Alright, now that Mr. Money Mustache has completely convinced me that I am an over consuming spending monster, it is perhaps time Ben and I buckle down and come up with some concrete plans. But I have some questions for those of you who are smarter than I (and when it comes to investing, I am pretty sure that most of you are smarter than me!).
I'm trying to figure out 529s. I talked to a financial planner today and tried to get some explanations, but I am still confused. If you have a 529, can you help me out???? Here are my questions:
1. He said that amounts contributed were tax-deferred, but that when used on education you didn't have to pay taxes on it either. He made it sound like you never had to pay taxes on the money you put into this fund. Is that true? If so, how does it work- is it a deduction on your taxes, or does it somehow come out of your paycheck pre-tax like a 401K?
2. This company the planner works for uses a fund called AmeriFund, which is apparently a pretty big fund place thingy (how do you like that jargon?). The fees are 5.7% of the money you put in, up to a certain amount when the fees get lowered. That seems very high to me, but I really have nothing to compare it against. They seem especially high because he said a 6-8% return rate is good. That is a pretty low overall return rate- unless, you really do never pay taxes on any of that money, thus saving you 15% right off the top. Right? Not right?
My next question is about a ROTH IRA. We have one that we have been putting a little into, then somebody told me today you can deduct the money you put into that on your taxes. Is that right? I thought a ROTH was after-tax money and you paid taxes on it upon distribution.
So many questions....this investing stuff is tough! No wonder it is so hard to get started. But, I am proud to say that I have about 6 investing books on hold at the library to hopefully try and figure out some of the basics. We'll see.
If the end of the world happens soon, I suppose none of this will matter anyway.
2 comments:
OK - first, I find it hard to believe that YOU are overconsuming. Anyway - we do have 529's for each of our kids. We did them through the state program collegeinvest.com. Super easy - pulls out of our bank account monthly automatically. I have NO CLUE about tax stuff though - I would read the FAQ's on their site. As far as I know, we put after tax money from our regular checking account into the fund, although we can't deduct what we put in on taxes, but I have no idea what happens when we take it out. For us, it's a way to save, period. I really could care less about the specific funds. MMM would tell you this too - investing and rates and stuff is important, especially later as you have more money invested, but most importantly is saving it first. Also, MMM would tell you to find a place with no fees. There are plenty out there, I will try to find the post (at the beginning of his blog somewhere) where he talks about this. No/low fees are out there. I've never done ROTH, but there is a limit on the amount you can put in per year, I believe you can deduct that from your taxes somewhere, so a lot of people do it at the end of the year. Keep me posted on what you find out - at this point, we're focusing less on investing than we are on paying everything off and figuring out how to live on one income next year and pay for all the stuff we have to pay for Cici-wise. But, then, we'll be in a place to start investing more, as soon as we can save 50% of our income, of course! :)
I'll have to e-mail you more questions. I think the UCollege might be the best bet.
I did find out that the ROTH is after tax, so no deductions but then when you take it out you pay no taxes on the earnings, and the regular IRA is after tax.
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