To withdraw earnings without paying taxes or penalties, you must follow very specific rules. The first requirement is that the withdrawal must be taken five years or more after the account was opened. The IRS counts the five years from the first day of the tax year in which you make your first Roth contribution. In other words, if you open the account on Nov. 1, 2017, the IRS actually starts the clock at the beginning of the tax year, that is, Jan. 1, 2017 (when the IRS gives you a gift like that, you take it).
If you satisfy the time requirement, the IRS says distributions qualify to be both income-tax and penalty free if:
the money is used to buy, build or rebuild a first home, up to a $10,000 maximum that is spent within 120 days of the withdrawal
the money is withdrawn because you suffered a disability
the money is distributed to your beneficiaries or to your estate after you die
When a withdrawal fits these requirements, it is called a “qualified distribution.”
All the details are here, looks like there's two additional tiers (but the legal jargon is starting to lose me) - one of them you just pay income tax on the gains while it was in your IRA (education expenses and some military stuff, I think?). If you don't qualify for ANY of that criteria, you pay income taxes on the gains, plus an additional 10% penalty.
e: So yeah. tl;dr is "talk to a tax professional" because we're getting out into the weeds here.
I was going to say that I thought I heard recently that the gains need to be proportionally allocated to the withdraw, unless its a qualified distribution I guess? I haven't done any research though
Blargh, my credit usage last month was at 25% instead of its usual 5-10% due to Christmas shopping and paycheck timing, and I got dinged 13 points off my credit score, from 680 to 667
I was going to say that I thought I heard recently that the gains need to be proportionally allocated to the withdraw, unless its a qualified distribution I guess? I haven't done any research though
I think you're thinking about a 401k->Roth IRA backdoor. The in-service withdrawal of monies needs to be rolled over proportionally.
Blargh, my credit usage last month was at 25% instead of its usual 5-10% due to Christmas shopping and paycheck timing, and I got dinged 13 points off my credit score, from 680 to 667
Oh yeah, I've never missed a payment or anything so it's just a matter of keeping well under 20 percent until I can get some leverage on USAA to give me slightly more favorable terms
Can someone elaborate what it means for credit card usage and how it affects credit score? Is it best to barely use a credit card every month, or at least pay off purchases as soon as possible, not wait until the end of the month?
Another question, I want to invest in a Roth IRA for retirement, what would be the best way to invest? I spoke with a family member and they recommended using Fidelity mutual funds. I read that Ideally I want to manage it once every 6 months or a year, and I want whomever manages it not to take a lot in fees.
Is this generally good advice? Is there any other way I can invest for retirement, excluding 401k? What would be the best way to use a Roth IRA to save for retirement?
That’s weird. I have an IRA separate from my mutual funds, primarily because contributions can be deducted. My mutual funds are also for long term saving but they’re more for buying a house wherever we settle or renovations, not really retirement itself.
Can someone elaborate what it means for credit card usage and how it affects credit score? Is it best to barely use a credit card every month, or at least pay off purchases as soon as possible, not wait until the end of the month?
You want to pay off your credit card bill before they charge you interest, which means paying it before you get the bill or as soon as you get it. Not because of credit score, but because you don't want to pay interest if you don't have to.
When it comes to your credit score, what matters here is the ratio of used credit to open credit. If you have a credit card with a max of $3000 and your revolving balance is $1000, then your utilization ratio is 33%, which is high enough to be a detriment.
But that's a secondary concern. The primary concern is that in that situation you'd have a $1000 credit card balance that you're paying interest on.
The choice to use a credit card and pay it off can have an indirect effect on your credit score. When you have a credit card and you're actively using it, and paying it off promptly, your credit card issuer is more likely to offer limit increases. So that $3000-limit card might become a $5000-limit card in year and then a $10000-limit card the year after that.
Another question, I want to invest in a Roth IRA for retirement, what would be the best way to invest? I spoke with a family member and they recommended using Fidelity mutual funds. I read that Ideally I want to manage it once every 6 months or a year, and I want whomever manages it not to take a lot in fees.
Is this generally good advice? Is there any other way I can invest for retirement, excluding 401k? What would be the best way to use a Roth IRA to save for retirement?
I'd start by asking why you want a Roth as opposed to a traditional IRA.
