Money Matters in GR

[twoshort]

Uh... how can you do that if you can't bank anything to begin with because you are paying off the dang deductible... which starts all over again the next year).

It's a vicious cycle.

See what I mean?

Not entirely. The money in the HSA account can be used toward the deductible. As long as you have enough in your HSA account to cover your annual deductible, what's the issue?

[Budgie Frisket]

Not entirely. The money in the HSA account can be used toward the deductible. As long as you have enough in your HSA account to cover your annual deductible, what's the issue?

Here's the issue: How do you fund the HSA account to begin with? That's the issue.

[twoshort]

Here's the issue: How do you fund the HSA account to begin with? That's the issue.

HSA is an affordable solution to conventional individual health insurance. If you can't afford to fund your HSA then you couldn't afford individual health insurance in the first place. Right?

[Budgie Frisket]

HSA is an affordable solution to conventional individual health insurance. If you can't afford to fund your HSA then you couldn't afford individual health insurance in the first place. Right?

Let's put it this way... if my employer switches from PPOM to an HSA, I am screwed.

Trust me. I've already had an HSA and it is not for me. Horrible!

[twoshort]

Let's put it this way... if my employer switches from PPOM to an HSA, I am screwed.

Trust me. I've already had an HSA and it is not for me. Horrible!

Would your company not contribute to the HSA account?

[Budgie Frisket]

Would your company not contribute to the HSA account?

Let's hope it doesn't come to that.

Here's what happened at my old job (and it's the reason I left for a new one). The firm switched from BC/BS to an HSA and funded it w/$1,000. That lasted me maybe two months b/c of my prescriptions (I would pay $500/mo. if I didn't have a co-pay). I'm not sure, but I think it was a $1,500 or $2,000 deductible. See where I'm going with this? So after their funding was exhausted, I still had to satisfy the deductible. For a good three or four months, I was screwed. And then after the deductible was satisfied, I was still screwed, because I had to pay for the prescriptions upfront -- there was no co-pay benefit. Now, even with a $40/co-pay now, I pay $160 out of pocket b/c my meds are not yet generic. But having to shell out $500 and then wait for reimbursement was just waaaaaay too much.

So I got another job.

Sorry. You can't sell me on those HSAs.

[twoshort]

So I got another job.

Sorry. You can't sell me on those HSAs.

I don't have a license to sell you such a thing. I was merely engaging a conversation, you can let your guard down. Thank you for your story.

[Budgie Frisket]

I don't have a license to sell you such a thing. I was merely engaging a conversation, you can let your guard down. Thank you for your story.

The selling reference was merely rhetoric. I'm not mad at you. It's just that the whole HSA thing was financially difficult for me, and I know it was and is for other people as well. I've heard of people putting off going to the doctor because they couldn't afford the out of pocket. For example, a friend of mine had a bad knee and needed an operation. She put it off because she couldn't afford the out of pocket. It's just going to get worse and by the time she finally has something done, it will be much more expensive to fix.

HSAs are a very shortsighted solution.

Sorry if I came off harsh, but I guess I have some very strong feelings about this subject.

[michaelskis]

I notice that several of you mentioned that you like Dave! Turns out he is coming back to Grand Rapids on February 17, 2007. I had the opportunity to go see him several years ago and I thought it was incredible. Needless to say, the GF and I will be going to see him.

Anyone else thinking about going?

[Budgie Frisket]

I notice that several of you mentioned that you like Dave! Turns out he is coming back to Grand Rapids on February 17, 2007. I had the opportunity to go see him several years ago and I thought it was incredible. Needless to say, the GF and I will be going to see him.

Anyone else thinking about going?

Okay. I'll admit it. I have no idea who Dave is. Please tell.

[grrwymg]

Okay. I'll admit it. I have no idea who Dave is. Please tell.

Dave Ramsey - Total Money Makeover.

Read it. Do it. Love it. You'll be out of debt (if you are) in due time. I went and saw him at the Deltaplex in the Winter of '05. A day well spent. Even if you don't follow his advice 'by the book' - you'll still make great headway in eliminating debt and building wealth.

[Veloise]

Okay. I'll admit it. I have no idea who Dave is. Please tell.

He's a columnist in Monday's paper's biz section, He's also in "Quick and Simple," a weekly checkout mag for us grrrrrls. And he makes a lot of sense.

Hey, I just found out that there's a sort of "property disposition" place for Herman Miller, in DT Zeeland. Having outfitted my place with former U-M items ($10 coffeetable!), I was happy to hear that MSU has one as well. But Herman Miller?!? Gotta go!

Bad hours for the day shift, 9-5 M-F, 9-12 on Saturday.

[Budgie Frisket]

He's a columnist in Monday's paper's biz section, He's also in "Quick and Simple," a weekly checkout mag for us grrrrrls. And he makes a lot of sense.

