Ramen noodles for retirement?

Welcome to Week 44 of my adventure as a member of the Marketing Plan Group. In my posts, I talk about my voyage down the road of self-employment as a website copywriter, my achievements and roadblocks along the way, and what I’m learning from my group experience.

One plus from my former job in corporateville was the lovely 401K plan, lofty contribution matching, and excellent investment advice. My 401K is still there, but since I’ve been self-employed, guess how much I’ve put away for retirement? Zero.

If I continue at this rate, I’ll be lucky if I can afford Ramen Noodles in retirement.

Fortunately, my homework this week in my Marketing Plan Group was to do something about planning for retirement, so I can afford Ramen Noodles, and who knows, maybe even something nicer. Just the kick I needed.

At the Creative Freelancer Conference, Galia Gichon, from Down to Earth Finance, gave a talk called, It’s Your Money, So Take It Personally. Although I had previously been very confused, she simplified things and made saving for retirement seem more approachable. Plus, I liked that since Galia is an independent finance expert, her advice is totally unbiased. (Nobody is paying her to sell particular funds or investment options.)

At CFC, Galia said a great first-step for the self-employed is to open a ROTH IRA. She sent me this information about IRAs, excerpted from her “My Money Matters” kit, to share with you.

Open a Roth IRA
The ROTH IRA is an individual retirement account with special tax benefits. Your contributions are made with after-tax dollars and it grows tax-deferred. When you start withdrawing the money at age 59 ½, it is TAX-FREE. 

You can only contribute to or open a ROTH IRA if you make less than $120,000 as a single person or $177,000 as a couple. If you make more than the income limit the next year, you can't add any more money to your existing ROTH IRA. However, nothing will happen to your existing ROTH IRA; you have to open a

Traditional IRA. If you have a year in the future where your income dips below the income limit you can add to your ROTH IRA again.

A great benefit of the ROTH IRA is that if the principal has been in the account for at least five years, there is no penalty to take the money out.

There is also no penalty if it is used for a first-time home purchase, qualified education expense or certain medical hardships.

Consolidate and Maximize IRAs

If you have more than one IRA, pick one place and consolidate all your IRAs. If they are in the same format (either ROTH or Traditional IRA), they can be consolidated to one IRA.

For 2010, you can contribute up to $6,000 and $6,000 if you are over 50 to a ROTH or Traditional IRA.

If you are working for yourself, or work for a company that doesn’t have a retirement plan, you should look at self-employed retirement plans like a SEP IRA. They can be opened at any mutual fund company.

If you don’t have enough to fund the complete IRA, consider setting up an automatic savings to your ROTH or Traditional IRA. This only comes out to $416 a month. Can’t afford that? Then do $100 a month and fund the rest at year-end.

For opening a ROTH IRA, Galia’s favorites are Fidelity, Vanguard, T Rowe Price and Schwab. I did some research:

At Fidelity, you can set up a no-fee IRA online. There is a $2500 minimum initial deposit, but this deposit is waived when you commit to $200/month automatic contributions. This is what I’m going to do.

If you’re saying to yourself, “This is too confusing, I’ll worry about it later,” don’t. Every year that passes without saving for retirement = less Ramen Noodles!

You don’t need to do it alone. There is expert help available.

To get your finances on track, Galia’s “My Money Matters” kit has everything you’ll need.

If you need more guidance, Galia works with clients on an individual basis too. She can give you a complete financial check up, and help you with financial planning, financial education, analyzing cash flow, changing spending habits, and getting out of debt. She can hold your hand through the process, and give you specific guidance when you’re looking to buy home, need life insurance, wills, college savings plan, and more. (She’s kind of like the Ilise of the finance world!)

You can start with 2-hour session for a financial check up, and go anywhere from there. Also, you can sign up for her helpful newsletter here.

Comments

[Kristin Maija Peterson]

Deidre — thank you SO much for putting together advice for retirement that I can understand. No planning or saving for retirement means no Ramen noodles for me — much less any decent wine to go with it! I listen to MPR’s ”Sound Money” where I rarely feel I can trust the advice they dole out. But you’ve spelled things out clearly and provided research and resources. Priceless.

[deidre]

Kristin,

Thank you for the comment. I am so glad this helped!