So do I. Congratulations on realizing your need and setting out on this journey of learning about your money and how to work with it effectively. There are two basic issues ... one is your income and how to deal with it to make each of those dollars coming in work most effectively. The other is your asset base and how to manage it to make it grow well, working harder for you than for the other guys ... and avoiding having too much of snipped off by the purportedly big-deal managers to slip into their pockets. Better to learn what you're doing, over the years, and become your own manager! Pay yourself those fees that they charge (probably wise to deduct the cost of some of your mistakes, as you learn). In the investment group that I've attended monthly for about 7 years, we call them the tuition fees in the University of Learning How to Manage Your Own Money! I bought some equity-based mutual funds over 20 years ago, charging 2.5% of the value of the current asset value of the account, annually. When you multiply 2.5 by 20+ ... what do you get? 50% of the value of my asset, right? Is that the original asset amount? No - the creeping value of the asset as it grew, over time. I started a thread (I think over on KT) a couple of weeks ago asking whether people had ever seen stock certificates grow like rabbits! Had a person bought 1 share of JNJ at the beginning of 1970 (I'm using this for illustration, not suggesting that you should buy it, or not buy it) about how many shares would they think that they'd own, now? If you go to Yahoo->Finance and put JNJ in the "Get quotes" box at upper left, you'll get a page that shows a lot of info about current situation of the shares, including a chart at lower right of the stock price movements today. Clicking at a long-term period under that chart will show you share prices over your choice of various periods ... plus info about several stock splits - twice 3:1, and 4 times 2:1. What does that produce? 1->3->9->18->36->72->144 ... right? Price in 1970 $180./share (in dollars each of which was "worth" a lot more than each dollar is now). Current price about $63.00. That is, $180. grew to about $9,072. How do you like them apples? Not only that ... I read somewhere a while ago about a numberof stocks which had increased their dividend annually for 25 years ... I think JNJ has increased theirs annually for 40 years, if I'm not mistaken. Which adds some sugar to the applesauce, right? When did you ever hear of a Guaranteed Investment Certificate acting like that? Also wise for you to learn to deal with both income and assets in a tax-effective way. If you can reduce taxes now, often a good idea to do so, if the system at issue is useful in your case. Deferral is frequently a good idea, as well, when available. In Canada, a number of people look at the current rate on a GIC and at the rates paid by a stock, and say they like the interest rate better than the dividend rates usually offered. But when Canadians earn a dividend on a Canadian stock, the tax rate used to be lower, and last year the system of calculation changed to make it even lower again. I can't believe how many Canadians I've run into over the years who didn't know that! Quite often ignorance carries a substantial price. I think that I've said to thousands, over the years, that learning how money works is an interesting hobby ... **that pays well**!! (I've said it so often, around here, that I think that people must be getting sick of hearing it!) Not only that, if you put your dollars into a investment where their numbers are guaranteed not to shrink ... they're almost always guaranteed not to grow either. I bought a stock over 40 years ago for about $4. and change, which at that time paid about a (tax-advantaged) nickel or a dime. Over the years the value of that stock has gone up, down and sideways. I could have sold it last May for about $107. ... and it pays me an annual dividend now of $3.48. There's one catch - it has been doubly involved in the U.S. sub-prime mortgage debacle. The share price dropped to the $80.s, then recovered to near $100., then slipped back into the $80.s ... and in the past few weeks, as the sub-prime issue got more complex, far-reaching and distressng, the share price dropped down through the $70.s, into the $60.s, closing since the first of the year in the $60.s ... and I suspect that the dividend rate will likely be cut. Am I about to sell it? No. I paid $4.20 over 40 years ago, and if I sell now, I deduct the $4.20 amount that I paid from the current $68.20 or so, leaving me with $64.00 capital gain. I divide that by 2, leaving me with $32.00 on which I must pay tax at my usual rate (i.e., added to the top of my other income this year). But it does leave me with the other $32.00 realized free of tax. However, I'm getting close to 80 years of age (79 next Wed.) and my current tax bracket is lower that will be the case if I leave all of those assets intact till I kick the bucket - for then some of them will be taxed at lower rates, but after that's used, others will be taxed at higher rates until they get to the top rate, and my executor will have to pay that on some of those realized capital gains, then. Also ... since I have no spouse (to which the tax-deferred retirement account could be transferred, tax-free at the