State of the union: what is MyRA? Success or failure? What we know now.

State of the Union #myRA My Retirement AccountKJ: So without getting into any of the politics from the State of the Union, we wanted to bring a quick summary about what this new myRA account is all about (i.e. with many wondering if myRA is a new account, if it’s like a Traditional IRA, or is myRA more like a Roth IRA?…all things we hope to clarify in this post). While there are a lot of details to be ironed out, the program is designed to be made available in 2015 with some early adopters starting the program in late 2014. There are quite a few good articles out there, but here is the press release with some additional reading. Here is what you should know now:

What it is:
(1) Another confusing acronym that sounds eerily similar when pronounced to the already existing IRA. Wait, are you saying myRA, my IRA, or just IRA? Are you saying Myra (as in the person – a mistake a number of people have made on Twitter putting @myra instead of #myRA – oops!) or my RA (as in rheumatoid arthritis or residential adviser – college dorm term). All-in-all, just a bad name choice in my opinion.
(2) A Roth IRA equivalent – The participant does not get any tax advantages today for contributing to the account today (it is “after-tax” money meaning you don’t take any current year tax deductions for what you put into the account), but it grows tax-exempt, just like a Roth IRA. Plus, an account owner can roll the funds over to a Roth IRA at a financial institution (and will be required to do so after they have accumulated $15,000 or have been invested for 30 years) at any time.
(3) Your own savings. It’s not a plan or account that the employer controls or has any say in. Really, their only involvement is to process payroll deductions and then send the funds to the Treasury for deposit into your myRA. Plus, if you leave your employer, the account is yours to take with and do what you want – and fund it again with your new employer. Thus, it has a lot of the portability benefits that a Traditional IRA or Roth IRA has.
(4) Your myRA contributions are protected from investment loss. Guaranteed by the Treasury, and the same “G” – government securities – investment option in the Thrift Savings Plan (TSP) for government employees in their workplace retirement programs, it will not lose principal. Check out the TSP website on historical performance for more on this fund.
(5) A way to help those save for retirement who don’t have a workplace retirement option available. However, just because you don’t have a workplace 401(k), does’t mean you have NO options on saving for retirement. See our post on how to save for retirement if you don’t have a 401(k) for some further reading.
(6) There are no tax penalties for taking a withdrawal. Much like a Roth IRA, for money you put into the account, you don’t have a penalty or taxes owed on money distributed. However, there are likely to be restrictions (much like a Roth IRA) for earnings in the account if withdrawn before a certain age and an exception doesn’t apply (read, taxes and penalties could apply to the earnings).

Who it is for:
(1) It’s touted to be for anyone who doesn’t have a workplace retirement account they can save for. Well, not EVERYONE would be eligible. It is designed to be a retirement plan that you can contribute to at work through payroll deductions, but the employer has to actually offer it as an option when processing payroll. At the current time, it sounds like it could be in addition to a 401(k), instead of a 401(k), or instead of another workplace retirement account. So, while it could be available for all, there currently isn’t a mandate that employers actually offer it as an option.
(2) Couples making less than $191,000 per year (and a lower threshold for single tax filers at $129,000 per year). It doesn’t quite say that this is when the phase-out begins (or ends) for being able to make contributions, but it sounds quite similar to the maximum income to be able to contribute to a Roth IRA for married couples.
(3) Those looking to start saving for retirement with very little money each paycheck. With contributions as low as $5 per paycheck, and minimum investments of $25, it is arguably both approachable and affordable for all families.

