25 and want to set up RETIREMENT PLAN! help!

[janiepoo]

i make 128k per year before taxes. i already enrolled in my companys 401k. but can i enroll in a roth IRA? is the limit too high? what do other professionals do who make around this much? do you even go for a traditional ira? i heard in 2010, new ruling of taking off the income limit cap. and or can now convert traditional to roth . ?? please help? i want to plan for my retirement early and not sure how ? ive read several investment boks and they all say to do an 401k and a roth ira. but what if i cant meet the roth ira?? or etc etc ??

please help!!!!

[Gerbil Wheel]

Simple...LBYM and invest every other paycheck on an after-tax basis.

[ronocnikral]

read the boglehead's guide to investing. save more than you spend.

[Darryl]

Your income is too high to do a direct ROTH contribution. Single phases out between 105K and 120K, over 120K is not eligible.

Solution is to call you broker Vanguard? and they will explain how to put money in a regular IRA and then rollover to a ROTH, as beginning 2010 there is no income limit to use this technique (previous cap was 100K).

or a more drastic move you could get married to someone making < 40K

[janiepoo]

i had to google LBYM to figure out what the means!! lol. but yea. thanks! to live below your means. right now i owe massive college debt, roughly 80k, or w/ interest about 100k. so that will take the next 2 years if i do it vigiourously which i hope to do. but otherwise, what your saying is to do a traditional ira?, and find out from vanguard if it can be done every year , a roth ira conversion?

they say the power of compound interest is huge. right now i just started saving 250$ per paycheck. i get paid every 2 weeks. it goes directly into the ing direct savings account. thats one way to compound interest right? and not just mutual funds etc etc .

and thanks i googled that book, boogleheads investmentguide. had no idea one it was written by one of vanguards founders.! tooo cool!~. i will amazon it soon!.

i want to find a financial advisor but its so hard 2 figure out whose good and whose not.

[ronocnikral]

if you educate yourself on how to invest your money, you will find the answer to your question about advisors.

imnsho, a true practicing LBYM'er would check the book out from the library. track every penny you spend as well...

ps, welcome.

[thefed]

Quote:

Originally Posted by janiepoo i had to google LBYM to figure out what the means!! lol. but yea. thanks! to live below your means. right now i owe massive college debt, roughly 80k, or w/ interest about 100k. so that will take the next 2 years if i do it vigiourously which i hope to do. but otherwise, what your saying is to do a traditional ira?, and find out from vanguard if it can be done every year , a roth ira conversion? they say the power of compound interest is huge. right now i just started saving 250$ per paycheck. i get paid every 2 weeks. it goes directly into the ing direct savings account. thats one way to compound interest right? and not just mutual funds etc etc . and thanks i googled that book, boogleheads investmentguide. had no idea one it was written by one of vanguards founders.! tooo cool!~. i will amazon it soon!. i want to find a financial advisor but its so hard 2 figure out whose good and whose not.

personally, I'd bump up my savings a bit more if my bi-weekly check was for 5k gross....but that's just me ;-)

[donheff]

If you spend the next couple of years paying off those big college debts you will have developed some much needed savings discipline. Once you are done with that, redirect as much of those funds to taxable investments as you can. I don't buy the super frugality some here practice. I would recommend that you enjoy life on the way to retirement. But, the reality is, the more you save the sooner you will be financially independent (FI: another acronym you will see around here). Once FI you are free to decide whether and how much to work.

[Darryl]

Compound interest works both ways so I LOVE your plan. Knock out that college debt over 2 years and as donheff just said "you will have developed some much needed savings discipline". Your improved cash flow and decreased stress from losing that debt will allow you to be a better investor. I'd start the IRA in 2012 after the loans are gone. YMMV

[janiepoo]

you dont think ii should start the ira now for the added 2 years compounding? what is your reasoning for starting later im curious? i guess it would take a little bit longer to finish if i started now, but thats it no ?

[Darryl]

A good argument can be made to start the ira now so I can't say that is wrong. If everything goes well and if your investment returns are good and if your income doesn't decrease etc. etc. you may come out ahead starting the ira now. IMO a good argument can be made about the power of focus. Focus on the debt and get rid of it. With a nice income and large school debt I will assume you had to focus on your school work in order to complete that degree and get that income flowing, looks like it worked well for you. Now do the same thing with the debt and then with investing. Keep it simple

[chinaco]

1. LBYM - IMO - do not deprive yourself. Set a reasonable lifestyle
2. Do not buy expensive cars or vehicles. For example: buy an acceptable vehicle (say < $20k) and drive it at least 10 to 15 years.
   1. Do not buy more house (large/expensive house) than you realistically need. Large houses are just unnecessary money drains. A house is just an ongoing expense that costs money. Consider your real needs.
   2. Use Tax deferred and tax qualified accounts. -- You need to understand the difference between Trad and Roth to determine which will work best.
3. Avoid debt. Only use it if you have to.
4. Avoid the common traps most people fall into (even if they save for retirement)

IMO - Assuming one is preparing for retirement or FIRE... the most common missteps are: 3, too liberal use of debt and 2.2, buying too much house [they want their dream home -McMansion].

[Beedoggy]

Absolutely, get rid of the debt fast. Don't worry so much about the perfect place for your money. You have the BIGGEST advantage of any investor ever- youth. Your time horizon is looonnnnggg. If you keep making this kind of money and you simply do not spend it and instead save, even conservative investments will make you very well off by the time you're say 45-50.

Good thinking about the retirement plan. More important, do you

Have a monthly budget, one that tracks what you actually spent, not one that is what you wish you spent?
Have automatic deductions of all your payments, Inc debt pay off, as well as savings?
Considered the necessity of building a 6-12 month cash reserve WHILE you pay down this debt?

Other advice
If you drink, drink at home with friends. Much cheaper.
Stay out of restaurants. Makes you fat and too expensive. Cook, take your lunch.
Keep your overhead down. The free coffee at work is better in every way than Starbucks.
A bike is better than a car.

Continue to live like a student as long as you can.
Then, live like a person who makes 1/2 what you do.
Find things that make you feel rewarded that cost nothing- walking, biking, singing, playing an instrument (those do cost something but playing them your whole life doesn't)

[Bestwifeever]

Beedoggy, we'd love for you to introduce yourself on our "Hi I Am...." board. Welcome!

Janiepoo, I would most definitely fund the IRA first, then pay down the college debt (I would also use capital letters but that's just me )!

[BigNick]

Out of interest, what do you do to make $128K/year at age 25?

[walkinwood]

Educate yourself reading the books in the ER FAQ forum, and you will not need a financial advisor.

Read up the rules of Traditional and ROTH IRAs. IIRC, if you are eligible for a 401-k, the tax deductable max contribution to your Traditional IRA is phased out as your earning increases.

Don't forget to enjoy your life too. It doesn't always equate to spending money, but some enjoyable things/experiences do cost money & are well worth it.

Welcome to the board. All the best.