Week 1: Spending & Saving

Week 1: Spending & Saving

“Week 1 At a Glance … Spending and Saving”
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Summaries

  • Week 1: Spending & Saving > Spending and Saving > Estimate Spending
  • Week 1: Spending & Saving > Spending and Saving > Prioritizing Savings
  • Week 1: Spending & Saving > Spending and Saving > Save More
  • Week 1: Spending & Saving > Spending and Saving > Save Early, Save Now, Save More Tomorrow
  • Week 1: Spending & Saving > Spending and Saving > Spending for Happiness
  • Week 1: Spending & Saving > Spending and Saving > Retirement Savings Accounts
  • Week 1: Spending & Saving > Optional: To Own or Not to Own: This is the Question > Should You Lease or Buy a Car?
  • Week 1: Spending & Saving > Optional: To Own or Not to Own: This is the Question > Buying vs. Renting
  • Week 1: Spending & Saving > Optional: A Penny Saved Is a Partner Earned > A Penny Saved is a Partner Earned: The Romantic Appeal of Savers
  • Week 1: Spending & Saving > Optional: Individual Retirement Accounts with Rich Stebbins > Individual Retirement Accounts (IRAs)

Week 1: Spending & Saving > Spending and Saving > Estimate Spending

  • This approach has only three budget categories- must-haves, savings, and wants.
  • Must-haves are the things you need, the things you couldn’t do without, and the bills you’d have to pay even if you lost your job.
  • Wants are everything else- the things that you buy for fun and enjoyment and the money you give to others.
  • Must-haves include your mortgage or rent, utilities, insurance, car loan payments, student debt payments, alimony and child support, minimum credit card payments, gas or public transport to get to work, and basic groceries.
  • If you pay property taxes every six months, divide the half year property tax bill by 6 and add it to your monthly must-haves.
  • Such as medical expenses, car repairs, and replacing broken appliances, are going to vary from year to year, and thus, be harder to estimate.
  • Jane is spending $800 a month on rent, 150 on phone and other utilities, $100 on a car loan, $100 on gas, $100 on car insurance, $350 a month on groceries, and $200 a month on health insurance.
  • Jane’s must-have spending of $1,800 is 60% of her after tax income.
  • What do you think of these levels? Is Jane spending too much or too little on must-have expenses? Is she saving enough? Should she spend less on wants? Elizabeth Warren and Amelia Tyagi have specific recommendations that I believe make a lot of sense for a lot of people.
  • Warren and Tyagi recommend 50%. Why spend only 50% on must-haves? Isn’t it better to spend your money on serious things, like rent and car payments, rather than clothes, toys, and vacations? Keeping your must-have expenses at or below 50% protects you in times of financial crisis.
  • If you lose your job or otherwise can’t work, you can temporarily stop saving and stop spending on wants, and, thus, cut back your monthly expenses by 50%. As we’ll discuss in another video, a crucial part of this protection is to also have a security, or emergency, fund that you can draw on at such times.
  • Another reason not to spend too much on must-haves is that it doesn’t leave you enough to spend on things that make you happy.
  • Warren and Tyagi recommend 20%. Why save 20%? Because you need to save.
  • Today, most people need to save for their own retirement.
  • Is 20% the answer for everyone? No. If you’re young with a high, steady income, you may get by saving less.
  • For almost everyone watching this video, a 20% savings rate is going to be a goal, not a starting place.
  • Start saving now, as much as you can today, and work your way up to 20%. We’ll talk about strategies for saving more in the video on saving more.
  • What about your wants spending? How do you spend your wants budget is up to you.
  • If you’re like a lot of people and are saving too little, you might benefit from tracking your wants spending for a month, just to see where this money is going.
  • Every time you spend, write down what you bought and what it cost.
  • At the end of the month, add up your month’s spending, as well as 1/12 of what you spend on wants that don’t come up every month, such as annual vacations and holiday presents.

