2017 Money Move: Maxing out annual contributions
December 11, 2017
The second (missing) IRA
It’s a touch mortifying to admit that until now, I have failed utterly to start contributing to PiC’s IRA – we started to get on that, and …. I dropped the ball. I got distracted!
Plus I let myself get hung up on where his money should go. His work uses Fidelity but I use Vanguard and we all know I’m right! But for some reason, that argument holds no sway with his company. Philistines.
He had a teeny IRA somewhere long ago that we rolled over into a money market account until we had time to make a decision. Er, until I had a time to make a decision.
Part of the problem is that I don’t like Fidelity’s site (ahem, possibly because I spend very little time doing research there) and I couldn’t easily find the equivalent of Vanguard’s Total Stock Market Index fund.
I sent a tweet out into the PF world and my Twitter friends did not disappoint. Two fund names were suggested within hours, saving me plenty of search angst and removing my mental block:
Fidelity® Total Market Index Fund – Investor Class (FSTMX)
Expense ratio, 0.09%; No Transaction Fee
Minimum Initial Investment, $2,500.00
Fidelity® Total Market Index Fund – Premium Class (FSTVX)
Expense ratio, 0.035%; No Transaction Fee
Minimum Initial Investment, $10,000.00
The (minor) frustrating thing is this warning I got:
Mixing annual IRA contributions and amounts rolled over from a former employer’s retirement plan in the same IRA may limit your ability to later roll the plan assets back to some employer plans. You may want to consider maintaining separate IRAs for your annual and rollover contributions.
I suppose that doesn’t matter very much for us. I can’t predict if we’ll ever want to roll this account into a future former employer plan. The answer is probably no, from the information I have today.
With the 2017 investment limit ($5,500), and the existing Rollover IRA balance ($1,238), clearly, we are bound for Investor class. But I will budget to make the 2018 contribution in January, then roll it all into the Premium Class early in the year so we can cut those expenses by two-thirds.
Bonus: I did finally figure out how to start automated investments into the IRA for 2019. It only took forever and a half, though. Curses, being stuck with Fidelity!
JuggerBaby’s 529 plan
I set up automated monthly contributions to JB’s 529 plan late this year – a fat $100 a month.
With the sale of the old place pending, that bumped up to $250. Once our sale money was freed up to use, I allocated enough to make a lump sum contribution to almost top up this year’s allowed contributions (for one adult), and to make one adult’s monthly contributions through 2018. If I’m reading this right, PiC and I together would be allowed to contribute $28,000 a year but we don’t have that much to sock away. Yet? Yet. Maybe I’ll shoot for the stars on that one.
This sets my mind at ease that we’re contributing to zir education on auto pilot for at least a year while I work out the specifics of our money plan for the next three or five years.
Our Prepaid Tuition plan for my state tanked during the Great Recession, just as my four kids were college age. It was not pretty. Of course, everything else tanked also. To be real, I would have been better off if I had just put the freaking money in an old fashioned savings acct….sigh. Don’t let my disaster affect your plans. I would contribute to a 529 plan, and have an old fashioned savings acct also, just in case. I put all of that in caps because, it was a major “event” in my life, sorta like my job at the time cutting my paycheck 39%, and then ultimately cutting my job, my investments tanking and going backwards at the same time (worth less than what I paid for them, and I needed them to live on because of said job issues), my real estate plummeting, and basically my whole life going in the toilet. I truly would have been better off if I had just put my money in a savings acct, and had paid off my fricking house at the time….The upside to this downer is that I did, eventually, get another job, and another house, and I like this job better. Still, I have not recovered anywhere close to that true financial disaster. Shrugs…sometimes so many disasters happen at once, that when the market recovers, I have not been able to recover enough to make investments. That is life.
My parents bought be a prepaid tution plan in 1997. They divorced in 2002. when I went to college, for whatever reason, my mom didn’t use the plan to reimburse herself for paying my tuition. Then she died. I tried to use the money for my MLS but was told that I wasn’t actually a beneficiary and I needed my dad’s permission to use it, since it was set up by my mom and him. I haven’t spoken to my dad since 2003 and knew that it would cost too much to ask for a “favor”-I’d rather take out loans. So that money sits until he dies (he doesn’t know it still exists) and I can transfer it to one of my friend’s kids for college. Or the state gets it.
So, obviously this situation is so not normal, but might be worth considering.
Oh my goodness. What a mess. I’ve set JB as the beneficiary of the account and I’m the owner, and made sure to do it that way rather than allowing any family member open the account for zir, so there isn’t any complication over that part but I’m extra motivated to make sure that it’s clearly zir money…
I would add, I had to move three hours away to get job.
WOW Cindy. I lost my job during the GR too, but I was lucky enough not to need to live off my investments or use them at that time. You got hit by so many problems at once! I do worry about a similar thing happening to us ten or twenty years on so I’m working hard to make sure that we are as diversified as possible, but to some degree, I think we remain at the mercy of the markets and that makes me antsy.
We just both moved old Rollover IRAs (mine about $30k, his on the order of PICs) into our workplace plans. The main reason for doing this was to enable backdoor Roths without running into the pro-rata rule, and also just to simplify finances overall – our work plans have good funds and no need to keep track of yet another account. T actually had to request check from fidelity, which he then mails back… to fidelity. With different paperwork. Sigh…
No 529s for us though – $250/mo is great!
