strider
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Post by strider on Mar 30, 2011 13:16:07 GMT -5
I got my tax return back today. Going to apply that to my new IRA I think. Either that or paying down a student loan. You can fill out a new W4 at work so that you don't over-withhold again next year. Try to avoid a refund, aim to owe $100 or $500 in April. If you have a good loan rate, don't prepay it - eg, don't prepay 3% capital only to turn around and borrow 5.5% capital for a car - instead retain the use of the 3% capital. Conversely, if you have a 7% loan and the car loan will be 5.5%, then kill the 7% loan. My tax return was only $600. Most of that was due to moving expense and I didn't factor for it. I could kill one loan but it's only $50 a month. I have 1500 left on it. It isn't killing my budget. My total debt is only $150 a month (3 loans).
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azphx1972
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Post by azphx1972 on Mar 30, 2011 13:33:21 GMT -5
So, what's the interest rate on your student loans or is there some other reason that you're choosing not to share with us?
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strider
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Post by strider on Mar 30, 2011 13:37:08 GMT -5
No reason. I paid off my unsubsidized one at 7.8%
I have 2 loans at around $3000 each for 6.0% I have 1 loan that is around 1100 for 5.4%
Totalling a touch over $7000 now.
I started at $10,500
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azphx1972
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Post by azphx1972 on Mar 30, 2011 13:39:02 GMT -5
Close call, but I would kill the student loans, especially if you're not able to deduct the interest.
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Firebird
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Post by Firebird on Mar 30, 2011 13:39:17 GMT -5
I heard someone complaining yesterday that their withholding got screwed up so they didn't get a refund this year. My reaction was total *facepalm*
Most people clearly don't realize that they're giving the government an interest free loan all year long. But usually when I try to explain that I get a lot of blank looks and references to dependencies on their yearly "bonus."
/off topic.
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strider
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Post by strider on Mar 30, 2011 13:40:28 GMT -5
My total each month is $150. My next biggest loan wouldn't be too bad to kill since it's only $1000 for $50/month less. To me that seems worth it.
What doesn't seem worth it is paying around $3000 just to save that same amount for a month. Thoughts?
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strider
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Post by strider on Mar 30, 2011 13:41:55 GMT -5
I don't see it as a bonus, Firebird. In fact I claimed Single 2. I would have owed only $6 but I forgot to factor in moving expenses so I got $600.
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Firebird
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Post by Firebird on Mar 30, 2011 13:49:02 GMT -5
Oh, I didn't mean you did, Strider. I was just commenting in general ;D You have this one figured out already.
And anyway, I can't talk since I screwed up my own withholding this year and got a massive return. At least I saw it for what it was ;D
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Firebird
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Post by Firebird on Mar 30, 2011 13:50:17 GMT -5
And I would disagree, I don't think those loans are worth killing until you get your retirement situation sorted out. Fully funding your ROTH is much more important than prepaying those loans.
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azphx1972
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Post by azphx1972 on Mar 30, 2011 13:51:53 GMT -5
Definitely do the ROTH first.
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strider
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Post by strider on Mar 30, 2011 13:52:44 GMT -5
I agree with everyone's point though. I just shake my head when I see someone getting a $3,000+ tax return. And yes, that is the AVERAGE. Way to stress yourself year after year until the one magical day in the spring where you get your return and it pays off all the stress from before. And then next year rolls around!
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Firebird
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Post by Firebird on Mar 30, 2011 13:57:13 GMT -5
The thing is that some people are legitimately so bad at managing their money that the interest they're losing never enters the picture, or even registers. For those people, a $3,000 return is probably not such a bad thing if they actually end up saving it or paying off debt - it's unlikely that the extra $250/month would have done them much good, it probably would have ended up getting blown.
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strider
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Post by strider on Mar 30, 2011 13:59:23 GMT -5
I don't think people save or invest it though. Typically they may pay off a credit card but then they also by a $2000 tv (when else will they have that much cash?). Oh and I'm not knocking TVs. Bought myself a nice one this last winter. I wanted it, I know I'd use it alot, and I saved up for it.
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Tiny
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Post by Tiny on Mar 30, 2011 14:08:27 GMT -5
Last year when I let it slip that I got a $300 tax refund - people accused me of having done my taxes WRONG. I was advised to use a professional service so I'd get a bigger tax refund. Um. OK. This thread came to mind last night when I was talking to my 28 yo nephew (he bought a fish tank and fish for fun) I was a wet blanket and asked him if he had atleast signed up for his employer's retirement package or set up a Roth/Traditional IRA. He said No and No... he sez he doesn't earn enough money to save. Um. OK.
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strider
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Post by strider on Mar 30, 2011 14:11:59 GMT -5
I've been told I'd owe around $3000 if I took single 2. I was told I should take Single 0 from my mom's friend who is an accountant so I could get a large refund as well. No, I didn't listen to that. My projection was to owe $6 but I ended up with more anyway.
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phil5185
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Post by phil5185 on Mar 30, 2011 15:04:31 GMT -5
Last year when I let it slip that I got a $300 tax refund - people accused me of having done my taxes WRONG. I was advised to use a professional service so I'd get a bigger tax refund. Um. OK. Does that mean that the NEA was wrong when they said that math was unnecessary for everyday living so it should be removed from the curriculum?
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strider
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Post by strider on Mar 30, 2011 15:11:45 GMT -5
I wish I knew more people my age IRL that had similar goals. I'm pretty rare in the budgeting aspect.