Week 1: Spending & Saving > Spending and Saving > Prioritizing Savings

  • This approach has only three budget categories- must-haves, savings, and wants.
  • Must-haves are the things you need, the things you couldn’t do without, and the bills you’d have to pay even if you lost your job.
  • Wants are everything else- the things that you buy for fun and enjoyment and the money you give to others.
  • Must-haves include your mortgage or rent, utilities, insurance, car loan payments, student debt payments, alimony and child support, minimum credit card payments, gas or public transport to get to work, and basic groceries.
  • If you pay property taxes every six months, divide the half year property tax bill by 6 and add it to your monthly must-haves.
  • Such as medical expenses, car repairs, and replacing broken appliances, are going to vary from year to year, and thus, be harder to estimate.
  • Jane is spending $800 a month on rent, 150 on phone and other utilities, $100 on a car loan, $100 on gas, $100 on car insurance, $350 a month on groceries, and $200 a month on health insurance.
  • Jane’s must-have spending of $1,800 is 60% of her after tax income.
  • What do you think of these levels? Is Jane spending too much or too little on must-have expenses? Is she saving enough? Should she spend less on wants? Elizabeth Warren and Amelia Tyagi have specific recommendations that I believe make a lot of sense for a lot of people.
  • Warren and Tyagi recommend 50%. Why spend only 50% on must-haves? Isn’t it better to spend your money on serious things, like rent and car payments, rather than clothes, toys, and vacations? Keeping your must-have expenses at or below 50% protects you in times of financial crisis.
  • If you lose your job or otherwise can’t work, you can temporarily stop saving and stop spending on wants, and, thus, cut back your monthly expenses by 50%. As we’ll discuss in another video, a crucial part of this protection is to also have a security, or emergency, fund that you can draw on at such times.
  • Another reason not to spend too much on must-haves is that it doesn’t leave you enough to spend on things that make you happy.
  • Warren and Tyagi recommend 20%. Why save 20%? Because you need to save.
  • Today, most people need to save for their own retirement.
  • Is 20% the answer for everyone? No. If you’re young with a high, steady income, you may get by saving less.
  • For almost everyone watching this video, a 20% savings rate is going to be a goal, not a starting place.
  • Start saving now, as much as you can today, and work your way up to 20%. We’ll talk about strategies for saving more in the video on saving more.
  • What about your wants spending? How do you spend your wants budget is up to you.
  • If you’re like a lot of people and are saving too little, you might benefit from tracking your wants spending for a month, just to see where this money is going.
  • Every time you spend, write down what you bought and what it cost.
  • At the end of the month, add up your month’s spending, as well as 1/12 of what you spend on wants that don’t come up every month, such as annual vacations and holiday presents.

Week 1: Spending & Saving > Spending and Saving > Save More

  • I’m going to talk about six strategies for saving more.
  • Have the amount you want to save each month, deducted from your paycheck, and deposit it directly in your retirement savings account.
  • Or have it automatically transferred to your retirement savings when your paycheck is deposited in your bank account.
  • I realize that automating savings does not reduce your expenses, but it does make it much more likely that you will save.
  • If you can get the same insurance or mortgage for less money, you’ll be able to save more money with less pain.
  • You’ve probably seen the Geico ads claiming that 15 minutes will save you 15%. You know, it’s probably going to take you longer than 15 minutes.
  • If you have auto, homeowner’s, or other major insurance policies and haven’t recently shopped for better prices, you’re almost certainly going to save substantial money by doing so.
  • In the videos on insurance we’ll talk more about comparison shopping for insurance policies, as well as lowering insurance costs by choosing higher deductibles.
  • If you own your home and haven’t recently refinanced, you may be able to save money by refinancing.
  • Whether refinancing is going to save you money depends upon changes in interest rates since you got your mortgage.
  • Is your car too expensive for your income? If so, sell it and buy a cheaper one.
  • Is it getting old and scratched up? If you want to save money, keep on driving it.
  • If you own or rent a home which you can’t afford, you’re not going to be able to save today.
  • Number three, want to buy the same things for less? Save first, and then buy.
  • Want to spend 5%, 10%, 20%, or more on the things you buy? Get out your credit card and run up a big balance.
  • Just as it’s important to shop carefully for a mortgage, or for insurance, it’s important to shop carefully for degrees, programs, and training programs.
  • You can also save money on regular repeated purchases by finding a store that sells the item for less.
  • By my calculations, if you save $5 a day for 40 years, you’d need to earn more than 12% annual interest compounded daily to end up with $2 million.
  • The importance of denying yourself small luxuries when trying to save has often been exaggerated.
  • There is truth to the claim that small, regular savings do add up.
  • If you are keeping your must have expenses under control, and saving 20% of your after tax income, you should spend your wants money, and fun money, how ever it makes you happiest.
  • The money you budget for things you want is yours to spend as you want.

