[roybean]

I have been looking at t-bills and I know you can buy for as little as a few weeks versus 6 months, but what happens if you don't re-up in 6 months? Does it continue to build interest or do you just keep re-investing?


Is it taxable income?

Is it better than an IRA? And what's a good amount to start an IRA with?

I am looking for the best source of a retirement plan or investment.

[Hedwig]

If you are truly looking for retirement, get an IRA. I believe you can contribute up to $3K per year. If you get a Roth IRA, you put in after-tax money, and all of the money is tax-free when you withdraw it. If you get a traditional IRA, then you put in pre-tax money (you deduct the amount you put in from your taxes, so you don't pay taxes on it). When you withdraw the money you pay taxes as ordinary income.

HOWEVER--here's the rub. It is RETIREMENT money. If you withdraw anything before you are 59-1/2 years old, you not only pay the taxes, you also pay the 10% penalty. There are a few exceptions, but you really shouldn't even think about it. You've saving for retirement. You should basically put you money away and "forget" (for normal living expenses) that it exists.

Putting the max you can into a retirement account is good. However, if you think you'll need money before retirement, you shouldn't use an IRA. The ideal, of course, is to fund the IRA AND do some investing as well.

The interest from T-bills is exempt from federal income tax. However, states may tax it. That varies from state to state. If you will need the money short-term, you might want to look at a bank such as ING Direct, which pays pretty good interest for a basically non-investment account, and it's FDIC insured.

What you should invest in depends on your situation and your goals. If you want to use the money in a few years, stay to the safe investments like CDs or bonds or a bond fund. CDs usually have withdrawal penalties if you take the money out before the maturity date.

For investments more than five years, you're better off in the stock market. Historically, the stock market has outperformed any other type of investment. But it's volatile, and you don't want to be in a situation where you HAVE to take money when the market is down. That's why you should have 3-6 month's worth of income in a safer type of investment.

Rather than individual stocks, most people invest in mutual funds. That way if one company goes out of business or bankrupts, you don't lose your entire investment, since the fund will own many stocks. Also, you're paying someone to manage the investments for you. Most people don't have the time to do the proper research on all of the companies out there.

So, here is what I would do. Make sure you have several month's worth of living expenses (I think I said income, but it's really expenses you need to cover) in a relatively safe investment such as a money market account, which is totally liquid. That means you can take it any time, no withdrawal penalties. They restrict the number of transactions you can make per month, so if you're in a situation that you have to live on that money, transfer about a month's worth to your regular checking account and write checks from there.

Then I would say have about a year's worth of money that's fairly safe. I like the "ladder CD" approach. You get one 60-day CD, one 90 or 120-day CD, one six month CD, and one for a year. As they mature, you roll them over, staggering the dates so that you have one maturing every 2-4 months.

Then if you lose a job or have some catastrophe, you start living on your investments like this. You have the first two months in your money market. You should have a CD maturing in about 60 days. When you cash that, you'd use it for your expenses for the next 60 days instead of reinvesting in. By that time, the one that was your 4-month CD will mature, and if you still don't have an income you use it, etc.

I think that after a while you're always buying one-year CDs because they are maturing at staggering intervals. So, if you have one that's going to mature in two months, one in six months, one in eight months, one in ten months, then what you're reinvesting now will be a one-year one, in 60 days you'll still have one maturing every two months so you're reinvesting for a year, etc.

[roybean]

I want to put a small sum away and maybe keep adding to it, but not touch it for twenty yrs. or so and get the best return. I don't want to worry about taxes or if I am not living in the same state as my money.

I haven't hit the lottery or nothing...just something I have been thinking about doing lately.

[Hedwig]

Then start an IRA, put in the max you can each year. Invest the IRA in a good stock mutual fund.

If you can afford to put away the money after-tax, meaning you can pay taxes on it now, get a Roth IRA if you qualify. You'll have to look at the rules, there are some restrictions on income, etc.

You might want to pay a financial advisor for a few hours. Get one that is fee-based, meaning you pay for the time. Many financial advisors don't charge for their time, they make their income off the investments you buy. Sounds good, doesn't it? The only problem is that they will steer you into the investment that is paying them the most, which is not necessarily what is best for you. A fee-based advisor is getting the same money no matter what, since you're paying him or her.

The reason I suggest that is that, like in credit repair, I can only give general advice. You may have some situation yourself that would make one thing better than another for you. Be open and honest with this person so they can tailor something to your situation and what you think your future will be.

Many people make the mistake of basing their investment strategy on what they HOPE will happen. Make sure you take an honest look at what your situation is now, and what the market for your skills is and will be. A person who is trained to make buggy whips, for example, shouldn't be planning on making $100K a year in the next five years or so.

