Our Adventures with a Roth IRA

A little less than a year ago, my wife landed a position with a wealth management department of a large bank.  It took awhile, but finally their compliance department said we could not keep my 15-year-old daughter’s Custodial Roth IRA at its then current custodian.  We would have to move it to their custodian.  So I contact that financial company.

Now we are talking about less than $500 in the account (Time value of money,  little deposits over time will grow into a huge amount!).

The company that her compliance department required me to move the account to cannot accommodate a custodial Roth IRA.  The other part of that broker dealer can, but my daughter’s balance is WELL below their $250K minimum balance requirement.

So I begin to hunt for a bank who can open this account, just sock it away in a money market account IRA until she is 18.  Don’t like missing the potential growth of a mutual  fund investment, but it is what it is.

Well, after having conversations with 6-7 banks, both local and national, not one of them could open this type of account.  One even offered to open the IRA in her name, I could make deposits to it, but NO ONE could make withdrawals or close the account until my daughter reached 18!

Wow.  See, because my daughter is under the age of 18, she cannot sign agreements like an IRA agreement.  So, a custodian (like Dad) is the signer, acting on her behalf, but the custodian has no ownership in the account.  Simple, but beyond the ability of most banks to do.

A Roth IRA can be opened by or for ANYONE with an earned income, even if they are an infant (baby in a commercial?  Just drop that $5K commission check into a custodial Roth IRA earning 8% for the next 60 years and it grows to almost $600,000.00 tax free)!

For the time being, my daughter’s Roth IRA was moved out of the protective umbrella of Roth and into a minor savings account.  She is working one day a week, and we are tossing HALF of her pay into this retirement account.  She won’t even have the maximum (currently $5500) annual investment limit when she turns 18, but starting her out so she lives on half her income can turn her into an early retirement superstar!

Stay tuned!

Using Personal Sinking Funds To Improve Your Financial Situation

No, not this kind of sinking!

This kind of sinking:

     “Sinking funds” are often used by governments and corporations.  What the do, they set aside large sums of money to pay off certain debts and obligations.  But here, we are using the same term and principles on a personal level to help you make a brighter financial future.

     When creating a cash flow plan for the first time, a lot of your money will be going to work on monthly obligations; food, mad money, utility bills, loan payments and so on.  But there are some spending events that are not monthly, and a few are not even yearly, and it is for these events you can use a sinking fund process to great effect.

    Cash Flow Plan items to consider for this process:  Gifts, vacation, car repair, car replacement, house repair.  More you can probably think of.  These events are important, but maybe not too much on your radar because the events are so far away.

    But, if you build your cash flow plan to SINK small amounts into these categories every pay, with time these categories will GROW so that (for example) you will never again sit around the Thanksgiving dinner table wondering how to pay for gifts.  Out come the credit cards and the January bills to follow.

    OK:  Say you want to spend $1,500.00 on gifts this year, and you get paid every two weeks.  Starting with your March Cash Flow Plan, you will transfer to a savings account (or to a cash envelope marked for gifts) $68.19. ($1500 divided by the remaining 22 pay periods.  Come Black Friday, you will have $1,363.80 plus a tiny bit of interest.  Cash to buy gifts, and NO DEBT!

    Throw $90.91 each pay into a car repair Sinking Fund, and be year’s end you will have a car repair budget of $2000, minus maybe one oil change and other repairs.  NO DEBT!

   Look at what you want to spend per year (or per period) and you can use the SInking Funds concept to slowly build yourself enough to fund your dreams with your money and NO DEBT!

   Sinking Funds.  Add this powerful weapon to your financial arsenal today, if you have not already.  Don’t be a slave to the lender!

US Personal Debt

US Personal Debt By The Numbers

     Just in time for the Christmas shopping season, I wanted to throw out some dry numbers at you, numbers that show the need for this and other blogs on saving money, building a budget, getting out of debt and spending less that you make.

In September of this year, the Board of Governors of the Federal Reserve released some statistics on the level and types of debt in the United States.  Here are a few of those numbers:

Consumer Debt Figures from the Board of Governors of the Federal Reserve System

Consumer credit G-19 Released September 2013, updated November 7^th

Select figures:

Total US Consumer outstanding (does not include real estate, but does include credit not in use (IE:  $10K credit limit counts, not $3K balance on that account):  Over $3 TRILLION DOLLARS!

This level of personal debt and credit rivals the entire budgets of some countries!

Outstanding debt Revolving(These are the balances):  Almost $847 BILLION DOLLARS!

Too many Americans are singing “I owe, I owe, It’s off to work I go!”

Outstanding non-revolving (car loans, student loans, boats, trailers, vacations) $2.2 TRILLION DOLLARS!!!!

And just look at the average interest rates people are paying on this debt below:

Average credit card interest rate 13.11%

Average 48 month new car loan rate 4.46%

Average 24 month personal loan rate:  10.13%

Please do not get caught in the trap of looking at these average rate and saying you win because your rate is below average.

With a Cash Flow Plan in place, an Emergency Fund in place (so that credit card debt does not dig your hole deeper when a car repair rears its ugly head) and a vibrant, all hands on deck Debt Snowball Plan chugging along, you can remove yourself and your family from this ugly part of American life.

A nice short one today, everyone have a great week, see you soon!