Hi from Boston

[chuck]

Hi - Like many, I have been reading the forums for a few months before finally deciding to post.* I am 23, but it is great to have found a forum like this where I can get the low-down on true wealth building at the start of my working life.*

As some background, I graduated from college in 2004 and have been working for 1.5 years.* I live with my girlfriend, and despite the high cost of living in Boston, we have managed to follow the "LBYM" mantra by contributing 15% to our 401Ks, which have balances of $14K and $6K, respectively.* We have also been putting $400/week into an ING account as an "emergency" fund.* *At this point, it has grown to almost $30K, and it is probably more safety than we need, as that is ~1 year of living expenses.*

In addition to this, I learned recently that, in the 1980's, my dad (now deceased) set up a UGMA for me that currently contains $25K of a single large-cap stock.* I realize that it is stupid for me to own so much of one stock, so I would like to sell it, and take the proceeds and about $10K from the emergency fund to start a Vanguard account.* Does that sound reasonable?* If so, I have a few questions-

- Can anyone tell me the tax treatment if I sell the stock from the UGMA?* I would like to make sure that I do not do the wrong thing and incur a huge penalty.* From the records I dug up, it appears that the cost basis is about $5K.*

- Is it worth it to start a Roth, or should I stick to after-tax?* The reason I ask is that I will probably begin to hit the AGI limits in a year or two, and I don't want a lot of complexity added in order to maintain the <$10K account.*

Other than that, it's nice to finally ask a few questions and make myself known.* I probably won't post too frequently, but will definitely keep reading.*

Thanks,

[RETIRE_TINGLE!]

I am new to the forum as well. You and your girlfriend are doing the right thing. I would talk to a tax professional about your tax questions. It is very admirable to read about a young person (I still think I am young and I am 12 years older than you ) saving and thinking about the future.

Keep up the GREAT work. I would open a ROTH IRA if I were you and perhaps put a cap on your emergency fund and start investing in the market. Have you considered purchasing real estate?

See you in Retire and Welcome!

[chuck]

Thanks for the encouragement.* It appears that you are also doing quite well, having gotten into real estate in the 'OC'.*

I think you are right on the Roth; i will try to make that a priority.* I think my emergency fund has reached a sufficient level that I will start diverting most / all of it into mutual funds.*

I haven't considered any real estate, because 1) I live in a high-priced area, so a place of adequate size seems out of reach; and 2) I'm not sure if we are going to stay in the area long-term.*

[RETIRE_TINGLE!]

My emergency fund target is about 20k, that would carry me for 6 mos. (no savings and collecting my rents). I would of course like to have more, but there is still money to be made in the market (hopefully)

[Martha]

Welcome Chuck and Retire Tingle. (Tingle )

Chuck, the basis in your UGMA likely is your father's basis. If he bought the stock when the account was established, that would be the date to determine basis. You would pay tax on the increase in value when it is sold, and because it is stock, likely at capital gains rates. But of course, check with a tax professional.

I would definately take advantage of the ROTH while you can. You could have many years growth in a relatively small account.

[BunsGettingFirm]

My accounting teacher, who is also a CFP, recently made an even better suggestion. Instead of tying up all the money in a cash emergency fund that doesn't have any potential for capital growth, why not open a line of credit instead. Yes, the rates can be bad on an unsecured line of credit, but you can reduce your cash holding by, say, 1/2 of the amount in your line of credit, and use that cash to invest.

[Calgary_Girl]

Quote:

Originally Posted by BunsOfVeal My accounting teacher, who is also a CFP, recently made an even better suggestion. Instead of tying up all the money in a cash emergency fund that doesn't have any potential for capital growth, why not open a line of credit instead. Yes, the rates can be bad on an unsecured line of credit, but you can reduce your cash holding by, say, 1/2 of the amount in your line of credit, and use that cash to invest.

This is what DH and I have done. Our emergency fund is our home equity line of credit which is at prime. All of our cash is invested elsewhere.

[brewer12345]

Quote:

Originally Posted by BunsOfVeal My accounting teacher, who is also a CFP, recently made an even better suggestion. Instead of tying up all the money in a cash emergency fund that doesn't have any potential for capital growth, why not open a line of credit instead. Yes, the rates can be bad on an unsecured line of credit, but you can reduce your cash holding by, say, 1/2 of the amount in your line of credit, and use that cash to invest.

Um, have you seen the fine print for most lines of credit? They generally specifiy that the bank can yank the line or decline an advance any time for any reason. Not what I want to be relying on when the chips are down. I still have a HELOC, but I maintain a chunk of money in a couple of CDs and I have a pool of 0% balance transfer money sitting in a money market that could also be tapped.

[Ed_The_Gypsy]

Roth! Roth! Roth!

Max it out if you have to starve. The govt will wise up one day and take them away.

Emergency fund? After you fund your Roth(s). You always have unemployment. You can always shovel offal for Manpower--if you really have to.

Your Dutch Uncle,

Gypsy