Usually a Roth is good in one of the following scenarios:
A) You already have a tax-deductible retirement account (401k, traditional IRA, or one of the special plans available to certain types of workers like the 457b) and you're maxing the contributions to that account and have money left over.
You expect your tax rate in retirement to be higher than your tax rate now.
C) You intend to withdraw some of your contributions from your Roth before you retire.
Feral on
every person who doesn't like an acquired taste always seems to think everyone who likes it is faking it. it should be an official fallacy.
So if I understand it correctly, if I have a credit card, and I am paying it off before the payment period, my credit score should not lower, even if I had quite a bit used? I ask because I have a card, but the amount I can use is low, only $500. I have paid it off every month, and I am right now hoping to get a second one that would offer cash back and a larger limit.
The reason I am interested in a Roth IRA is what I heard from family members. What advantage would a traditional IRA have for retirement vs a Roth IRA? Like I said, I do not have access to a 401k or anything from my work right now, but this will change in a year, but I am trying to start now to better save for retirement.
So if I understand it correctly, if I have a credit card, and I am paying it off before the payment period, my credit score should not lower, even if I had quite a bit used? I ask because I have a card, but the amount I can use is
Right.
There's a myth I commonly see on the Internet about credit card balances and credit scores. If it was ever true (and I'm not sure that it was), it hasn't been true in years. The myth goes something like this: 'Your credit score is higher if you use your credit card every month and then pay it off, than it would be if you don't use your card at all."
Nope. If all other factors are equal, the following three people have the same credit score:
Alison has a credit card with a $5k limit that she never uses.
Brian has the same credit card with the same limit. He puts his $100 cell phone bill on it and pays it in full every month.
Chris has the same credit card with the same limit. He charges $2000 of expenses to it and pays it in full every month.
The ratio of revolving credit balance to credit limit for all three of those people is $0/$5000. Their credit score will be the same.
However, there are indirect effects here that might be relevant.
Chris is more likely to be offered a credit limit increase than Brian or Alison.
Chris is running the risk of missing a payment, or paying late, or paying a partial amount. It's pretty common in my experience for people to think they charged, say, $2000 of expenses to a card but then discover that they actually charged $3000. Whoops. Or there's a silly payroll fuckup at work and Chris needs to live off his credit card for a week and is going to be a week behind in his payment.
So if he doesn't want to make a misstep and end up in a bad spot, Chris needs to check his balance online on a regular basis, and make sure he has some decent emergency money that he can use to cover the balance if something goes wrong.
every person who doesn't like an acquired taste always seems to think everyone who likes it is faking it. it should be an official fallacy.
Thank you for the explanation, I edited my post with more details as I accidentally hit send. I am grateful for you taking your time with this.
For that example, how would they go about building their credit score then? Since they are all ending up with $0 at the end of the month, it seems like there is no way to build credit.
Can someone elaborate what it means for credit card usage and how it affects credit score? Is it best to barely use a credit card every month, or at least pay off purchases as soon as possible, not wait until the end of the month?
You want to pay off your credit card bill before they charge you interest, which means paying it before you get the bill or as soon as you get it. Not because of credit score, but because you don't want to pay interest if you don't have to.
When it comes to your credit score, what matters here is the ratio of used credit to open credit. If you have a credit card with a max of $3000 and your revolving balance is $1000, then your utilization ratio is 33%, which is high enough to be a detriment.
But that's a secondary concern. The primary concern is that in that situation you'd have a $1000 credit card balance that you're paying interest on.
The choice to use a credit card and pay it off can have an indirect effect on your credit score. When you have a credit card and you're actively using it, and paying it off promptly, your credit card issuer is more likely to offer limit increases. So that $3000-limit card might become a $5000-limit card in year and then a $10000-limit card the year after that.
To elaborate on this, the factors that primarily impact your score are:
-credit card utilization - don't carry a huge balance if you can help it. This is a large impact, but easiest to fix. Try to stay under 30%, or 10% on the high end.
-missed payments - pay on time. I don't know how long it takes for them to drop off, if ever. Always make payments on time, even if it's just the minimum payment (but don't do that if you can help it, because interest costs a lot)
-derogatory marks - these things can take 10 years to clear off. Bankruptcy, foreclosure, tax fraud, etc. Don't do that stuff. Also be aware of your credit usage, because this is where identity theft can hurt you. Avoid if humanly possible.