What are my thoughts?
(1) While a guarantee against loss of principal sounds (in theory) like a good option compared to the volatility you see in a private investment strategy (think bonds, stocks, etc.), at what long-term savings cost is this guarantee? Even just earning an extra 0.5% or 1% on your money over the long-term (though subject to periodic market swings) would equal THOUSANDS of dollars of extra retirement money. The key is holding your ground and staying invested and not panicking at the bottom of the markets. Markets fluctuate quite regularly (anyone look at their statements from January?), so learning this early in your investing career can equip you to focus long-term (i.e. 5, 10, 15, 20 years).
(2) Depending on someone’s income, it could be an interesting opportunity to get some additional funds into the myRA, then roll over to a Roth IRA, so you can ultimately get more funds in the great account that is a Roth IRA. Note that this could be severely limited pending further discussions on whether contributions to the myRA are the same limits subject to Traditional and Roth IRAs, so those maximizing their existing Roth IRAs may not be able to contribute anything to the new myRA.
(3) How can a maximum account value of $15,000 with the new myRA be enough to help America’s retirement problem? Assuming you spent the money in one year (not to mention trying to LIVE off of the account on an ongoing basis), that’s barely enough funds to provide for one year of income at the Federal poverty level, yet it’s the maximum you can save in the account? Sure you can roll the funds over to a Roth IRA above this threshold (then the sky is the limit on your account value), but what kind of cap is $15,000?
(4) It can be a good way to get people to START to think about saving for retirement and saving for their future at even a low threshold.
(5) Why do we need another account? Can’t there be solutions to enhance existing options? Is it me, or are there just too many account types out there: Traditional IRA (wait, is a portion deductible or non-deductible?), Roth IRA, SEP IRA, SARSEP IRA, SIMPLE IRA, HSA, MSA, FSA, 401(k), 403(b), TSP, TRS, 457, PSP, checking account, savings account, trusts, credit cards…anything I’m missing?

What is still to be determined:
(1) What are the exact income limitations, and is there a phase-out?
(2) How much can you actually contribute each year?
(3) How does the contribution impact your total contributions to Traditional IRAs/Roth IRAs (up to $5,500 per person for 2013 and 2014) and other retirement accounts? Will it be a new type and completely separate contribution limits or will it combine with your existing IRA limits?
(3) What is the process for when you have had the account for 30 years or when the balance reaches $15,000 and must be rolled over to a private retirement account (i.e. Roth IRA)?
(4) Will this become a requirement for employers to offer at some point?

    What have you read about the new myRA?
    Will you be keeping up with this new account type?
    What would motivate you to contribute to this new account?

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January budget challenge: complete!

Spending challenge success checkboxKJ: We started this month with a post from Mr. & Mrs. H as they were about to lead into an entire “no-spend” month of January, and then just a couple weeks later they provided a mid-month update. Fast forward 31 days, and let’s see how they did!

Guest: Hi – Mrs. H here again, and boy – am I glad January is almost over! Just kidding…as much as it was hard to resist shopping impulses and food cravings to achieve this financial fast challenge, I’m actually appreciative of the peace of mind that it gave us. The goal was to simplify life and become intentional in consuming and buying resources, while getting a good handle on our budget.

For me, this meant:
1) sticking to a list when going grocery shopping (or any shopping),
2) reducing expenses that made sense (i.e. lowered auto insurance by $25/month by cutting out certain fringes and increasing our deductible),
3) cleaning out areas of the house (pantry, freezer, closets, attic, garage) – and use things up, donate, or throw away, and
4) be INTENTIONAL with any spending.

I think we did a pretty good job…I’d give us a B+, in fact! SOME things that were purchased we probably could have done without…but we intentionally made the plunge to make life easier (replacing the garage door, for example). However, the peace of mind this gave me in having a better organized house and using resources we already had, in welcoming friends into our home more than going out, and knowing that we CAN cut expenses – made this all worth it. I hereby declare January our official financial fasting month. I believe this will also increase our awareness to be intentional in everyday life throughout the year.

Mr H: Yes, dear.

KJ: We appreciate the “H” couple for undergoing this challenge and for sharing that with our readers! It can be budget-altering to change your perspective for a full month, and it can teach you how to differentiate between those “wants” and “needs” in your life – whatever they may be. I think we can all learn to live on just a little bit less. Every budget can stand to be a little more targeted in expenses, and putting the microscope over each item for a period of time can help you be even smarter about how you spend your hard-earned dollars!

    Did you try the no-spend month?
    Would you do this again?
    Share with us your experience!