Week 1: Spending & Saving > Spending and Saving > Save Early, Save Now, Save More Tomorrow

  • Sounds like a procrastinator’s motto, doesn’t it? Here’s the idea.
  • You know you should be saving more, but you just can’t see how you can do so.
  • What if you had a bit more money? You could save more if you had more, right? So commit now to increasing your savings rate when you get your next raise.
  • While you’re at it, commit to putting your next federal tax refund directly into savings.
  • Otherwise, make a commitment to yourself to increase your savings rate when you get that next raise.
  • While it’s a good idea to start saving for retirement in your 20s, many people don’t do so.
  • So what should you do if you’re in your 30s, or 40s, or 50s and haven’t started saving? Start today.
  • How much do you need to save? Well, that’s going to depend on a lot of factors- how old you are, what assets, if any, you’ve accumulated, how long you expect to work.
  • The courseware has links to calculators that will help you estimate your retirement savings needs.
  • For many people, the calculators may tell you that you need to save more than you think you can.
  • The most important thing is to start saving something.
  • First get into the habit of saving and then find ways to increase what you’re putting away.
  • Even if you don’t hit your ideal goal, your retirement years are going to be easier for every dollar you do save.
  • If you are 50 years old and save a dollar today, that dollar will have been earning compounded returns for 20 years when you’re 70.
  • You know, however old you are today, you’re the oldest you’ve ever been.
  • It’s likely to seem young when you look back 20 or 30 years from now.
  • Don’t look back and say, wow, I really should have started saving then.
  • When I was a freshman in college, I wanted to learn to play guitar.
  • One of my roommates, Dave had been playing guitar for about four years and was already pretty good.
  • I regret that decision, but maybe it’s not too late.
  • If I start today, I’ll have been playing guitar for 20 years when I’m 84.

Week 1: Spending & Saving > Spending and Saving > Spending for Happiness

  • I’ve got $100 here that I’ve budgeted for spending on whatever I want.
  • Since the $100 is budgeted for spending on wants, I can spend it as I like.
  • Which of these options will make me happiest? I recently read the book- yes, this one’s in my digital library- Happy Money, the Science of Smarter Spending by Elizabeth Dunn and Michael Norton.
  • Dunn and Norton have several suggestions for how to get the most happiness out of your spending.
  • We tend to get used to things- a new shirt, a new TV, even a new car.
  • New, and expensive of a car do you need? Will the thrill of new ownership fade faster than that new car smell? Objects tend to be more permanent than experiences.
  • It’s more fun to tell your friends about adventures you had than about the pixel count on your new flat screen.
  • Number two- Dunn and Norton’s second suggestion is to make it a treat.
  • She thanked me and told me that she would save it for Friday, because she only eats chocolate on Fridays.
  • Many of us spend too little time doing the things we really enjoy.
  • Dunn and Norton suggest looking for ways to get more time to enjoy things, even at the cost of some money.
  • A good TV show once or twice a week is going to bring you more pleasure than four shows every night.
  • The trip will end up costing you more because of the high interest rate credit card companies charge.
  • What if you wait, save money first, and then say aloha? Not only is the trip cheaper, but you’re going to enjoy it more.
  • People who donate to charity, give gifts to friends, and help others report more happiness per dollar spent than those who buy gifts for themselves.
  • Think about the joy you’ve gotten and given from the gifts you’ve given in the past.
  • There’s a lot more in Happy Money than I’ve discussed here.
  • I suggest you save $15, find some time, read the book, and then give it to a friend.
  • My wife does not like me to buy things for myself right before my birthday.
  • So maybe I’ll try an acroyoga or aerial class for a new challenge.

