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Old 08-07-2008, 08:04 PM   #1
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Looking for advice.

I could use some advice.

I work as a custodian making 40k per year for a school district. I contribute 7.5% of my income to the district's pension plan and the school and state match my contributions together for another 7.5%. I have $22,000 in a savings account at 3% APY. I currently own my car, I have no CC debt (except what I charge each month, but I pay it off every month.) I have plans on getting married within the next year or so. I will be leaving my job in about 3 years (after I am fully vested in the retirement program) to move from Pennsylvannia to somewhere south closer to the beach. I will be looking to buy a house (or condo) once I'm out of state. I'm wondering what I should do with my money in the mean time. I've been toying with the idea of putting 5k into a Roth IRA every year starting now. Is this a good move? What else should I be doing with my money? After bills and all expenses, I can save about another 1100 each month.
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Old 08-08-2008, 08:44 AM   #2
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I think putting some into a Roth is a great idea. However, if you want to use some of that money as a down payment, you probably should keep it in the savings account (or in CDs) since you have a short time (3+ years) before buying something.
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Old 08-08-2008, 09:35 AM   #3
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I agree. I have been burned trying to put short term money in stocks (even SPY).

Put it in CD's that pay better than the savings account or some other guaranteed fixed return investment.

-Raymond
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Old 08-08-2008, 09:44 AM   #4
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Videonut, it isn't clear if the pension plan that you contribute to is a 403(b) or a defined benefits plan. If it is a 403(b) I would advise you to understand what investments you have and what ongoing expenses are charged. Some of these plans are needlessly expensive and can sap a lot of your nest egg off over the years. There are actions that you can take to minimize the expenses charged, but the first step is to understand what they are.
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Old 08-08-2008, 04:24 PM   #5
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Videonut, it isn't clear if the pension plan that you contribute to is a 403(b) or a defined benefits plan. If it is a 403(b) I would advise you to understand what investments you have and what ongoing expenses are charged. Some of these plans are needlessly expensive and can sap a lot of your nest egg off over the years. There are actions that you can take to minimize the expenses charged, but the first step is to understand what they are.
I have no choice as to what I put into the plan. The retirement program is a statewide program that I think most PA schools use. Working for the school means I have to contribute 7.5% of my paycheck to the plan, and they match it and put in as much as I contribute. I think the plan is a set rate of 4% APY. There is very little risk.

So you say something like CDs with more of a fixed rate and low risk? Are mutual funds a good idea at all? Or are those generally longer term? I did have money in CDs, however the CDs just matured about a week ago and they were at 5%. The new rate at my old bank was only 3.25% so I pulled the money. I could open a new CD for 10 months at 3.6%. There is also a 21 month CD at 3.8% and 37 month CD at 4.15%

Should I be stashing all my money away for a downpayment on a house? (This is of course beside my retirement program at work) Or should I also put some money into the Roth IRA or max it out?
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Old 08-08-2008, 04:52 PM   #6
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Originally Posted by Videonut85 View Post
I have no choice as to what I put into the plan. The retirement program is a statewide program that I think most PA schools use. Working for the school means I have to contribute 7.5% of my paycheck to the plan, and they match it and put in as much as I contribute. I think the plan is a set rate of 4% APY. There is very little risk.
OK, then this is a defined benefit plan. A 403(b) would have investment choices that you determine.

Quote:
So you say something like CDs with more of a fixed rate and low risk? Are mutual funds a good idea at all? Or are those generally longer term? I did have money in CDs, however the CDs just matured about a week ago and they were at 5%. The new rate at my old bank was only 3.25% so I pulled the money. I could open a new CD for 10 months at 3.6%. There is also a 21 month CD at 3.8% and 37 month CD at 4.15%
Mutual funds are for long term investment - like 5 years or more. For short term investment think CDs or money market

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Should I be stashing all my money away for a down payment on a house? (This is of course beside my retirement program at work) Or should I also put some money into the Roth IRA or max it out?
As has been mentioned, you can withdraw your investment (not gain) from a Roth at any time without penalty. So max out your Roth and if you need cash for a down payment, nothing is lost. If you leave it in the Roth it will grow tax free.

You probably can also contribute to a 403(b) - you may want to check it out with your HR department. This money is tax deferred. Like I said, check the expenses, though.
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Old 08-08-2008, 05:01 PM   #7
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Suggest MMA at HSBC currently paying 3.5%. On line savings account. If you possibly need this money (short term) for a down payment/wedding/relocation it would be available and insured (FDIC).
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Old 08-08-2008, 05:37 PM   #8
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As has been mentioned, you can withdraw your investment (not gain) from a Roth at any time without penalty. So max out your Roth and if you need cash for a down payment, nothing is lost. If you leave it in the Roth it will grow tax free.
Is there any kind of cap on how much you can withdraw or any other restrictions? Also, what about repayment? Could I repay the IRA as soon as I had the money to repay all the money taken out?
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Old 08-08-2008, 06:03 PM   #9
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Is there any kind of cap on how much you can withdraw or any other restrictions? Also, what about repayment? Could I repay the IRA as soon as I had the money to repay all the money taken out?
You will find the answer here.

http://www.irs.gov/pub/irs-pdf/p590.pdf

I think the cap on withdrawals without penalty is the total amount you have contributed. There is a limit on how much you can contribute yearly , which is, I believe, $5000 for you (under 50 years old)
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Old 08-08-2008, 06:20 PM   #10
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I would suggest a money market account- the returns are very close to what you will get on a CD, without the time constraints.
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Old 08-09-2008, 07:45 PM   #11
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Thanks for your input everyone. I think I'm going to put 5k into a Roth, and put 10k into a CD. The rest will stay in savings for an emergency fund. I believe the cap on what I can withdrawal as a first time home buyer is 10,000. So I will also contribute 5k next year also so I have 10k in contributions. After that, should I continue to contribute 5k each year, or should I hold it as a down payment? I'm thinking I should hold on to the rest for a down payment on a home, unless someone knows numbers a bit better than me and could tell me why it would be better to continue to put into the IRA.
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Old 08-09-2008, 08:50 PM   #12
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Originally Posted by Videonut85 View Post
Thanks for your input everyone. I think I'm going to put 5k into a Roth, and put 10k into a CD. The rest will stay in savings for an emergency fund. I believe the cap on what I can withdrawal as a first time home buyer is 10,000. So I will also contribute 5k next year also so I have 10k in contributions. After that, should I continue to contribute 5k each year, or should I hold it as a down payment? I'm thinking I should hold on to the rest for a down payment on a home, unless someone knows numbers a bit better than me and could tell me why it would be better to continue to put into the IRA.
Videonut, I think we may have confused you. A Roth IRA is just like a container - it can hold any kind of investment- CDs, money market accounts, stocks, mutual funds, bonds, etc. Its purpose is to label the money within it for tax purposes. In the case of a Roth, it shields it from taxes on its earnings so you can save for retirement or a house, for example.

So, for money that you may need in the next 5 years or less, you'll want to invest in a money market fund or CDs of less than 5 years duration. Money needed longer term (like for retirement) will grow faster in a stock mutual fund. I recently read this book and found it helps explain a lot of financial terms fairly simply.

Amazon.com: The Bogleheads' Guide to Investing: Taylor Larimore, Mel Lindauer, Michael LeBoeuf, John C. Bogle: Books

I hope this helps.
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Old 08-09-2008, 10:08 PM   #13
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Videonut, I think we may have confused you.
I think I may have been confused in the first place. Thanks for pointing that out. I will definitely check out that book.
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