By 2/15/05, open an IRA and put $1000 in it (towards your 2004 limit).
By 3/15/04, have another $1000 in it for a total of $2000 (towards your 2004 limit).
By 4/15/04, put the final $1000 in it for a total of $3000 (fulfilling your 2004 limit).
Assuming you’re paid semi-monthly, take $250 out of EACH paycheck (starting with your first May/2005 paycheck) and put in in your IRA. $250 x 2 checks/month x 8 months = $4000 (your 2005 limit)
In 2006, for each semi-monthly paycheck, stick $4000/24 paychecks = $166.67 into your IRA.
Find someone to help you invest the IRA, that is something I’m not too keen at.
It’s not too late for you at 31 (actually 30, since you will be able to get 2004 in).
I like this plan. I think the only change is that I’m going to go mutual fund instead of IRA, because frankly I’ll need the money before 60. Aside of that, this looks like the way to go. I’m not sure if I can add that much money though, I was looking to add $1,000 to $1,500 a year to it. Does seem like I have some incentive to add as much as I can.
Also, I used this Income Tax Calculator with your $49K annual for a rough guestimate of your tax liability…If you put in $4000 (In 2005), your tax liability will go down from $6871 down to $5871 (yep, $1000…this was with $0 placed for all other prompts) or 25% of the money you invested into your IRA.
If you do this for your 2004 IRA limit of $3000, then I can reasonably assume you will reduce your taxes by $750, therefore getting a refund of $250 instead of oweing $500. Will that make you feel better?
Then you won’t get the tax break. You can invest in mutual funds with your IRA account and you can pull the amount out before 59-1/2 with penalties, but there are exceptions that can be penalty free. At this point, seriously talk to an financial institution and find out what your goals are. An IRA still might be the way to go. There advice is free. I’ve been with Schwab for years now, but there are many other companies that are quite capable of helping you give all the info available.
I agree with Yeticus. You can’t depend upon Social Security. Get a nice tax saving NOW, and have $3000 towards a retirement later. In fact, if really deep shit comes, you can still access it.
414H are pension contributions. Depending on the plan(s) your employer has, it’s definitely worth looking into – it’ll be in box 14 if it applies to you.
World Eater, it’s unclear to me whether you’ve checked into itemizing. Even without deductible charitable contributions, most single people in NYC benefit from itemizing at your income level. Just paying Governor George and Mayor Mike send most people over the standard deduction! Others have offered good advice on getting started with a retirement plan. This is easier for you than for most people because of your bonuses – you can invest that money without taking a major hit to your montly budget.
Well, I’m trying to determine what “itemizing” would entail for my life. I live about as straight forward a life as one can, hell, a 1040ez is overkill for me. I guess when I envision itemizing things, it’s like charities, stocks, life insurance, pension fund, the summerhouse, etc,etc. What I’m saying is I don’t think I have anything to itemize.
The standard deduction this year is $4,850. State and local taxes are deductible for itemizers (well, most itemizers – we’ll leave my AMT rant out of this for now as I think it’s probably not applicable to you, but grr. :mad: ) so if you paid more than that to George and Mike, you’ll benefit from itemizing even if you have no other items whatsoever.
WE, invest the $15 (avail now at Costco, after rebates) in TurboTax. After you’re done answering all their questions, it will determine whether the standard deduction beats the itemized deduction. It also asks questions that you might not have thought of (e.g. charitable contributions, property taxes) that can reduce what you owe.
I’d also second the recommendation to invest in an IRA. You can either write a check out for $500 to the feds or invest $3000 in your future and owe next to nothing to the feds. That’s $500 going in your pocket instead of the government’s. Even if it’s a Roth IRA, which is not deferred, at your age you should be putting something away because money compounds over time. It’s a hard check to write but you do get the satisfaction of watching your money grow. And think, when you retire at 92, you’ll be able to supplement that $127.58 monthly Social Security check and live the life of Ryan.
I thought that there were certain things that qualified for penalty-free Roth IRA funds (taxed) - buying your first house, going back to school, etc.? Was I misled? I think I heard that from my bank as I opened it, which was one of the reasons I went with the Roth. Not that it really matters, as the amount not going into my IRA makes the baby Jesus cry, but I’d like to know.
I think you’re correct – there ARE certain withdrawals that can be done without a penalty. At least it’s that way with a traditional IRA, and without doing any research whatsoever I’m assuming they apply to a Roth IRA as well. I’d certainly take your banker’s word on this over mine.
This site gives you some resources to check, and some take you offsite from the IRS. Mostly involves simple filing…1040 and 1040A, some have AGI ceilings, but not all of them. Read each site carefully, some do have filing fees, but cheaper than using store-bought software or visiting a tax preparer.