Week 1: Spending & Saving > Spending and Saving > Retirement Savings Accounts

  • In this video, I’ll describe retirement accounts you can open through your employer, and others you can open on your own if your employer doesn’t offer any plans.
  • Specifically, I’ll talk about the 401K retirement plan that you may be eligible to set up through your employer.
  • Many of you have probably heard the term 401K before.
  • It’s a tax-deferred retirement account, meaning that you will pay tax on that income and in the investment gains you make once you withdraw that money when you retire.
  • What you should get excited about is that many- not all, but many- companies offer a match for part of the money you contribute to your 401K. In a typical matching scheme, an employer might contribute 50% of every dollar that you contribute, up to 6% of your salary.
  • Some companies might actually match 100% of your contributions, and some might make contributions to your account even if you do not add any of your own earnings.
  • If you leave your company, don’t worry, you can take the money you have contributed to your 401K with you.
  • You can roll it over into an individual retirement account or you can possibly put it in your new employer’s 401K. Or you can leave it in its current 401K. The important point is your contributions are your money and you’re the boss of it, you get to keep it.
  • That doesn’t necessarily go for the money your employer has put into your 401K, though.
  • It’s worth repeating, you get to keep all of the money you contributed to your 401K no matter when you leave.
  • Now don’t worry if your employer doesn’t offer a 401K plan, you still have other options.
  • It works in much the same way as a traditional 401K. You don’t pay income tax on the money you contribute to it now, but you do have to pay income tax on the contributions and any earnings you make later when you take the money out of the retirement account.
  • There are a few key distinctions between a traditional individual retirement account and a 401K. First of all, there’s no employer match with an IRA, an Individual Retirement Account.
  • It’s only about $5,500 this year instead of the $18,000 limit for an employer’s 401K. Regardless, an IRA is still a good option for saving for retirement.

Week 1: Spending & Saving > Optional: To Own or Not to Own: This is the Question > Should You Lease or Buy a Car?

  • Should you lease or buy a car? Buy, don’t lease.
  • So how’d that work out for you? At the end of the lease, when I decided to buy the car, I figured out it cost me about $3,000 more than if I had just bought the car at the beginning.
  • Do you have, like, a lot of money? Is it really important to you to drive a new car? If so, leasing might just be for you.
  • I do have a question, could we talk over here for just a moment? If you really have so much money that you don’t care what you spend on cars, why are you watching my videos? You’re welcome to watch, but why? Nobody watching this video should lease a car.
  • So if you lose your job, or simply can’t handle the monthly payments and decide to return the car, you will have to pay an expensive early termination fee to get out of that contract.
  • When a car loan is paid you own the car, you keep driving it, no monthly payments.
  • Number five, if you return a car to the leasing company with more than the annual mile limit, often 12,000 miles a year, you may be charged as much as 20 cents a mile for the extra miles.
  • Of course, if you buy and drive a car a lot your used car will be worth less with more miles, but not as much less as the leasing company is going to charge you for extra miles.
  • So is it OK to lease if you don’t have a down payment to buy a car? No, save for a down payment.

Week 1: Spending & Saving > Optional: To Own or Not to Own: This is the Question > Buying vs. Renting

  • It’s a little over 100 years old and it needs a lot of work.
  • There are similar size houses for rent in our neighborhood.
  • Let’s work through a simple example of how to compare the financial costs and benefits of buying and renting.
  • Let’s say you are married and you and your spouse are deciding whether to buy or to rent one of two nearly identical houses, like these.
  • For the nearly identical house next door, the rent is $2,250 a month, or $27,000 a year.
  • You make a down payment of $120,000 or 20%, and you take out a 30-year mortgage for $480,000 with a fixed interest rate of 4.5%. Nationally, housing prices have appreciated about a 0.5% a year more than inflation over the last many years, with a lot of variation from place to place.
  • That implies an inflation rate of around 2.5% a year.
  • We’ll assume you earn 6% per year on your $120,000 investment if you rent.
  • We’re going to compare renting and buying when you stay in the house for one, six, and 10 years.
  • Let’s look first at what it costs to rent for one year.
  • The first year, you pay $27,000 in rent, $500 in renters insurance, and you earn 6%, or $7,200, on your $120,000 investment.
  • So what you pay in rent and renters insurance is in red and the earnings on your $120,000 investment are in green.
  • The total cost of renting for the first year is $27,000 plus $500 minus $7,200.
  • Now let’s look at what it costs to buy and sell one year later.
  • The first year, you’ll pay interest of $21,442 and principal of $7,744.
  • I’m going to assume that your property taxes are 1% and go up 3% a year.
  • Most households, and certainly most renters, take the standard federal tax deduction, which in 2014, is $12,400 for couples filing joint tax returns.
  • First year property taxes and mortgage interest payments total $27,442.
  • I’m going to assume that you and your spouse make $80,000 a year, that your marginal federal tax rate is 25%, your marginal state tax rate is 5%, that your state allows you to deduct mortgage interest payments and property tax payments.
  • So you’ve got a combined marginal tax rate of 30%, lowering your taxable income by $17,442, saves you $5,233 in taxes your first year of owning.
  • We’ll assume that’s $2,500 the first year and goes up 3% a year after that.
  • I’m going to assume that costs you 1% a year, that’s $6,000 the first year and goes up 3% annually.
  • The first year, the value of your house appreciates by 3%, from $600,000 to $618,000 maybe.
  • Nobody knows how much real estate prices are going to go up or go down next year.
  • So as a first year owner, you pay $4,800 in loan fees and title insurance, $21,442 in interest payments, $6,000 in property taxes, $5,233 are saved in your taxes.
  • You pay $2,500 for homeowners insurance, $6,000 for maintenance, and your house appreciates $18,000.
  • Adding everything up, the one year cost of owning is $60,769 and the one-year cost of renting is $20,300.
  • Let’s see what might happen if you were to stay in the house for six years.
  • Back to renting, we’re assuming the rent will go up 3% a year, you’ll earn 6% on your $120,000 with annual compounding, and renters insurance will go up 3% a year.
  • Over six years, you’ll pay $174,647 in rent, $3,234 in renter’s insurance and you’ll earn $50,222 on your investment.
  • What about buying? Over six years, things get better when you buy.
  • In total, six years of owning the house costs you $125,913.
  • What if you were to stay in the house for 10 years? The 10-M year cost of renting would be $220,355.
  • These calculations assume that $1 in 10 years is worth the same as $1 today.
  • If we adjust for inflation and put everything in this year’s dollars, the one-year calculations are the same.
  • After 10 years, owning beats renting by $39,126.
  • Changing some of the assumptions could move that break even period out to seven years or shorten it to five.
  • Unless the real estate market goes through the roof, you’ll lose money buying for only one year.
  • Unless real estate does unusually poorly, you’ll be better off buying if you can do so without moving again for 10 years or longer.
  • The bottom line is that buying your home makes financial sense if you can afford the mortgage payments, the property taxes, and maintenance, if you expect your income to be stable and if you don’t expect to move for many years.

