Author Topic: Very basic questions about retirement--SIMPLE IRA?  (Read 1738 times)

TeresaB

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Very basic questions about retirement--SIMPLE IRA?
« on: December 05, 2014, 02:47:22 PM »
Hi,
I'm trying to figure out how we should save for retirement and I'm not having much luck. I don't really know anything about investing or retirement so my googling is mostly just confusing me.
DH makes $60k pre-tax. He has a SIMPLE IRA from work with Charles Schwab. We're currently having $150/month autodeposited so that he gets the full 3% employer match. Wikipedia says we can contribute up to $12,500 next year. We are not going to be putting that much towards retirement. (We have student loans to pay off that are doing a number on my psyche, and we aren't interested in early retirement per se, so we're going to prioritize debt repayment for now. We are young.)
Question 1: I don't have an income right now (working on that), so I can't contribute to any kind of retirement plan, correct?
Question 2: Does it make sense to get some other kind of retirement account for any money that we want to save over the $150/month? Or just stick what we've got into the SIMPLE IRA? The tax deduction things are confusing me. It looks to me like any money we put into the SIMPLE IRA isn't taxed. Is that correct?
Thanks in advance! Also, if anyone knows a good ELI5 (explain like I'm 5) book for investing or retirement planning, I'd appreciate a recommendation.

Joel

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Re: Very basic questions about retirement--SIMPLE IRA?
« Reply #1 on: December 05, 2014, 08:30:15 PM »
What kind of funds are the SIMPLE IRA invested in? I've found those most of these retirement accounts have very high fees. My dad was able to switch his over to a vanguard SIMPLE IRA. That's something worth considering that would save substantial fees.

trugrit03

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Re: Very basic questions about retirement--SIMPLE IRA?
« Reply #2 on: December 06, 2014, 09:42:30 AM »
Question 1: I don't have an income right now (working on that), so I can't contribute to any kind of retirement plan, correct?
Not exactly. If you file jointly, you should be able to contribute to your own IRA in your name. When you file jointly, the IRS is looking at your joint income, so because your husband has income, they consider you to have income. You can do Traditional or Roth.

Question 2: Does it make sense to get some other kind of retirement account for any money that we want to save over the $150/month? Or just stick what we've got into the SIMPLE IRA?
No, if you're talking about a Traditional IRA. They do the exact same thing, which is reduce your taxable income. So putting $1,000 into a SIMPLE does the same thing to your taxes as putting $500 in a SIMPLE and $500 in a Traditional IRA. Either way, it's $1,000 of a tax deduction. If you want to put it into a Roth, then that's a different story, depending on what you are trying to achieve.

The tax deduction things are confusing me. It looks to me like any money we put into the SIMPLE IRA isn't taxed. Is that correct?
Yes, it's tax deferred. Which means the amount that your husband puts into the SIMPLE is reduced from his taxable income as a deduction. He pays taxes on it when he pulls the money out as a taxable distribution.

My dad was able to switch his over to a vanguard SIMPLE IRA.
Sidenote: be very careful about this if the SIMPLE IRA is relatively new. SIMPLE IRAs aren't really that "simple." There is a unique rule that applies to this type of account. You cannot transfer a SIMPLE IRA within two years of the first contribution without receiving a 25% penalty. Likewise, the 25% penalty replaces the 10% early withdrawal penalty if you redeem assets before that two year mark. So, if you husband started CONTRIBUTING within the past two years, consider leave it parked in the SIMPLE.

Hope this helps.
« Last Edit: December 06, 2014, 09:44:05 AM by trugrit03 »

TeresaB

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Re: Very basic questions about retirement--SIMPLE IRA?
« Reply #3 on: December 06, 2014, 02:14:20 PM »
Thanks, both answers are helpful! It's a brand new account; he only set it up last month. I have no idea what the fees are, or what it's invested in, because he can't make the appointment to discuss those things until the first deposit has been made. But we'll look into that, and consider switching after 2 years if it isn't good.