-average age of credit history - more is better. 5+ years is desirable. Not as important as the above.
-number of credit lines - indicates people are willing to loan to you. More is better, specifically over 10.
-number of hard credit checks - they drop off after 2 years or so. Fewer than 5 is good, fewer than 3 ideal, but this matters less than the rest.
So as for how credit card usage works: just pay it off, and try not to use all your credit. It doesn't matter if it's before or after you get the bill, so long as your payment isn't late (however some CC companies are shit and you don't get rewards if you pay them off before it gets on the bill, so I personally wait until you get the bill).
For Min/Maxing credit score, some of these things are harder to build than others, most notably average age. So you're "better" front-loading getting more lines, provided you're responsible, as that would help your credit utilization and number of lines, while hurting average age and hard inquiries in the short term.
But your credit score is there to be USED, so of you're planning on getting a loan (car, house, etc) in the near future, probably better to avoid taking that hit.
The reason I am interested in a Roth IRA is what I heard from family members. What advantage would a traditional IRA have for retirement vs a Roth IRA? Like I said, I do not have access to a 401k or anything from my work right now, but this will change in a year, but I am trying to start now to better save for retirement.
Traditional IRA = your contributions are tax-deductible now. You pay taxes on your withdrawals in retirement.
Roth IRA = your contributions are from post-tax income now. You do not pay taxes on it in retirement.
For most middle class wage earners, the traditional IRA makes more sense. Most of us expect our tax rate in retirement to be lower than our tax rate now, so paying taxes now makes less sense than paying taxes later.
However, you said that you are going to be 401k-eligible in a year. That does change things a little. The contributions to a traditional IRA are only tax-deductible if either:
1) You are not covered by an employer's 401k.
or
2) You are covered by a 401k, but your yearly income is under $63,000.
So if you're going to be covered by a 401k soon, then taking out a Roth might make more sense.
every person who doesn't like an acquired taste always seems to think everyone who likes it is faking it. it should be an official fallacy.
More credit cards, a home or car loan, direct credit lines from a bank are the main ones I can think of.
For example, I have a checking account with USBank. Their "overdraft protection" is a line of credit where if I withdraw more from my checking account than it has, the remainder goes into that line of credit which charges interest. That counts as a "line" even though I never use it.
Closed accounts, so a car loan you've previously paid off, also count.
So if I understand it correctly, if I have a credit card, and I am paying it off before the payment period, my credit score should not lower, even if I had quite a bit used? I ask because I have a card, but the amount I can use is
Right.
There's a myth I commonly see on the Internet about credit card balances and credit scores. If it was ever true (and I'm not sure that it was), it hasn't been true in years. The myth goes something like this: 'Your credit score is higher if you use your credit card every month and then pay it off, than it would be if you don't use your card at all."
Nope. If all other factors are equal, the following three people have the same credit score:
Alison has a credit card with a $5k limit that she never uses.
Brian has the same credit card with the same limit. He puts his $100 cell phone bill on it and pays it in full every month.
Chris has the same credit card with the same limit. He charges $2000 of expenses to it and pays it in full every month.
The ratio of revolving credit balance to credit limit for all three of those people is $0/$5000. Their credit score will be the same.
However, there are indirect effects here that might be relevant.
Chris is more likely to be offered a credit limit increase than Brian or Alison.
Chris is running the risk of missing a payment, or paying late, or paying a partial amount. It's pretty common in my experience for people to think they charged, say, $2000 of expenses to a card but then discover that they actually charged $3000. Whoops. Or there's a silly payroll fuckup at work and Chris needs to live off his credit card for a week and is going to be a week behind in his payment.
So if he doesn't want to make a misstep and end up in a bad spot, Chris needs to check his balance online on a regular basis, and make sure he has some decent emergency money that he can use to cover the balance if something goes wrong.
Slight disagreement: credit score only matters when a person's credit is pulled, and the balance at that time will factor. If it was pulled when all of them had paid off balances, then they would be equal. If it was pulled when all of them had their max usage, Chris would have the lowest score due to highest utilization.
So if I understand it correctly, if I have a credit card, and I am paying it off before the payment period, my credit score should not lower, even if I had quite a bit used? I ask because I have a card, but the amount I can use is
Right.