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Surprisingly simple budget tools to kick-start your finances

Quicken Mint Yodlee MEnvelops Personal Capital LearnVest Home Budget Sync YNAB Excel Logo ProgramsKJ: Similar to our post on Quicken or, we wanted to dedicate this segment to writing about some of the OTHER personal finance software tools that are available to us all for little to no cost. With all of the technology around us and the immediate access to information these days, there are NO excuses for not tracking your expenses via one of these nifty money management programs, so start using one today. If one doesn’t work, don’t get frustrated, and just try another system until you find one that works best with your lifestyle and goals. Whether it is paying down debt, learning to invest, building an emergency fund, syncing across all your devices, or any combination of those. – Our personal favorite. Not only is it free, but it connects to *most* accounts and institutions. Sure, there are a few that can be quirky, but no system is perfect, so don’t let that stop you from getting your finances in order. From adding tags to a transaction (particularly useful for tracking expenses of our blog as well budgeting with work related business expenses) to adding cash transactions (if you were so inclined to carry cash and use that as your primary method of payment), it has lots of features. Plus, their budgeting tool is far superior to most other programs I have seen since they let you roll unused expenses over to another month and/or work with an “Everything Else” bucket that can be your catch-all for miscellaneous items that crop up each month.

Yodlee!Yodlee! is a good, free tool. They are similar to, but I’ve found that they connect to even more institutions. And, better yet, you can use it to track all of your credit card rewards, airline miles, etc. – a very nice feature that most other personal finance tools don’t have. Their system is a bit more complex than most around since it can allow you to even send payments, make transfers, etc.

MEnvelopes – Anyone familiar with the “envelope system” of keeping track of your finances? Basically, you parse out your expenses into simple envelopes each month (food, shopping, etc.) and once you run out of money in the envelope for the month, then there’s no more to spend in that category. It can be a great eye-opening way to make sure you don’t overspend in a certain category each month. If you would prefer a more high-tech solution, check out MEnvelopes to help keep track of this on your phone and remotely. It’s the high-tech solution for the good old envelope system.

Pen & Paper – While you DO technically have to pay for pen and paper, they’re pretty cheap options, so I have included it in the “free” section. You can use a simple pad of paper or our preferred method of a Moleskine notebook to keep track. We use a combination of and the pen and paper method of keeping track of our expenses. helps track things electronically, and the pen & paper is where Angela really puts specifics down for grocery, dining out, and “everything else” items to make lists of upcoming items.

Excel Spreadsheet
I haven’t yet created a good Excel template to share with others to use, but I often find myself tracking our own finances periodically in a spreadsheet. There’s just so much customization and projecting you can do that is specific to your situation in Excel that you can’t quite do in a lot of other programs – paid or free. I find that a spreadsheet often gives me the flexibility to best track progress toward goals (vacation, net worth, etc.). The nice thing about Excel is you can also use it split up an existing account into portions. Instead of having three accounts with one for a vacation fund, one for an emergency fund, and a third one for a car purchase, I often keep track of these “buckets” by separating savings within an account for each goal. Then, I can project out future savings for each carved out expense to make sure we’re on track. This method is fun! Then again, I really like building spreadsheets (okay, okay…end Excel geek rant).

LearnVest – With both a free and a paid portion of the program, LearnVest equips you with the tools you need to set, manage, monitor, and track your expenses. They also have some neat goal setting functionality, and if you want to outsource some of the decision making to help you with your personal finances, they have several options to work with a real financial advisor to create your own financial plan. To get access to a financial advisor, it costs $19 per month plus a one-time setup fee (that ranges in pricing depending on which services you are most interested in).

Personal Capital – Similar to LearnVest, Personal Capital offers both a free and paid version that includes advice from an expert in the field. The free version is very similar to – equipped with all the tools you need to make a budget and track your expenses – but their investment reporting and analysis tools are quite a bit more robust. Like LearnVest, if you would like to have one of their professionals help you out in managing your investment portfolios, they can manage your portfolio for a fee (outlined on their website, and varying based on your assets you would like them to manage).

In addition to some of the free (or nearly free) options above, we wanted to outline a few of the paid platforms available as well:

YNAB – Stands for You Need A Budget (YNAB). For $60, you can learn to take charge of your finances. The concept is simple, it gets you to live your next month on the prior month’s income. Sounds simple? It really is that simple. It also helps you better understand what you have to actually spend, so you don’t go over budget since you’re always just spending last month’s income!