Week 1: Spending & Saving > Optional: A Penny Saved Is a Partner Earned > A Penny Saved is a Partner Earned: The Romantic Appeal of Savers

  • Today I’m going to be talking a little bit about my research which looks at the relative desirability of saving versus spending in romantic relationships.
  • We want to dress up and maybe spend a little bit more money on a nice outfit, or a nice vehicle, a nice restaurant.
  • So there is some research in consumer behavior and marketing that suggests that when men in particular are motivated by romantic attraction, they tend to show a greater willingness to spend on expensive flashy items and less so on less flashy, inconspicuous items.
  • Well, I’m going to turn that conventional wisdom on its head and argue that saving money is actually more desirable in a romantic partner than spending money.
  • So in my own research, I look at the other side of spending, which is the saving, and whether or not that is more desirable in a mate.
  • Second, there are a lot of dimensions to being what I term saver or a spender.
  • Saving up for a luxurious vacation is very different than saving up for a down payment on the home.
  • So in my own work, I focus on just the simple label of being a saver or spender so that later in my future work I can look at these other kinds of dimensions.
  • So in my work, I’m going to argue that saving is more desirable because of perceptions of general self-control.
  • So I’m going to argue that savers are more desirable than spenders because of the self-control.
  • So participants were randomly assigned to view the profile of someone that said I’m a saver or a spender.
  • So for the first experiment, I randomly assign people to view someone that said that they would spend $250 of $1,000 windfall.
  • Consistent with my theorizing, I find that the person who was going to spend less and essentially save more of that windfall was perceived as more desirable than the person who was going to spend a little bit more.
  • I also included a variety of different ways of explaining my saving and spending habits- so I love saving, I hate saving, I love spending, hate spending, I find it hard to save, I find it hard to spend- to again, test the robustness of the effect.
  • What I find is that regardless of how someone expresses their habits, saving was more attractive than the control and spending was less attractive than the control.
  • So now the next question is, well, why? Why are savers more desirable than spenders? And so the next couple experiments I looked at perceptions of general self-control.
  • It’s possible that savers might be seen as less materialistic and as having greater future financial viability.
  • What I find is that it is indeed perceptions of general self-control which predicts the effect of spending habits on attractiveness above and beyond these other alternative explanations.
  • How romantically attractive do you find this person? You know, and I find that savers are perceived as more romantically attractive because they’re perceived as having greater general self-control.
  • Saving may actually signal, again, perceptions of greater self control, which have direct implications on outward appearance.
  • Again, it’s possible that savers might be perceived as superior on all sorts of dimensions.
  • Maybe savers are not only more physically appealing, but they’re also more fun and exciting and humorous and intelligent.
  • So one dimension in which savers should not exceed spenders on is excitement.
  • Consistent with the self-control explanation, I find that savers, again, the exact same photo labeled saver, was perceived as physically more attractive than the exact same photo labeled spender.
  • Savers were perceived as significantly less exciting, consistent with the self-control explanation.
  • So there’s going to be situations in which savers might not be preferred.
  • So when you think about savers, you think longer term, marriage.
  • Because savers have the advantage on physical appeal, but a large deficit on the excitement, I didn’t expect to find a difference there.
  • In situations in which we’re thinking in terms of a short term fling, saving is not more desirable.
  • I find that people who are more likely to experience boredom and really don’t like predictability, they also do not prefer the saver.
  • You might be wondering, well, how am I going to know this about somebody unless they explicitly tell me? Is there are a situation in which maybe I’m going out for the evening and I want to be able to identify who’s a saver or a spender in the wild? And so I’m going to argue that it is possible to identify people’s general spending habits simply by looking at them and without any kind of verbal communication.
  • I had them first complete a getting-to-know-you survey in which they privately identified themselves as a saver or a spender.
  • Then I told them that we were going to do a person perception task in which they were going to look around the room and guess whether or not every other person in that room was a saver or a spender.
  • My research finds that saving not only has obvious financial benefits, it also has surprising interpersonal benefits.
  • So savers are more desirable both in terms of romantic appeal and physical appeal because of their perceived greater self-control.
  • Finally, of course, there are situations in which savers may not be preferred to spenders, situations which people are craving excitement or simulation.
  • So the last thing I want to leave you with is kind of the mantra for frugality which is savor the saver.