moment, to be added to her assets, to provide her with income and on her death to have the residue added to her income and taxed then, at whatever rate) they'll be added to my income in that year, as well. Likely taxed at top rate. I've thought of selling some of the stocks that I've held for years, in order to have the taxable portion of the capital gain taxed now, at my usual lower rate ... ... but if I do that, I have fewer dollars to re-invest, to go on not only growing, but adding to earnings in those years, until my demise. As it is, I add those $3,000. or so that I'm required to withdraw from my tax-deferred retirement account annually to my annual income. Do you think that I should follow the advice of some hot-shot financial advisors who tell how to get that payment out tax-free? Borrow $50,000. to invest it in a variety of stocks, using well over $100,000. (I wish!) of stock certificates as collateral, making it a fully secured line of credit, at interest of 6%, i.e $3,000. per year, using my $3,000. annual payout from my retirement account to pay the interest. My deal with the lender is that I pay interest only on the loan. As the loan is used for investment, the interest is deductible. As an old fart that doesn't want to take heavy risks, I invest in some quality Canadian stocks - paying about 3% interest, and as they are taxed at low rate, I have about 2.5% after-tax income, which in other circumstances I would use to help pay the interest on the loan. Suppose I'd borrowed that money 15 years ago, paying interest only through those years. If my Dad died and left me $50,000. as a legacy, and I took it to the bank to pay off the loan, how much would I owe them? That'd be $50,000., right? That would have bought a lot of good things, 15 years ago ... much more than now. I gained from inflation. Suppose you'd put $50,000. into the bank, 15 years ago, and the bank paid you the agreed upon rent on your money, in the years between ... and you went to collect the value of your GIC today ... how much would the bank give you? Right! Exactly $50,000. That would have bought a couple of good cars, 15 years ago ... not now. I gained from inflation ... you lost. Such strategies should be used with discretion, taking into account various possible scenarios, some of them quite unattractive, with the operator able to deal with them without serious inconvenience. I never want to see my friends get margin calls on such loans, unless they're able to meet the shortfall, whether with other assets ... or immediate cash. Good wishes for using both your income and assets increasingly skillfully! As you have further questions, feel free to ask. If some of them seem a bit too private for you to feel comfortable with discussing in this public place, I'm sure that several of us who have responded here would be pleased to offer you our opinions should you contact us privately. ole joyful

You can also convert a traditional IRA to a Roth, but there are some tricky restrictions to doing this, some of which involve tax rules scheduled to change up to and through 2010. I don't normally like to post an entire article from the WSJournal. But this particular question posed to their ENCORE section (which specifically deals with retirement and financial questions) might be of specific interest to some folks considering Roth conversions. Contribution Methods Sway Roth Withdrawal Rules May 31, 2008; WSJournal Encore section Q: We couldn't contribute to our Roth IRA this year because of the income limits. I noted that we could contribute to a nondeductible IRA and then later convert it to a Roth, assuming we are under the $100,000 income limit or wait until 2010. My question: Since we already have the Roth accounts open, am I right in assuming there is no five-year waiting period to make penalty-free withdrawals? Also, am I right in assuming that you can convert a nondeductible IRA into an existing Roth IRA? --B. from Virginia. The way the five-year waiting period works depends on the way you're putting money into a Roth individual retirement account. There's one set of rules for making penalty-free withdrawals if you are contributing to a Roth IRA, and another set for Roth IRA conversions. Roth IRAs are attractive because they have no withdrawal requirements for the account's owner, along with no tax on future earnings on their assets, unlike traditional IRAs. As you note, there are income limits for making Roth IRA contributions. For 2008, your income must fall below $101,000 for an individual or $159,000 for couples filing jointly. If your income exceeds those limits, though, you may still be able to make a partial contribution (described in Publication 590 at www.irs.gov1). There are no income limits for contributions to a nondeductible, traditional IRA, which you could convert to a Roth later. (One note: If you have pretax money in any IRA, you would owe some income tax on the conversion. Publication 590 explains how to do the math.) This year and next, you can convert a traditional IRA to a Roth if your modified adjusted gross income is no more than $100,000 a year, either for an individual or married couple filing jointly. Modified adjusted gross income is essentially all of your income except for that from any Roth IRA conversions and a few other exceptions. Publication 