There's a myth I commonly see on the Internet about credit card balances and credit scores. If it was ever true (and I'm not sure that it was), it hasn't been true in years. The myth goes something like this: 'Your credit score is higher if you use your credit card every month and then pay it off, than it would be if you don't use your card at all."
Nope. If all other factors are equal, the following three people have the same credit score:
Alison has a credit card with a $5k limit that she never uses.
Brian has the same credit card with the same limit. He puts his $100 cell phone bill on it and pays it in full every month.
Chris has the same credit card with the same limit. He charges $2000 of expenses to it and pays it in full every month.
The ratio of revolving credit balance to credit limit for all three of those people is $0/$5000. Their credit score will be the same.
However, there are indirect effects here that might be relevant.
Chris is more likely to be offered a credit limit increase than Brian or Alison.
Chris is running the risk of missing a payment, or paying late, or paying a partial amount. It's pretty common in my experience for people to think they charged, say, $2000 of expenses to a card but then discover that they actually charged $3000. Whoops. Or there's a silly payroll fuckup at work and Chris needs to live off his credit card for a week and is going to be a week behind in his payment.
So if he doesn't want to make a misstep and end up in a bad spot, Chris needs to check his balance online on a regular basis, and make sure he has some decent emergency money that he can use to cover the balance if something goes wrong.
Though that assumes that the credit card company sends your information to the bureaus at the right time to hit $0.00 for all of them. Since that is somewhat variable that can have a slight difference. If your card closes on the 15th and the bureaus pull on the 14th, your balance will appear higher. But, ultimately, one that won't really matter as you build up a record of not carrying a balance, and have an increasing credit limit. The thing to do is to use your card(s) responsibly for a number of years. There isn't really a trick to it. Same with diet and exercise.
Anyone have personal experience with the pros/cons of a 529 account to save for college?
We are going to open a joint investment account to put some cash to work for us (low maintenance), for now I am thinking just stick it all in a total index mutual fund, someone tell me if that's really dumb or not :P
Also, you can change the date your card closes/bill is due if that can help for paychecks, or just timing things generally/being an OCD nerd. Just call customer service and ask.
Anyone have personal experience with the pros/cons of a 529 account to save for college?
We are going to open a joint investment account to put some cash to work for us (low maintenance), for now I am thinking just stick it all in a total index mutual fund, someone tell me if that's really dumb or not :P
I mean, that'll work if you want to be lazy and not raise a genius that gets awarded full ride scholarships.
Anyone have personal experience with the pros/cons of a 529 account to save for college?
We are going to open a joint investment account to put some cash to work for us (low maintenance), for now I am thinking just stick it all in a total index mutual fund, someone tell me if that's really dumb or not :P
I mean, that'll work if you want to be lazy and not raise a genius that gets awarded full ride scholarships.
well obviously, but I like having a contingency plan...
Slight disagreement: credit score only matters when a person's credit is pulled, and the balance at that time will factor. If it was pulled when all of them had paid off balances, then they would be equal. If it was pulled when all of them had their max usage, Chris would have the lowest score due to highest utilization.
In my experience, credit card companies send the revolving balance on the most recent closing date, not point-in-time balances, to the credit bureaus.
But Google tells me that this is isn't necessarily true in all cases, or even the majority of cases. So yeah.
every person who doesn't like an acquired taste always seems to think everyone who likes it is faking it. it should be an official fallacy.
The reason I am interested in a Roth IRA is what I heard from family members. What advantage would a traditional IRA have for retirement vs a Roth IRA? Like I said, I do not have access to a 401k or anything from my work right now, but this will change in a year, but I am trying to start now to better save for retirement.
Traditional IRA = your contributions are tax-deductible now. You pay taxes on your withdrawals in retirement.
Roth IRA = your contributions are from post-tax income now. You do not pay taxes on it in retirement.
For most middle class wage earners, the traditional IRA makes more sense. Most of us expect our tax rate in retirement to be lower than our tax rate now, so paying taxes now makes less sense than paying taxes later.
However, you said that you are going to be 401k-eligible in a year. That does change things a little. The contributions to a traditional IRA are only tax-deductible if either:
1) You are not covered by an employer's 401k.
or
2) You are covered by a 401k, but your yearly income is under $63,000.
So if you're going to be covered by a 401k soon, then taking out a Roth might make more sense.
