of mind, in case something unexpected happens, you have some funds to cover any expenses.

Put 200$ - 250$ (or as much / little you can afford) into a separate savings account/ high-yield savings account every month to build up some cash reserve first, before you add more money towards retirement.

Message 6 of 13
SouthJamaica
Super Contributor

Re: Can I afford an IRA?


@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. 

 

 


IMHO the answer is no.  Your 401k and pension provide good enough coverage on retirement, and you would be better off putting the money in a savings account that you can access if you need it.  The penalty for IRA withdrawals is severe.


Total revolving limits 653000 (575000 reporting) FICO 8: EQ 716 TU 747 EX 715

Message 7 of 13
1prettyorchid
Established Member

Re: Can I afford an IRA?

Ok perfect. I guess I have to be disciplined. I need to save for a house that I plan on buying in 2.5 years. That would be my motivation to save. 

4/29/21 During bankruptcy
Ex. 581 Eq. 596 TU. 584
Message 8 of 13
coldfusion
Community Leader
Super Contributor

Re: Can I afford an IRA?


@SouthJamaica wrote:

The penalty for IRA withdrawals is severe.

OP is talking about a Roth IRA, and as I previously alluded this is not the case for Roth IRA contributions.

 

I pulled up a URL explaining the guidelines. 

 

https://www.schwab.com/ira/roth-ira/withdrawal-rules



(4/2021)
FICO 8 (EX) 815 (TU) 822 (EQ) 808
FICO 9 (EX) 827 (TU) 826 (EQ) 832

$1M+ club

Artist formerly known as the_old_curmudgeon who was formerly known as coldfusion
Message 9 of 13
OmarR
Established Contributor

Re: Can I afford an IRA?

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.

    EQ=850        TU=837         EX=837      INQ=0/0/0     UTIL=$1        AZEO


Message 10 of 13
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