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I’ve been warming up to the idea of converting part of my 401k to a Roth for some time. The gist of the tax maneuver is to pay the taxes upfront on the conversion, and then the money that’s converted will be forever tax-free. There are several benefits of a converted Roth IRA for a younger investor like myself, especially if I’m not using any retirement account money to pay for the tax bill. Still, I want to make sure I cross all the “T”s and dot all the “I”s before I make the conversion.
Here’s a checklist I came up with for anyone thinking of converting as well.
Figure out ahead of time where taxes for the conversion will come from. Will you be paying for the tax bill out of your conversion, or will you be using outside funds? If you are planning to pay the taxes out of money inside your retirement account, then it’ll be pretty much a wash if your tax rate stays the same on the year of your conversion versus when you take out the money if you didn’t convert.
If however, you are paying for the tax payment with outside funds, then it could make sense even if you believe your marginal tax rate would be lower when you withdraw. That’s because paying for the tax bill when you convert with outside funds is similar to being able to contribute some of that outside funds into a Roth IRA.
“It’s amazing that parents get angry with their teens and adult children for not using a credit card wisely, but those same parents have invested nothing into helping their child understand anything about personal finance,” says Eva Baker, the founder of the blog TeensGotCents.
Baker is well-versed in the importance of teaching kids about money since she is a teen herself. Her own mother has encouraged her efforts to learn about money, and blog about what she’s learned in order to help more teenagers learn about the importance of developing good money habits as early as possible.
Do you talk to your kids about money? When was the last time you helped them save towards a goal, or talked about the importance of budgeting? Do you model good financial behavior as a family?
I stayed home with my young children, putting my career on the back burner, for five years. Financially speaking, it was a bad move. Economists say that the stay-at-home parent who gives up a career may lose about $1 million over the years. While I didn’t lose $1 million, I have lost 5 years of wages, 401(k) contributions (and growth), and that many years of employer contributed social security benefits.
Looking back, I wouldn’t change a thing. I loved being there for my kids when they were little, devoting myself 100% to them, and forgetting about everything else. But I was lucky: my five-year stint as a stay at home mom took place while the economy was strong; my husband was employed and earning well throughout those five years; he didn’t leave me for another woman (happens more often than you’d like to think); and I am now back to working almost full time, from home, this time for my own growing business. [ continue reading… ]
My daughter’s birthday is in two weeks. Although I think that all-out birthday parties are a little excessive for kids, I do think it’s fun to celebrate these special days. The only problem is that even the simplest parties can add up in costs.
Do you have a party coming up? Here are a few tips for saving money on the birthday parties without sacrificing a fun experience.
Every day, you’re presented with an abundance of choices. From the moment you wake up to the moment you prepare for bed, you make choice after choice after choice. These decisions not only affect today but also your future as well.
To reach your financial goals, you need to make appropriate daily choices. Life is all about trade-offs. Achieving your financial goals come from hard work and sacrifices. For long term success, there really are no shortcuts.
So what should you do? Here are a few key actions that will help you reach your financial goals:
Make Sacrifices
I have a few big financial goals of my own. The one I’m working on right now is to put ten thousand dollars in my emergency fund. To reach this goal by the deadline I’ve set, I decided to make a few short term sacrifices. For instance, I’ve vowed not to eat out until I reach this goal. I’ve been actively looking for cheap or free entertainment for my daughters and me, and I work on bringing in extra income.
Sacrifices come in many forms. To reach your financial goals, you may have to sacrifice your time, scale down your living arrangements, or give up something you enjoy such as cable TV or a fancy phone contract. Once you cut out the fat, you may find that you don’t even feel like it’s a sacrifice anymore because your life with a smaller budget is remarkably similar.
When it comes to sacrifice, what you have to remember is this. You should do what makes sense for you. There’s no one-size-fits-all because everyone’s preferences are different. What can you do today? [ continue reading… ]
You’re strolling down the street, hand in hand with your spouse on a warm summer evening, listening to the crickets sing and the wind whisper through the trees. Bobby’s set up shop on the corner, like always, this time selling candy to the neighborhood kids.
“He’s always selling something,” you whisper to your partner.
“Yeah, he never plays like the other kids. I wonder why?”
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