So right now, I am not earning much as I am pursuing a degree, but I expect to make much more in the future after graduation. So it seems a Roth IRA would make sense for my income now since it is taxed so low.
More credit cards, a home or car loan, direct credit lines from a bank are the main ones I can think of.
For example, I have a checking account with USBank. Their "overdraft protection" is a line of credit where if I withdraw more from my checking account than it has, the remainder goes into that line of credit which charges interest. That counts as a "line" even though I never use it.
Closed accounts, so a car loan you've previously paid off, also count.
So if at this moment I do not have any loans, it seems like it would be best to open a few credit cards and use them, not go above 30% or so, and make sure I pay them off before the billing period. Correct?
So if at this moment I do not have any loans, it seems like it would be best to open a few credit cards and use them, not go above 30% or so, and make sure I pay them off before the billing period. Correct?
I'd say be even more conservative and not go above 10%. Just personally speaking.
every person who doesn't like an acquired taste always seems to think everyone who likes it is faking it. it should be an official fallacy.
Anyone have personal experience with the pros/cons of a 529 account to save for college?
We are going to open a joint investment account to put some cash to work for us (low maintenance), for now I am thinking just stick it all in a total index mutual fund, someone tell me if that's really dumb or not :P
I think a total index mutual fund is an index fund, which is almost certainly what you want. Check the expense ratio; for comparison, Vanguard has that at 0.14%, less if you have more than $10k.
So if at this moment I do not have any loans, it seems like it would be best to open a few credit cards and use them, not go above 30% or so, and make sure I pay them off before the billing period. Correct?
I'd say be even more conservative and not go above 10%. Just personally speaking.
That 10% is at the end of the cycle, correct? So if I buy something and it go at 20%, pay it off the next day so it is back to 0%, and the cycle is a week away and I do not use my card during that time so it remains at 0%, it will then show that I owe $0. I would then be good, correct?
So if at this moment I do not have any loans, it seems like it would be best to open a few credit cards and use them, not go above 30% or so, and make sure I pay them off before the billing period. Correct?
I'd say be even more conservative and not go above 10%. Just personally speaking.
That 10% is at the end of the cycle, correct? So it it go at 20%, pay it off the next day so it is back to 0%, I should be good?
Well, I thought it was on the closing date at the end of the cycle, but other folks here and elsewhere on the Internet are saying that some banks report a snapshot of the balance on whichever date they feel like it.
every person who doesn't like an acquired taste always seems to think everyone who likes it is faking it. it should be an official fallacy.
So if at this moment I do not have any loans, it seems like it would be best to open a few credit cards and use them, not go above 30% or so, and make sure I pay them off before the billing period. Correct?
I'd say be even more conservative and not go above 10%. Just personally speaking.
That 10% is at the end of the cycle, correct? So it it go at 20%, pay it off the next day so it is back to 0%, I should be good?
Well, I thought it was on the closing date at the end of the cycle, but other folks here and elsewhere on the Internet are saying that some banks report a snapshot of the balance on whichever date they feel like it.
Hmm, I ask because my credit limit is low since I am on my first card, getting groceries puts me above 10% instantly.
I mean, unless you are planning on getting a loan next year, having moderate utilization is not going to be that big of a problem. Likely even less of one as Visa or whoever will probably be upping your limit fairly regularly. So long as you pay everything off before the bill comes due (not even necessarily before it posts) then you are going to improve your credit over a long enough period of time that it won't really matter month to month utilization rates.
Treat your credit card like a debit card. If you don't have the cash available in your checking account, don't spend it. Also, make sure you have at least enough in your savings account that you won't need to go paycheck to paycheck, or get screwed by a minor clerical/ timing issue. Ideally more and actual emergency reserves, but, you know, be responsible.
I mean, unless you are planning on getting a loan next year, having moderate utilization is not going to be that big of a problem. Likely even less of one as Visa or whoever will probably be upping your limit fairly regularly. So long as you pay everything off before the bill comes due (not even necessarily before it posts) then you are going to improve your credit over a long enough period of time that it won't really matter month to month utilization rates.
Treat your credit card like a debit card. If you don't have the cash available in your checking account, don't spend it. Also, make sure you have at least enough in your savings account that you won't need to go paycheck to paycheck, or get screwed by a minor clerical/ timing issue. Ideally more and actual emergency reserves, but, you know, be responsible.