I know that's outrageous, but I see people with little education or skills predicting they'll make $60K a year in the next five years. Trust me, it ain't going to happen unless they hit the lottery. So be realistic, then tell them the upper and lower bounds of where you think you'll be.

I'll be glad to help anyone I can with general advice, but you need someone to look at your individual situation for the best help.

[roybean]

Originally Posted by Hedwig

Then start an IRA, put in the max you can each year. Invest the IRA in a good stock mutual fund.

If you can afford to put away the money after-tax, meaning you can pay taxes on it now, get a Roth IRA if you qualify. You'll have to look at the rules, there are some restrictions on income, etc.

You might want to pay a financial advisor for a few hours. Get one that is fee-based, meaning you pay for the time. Many financial advisors don't charge for their time, they make their income off the investments you buy. Sounds good, doesn't it? The only problem is that they will steer you into the investment that is paying them the most, which is not necessarily what is best for you. A fee-based advisor is getting the same money no matter what, since you're paying him or her.

The reason I suggest that is that, like in credit repair, I can only give general advice. You may have some situation yourself that would make one thing better than another for you. Be open and honest with this person so they can tailor something to your situation and what you think your future will be.

Many people make the mistake of basing their investment strategy on what they HOPE will happen. Make sure you take an honest look at what your situation is now, and what the market for your skills is and will be. A person who is trained to make buggy whips, for example, shouldn't be planning on making $100K a year in the next five years or so.

I know that's outrageous, but I see people with little education or skills predicting they'll make $60K a year in the next five years. Trust me, it ain't going to happen unless they hit the lottery. So be realistic, then tell them the upper and lower bounds of where you think you'll be.

I'll be glad to help anyone I can with general advice, but you need someone to look at your individual situation for the best help.

I am understanding correctly that you are saying that if I have say 5 or 10,000 and I start an IRA, I have to pay taxes on it first and then it is forever tax free?

And you are also saying that money that is held in an IRA can be used for investment purposes? If so, I thought that the whole point of an IRA is that it just sits gaining interests for years. If you are investing the money you risk not getting interest and dividends, right?

[Enigma]

If you start a ROTH, and you have the money NOW, you have already paid taxes on it.

The max you can contribute for a non-ROTH IRA is $3000 and more for a ROTH.

You can invest in certain "investments" that are "safe".

If you start a small "consulting" business you set up a one person 401K and add much more money to it in addition to your IRA's.

When setting up your IRA's, on Jan 1 each year contribute the max you can, that way you earn max compounding.

My mom had the forethought back in the late 70's, when savings rates were in the double digits, open several IRA over that time period that had maturity dates of 20-35 years.

She is enjoying the proceeds as well as her pension.

As far as not having your money in the state you retire in; several years ago FL and I think AZ realized that they were loosing millions on retirees and their pensions. So they moved to tax the pensions of the new residents.

Lawsuits were flying all over the place. I am not sure of the out come, but you have a very valid concern.

[Hedwig]

There are two kinds of IRAs. For the traditional IRA, you put in pre-tax money. In other words, you deduct the amount you put in from your income so you don't pay taxes on it. When you take the money out later, it is taxed as income because you didn't pay taxes on it before you put it in.

Then there is a Roth IRA. You put in after-tax money, so you've already paid taxes on it. That means you can't deduct the amount you contribute from your income. When you withdraw the money later, it's all tax-free, even the gains.

There are rules about who can contribute to a Roth IRA. I don't remember them all but I think there are income limits. There are also limits on who can deduct their contributions to traditional IRAs, based on income.

Once the money is in the IRA, you can't take out the money or the gains until you are 59-1/2, unless you pay a 10% penalty as well as the taxes on the money.

The IRA can be invested in stocks, bonds, or just a money market fund. Usually that will be a mutual fund, there are only a few that let you buy the individual stocks and so forth. All of the dividends from the stock are reinvested, which helps your savings grow. Stocks typically earn a lot higher return over the long run. Most get dividends as well as hopefully appreciation in value. The company you put the IRA with will manage the investments.

If you get an IRA at a place like a credit union, they may only have a few investment choices, like one or two funds you can choose from. If you go to one of the brokerage houses, like Solomon Smith Barney, T. Rowe Price, Financial Network, or one of those, they will have more choices. You choose which funds your money is invested in. You can move between funds, with certain restrictions.

You don't really want to just put it in something like a money market fund for 20 years or so. You really don't get that much return. Four or five percent compounded isn't much.