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Firebird
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Post by Firebird on Mar 30, 2011 15:17:26 GMT -5
I wish I knew more people my age IRL that had similar goals. I'm pretty rare in the budgeting aspect. Get used to it ;D The really fun part is when word gets around to your family that you're doing well (or even okay) financially. Most of my family is pretty good with budgeting in their own right, but there are a few that actively depend on family help to survive. Honestly, though, just try not to let the peer pressure get to you. And when it does, come on here and tell us about it. You'll get plenty of pats on the back and even a few chuckles
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strider
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Post by strider on Mar 30, 2011 15:19:01 GMT -5
My folks are ecstatic that I'm doing so well at this point. I graduated early with some of the lowest student loans I've heard of someone having that didn't get a full ride. My car runs and I like my job.
I'm a success so far. I just strive to improve! I'm by no means perfect though and will take advice.
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Firebird
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Post by Firebird on Mar 30, 2011 15:30:59 GMT -5
I've been on the boards 4+ years and I still learn something new almost every week. Realistically, it takes most 20 somethings that long just to get on track. You're doing a great job, keep it up ;D
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Deleted
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Post by Deleted on Mar 30, 2011 16:16:35 GMT -5
I'm reading that I initially have to invest $3000 to start. I'd assume that means it needs to stay in there at the very least until I'm 59 1/2 right? I can't just empty the account if I have to without penalty. No and no. There is a Vanguard ROTH that you can start for $1,000. (It's the only one I know about.) It's called the STAR fund. I have it myself. personal.vanguard.com/us/funds/snapshot?FundId=0056&FundIntExt=INTYou can take out your CONTRIBUTIONS without penalty any old time you want. You are only penalized for taking out earnings on those contributions before age 59 1/2, as I said yesterday. So if you put in $3k tomorrow, you can take $3k out next week, a year from now, or 40 years from now. Whatever you like. Firebird, if you take out your contributions before you have had a Roth open for 5 tax years, you will get the 10% penalty.
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strider
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Post by strider on Mar 30, 2011 16:17:41 GMT -5
See, that's what I'm trying to avoid. I have no problem investing but I don't want to wipe out my EF to do it.
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Deleted
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Post by Deleted on Mar 30, 2011 16:23:33 GMT -5
See, that's what I'm trying to avoid. I have no problem investing but I don't want to wipe out my EF to do it. What are you trying to avoid?
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Firebird
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Post by Firebird on Mar 30, 2011 16:26:44 GMT -5
Oh, I didn't know that. I've always heard that you can take out your contributions anytime. I'm about to hit that threshold, though. I wouldn't put your whole EF in there in that case, strider. I'd start your ROTH in time to contribute $1,000 for 2010, and work to max it for 2011. And after 5 years THEN maybe you can use it as your backup EF I think he's trying to avoid being in a position where he *needs* to take the money out before 5 years time.
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strider
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Post by strider on Mar 30, 2011 16:29:44 GMT -5
Yes exactly Firebird.
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Deleted
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Post by Deleted on Mar 30, 2011 16:43:05 GMT -5
Keep in mind that you can take out any money from a IRA for a max of 60 days. That can be a part of your EF in combination with your CC on top of 3 month cash EF.
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strider
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Post by strider on Mar 30, 2011 16:45:06 GMT -5
Only reason I won't is because other than the university it's a dead zone for jobs. I'll probably move back home with the parents unfortunately. The EF would then be used to help them with groceries and moving to the next job!
I appreciate the advice though.
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Deleted
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Post by Deleted on Mar 30, 2011 17:45:49 GMT -5
Only reason I won't is because other than the university it's a dead zone for jobs. I'll probably move back home with the parents unfortunately. The EF would then be used to help them with groceries and moving to the next job! I appreciate the advice though. It is a risk, I agree but it is a 10% risk which is less than you can loose on the stock market. But, again, I am not risk adverse.
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phil5185
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Post by phil5185 on Mar 30, 2011 18:15:29 GMT -5
strider, there are 3 account types - the distinction is their tax status. The 3 accounts are posttax (roth), pretax (401k), and taxable. Each has a set of rules - the 5 year rule, the age 59 1/2 rule, and so on. You need all 3 - the Tax Code cannot be predicted, in the last 50 yrs I have been in bracket from 15% to 50%. In the next 40 yrs we might have a Flat Tax (making the Roth advantage useless), a consumption tax instead of an income tax, yada. No way to predict - so diversify between the 3 account types - you don't want to be age 65 and be 100% in the wrong account, 33% wrong is enough. And you need a pre-59 1/2 taxable account that is unrestricted, no rules, etc - to meet midlife needs, act as a fallback EF, etc.
So don't dwell on which tax status to fund - the key metric is your investment choice. If you invest $10,000/yr among the 3 accounts and use 10% to 12% products, you will have $1M at age 44, $2M at age 50, $6.3M at 60, and so on. It doesn't matter which account types, $6.3M is $6.3M.
Since you need instant accessibility for a few years, why not start with the taxable account? Maybe the Target2055 or the Star? They grow tax deferred, and when/if you sell some you pay only 15% tax on your profit. You can buy it today, sell it tomorrow if you want to.
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strider
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Post by strider on Mar 31, 2011 14:40:47 GMT -5
I wish I could convince my friends to stick to a budget. They spend and spend and spend until disaster strikes. Then they borrow and alienate everyone they know. They burn every bridge they can. It's sad. And that's the norm.
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