Roth IRA - - more than just a great retirement investment.

Roth IRAs: The Swiss Army Knife® of Financial Planning
The Roth IRA is a great retirement program. The Roth allows the owner a great degree of flexibility and control, not available in other retirement vehicles. The referenced article goes over some of those points. I consider the Roth IRA one of the best gifts that Congress has given US citizens. I encourage my clients that qualify to fund their Roth contributions.
Mike Pozzi
Investment Adviser Representative
Hawthorne Credit Union
630-983-2310
pozzim@financialnetwork.com

Roth IRA - - more than just a great retirement investment.

The Roth IRA was first introduced in 1998. Since its introduction, it has become an investment program of choice for a number of our clients because of its versatility.

Like the regular IRA, annual retirement contributions for 2007 to the Roth IRA are $4,000 per person (or $5,000 if you are over age 50) and you have to April 15th to make contributions (Roth IRA contributions are subject to a phase out based on income. You need to be in a qualified income level to contribute).
And, although Roth IRA contributions are not tax-deductible, you may still benefit from the ability to withdraw earnings tax-free.

Here are a few examples of the Roth IRA’s flexibility:
** Saving for college tuition? You can draw on a Roth account to help with your child’s educational expenses, and still retain control of the funds. In addition, if you hold onto your account for at least five years and you’re older than 59 1/2, no taxes would apply on earnings. In fact, contributions can be used at any time, free of taxes and penalties.
** Encourage your youngsters to save. If you have children who have part-time jobs, they too can open a Roth IRA.
** Shopping for your first home? If you’ve had your Roth IRA for at least five years, you can withdraw up to $10,000 ($20,000 for couples) in earnings “tax-free and penalty-free” if you use the money for a “first time home mortgage purchase.”
** Passing on your investments to heirs couldn’t be easier. You can bequeath the funds in Roth IRAs to your beneficiaries, who can withdraw money from the account tax-free over a number of years.
** Roths offer great estate planning advantages. Beneficiaries can withdraw money from a Roth account tax-free. And, unlike regular IRAs, there is no minimum distribution starting at age 70 ½, so seniors with earned income can keep investing in the Roth account at any age.
** If you’re a retiree, you don’t have to worry about being pushed into a higher tax bracket with your Roth distributions, since Roth IRA distributions are tax-free.

Keep in mind that a Roth IRA may not be appropriate for everyone. For example, the IRS requires the owner to hold his/her Roth for 5 years or until age 59 ½ (whichever is later) in order to avoid penalties and taxes on the earnings upon withdrawal. To determine whether a traditional IRA, Roth IRA or other retirement investment program is right for your specific financial goals, contact Mike Pozzi, our Hawthorne Credit Union Investment Adviser at (630) 983-2310.


Securities are offered through Financial Network Investment Corporation, a registered broker/dealer and member of the SIPC. Financial Network Investment Corporation is not an affiliate of Hawthorne Credit Union. Mutual funds, annuities and other investments available through Financial Network Investment Corporation are not insured by the FDIC, NCUSIF or any federal government agency, are not deposits, or obligations of nor guaranteed by Hawthorne Credit Union, or any other affiliated entity. Investments are subject to investment risks including loss of principal invested.

Nickle and Dimed

I was at the ticket counter at the train station. I asked for a round trip ticket to Chicago. She offered to sell me a weekend pass that would get me where I needed to go and home when I wanted to return.

"You'll save 15 cents," she said.
"Whatever," I said. "It doesn't make much difference."
"The difference is 15 cents," she said.

She's right. Fifteen cents - a nickle and a dime. It made me wonder how often I casually disregard a small sum of money. Seems like the more I have the greater the amount that I tend to disregard, and the more money I spend. Really, what does 15 cents get you nowadays anyway? (Now I sound like my Grandmother.)

But the point is, small amounts really do add up. I'm not going to sweat over 15 cents. But how many times have I spent $15 more than I should? The grocery store is the hardest time for me - I see a food item and I just buy it without checking the price. If it looks good and it's healthy (no chemicals, transfats or high fructose corn syrup) AND if it's low in calories, too, I buy it. Maybe I can justify the price because I'm a bit particular about food. But I am also a sucker for convenience foods. I could easily save $15 a week by cooking more at home.

If I saved $15 each week, I'd have $780 more in savings at the end of the year. At retirement, that $780 could grow to nearly $4,000 (that's in 25 years at an average rate of 6.50% without contributing any more money!) If I put away $15 every week for the next 25 years ($60 per month for 25 years at an average rate of 6.50) I'd have nearly $45,000.

Direct deposit or automatic transfer is the easiest way to do this - you don't even have to think about it then. We can arrange to automatically move whatever amount of money you want, into a separate savings account.

$45,000 - That's no small change!

Where will you be in 2027?

Wow that sounds like a long time from now. In 20 years I’ll be getting ready to retire (I hope!) Will I have enough to live comfortably the way I do today, or will the money I’ve saved only allow for a tent and a nice cot? (Maybe I can rent a patch of grass in my daughter’s back yard!)

I've also thought maybe I'll live with my friends and family in one of the "McMansions" that are being built now with so many spacious bedrooms and bathrooms. There's an article about homesharing in this month's Home & Family Finance on our website. I think it's an idea that really has some legs!

But if the idea of sharing a residence with your brother just sounds like a nightmare to you, you'd better start saving! Now's your chance to get a jump on your savings by putting your tax refund into your IRA. You may even get a tax deduction for it.

I know it’s tempting to spend your tax refund. But why not take at least part of it and put it away? The sooner you start saving, the more time your money has to compound, which is essentially just the effects of time and interest building up in your account.

Here’s an example that really hits home:
Look at this example: Say Frank and Mary start working for the same company in the same year, earning the same beginning salary of $25,000, with annual increases of 4%. If Mary starts a savings program immediately putting away 5% of her salary annually with no interruptions, earning an annual return of 8%, after 30 years, she'll have accumulated $230,150.
Frank decides to wait to start a savings program. If he saves 11% of his salary annually for the last 10 years before retiring, earning an annual return of 8%, he would accumulate $114,832.
So if you’re early in your career, there’s time to make some head-way. If you’re late in the game you might be playing catch-up. Still, the more you put away the better. It’s never too late to start saving.

It’s true, too. I didn’t start saving as early as I would’ve liked to. At age 25 I was more interested in buying cars and houses. It’s understandable! But as soon as I was eligible, I started putting some pre-tax dollars from my paycheck into my credit union’s pension plan for employees. The credit union matches part of my contribution - which helps considerably. I’m always amazed when I get my quarterly statement – it adds up so quickly and that’s with a modest risk in a modest market. If your company offers a pension plan, you’d be wise to participate in whatever way you can.

Don't let worrying about retirement ruin the fun of living now. You know you'll get by with whatever money you have. However, the more money you have the more choices you'll have on where to live and with whom. So if retirement worries you, make a pledge to put away some money this year.