Wednesday, December 9, 2009

Finally

This past weekend I finally got around to converting my rollover IRA to a Roth IRA. I expect to take about a $600 hit out of pocket in taxes, but then that ~$4,000 will grow tax free forever afterwards. Yay! I'm just watching to make sure everything converts properly and then I will combine it with my other Roth IRA at a different institution. After the conversion, I'll have to kick in a bit more and then I'll have fully funded a Roth for 2009. Whoo hoo! And I've got everything figured out to set up automatic payments to fully fund it for 2010 and onward.

Finally, I'm getting my retirement accounts in some kind of proper order.

I chatted online with reps from both Vanguard and Fidelity while figuring how to do the process, and both told me they were impressed that I was taking this step at my age, and congratulated me on having a long term outlook. That made me feel good, but it also made me sad because apparently I'm unusual among my peers. To all you twenty-somethings (and really, whatever your age if you're not doing this) GO GET A ROTH IRA RIGHT NOW. Everything you contribute is after tax and so will grow tax free for the rest of your life. That is a HUGE deal. HUGE. Even if you can't max it out (right now, $5,000 per year), contribute whatever you can because compound interest is only your friend when you start early.

Yay me for getting one more thing crossed off my to-do list.

5 comments:

  1. OMG, how awkward is it to tell these things to your friend's faces? When I'm talking about my finances, all I get in reply is, retirement is for old people. Yes, yes it is.

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  2. HAHA! investingnewbie's comment is cracking me up. All my friends think that I'm somehow way ahead of the game for having 2 retirement accounts. I'm 30! And it doesn't look like I'm getting any younger.

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  3. How do I sign up for a Roth IRA acount? Does it have to be through an employer?

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  4. Good for you! I'm also thinking of converting rollover IRA to Roth IRA. But then again.. not sure if I should conserve cash right now because of unemployment.

    Did you have an accountant go through with you what you would in taxes? Or did you figure it out yourself?

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  5. I didn't go through an accountant. I used the calculators on the Fidelity website, and I'd figured out my tax rate recently for some reason so I could estimate what I'd be charged.

    Fidelity said I'd be notified by them what the final amount was, but I haven't seen it yet. Given the amount in the fund (not quite $4,000) the taxes I owe should be between $600-$1,000, which is a chunk of change but I can cover it with any number of resources: the future fund, my checking account buffer, my emergency fund, my student loan repayment fund...so I figured I'm okay.

    Incidentally, converting really doesn't make sense if you can't afford to pay the taxes out of pocket, and the only reason I was able to do it now is because that IRA had lost so much value during the recession.

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Thanks for commenting!