590 includes a work sheet explaining how to calculate this amount, along with more about what does and doesn't count toward modified adjusted gross income. Starting in 2010, there are no income limits for Roth conversions. And in 2010 only, you can spread the income and accompanying tax from a Roth conversion across 2011 and 2012. Once you've socked away money in a Roth IRA, either through a regular contribution or by converting other IRA assets, when can you take the money out without a penalty? You can withdraw your original contributions at any time with no penalty -- an advantage that a lot of people don't realize. But there is a five-year waiting period for withdrawals of any earnings. The five-year clock for earnings on regular contributions starts the year you open your first Roth IRA, and it doesn't reset each time you make a contribution. You also have to turn 59 years old to avoid a 10% penalty for early withdrawals on any earnings, along with income tax. There's a separate five-year clock for assets you convert to a Roth account from other retirement accounts, says Ed Slott, an IRA consultant in Rockville Centre, N.Y. You have to hold those specific assets in a Roth for five years or until you turn 59½, whichever comes first, to make penalty-free withdrawals. Why the separate five-year waiting period? The federal government wants to make sure Roth conversions aren't used as a penalty-free way to raid traditional IRAs early, Mr. Slott says.

Thanks jose and steve for the confirmation and advice! I like the idea of VanGuard or Fidelity and will check out both more thoroughly. I actually have about 25 years to retirement and will be increasing my retirement savings each year. Would love to save 25% but my income is low and I'm already living rather frugally (not a shopper, no vacations, no credit card debt, 3 month emergency fund)! For the last 4 years I have been saving (IRA/Roth) just over 10% of my gross income. My income is low enough that I have qualified for the maximum Saver's Credit (which is why some savings is in an IRA and some in a Roth). In the next year I will be re-entering the regular world of work (after being self-employed for 15 years). And while I have earned a living and loved being self-employed I have decided to do this so that I have better health insurance plan and work for a company that offers a 401K with a company match. My total saved is about $10,000 and the split is actually about $4000 in a regular IRA and $6000 in a Roth IRA. My thoughts are that I should invest the $4000 IRA in something that is relatively stable and I should invest the $6000 Roth in something that offers the opportunity for a greater return (especially since there is no tax on Roth earnings at withdrawl once I retire). At this time I am not looking to convert the regular IRA into a Roth IRA. Knowing the split ... $4000 IRA and $6000 Roth what the best option for each?

I'm a teacher too, and I can give you some advice on some of these topics. I am 100% sure we're not in the same state because you make more money than I do (though I have 24 years experience). - First, you sound like you're doing very well for your age. You should pat yourself on the back for realizing the importance of saving and thinking about retirement well before most people your age. - I'll second the point about talking to your potential fiancée about finances ahead of time. Do not just assume it'll all work out. - Buying a house is a sound investment. I assume you'll sell your current paid-for house, so you'll have about 120K to put down on a new one -- excellent. Even if she brings little to the table for this project, the two of you should be able to knock out the borrowed 100K within five years (even if you have a baby soon). With no mortgage, you'll be amazed at how much easier it is to live comfortably and still save! - Do you have a savings account for a new car? Since yours is paid for, I suggest you begin paying a car payment into a savings account. Once you get yourself "a car ahead" (meaning that you're ready to buy a new car when you need it, so that you're not wasting money on interest), it's easy to STAY "a car ahead". - I have the impression she's a teacher too? If the two of you work at the same school, consider becoming a one-car family. We did it for several years (until I started teaching, and our schedules were completely incompatible), and it was a MONUMENTAL money saver for us. It was the single biggest thing that allowed us to get off to a good financial start in our 20s. - If you hate your job (I do at times, really, I do) but want to stay in the pension system, could you do something else within the school system? Could you be the tech guy? the athletic director? could you do something different as a state employee -- a possibility, if your pension systems are linked? - I don't think you need to think about life insurance at this moment. Not to be crass, but if you died today, would anyone be worse off financially? With no wife or children, probably not. Once you're married, you probably won't need it yet. If you were to die, your wife could use your pension pay-out and your other investments to pay off the modest house payment you anticipate taking out, and she'd still have her job to sustain her. You WILL need life insurance once you have a