Week 1: Spending & Saving > Optional: Individual Retirement Accounts with Rich Stebbins > Individual Retirement Accounts (IRAs)

  • I didn’t understand the value of compounding over time, or the tax benefits associated with a Roth IRA, but I did understand what $1000 meant, so of course, I wrote them a nice letter and gave them a phone call to thank them.
  • An IRA is an individual retirement account, and the name describes its purpose to a T. It’s an account for an individual the allows you to save for retirement outside of the workplace.
  • A workplace plan will allow you to set aside more money the Roth IRA or the traditional IRA gives you a wider range of investment options, to be housed within a brokerage house of your choice.
  • With an IRA you can set aside a certain amount each year, and this amount is set by the government.
  • If you’re 50 years old or older, you also have a bonus amount that you can set aside, and you have up until April 15th, tax day, to contribute for the previous year for these s So the two flavors of the IRA the traditional and the Roth, which is what my grandparents gave me, come with the different types of text benefits.
  • Early, for an IRA, is before age 59 and 1/2. After age 59 1/2, you don’t pay that penalty, but you still pay that ordinary income tax.
  • Now with the traditional IRA, you’ll actually be forced to take distributions once you reach age 70 1/2. You will no longer be able to contribute to the IRA, and you’re going to have to take these required minimum distributions.
  • If you have a multiple IRAs, if the brokerage house is doing the calculation for you, they’re only going to know what they hold in that particular brokerage house.
  • You can take this required minimum distribution out from one single IRA to take care of all your IRAs, or you can take a little bit from each.
  • The Roth IRA allows you to do what’s called tax-free growth.
  • With the Roth IRA, the money that you put in you’ve already paid taxes on, so you make after tax contributions, and then the money that you take out after age 59 and 1/2 is completely tax-free.
  • This is an amazing benefit for the Roth IRA, especially for the younger investor, with years and years to allow this money to grow over time.
  • With a Roth IRA, you’re not going to be subject to those required minimum distributions.
  • If your income is above a certain point, you’re not going to be able to make a contribution to a Roth IRA, at all.
  • When you open either one of these accounts, the traditional or the Roth IRA, some brokerage houses will require a minimum initial investment, maybe $3000, or require you to commit to making minimum, monthly investment.
  • You’ll have a much better potential of upside with a wide range of investment options in a Roth IRA.
  • Now, once you’ve opened a myRA you can convert it yourself into a Roth IRA at any point.
  • Or you’ll be automatically put into a Roth IRA once your account balance reaches a certain amount, or you’ve held this myRA for a certain period of time.

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