• Should We Even Have Our Retirement Accounts?

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    If you’ve looked at any of our net worth statements, you’ve seen that we have four retirement accounts between the two of us. Only two of these accounts, the employee sponsored ones, are actively being funded right now. If you don’t want to read my long-winded analysis of our accounts, scroll to the bottom to see where this is all going. Here’s a breakdown and a little history of our accounts.

    His Roth IRA
    My mother caught wind of the Suze Orman show sometime when I was in college. She dug up some resources and really didn’t understand them, but the seed was planted. The notion was too good to be true – that putting $2,000 (the contribution limit at the time) into a Roth IRA for a few years, then letting it grow so that by the time I retired I’d have a million bucks. My parents opened up a Roth IRA account for me with Fidelity and fully funded it for my 19th birthday. For my 20th and 21st birthdays, they also funded it. It was my job to figure out how to invest so that I would retire comfortably. I’ve had some good luck with my investments so far, but I’ll be looking to change my investment strategy soon (more on that in a later post). Since the initial contributions by my parents, no other contributions have been made.

    A SIMPLE IRA (Savings Incentive Match Plan for Employees of Small Employers) is a retirement plan for small employees where pre-tax dollars are put into a retirement account. These work pretty much just like 401(k)’s, (of which there is a SIMPLE 401(k) variant – here’s a comparison between the two) except for a few differences. Unlike traditional 401(k)’s there is no vesting schedule that can be applied; employers have to match employee contributions up to 3%, but no more, unlike the 401(k) maximum of 25%; and you cannot “loan” yourself money to be paid back from a SIMPLE IRA. Because of our current financial situation, I only contribute 3% – enough to get the maximum employee match, for a total of the equivalent of 6% of my salary.

    His HSA
    I don’t really consider this a retirement account. Here was my overview of this account a few months ago.

    Her Roth IRA
    When my mother was telling me about Roth IRA’s, I also put the bug in Her ear that she had to open one as well. And that she did – with student loan money. She’s had some success with her investments as well, but trouble with the company that she held it with. Like me, she opened this account before either of us knew what the hell we were doing. Since the account was initially funded, no more money has been actively contributed to the account.

    Her 401(k)
    Read all about 401(k) plans here. I won’t bore you with my amateurish description of one. Her contributes 6% of her salary, of which her employer matches 40%, for a total equivalent to 8.4% of her salary.

    So why have I spent the time to explain all of this? Well, Nancy had a great question:

    “Why are you putting money into our retirement accounts while you have…debt?”

    That’s a great question that I answered to in the post: Free money.

    That got me thinking though – is this the most prudent financial decision? I’ve already reduced my retirement contributions to free up some cash for debt repayment.

    Should people with as much debt as us contribute anything to their retirement accounts?


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