The main way your money grows in investments is the return. Mutual funds are funds made up of lots of stocks. The funds manager buys and sells based on where he or she thinks the market is going and within the limits set by the fund. You have to read the prospectus, which tells you what the goals are. The stocks will be sold for gains or losses, and those are distributued among the people who own the fund. Same goes for dividends. They go into the fund and are reinvested, either in the same stock or something else. Again, it depends on the funds manager and the goals of the funds. You own shares of the funds, which means you own whatever the fund owns. But you don't own the stocks directly, the fund does, and if the fund value increases, your shares will increase as well.

[roybean]

Originally Posted by Enigma

If you start a ROTH, and you have the money NOW, you have already paid taxes on it.

The max you can contribute for a non-ROTH IRA is $3000 and more for a ROTH.

You can invest in certain "investments" that are "safe".

If you start a small "consulting" business you set up a one person 401K and add much more money to it in addition to your IRA's.

When setting up your IRA's, on Jan 1 each year contribute the max you can, that way you earn max compounding.

My mom had the forethought back in the late 70's, when savings rates were in the double digits, open several IRA over that time period that had maturity dates of 20-35 years.

She is enjoying the proceeds as well as her pension.

As far as not having your money in the state you retire in; several years ago FL and I think AZ realized that they were loosing millions on retirees and their pensions. So they moved to tax the pensions of the new residents.

Lawsuits were flying all over the place. I am not sure of the out come, but you have a very valid concern.

I hadn't thought about several, but that's something to think about and as for consulting I have thought about that too...just trying to figure what to do and how to do it.

[roybean]

Originally Posted by Hedwig

There are two kinds of IRAs. For the traditional IRA, you put in pre-tax money. In other words, you deduct the amount you put in from your income so you don't pay taxes on it. When you take the money out later, it is taxed as income because you didn't pay taxes on it before you put it in.

Then there is a Roth IRA. You put in after-tax money, so you've already paid taxes on it. That means you can't deduct the amount you contribute from your income. When you withdraw the money later, it's all tax-free, even the gains.

There are rules about who can contribute to a Roth IRA. I don't remember them all but I think there are income limits. There are also limits on who can deduct their contributions to traditional IRAs, based on income.

Once the money is in the IRA, you can't take out the money or the gains until you are 59-1/2, unless you pay a 10% penalty as well as the taxes on the money.

The IRA can be invested in stocks, bonds, or just a money market fund. Usually that will be a mutual fund, there are only a few that let you buy the individual stocks and so forth. All of the dividends from the stock are reinvested, which helps your savings grow. Stocks typically earn a lot higher return over the long run. Most get dividends as well as hopefully appreciation in value. The company you put the IRA with will manage the investments.

If you get an IRA at a place like a credit union, they may only have a few investment choices, like one or two funds you can choose from. If you go to one of the brokerage houses, like Solomon Smith Barney, T. Rowe Price, Financial Network, or one of those, they will have more choices. You choose which funds your money is invested in. You can move between funds, with certain restrictions.

You don't really want to just put it in something like a money market fund for 20 years or so. You really don't get that much return. Four or five percent compounded isn't much.

The main way your money grows in investments is the return. Mutual funds are funds made up of lots of stocks. The funds manager buys and sells based on where he or she thinks the market is going and within the limits set by the fund. You have to read the prospectus, which tells you what the goals are. The stocks will be sold for gains or losses, and those are distributued among the people who own the fund. Same goes for dividends. They go into the fund and are reinvested, either in the same stock or something else. Again, it depends on the funds manager and the goals of the funds. You own shares of the funds, which means you own whatever the fund owns. But you don't own the stocks directly, the fund does, and if the fund value increases, your shares will increase as well.

Like you said, above...I need to talk to someone who knows about all of this stuff.

[Enigma]

I forget which one it is, but one of the IRA you can invest in real estate.

[roybean]

Also, retirement funds cannot be touched by bank seizures or debt collectors, correct?

[Gib]

Originally Posted by Enigma

I forget which one it is, but one of the IRA you can invest in real estate.

Self directed Roth IRA.

[roybean]

Originally Posted by Gib

Self directed Roth IRA.

Wow...I didn't know about a lot of this stuff. Thx Gib.

I did a search and it is an IRA LLC, so it is like a business that someone else overseas for you...I think; if I am understanding correctly.

I found this link:


Self Directed IRA (LLC)

[drivel]

Originally Posted by roybean

Like you said, above...I need to talk to someone who knows about all of this stuff.

either that or pray for the solvency of the social security program.

[Enigma]

Originally Posted by roybean

Also, retirement funds cannot be touched by bank seizures or debt collectors, correct?

That is state dependent. FL no.

[roybean]

Originally Posted by Enigma

That is state dependent. FL no.

I thought that was in all states.... that's what I get for thinking, uh?