Quicken – With several versions available, it’s hard to include EXACTLY what you may spend on Quicken, as your needs may warrant a more complex version. However, even in the most complicated of scenarios, I’ve found that the basic version can be a great fit for most needs. Also, once you buy the software, you can keep it for years without ever needing to upgrade (that is, unless some of the new features and tools are enticing enough to get you to purchase an upgrade). From bill pay TO tracking historical expenses (and net worth) TO creating a budget TO adding manual accounts (i.e. those pesky accounts that either (1) don’t have a login or (2) don’t seem to link to most personal finance software) TO keeping the data yourself (my preference for keeping track of historical information since the files are mine and are stored on MY hard drive versus many other systems that are in the cloud and subject to termination at any point). New to Quicken in recent versions too is the ability to sync your data across your devices, so you can have access to the data when you’re not at your computer – about time they catch up with the rest of the software choices out there!

Home Budget Sync – A neat little iPad and iPhone app that can sync your budget in the cloud. That way you and your family can stay on the same page at any point throughout the month. At only $4.99, it is quite a cheap option to try out and see if it works for your expense tracking needs.

    What cash management software do you use to track your expenses?
    Are there any personal finance programs we are leaving out that you can’t live without?
    Tell us about what methods you prefer.

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Smart money saving essentials all young savers should know - Dear debt, We need to talk. It's not me. It's you. Oh, and I met Roth. She's pretty sweet.
KJ: Saving money is all about working through things for the long-term. So what then can young savers do to maximize their savings and pack a punch for their long-term goals? We’ve pulled together a list of eleven smart money saving tips all young investors should have on their to-do list. Help spread the word with other savers, and let’s work together to build a better, brighter, and savier (surely that’s a word!) future. I’ve included a *few* references to some of our older posts if you feel so inclined for some further learning.

(1) Setup a Roth
Whether it’s a Roth IRA or a Roth feature of your 401(k)/403(b), if you’re young, you should be taking advantage of the feature! A Roth IRA is after-tax money (meaning you pay income taxes on the money in the year you earn it and you don’t get to deduct contributions TO the account), and it grows tax-free. No more taxes on that money for retirement regardless of the growth…think of the possibilities! These are EXTRA great tools for people who are in a low tax bracket AND who are young. Chances are if you’re young, you aren’t at your peak earning point in your life, so win-win!

(2) Learn about the HUGE benefit of compound interest
Starting to save early means you can take advantage of the compounding effect of interest and growth over time – i.e. the whole make your interest earn you interest concept. Having time on your side means the sky is the limit!

(3) Pay down student loans
With student debt surpassing country-wide credit card debt in recent years, chances are as a young saver, you have student loan debt yourself. So, work up yourself a payment plan and find ways to cut your expenses to be able to pay down the debt and get rid of it. Most loans are for 20 years, and I can assure you your 20-year-older self will be glad you paid it down quickly!

(4) Pay off any credit cards quickly
You’re young, you have nothing but time on your side, and you’re going to get a killer job out of college with the awesomeness that is your college degree. Then, reality sets in, and you realize how much more of a challenge it is to pay off those expenses you didn’t think twice about. Well, now’s your time to shine and pay down your *extra bad* debt quickly. Whether you choose the snowball method OR highest interest method, you can’t go wrong. With the snowball method, you basically pay the lowest BALANCE card first with as much extra income as you can, minimum payments on other cards, then once the lowest card is paid in full, you apply that payment to the next highest card until it’s paid off, and so-on-and-so-forth. For the highest interest method, focus instead on the highest interest rate card(s), then next highest, etc. Sometimes the snowball method provides that “instant gratification” as you knock your debt in the teeth and eliminate the number of cards with balances quicker.

(5) Setup – and fund – an emergency fund
First out of college and starting your first career? Build good savings habits today and setup an emergency fund. Try a money market account, Certificates of Deposit (CDs) at a local (or online) bank, or a good-old regular savings account. Build it as quickly to $1,000 as you can, and then work on paying down debt, saving for retirement, and building your emergency fund until it’s 3-6 months of your living expenses. Use Quicken or to track your expenses, so you know what 3-6 months of your living expenses REALLY look like.