child. If you were to die and leave your wife with a toddler, she'd have years ahead of her in which she'd be a single parent, and although her salary would be enough to put food on the table and clothes on their backs, your life insurance would be there to educate the child in the future. The life insurance would also assure you that your wife would be able to take some time off work, and that she'd be able to put aside a good chunk for retirement. Remember, she too will need life insurance. If she left you with the toddler, you'd need the same help. - The two of you probably need disability insurance more than you need life insurance. Statistically, you are more likely to be disabled than to die young. And becoming disabled is the real nightmare scenario (from a financial standpoint). Consider: You're in an accident or you become sick. You cannot work, so your household income's slashed in half. Yet your medical bills are sky-high. Your wife is still working, but she's also doing ALL the housework and ALL the childcare AND is trying to help you with your physical therapy. She's burning through her sick days taking you to the doctor. THIS is the nightmare scenario: She's overworked, AND she can't take advantage of your life insurance. Avoid it by signing on for disability insurance. - Another thing you should do after you marry is to write wills. As a teacher, you probably have access to your an employee's credit union? They probably offer such services for a low price. - About your pension: Do you know the details for the pension in your state? In my state you're fully vested at 10 years (so, yeah, you'd be a fool to leave at 9.5 years), and you can collect a full pension at any age once you've put in 30 years. You can collect a reduced pension at 20 or 25 years, though the dollar amount is reduced, and you can't begin collecting until 65 (65?) if you don't put in the full 30 years. Once you find out the details for your own state, you can "run the numbers" and see when it makes sense for you to leave teaching. It might be sensible for you to aim for 20 years, then do something else -- but you have to get the facts, then do your homework. - How secure is your state's pension? This is public knowledge, so look into it. You do not want to put all your eggs into the "staying in teaching" basket, if your state's weak in the pension department. As the people in Detroit! - In my state the pension program (defined benefit program) is being exchanged for a defined contribution program. This has its pros and cons, but overall it means that the new, younger teachers aren't going to get a pension. Why does this matter to you? Because if you ever leave, then return to teaching, you'll come in under those new rules! - An above poster mentioned Social Security. In my state, teachers DO pay into SS, so I will collect an SS check one day. You seem rather financially savvy, so I assume you know whether you've been paying into this or not. - I disagree with the above poster who says you're essentially screwed if you choose to have children AND want to retire at a reasonable age. The key is that you have to choose to live FRUGALLY. My husband and I are 48 and 51, and we have two college students. When we married, we had between us $200, college degrees and jobs, one car, and a brand-new mortgage. We chose to be frugal from the very beginning: We maxed out our 401Ks, even though it meant we couldn't afford vacations. We built an emergency fund, then started a savings account, putting away 1/4 of our after-taxes paychecks, even thought it meant we rarely ate out or bought new clothes. When our savings account grew, we started investing, even though it meant we had to remain a one-car family. Today we live in a house that's paid for, have significant investments, and are easily able to pay for our two college students' expenses -- they will graduate debt-free. My same-aged friends who wail that they can't afford their kids' college tuition don't like to hear that we buy used clothing, drive an 8-year old car, etc. The key is knowing the difference between needs and wants -- and being self-disciplined enough to stick to a budget. - Finally, I think you're off to a good start. If you and your wife are both about 10 years into teaching, then 20 years from now the two of you can expect the following: 1. You'll be about 55 years old, and as a person who can "see 55 from where she's standing", it's not "old" -- at 48, my knees hurt sometimes, but I can still hike all day and can pretty much still do whatever I want. 2. You'll live in a house that's paid for. 3. You'll have two teacher pensions. 4. You'll have teacher health insurance in retirement. 5. You'll have two Social Security checks. 6. You'll have the investments you've already begun. 7. If you have a child soon after your marriage, that child will be finishing college (and beginning to support himself) about the time you retire. You'll be able to have all these benefits AND you can work part-time (or seasonally) so you can avoid dipping into your investments too early. Though you're not earning big bucks now (or ever), you'll be well prepared for retirement. If the two of you put in a total of 60 years of teaching to earn these benefits, you'll have WORKED for every penny, but you'll have a comfortable retirement.