Generally, are you notified that your credit limit will increase, or do you have to request this? The card I have is through my bank and I have yet to see my limit increase.
I mean, unless you are planning on getting a loan next year, having moderate utilization is not going to be that big of a problem. Likely even less of one as Visa or whoever will probably be upping your limit fairly regularly. So long as you pay everything off before the bill comes due (not even necessarily before it posts) then you are going to improve your credit over a long enough period of time that it won't really matter month to month utilization rates.
Treat your credit card like a debit card. If you don't have the cash available in your checking account, don't spend it. Also, make sure you have at least enough in your savings account that you won't need to go paycheck to paycheck, or get screwed by a minor clerical/ timing issue. Ideally more and actual emergency reserves, but, you know, be responsible.
Generally, are you notified that your credit limit will increase, or do you have to request this?
They notify you. You can request it, but since you are just starting out I wouldn't do that. It might ding you. Especially if they reject it. If you are that concerned you could always open a second credit card account, but just never use it. Which would ~double your available credit.
You might also consider a second credit card account that is exclusively for recurring expenses (phone bill, internet bill, &c.). My card had to get reissued 3 times one year thanks to all the various data breaches, and it made remembering what all I needed to update a pain in the ass. But if all those were on credit cards that had never been to Target, or Home Depot...
Anyone have personal experience with the pros/cons of a 529 account to save for college?
We are going to open a joint investment account to put some cash to work for us (low maintenance), for now I am thinking just stick it all in a total index mutual fund, someone tell me if that's really dumb or not :P
I think a total index mutual fund is an index fund, which is almost certainly what you want. Check the expense ratio; for comparison, Vanguard has that at 0.14%, less if you have more than $10k.
What I know about 529s:
1. Can only be used for college stuff without massive penalties. If you're not sure based on family history if college is in the cards, it's no good.
2. It can be transferred to others in the immediate family, so if they do get scholarships they can pass it to their kids.
3. You can use any state regardless of residency.i use NY as they have good vanguard funds.
4. If you have a strong idea of the type of school you think they'll go to, look into tuition vouchers that let you buy a percentage of tuition each year.
Posts
oh no
overcontribution has not been a problem for me :P
Steam: Elvenshae // PSN: Elvenshae // WotC: Elvenshae
Wilds of Aladrion: [https://forums.penny-arcade.com/discussion/comment/43159014/#Comment_43159014]Ellandryn[/url]
https://www.rothira.com/taking-early-withdrawals-your-roth-ira
https://www.irs.gov/publications/p590b
All the details are here, looks like there's two additional tiers (but the legal jargon is starting to lose me) - one of them you just pay income tax on the gains while it was in your IRA (education expenses and some military stuff, I think?). If you don't qualify for ANY of that criteria, you pay income taxes on the gains, plus an additional 10% penalty.
e: So yeah. tl;dr is "talk to a tax professional" because we're getting out into the weeds here.
I'd figured I was safe under 30% damn it!
I think you're thinking about a 401k->Roth IRA backdoor. The in-service withdrawal of monies needs to be rolled over proportionally.
:bro:
It will. Just pay down those credit cards as fast as you can. It's the best investment you can make.
Another question, I want to invest in a Roth IRA for retirement, what would be the best way to invest? I spoke with a family member and they recommended using Fidelity mutual funds. I read that Ideally I want to manage it once every 6 months or a year, and I want whomever manages it not to take a lot in fees.
Is this generally good advice? Is there any other way I can invest for retirement, excluding 401k? What would be the best way to use a Roth IRA to save for retirement?
You want to pay off your credit card bill before they charge you interest, which means paying it before you get the bill or as soon as you get it. Not because of credit score, but because you don't want to pay interest if you don't have to.
When it comes to your credit score, what matters here is the ratio of used credit to open credit. If you have a credit card with a max of $3000 and your revolving balance is $1000, then your utilization ratio is 33%, which is high enough to be a detriment.
But that's a secondary concern. The primary concern is that in that situation you'd have a $1000 credit card balance that you're paying interest on.
The choice to use a credit card and pay it off can have an indirect effect on your credit score. When you have a credit card and you're actively using it, and paying it off promptly, your credit card issuer is more likely to offer limit increases. So that $3000-limit card might become a $5000-limit card in year and then a $10000-limit card the year after that.