Hey, I just found out that there's a sort of "property disposition" place for Herman Miller, in DT Zeeland. Having outfitted my place with former U-M items ($10 coffeetable!), I was happy to hear that MSU has one as well. But Herman Miller?!? Gotta go!

Bad hours for the day shift, 9-5 M-F, 9-12 on Saturday.

Take a long lunch! Hey! Don't you have to have that crown fixed (dental crown, that is). Be creative! And good luck. Let me know if you find something cool.

[PBJ]

He's a columnist in Monday's paper's biz section, He's also in "Quick and Simple," a weekly checkout mag for us grrrrrls. And he makes a lot of sense.

Hey, I just found out that there's a sort of "property disposition" place for Herman Miller, in DT Zeeland. Having outfitted my place with former U-M items ($10 coffeetable!), I was happy to hear that MSU has one as well. But Herman Miller?!? Gotta go!

Bad hours for the day shift, 9-5 M-F, 9-12 on Saturday.

If Herman gets a mention gotta say that Haworth also has a store. Take 196 to the M-40 exit, go right, it's in the first industrial park just over the bridge past McD's.

Hours: M-Th - 10a-6p; Fri - 7a-4p; Sat - 8a-12p

[GoBroncos]

Do you have a personal budget process that you do every month? What about retirement goals? Out of debt (other than you house?) Would you say that your money management skills are good?

Personally, I am working on Dave Ramsey

[AlexPKeaton]

Depending on your rate of return, a Roth might not make much sense. You pay taxes up front on a Roth which means that you have less cash to earn a return with. Unless the market jumps some huge amount you'll probably be better off with a normal IRA or a 401k where taxes are deferred.

-nb

[michaelskis]

Depending on your rate of return, a Roth might not make much sense. You pay taxes up front on a Roth which means that you have less cash to earn a return with. Unless the market jumps some huge amount you'll probably be better off with a normal IRA or a 401k where taxes are deferred.

-nb

A Roth IRA is Tax Free.

http://www.rothira.com/

[AlexPKeaton]

Right, but your contributions are after-tax dollars, so you've paid the taxes up front. A 401k or regular IRA are tax deferred. Since you save money up front with an IRA, you can invest more. And with compounding difference, the extra few dollars in tax savings you can invest now will be worth a whole lot more in the future. But the catch is you still owe taxes on it.

For example, let's say you put $10,000 in an IRA and earned 8% for 30 years. You'd have $109,357.30. With the Roth you might save $7,500 assuming taxes are 25%. After 30 years you'll have $82,017.97, but you'll get to draw on it tax free. Taking out my 25% tax and the IRA leaves you with about the same amount.

So, in conclusion, it's pretty much a wash, which actually surprised me a little because I remember my finance professor back in college wasn't a big fan of Roth IRAs.

-nb

[BGIII]

Right, but your contributions are after-tax dollars, so you've paid the taxes up front. A 401k or regular IRA are tax deferred. Since you save money up front with an IRA, you can invest more. And with compounding difference, the extra few dollars in tax savings you can invest now will be worth a whole lot more in the future. But the catch is you still owe taxes on it.

For example, let's say you put $10,000 in an IRA and earned 8% for 30 years. You'd have $109,357.30. With the Roth you might save $7,500 assuming taxes are 25%. After 30 years you'll have $82,017.97, but you'll get to draw on it tax free. Taking out my 25% tax and the IRA leaves you with about the same amount.

So, in conclusion, it's pretty much a wash, which actually surprised me a little because I remember my finance professor back in college wasn't a big fan of Roth IRAs.

-nb

Your professor must have missed some of the finer points of the Roth. No required minimum distributions at 70-1/2, no penalty for early withdrawal of regular contributions and withdrawals are not a taxable income event which could potentially lower taxes on social security payments you hope to receive some day.

It is my belief that you must contribute to your company's pension plan up to the company's match. Then, if feasible and you are eligible, you should contribute up to the maximum in a Roth IRA. If you still can pack away a few more bucks, go back to the company sponsored plan and put whatever you can up to the maximum. Most importantly, the key to any plan is to start no later than today!

[twoshort]

It is my belief that you must contribute to your company's pension plan up to the company's match. Then, if feasible and you are eligible, you should contribute up to the maximum in a Roth IRA. If you still can pack away a few more bucks, go back to the company sponsored plan and put whatever you can up to the maximum. Most importantly, the key to any plan is to start no later than today!

Your words echo Dave Ramsey BTW.

How does one start a Roth IRA? Should I go visit a business aquanitance at Edward Jones or is it so simple I can just do it online?