(6) Set some goals (financial, professional, and personal)
Put pen to paper and start setting some goals for yourself. Be specific and S.M.A.R.T. (Specific, Measurable, Attainable, Relevant, Time-Bound) about all of your goals. Sounds fancy, but it’s quite simple. Read more here. What’s the point of saving if you don’t know what, where, or why you’re saving?

(7) Create a budget
If you don’t currently have a system you use – or are in the market for a new system that works better for you – start with the following options: Quicken or, Yodlee!, Personal Capital, or just a handy-dandy, pen & paper Moleskine Ruled Journal. Start building a budget by creating a list of all of your expenses. Be specific, and honest about your expenses!

(8) Live on less and see how long you can keep it going
Chances are you could stand to live on a little less. Try it out for a month by cutting one area of your budget whether that’s shopping (that was Angela’s personal choice at the beginning of last year!), less eating out, or less Starbucks. Maybe it will spark you to find ways to trim other areas of your budget…it’s amazing how this mentality and behavior can feed on itself.

(9) Spend less, save more
Basic, huh? Well, actually there are profound impacts on how much better off you will be if you just learn to live beneath your means. Not only will you be able to save more, but you will need to actually save less for your long-range goals by nature of having fewer expenses to cover at a later age.

(10) Save for your child’s college
Learn about tax-advantaged ways to save for your child’s future college expenses, and consider utilizing a 529 plan to get more bang for your buck.

(11) Read about account types
From taxable accounts to retirement accounts to health savings accounts, start doing some research and learn about different account options. There’s a lot out there, but all the more opportunity to learn more and master the savings game!

    Is there anything you would add to this list?
    If you’re at or near retirement, what do you wish you had known that you could tell your younger version of yourself?

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January budget challenge: mid-month update

Stack of billsAJ: Two weeks ago we introduced the “H” family and their month of Guest: Hi folks, this is Mr. H. Mrs. H wanted me to chime in with my perspective at the midpoint of this financial fast. I would say things are going very well… but the garage door broke during the first week of this commitment. My immediate reaction was to cut off a week or so of groceries to make up for the loss… but that was a nonstarter as soon as we ran out of goldfish crackers.

One budgeted item for me was $10 a work day ($200 a month) to eat at the office. At first I was a little nervous because it covers both breakfast and lunch. After two weeks, I am happy to say I have come in under the $10 by about 35%. I was able to do this by increasing my consumption of oatmeal, sandwiches and hamburgers from the cafeteria.

For months I have been planning to “cut the cord” (cut off cable TV service) and this seemed like a good opportunity to finally make that happen. After exploring our options I discovered that most competition has been pushed out of our neck of the woods and our choices were limited to two companies. Neither of the companies endorse cutting the cord. In fact, they both charge a higher premium for internet-only services and one even imposed a limit on data usage to discourage the “cut the cord” movement. Instead of cutting the cord we were able to downgrade our TV package and supplement with NetFlix. This is going to save about $30 a month.

Another commitment was to eat out much less. Of course, as soon as we did, some good friends asked if we could go out to dinner with them one night. These friends do not have kids (yet), so a night out for them is always a little extravagant. I could see dollar signs jumping out the window at the thought of going out. BUT my beautiful and intelligent wife asked them to eat at our house instead of going out. They agreed and ended up having a great time chasing the kids and playing Candy Land. This was so much fun we want to do it more often even after the financial fast is over.

Overall, I am really glad we are doing this. Through the process of digging through the fridge and pantry we have found that it can be fun thinking of new ways to eat old food. You know, like carving the moldy part out of cheese and bread. ;-) Just kidding, I only did that once, but don’t tell Mrs. H!

Mr. H

AJ: “H” family, we feel your pain! I also shared my meal plan for the month and for the first month in almost two years my plan has been ridiculously off-plan. I forgot to thaw stuff, I didn’t even have some of the necessary menu items, things didn’t sound good, all I’ve wanted to eat was sugar, yadda yadda yadda. On top of that, we celebrated my parents’ anniversary and dinner turned into after dinner drinks, that turned into more drinks, that turned into dancing and live music – dang it! That didn’t align with our budget or our New Years resolutions! So, we reset and refocus and tip our hat to January for breaking our wills temporarily.

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