I'd start by asking why you want a Roth as opposed to a traditional IRA.
Usually a Roth is good in one of the following scenarios:
A) You already have a tax-deductible retirement account (401k, traditional IRA, or one of the special plans available to certain types of workers like the 457b) and you're maxing the contributions to that account and have money left over.
C) You intend to withdraw some of your contributions from your Roth before you retire.
the "no true scotch man" fallacy.
the "no true scotch man" fallacy.
The reason I am interested in a Roth IRA is what I heard from family members. What advantage would a traditional IRA have for retirement vs a Roth IRA? Like I said, I do not have access to a 401k or anything from my work right now, but this will change in a year, but I am trying to start now to better save for retirement.
Right.
There's a myth I commonly see on the Internet about credit card balances and credit scores. If it was ever true (and I'm not sure that it was), it hasn't been true in years. The myth goes something like this: 'Your credit score is higher if you use your credit card every month and then pay it off, than it would be if you don't use your card at all."
Nope. If all other factors are equal, the following three people have the same credit score:
Alison has a credit card with a $5k limit that she never uses.
Brian has the same credit card with the same limit. He puts his $100 cell phone bill on it and pays it in full every month.
Chris has the same credit card with the same limit. He charges $2000 of expenses to it and pays it in full every month.
The ratio of revolving credit balance to credit limit for all three of those people is $0/$5000. Their credit score will be the same.
However, there are indirect effects here that might be relevant.
Chris is more likely to be offered a credit limit increase than Brian or Alison.
Chris is running the risk of missing a payment, or paying late, or paying a partial amount. It's pretty common in my experience for people to think they charged, say, $2000 of expenses to a card but then discover that they actually charged $3000. Whoops. Or there's a silly payroll fuckup at work and Chris needs to live off his credit card for a week and is going to be a week behind in his payment.
So if he doesn't want to make a misstep and end up in a bad spot, Chris needs to check his balance online on a regular basis, and make sure he has some decent emergency money that he can use to cover the balance if something goes wrong.
the "no true scotch man" fallacy.
For that example, how would they go about building their credit score then? Since they are all ending up with $0 at the end of the month, it seems like there is no way to build credit.
To elaborate on this, the factors that primarily impact your score are:
-credit card utilization - don't carry a huge balance if you can help it. This is a large impact, but easiest to fix. Try to stay under 30%, or 10% on the high end.
-missed payments - pay on time. I don't know how long it takes for them to drop off, if ever. Always make payments on time, even if it's just the minimum payment (but don't do that if you can help it, because interest costs a lot)
-derogatory marks - these things can take 10 years to clear off. Bankruptcy, foreclosure, tax fraud, etc. Don't do that stuff. Also be aware of your credit usage, because this is where identity theft can hurt you. Avoid if humanly possible.
-average age of credit history - more is better. 5+ years is desirable. Not as important as the above.
-number of credit lines - indicates people are willing to loan to you. More is better, specifically over 10.
-number of hard credit checks - they drop off after 2 years or so. Fewer than 5 is good, fewer than 3 ideal, but this matters less than the rest.
So as for how credit card usage works: just pay it off, and try not to use all your credit. It doesn't matter if it's before or after you get the bill, so long as your payment isn't late (however some CC companies are shit and you don't get rewards if you pay them off before it gets on the bill, so I personally wait until you get the bill).
For Min/Maxing credit score, some of these things are harder to build than others, most notably average age. So you're "better" front-loading getting more lines, provided you're responsible, as that would help your credit utilization and number of lines, while hurting average age and hard inquiries in the short term.
But your credit score is there to be USED, so of you're planning on getting a loan (car, house, etc) in the near future, probably better to avoid taking that hit.
Traditional IRA = your contributions are tax-deductible now. You pay taxes on your withdrawals in retirement.
Roth IRA = your contributions are from post-tax income now. You do not pay taxes on it in retirement.
For most middle class wage earners, the traditional IRA makes more sense. Most of us expect our tax rate in retirement to be lower than our tax rate now, so paying taxes now makes less sense than paying taxes later.