[GoBroncos]

Depending on your rate of return, a Roth might not make much sense. You pay taxes up front on a Roth which means that you have less cash to earn a return with. Unless the market jumps some huge amount you'll probably be better off with a normal IRA or a 401k where taxes are deferred.

-nb

The up front taxes your talking about are whats taken out of your paycheck. Other than those taxes there are no other taxes taken out when you purchase a Roth.

In a way your right about the less cash to earn a return on. You can only contribute so much to a Roth each year. For a single guy making less than 100k, like myself, I can put in $4,000 a year. Thats it. So that is why I say you should max that out first before the 401k.

[GoBroncos]

Your words echo Dave Ramsey BTW.

How does one start a Roth IRA? Should I go visit a business aquanitance at Edward Jones or is it so simple I can just do it online?

I would just do it online as long as your comfortable with the online system. I use Fidelity and I do just about everything online. If I don't know something I usually give them a call and ask. It seems quicker than trying to search a website for the answer.

[GoBroncos]

Right, but your contributions are after-tax dollars, so you've paid the taxes up front. A 401k or regular IRA are tax deferred. Since you save money up front with an IRA, you can invest more. And with compounding difference, the extra few dollars in tax savings you can invest now will be worth a whole lot more in the future. But the catch is you still owe taxes on it.

For example, let's say you put $10,000 in an IRA and earned 8% for 30 years. You'd have $109,357.30. With the Roth you might save $7,500 assuming taxes are 25%. After 30 years you'll have $82,017.97, but you'll get to draw on it tax free. Taking out my 25% tax and the IRA leaves you with about the same amount.

So, in conclusion, it's pretty much a wash, which actually surprised me a little because I remember my finance professor back in college wasn't a big fan of Roth IRAs.

-nb

When I do my calculations, the Roth vs standard IRA is not a wash. Try this. Use the $4,000 a year Roth limit for a single person and then compare that to a $4,000 401k or standard IRA contribution. Do not include company match, just straight up comparison. Use 25% as your tax bracket and do the investments for over 30 years.

[AlexPKeaton]

But in your example to invest $4,000 in the Roth IRA you had to earn $5,000, pay $1,000 in taxes, and then invest the rest. Whereas in the 401k you only had to earn $4,000 and pay no taxes yet. So again, it comes out even.

Really it comes down to whether you think taxes will be higher or lower in the future. If taxes are going to be lower than they are now when I retire, the 401k will win, and it would pay to defer the taxes. But if taxes are low now and will likely be higher in the coming years it would be better to pay them up front and the Roth IRA will win. Good luck predicting taxes 30 years from now though.

I wish I still had my financial calculator though. I think how quickly you draw from each account at retirement may be a factor, but I'd like to run some numbers to be sure.

One really interesting thing I did take out of my college finance class was that even if life expectancies increase dramatically the retirement age won't need to increase with it. With the compounding accound value eventually you get to a point where you can pretty much live indefinitely off your retirement account. Again, if I can my financial calculator back (I broke it, unfortunately) I'd post some numbers.

-nb

[GRDadof3]

But in your example to invest $4,000 in the Roth IRA you had to earn $5,000, pay $1,000 in taxes, and then invest the rest. Whereas in the 401k you only had to earn $4,000 and pay no taxes yet. So again, it comes out even.

Really it comes down to whether you think taxes will be higher or lower in the future. If taxes are going to be lower than they are now when I retire, the 401k will win, and it would pay to defer the taxes. But if taxes are low now and will likely be higher in the coming years it would be better to pay them up front and the Roth IRA will win. Good luck predicting taxes 30 years from now though.

I wish I still had my financial calculator though. I think how quickly you draw from each account at retirement may be a factor, but I'd like to run some numbers to be sure.

One really interesting thing I did take out of my college finance class was that even if life expectancies increase dramatically the retirement age won't need to increase with it. With the compounding accound value eventually you get to a point where you can pretty much live indefinitely off your retirement account. Again, if I can my financial calculator back (I broke it, unfortunately) I'd post some numbers.

-nb

A ROTH was explained to me this way "pay taxes on the smaller amount of money", which would be at the beginning of your investing life, not at the end. With your example, look at it this way:

You pay $1000 tax on $5000 to get your $4000 investment/year

Invest it over 20 years

At 7%, it comes out to about $180,000, tax-free (because you used after-tax dollars)

You've only spent $20,000 in taxes ($1000x20 years) assuming the same tax bracket and no changes in tax laws.

The main and only reason a 401K is better is due to the employer match that you get (if you get one). Even if it is only 10%, that's an automatic 10% return on your money in addition to however your investment does. The downside is how long their vested schedule is. If you jump around a lot, you'll never see that employer contribution, or only a certain percentage.

At least, that's how I understand it.

There are all kinds of investment calculators online for free, just FYI