He had to get a check from them to mail to them. That sounds really silly way…
Now I kind of regret not opening a different IRA for him to avoid the mixing of funds. I was trying to be efficient but wonder if it’s too late to move the money into a new account.
Although I probably would have left them separate just to keep my options open, I don’t think it will matter much if you can’t. Either his plan will accept incoming rollovers from just a rollover IRA, or both rollover and regular. Since you will have money in both “types” of IRA, you would need it to accept both to completely escape taxes if you did a backdoor roth. The IRS makes you count all your IRAs, you can’t do a portion. If you don’t have real backdoor plans and his plan doesn’t accept incoming IRAs, it probably isn’t a big deal.
It seems like my plan accepts incoming money from all IRAs, so it wouldn’t have mattered for me. It would be worth finding out if his plan accepts incoming money at all, just to know.
Great points – I don’t have access to enough of those details on his plan to know but I suspect that we don’t have THAT much flexibility so I’ll leave these things as is.
A note on keeping the 401k-turned-IRA separate from new contributions….401ks (403b and other similar retirement accounts) have additional protections in cases of lawsuits & bankruptcies (among other things). When you roll them over to an IRA, it retains those protections as long as you don’t “mix” them with anything else. Once you start making additional contributions, it null’s that protection. Since you have a smaller amount, I wouldn’t personally worry about, but if you were to roll over a much larger amount, it’s something to keep in mind.
Thanks for the note – I wasn’t aware of that and unfortunately that means that my old Rollover IRA has lost those protections and that’s my larger account but good to know now!
I’m a little confused by your assumption that PiC’s $$ must go to Fidelity, just because his work money does. I have my work 401(k) at Fidelity, but any time I change companies & have a rollover, off to Vanguard the money goes! Can’t an IRA go wherever you want?
This is the first year (in 19 years of retirement saving!) that I’m maxing out my 401(k), and I don’t do IRA contributions. But I have steadily done 15% or more, so I feel like my accounts are in pretty good shape. That could be the crazy market lulling me into complacency, but so be it!
Oh that was confusing, wasn’t it? It wasn’t because it HAD to stay at Fidelity, it was because I don’t want to have to log into 4 different accounts (Vanguard for me, Vanguard for him, Ally for both, Fidelity for him) for our investing. It’s a bit silly but I already have too many accounts to manage so that’s the reason but I can always change my mind later and move it.
The one nice thing about etrade was that it let me see DH’s separate accounts and my separate accounts on the same page as our joint accounts. None of this “you can both see your joint but you have to have separate logins to see your individuals” that Vanguard has. I suppose that’s better for some couples but not so great with us.
That’s exactly what I want the ability to do! I’m going to send Vanguard some feedback on that.
Good job getting all these stuff in order.
With Jugger baby, you should check and see how much state tax deduction you can get. I think around $4,500. Hopefully, you can increase it a bit next year. The earlier the better with 529.
Do you remember where you came across that number for the deduction? Everything I’ve come across says that CA doesn’t have a deduction for 529s but if there is one, I absolutely want to get it 😀
I just spent last week doing 2017 IRAs. This is the first time we’ve contributed in years. But we have extra cash right now and even without a tax advantage it won’t count towards college financial aid. Plus it turned out that converting to a Roth was much easier than I had been expecting. We have a post up in January about how easy it was to convert our non-tax-advantaged traditional IRAs into tax advantaged Roths using Vanguard.
(We have 2x Fidelity from work, 2x Vanguard, 1x Etrade… and then some legacy stuff that I look at once per year like an american century trust account… and there’s also another etrade account that used to be brown and co., this is why my father no longer is allowed to touch my finances)
We contribute $750/mo to our kids’ 529s.
You have a post coming up in a few weeks on converting? Or I should check the archives? I guess we don’t have it so bad between the 1 Vanguard, the 1 Fidelity, and 1 Ally account. I just didn’t want yet another one between those and the banking accounts. I just looked at the monthly breakdown for maxing out the contributions for this account ($28K between two parents) and it comes out to $2333. That’s a whole other level of contributions….!
No kids, so no 529s to worry about. I did a good thing for myself by contributing about 50% of my last paycheck of the year to a traditional 401(k) as a catch up contribution. That’s not the maximum I can contribute, but it’s the best I can do this year because of all the other expenses I’ve had. Now to adjust my contributions next year so that I can max out the catch up contribution and the regular contribution limits. I’m also going to adjust the balance of traditional and Roth 401(k) contributions.
I’m excited for you that you were able to do that much, considering how tough this year has been! Next year has to be better. <3
I just finished up my first year maximizing the contributions to my IRA and plan on continuing to do so. But is this after 10 years of letting it sit there w/o any contributions at all.
We have a 529 as well with Baby with Cents and plan to increase contributions to $500 a year. Last year we put in $1000 and this past year we put in $1500. Now were going to put in $2000 in 2018.
Your correct, the maximum contribution for a 529 is $28K for married couples. I don’t know if I can put in that much right now. Maybe we can down the line when he gets to high school and college is getting closer for him.
Keep on increasing it, it’ll all add up! We can’t max the 529 for both of us but we’re going to keep adding more as we can, while balancing it with retirement investing.