However, you said that you are going to be 401k-eligible in a year. That does change things a little. The contributions to a traditional IRA are only tax-deductible if either:
1) You are not covered by an employer's 401k.
or
2) You are covered by a 401k, but your yearly income is under $63,000.
So if you're going to be covered by a 401k soon, then taking out a Roth might make more sense.
the "no true scotch man" fallacy.
For example, I have a checking account with USBank. Their "overdraft protection" is a line of credit where if I withdraw more from my checking account than it has, the remainder goes into that line of credit which charges interest. That counts as a "line" even though I never use it.
Closed accounts, so a car loan you've previously paid off, also count.
Slight disagreement: credit score only matters when a person's credit is pulled, and the balance at that time will factor. If it was pulled when all of them had paid off balances, then they would be equal. If it was pulled when all of them had their max usage, Chris would have the lowest score due to highest utilization.
Though that assumes that the credit card company sends your information to the bureaus at the right time to hit $0.00 for all of them. Since that is somewhat variable that can have a slight difference. If your card closes on the 15th and the bureaus pull on the 14th, your balance will appear higher. But, ultimately, one that won't really matter as you build up a record of not carrying a balance, and have an increasing credit limit. The thing to do is to use your card(s) responsibly for a number of years. There isn't really a trick to it. Same with diet and exercise.
Anyone have personal experience with the pros/cons of a 529 account to save for college?
We are going to open a joint investment account to put some cash to work for us (low maintenance), for now I am thinking just stick it all in a total index mutual fund, someone tell me if that's really dumb or not :P
I mean, that'll work if you want to be lazy and not raise a genius that gets awarded full ride scholarships.
well obviously, but I like having a contingency plan...
In my experience, credit card companies send the revolving balance on the most recent closing date, not point-in-time balances, to the credit bureaus.
But Google tells me that this is isn't necessarily true in all cases, or even the majority of cases. So yeah.
the "no true scotch man" fallacy.
So right now, I am not earning much as I am pursuing a degree, but I expect to make much more in the future after graduation. So it seems a Roth IRA would make sense for my income now since it is taxed so low.
So if at this moment I do not have any loans, it seems like it would be best to open a few credit cards and use them, not go above 30% or so, and make sure I pay them off before the billing period. Correct?
I'd say be even more conservative and not go above 10%. Just personally speaking.
the "no true scotch man" fallacy.
I think a total index mutual fund is an index fund, which is almost certainly what you want. Check the expense ratio; for comparison, Vanguard has that at 0.14%, less if you have more than $10k.
That 10% is at the end of the cycle, correct? So if I buy something and it go at 20%, pay it off the next day so it is back to 0%, and the cycle is a week away and I do not use my card during that time so it remains at 0%, it will then show that I owe $0. I would then be good, correct?
Well, I thought it was on the closing date at the end of the cycle, but other folks here and elsewhere on the Internet are saying that some banks report a snapshot of the balance on whichever date they feel like it.
the "no true scotch man" fallacy.
Hmm, I ask because my credit limit is low since I am on my first card, getting groceries puts me above 10% instantly.
Treat your credit card like a debit card. If you don't have the cash available in your checking account, don't spend it. Also, make sure you have at least enough in your savings account that you won't need to go paycheck to paycheck, or get screwed by a minor clerical/ timing issue. Ideally more and actual emergency reserves, but, you know, be responsible.
Generally, are you notified that your credit limit will increase, or do you have to request this? The card I have is through my bank and I have yet to see my limit increase.
They notify you. You can request it, but since you are just starting out I wouldn't do that. It might ding you. Especially if they reject it. If you are that concerned you could always open a second credit card account, but just never use it. Which would ~double your available credit.
You might also consider a second credit card account that is exclusively for recurring expenses (phone bill, internet bill, &c.). My card had to get reissued 3 times one year thanks to all the various data breaches, and it made remembering what all I needed to update a pain in the ass. But if all those were on credit cards that had never been to Target, or Home Depot...
Yep we will be putting more than that
1. Can only be used for college stuff without massive penalties. If you're not sure based on family history if college is in the cards, it's no good.
2. It can be transferred to others in the immediate family, so if they do get scholarships they can pass it to their kids.
3. You can use any state regardless of residency.i use NY as they have good vanguard funds.
4. If you have a strong idea of the type of school you think they'll go to, look into tuition vouchers that let you buy a percentage of tuition each year.