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Offlinetrillby33
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Registered: 07/08/08
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Last seen: 2 years, 9 months
Need IRA Advice
    #9401558 - 12/09/08 05:59 PM (15 years, 3 months ago)

So, my boss comes up to me yesterday and says "guess what, you've been with us over two years, that makes you eligible for our SIMPLE Plan!" Of course, this freaks me out. I don't like people asking me to make decisions. But, after some research, it appears that he's asking if I want to set up a simple IRA wiki article here and will match funds up to 3% of my paycheck. Now, my first thought is "free money! OMG yes!" However, I want a more educated opinion. I can't seem to find anything on how long I would have to wait before I could use said money - obviously retirement is the goal, but, I've never really wanted to retire. In fact, I don't plan on doing the whole "long-term job/career" I see this as a cruddy system, and I want out. I want to buy land, I want to work it for as much of my living as I can, and maybe own a small business of the handicrafts or baked goods type. I DON'T want to work for some company until I'm 65 and then go off to enjoy the rest of my time. So, if this is something that could be useful, and maybe could eventually be used as say, a down payment on a few acres of land, I'm interested, but if it's useless to me and my dreams, I don't want to waste time/money on it. Can someone please enlighten me?

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InvisibleVeritas
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Registered: 04/15/05
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Re: Need IRA Advice [Re: trillby33]
    #9401686 - 12/09/08 06:25 PM (15 years, 3 months ago)

With a few exceptions, all distributions from an IRA which occur before you are 59.5 years old are subject to a 10% penalty, plus federal and state taxes.

One of the exceptions is up to $10,000 for the purchase of your first home, so you could use the $ you've saved for a down payment. :smile:  However, you cannot withdraw funds for this purpose until two years after you've established the account.

IMO, a SIMPLE IRA account is a great idea for several reasons:

1.  You do not pay taxes on your contributions, your employer's contributions, OR the interest/dividends/gains earned on your investments until you take distributions.

2.  You receive "free money" from your employer, and then earn interest/dividends/gains on the investment of this "free money."

3.  The restrictions add extra reasons to refrain from spending this money on things you don't truly need.

http://www.investopedia.com/university/retirementplans/simpleira/

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Offlinetrillby33
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Registered: 07/08/08
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Re: Need IRA Advice [Re: Veritas]
    #9402208 - 12/09/08 08:09 PM (15 years, 3 months ago)

Thanks, that link helped alot and explained things very clearly. Money is not my strong point...having parents who viewed all types of insurance/investment/retirement planning as unnecessary at best coupled with growing up overseas didn't lead to me learning much in that area. So, after reviewing information, I'm thinking I'll go ahead with it since it seems like a good way to save up/invest/get free money from my boss to eventually fulfill one of my long term dreams. Again, thanks!

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OfflineClammyJoe
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Re: Need IRA Advice [Re: trillby33]
    #9405294 - 12/10/08 10:48 AM (15 years, 3 months ago)

Obama has mentioned he'd like to change that penalty free 10,000 to 20,000.

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OfflineBeat Bop Solo
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Re: Need IRA Advice [Re: trillby33]
    #9412033 - 12/11/08 10:51 AM (15 years, 3 months ago)

On a semi-related note, Roth IRAs offer many benefits that SIMPLE (traditional) IRAs do not.

Definitely take advantage of the free money, but if a Roth makes sense given your current situation (and assuming that you meet the necessary qualifications), it would behoove you to restrict your contributions to your employer's match (in your case, 3%).

Any extra cash that you can afford to invest should be used to fund a Roth IRA.

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Offlinetrillby33
I'm a teapot User Gallery

Registered: 07/08/08
Posts: 126
Last seen: 2 years, 9 months
Re: Need IRA Advice [Re: Beat Bop Solo]
    #9414263 - 12/11/08 05:19 PM (15 years, 3 months ago)

Oh believe me, I wasn't planning on putting in more than he will match. It seems like that would be invoking the law of diminishing returns - namely, after three percent, I'm not getting free money anymore...boo!

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InvisibleVeritas
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Registered: 04/15/05
Posts: 11,089
Re: Need IRA Advice [Re: trillby33]
    #9417582 - 12/12/08 11:20 AM (15 years, 3 months ago)

You need to consider the tax benefits of contributing to your IRA.  If you have few deductions & are paying Federal and State income taxes each year, you will benefit from reducing your taxable income by the amount you contribute to a Traditional SIMPLE IRA.  With a Roth IRA, you get the tax break later (when you begin taking distributions).

You may want to estimate your tax liability for 2009 & check to see what you would save by contributing different amounts to your IRA.  This tax savings represents more "free" money.  If your income is low enough, you may also qualify for the Retirement Saver's Tax Credit.

http://www.investopedia.com/articles/retirement/04/031704.asp?viewed=1

This credit is deducted from your tax liability, not from your taxable income, so you can reduce BOTH your taxable income (by the amount of contribution) and your net liability by 10-50% of your contribution (for a max. credit of $1000).

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