As preparation for 2010, I’ve spent some time updating automated contributions to various retirement, education, and cash savings accounts.  Here’s the breakdown -

My Retirement Accounts -

403(b) – Monthly amount = $1375

A percentage of pre-tax income is deducted from each monthly paycheck.

Roth IRA – Monthly amount = $312.50

My goal is to make the maximum allowable contribution for 2010.  For my situation, that’s $5000.

My Wife’s Retirement Accounts -

Roth IRA – Monthly amount = $312.50

My wifes’ goal is to make the maximum allowable contribution for 2010.  For her situation, that’s $5000.  She also makes pre-tax contributions to her pension plan.

Education Savings Accounts -

ESA 1 – Monthly amount = $125

The annual contribution limit for my oldest daughter is $2000.  

ESA 2 – Monthly amount = $125

The annual contribution limit for my son is $2000.

ESA 3 – Monthly amount = $125

The annual contribution limit for my youngest daughter is $2000.

Cash Savings Account -

Automobile Replacement – Monthly amount = $500

At some point, we will need to replace one of our automobiles.

Future Home Purchase - Monthly amount = $500

At some point, we hope to pay cash for a new home (or use available savings for healthy down-payment).

Summary -

The total of all monthly contributions, excluding my wife’s contributions to her pension, is $3375, which represents a very substantial portion of our household income.  It’s important to note, some contributions, those to Roth IRA and Education Savings Accounts, are calculated for a 16-month contribution timetable, running January of 2010 until tax-filing deadline April 2011.

As we continue to live debt-free, my wife and I have come to realize just how important it is to save, save, save – and then save some more.  We set lofty goals for ourselves, including the contribution goals that you see above.

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Getting Ready For 2010

My wife and I both have contributions to the retirement plans offered by our employers deducted from our paychecks.  In addition to those pre-tax retirement contributions, we also make monthly contributions to our Roth IRAs.

For me, the annual contribution limit to my Roth IRA is $5000.  (See IRS Publication 590 for complete information about contribution and income limits.)  My wife’s limit is the same.

The contribution time-table for both the Roth IRA and the Traditional IRA runs from January 1, 2009 until April 15, 2010.  That’s right.  We have until the tax-filing deadline of 2010 to make contributions to IRAs for 2009.

So, even if you haven’t made contributions for 2009, there’s still time.  We have six months to contribute as much as we can, up to our contribution limits.  Remember, once the deadline passes, we can’t go “back” and make contributions for the 2009 fiscal year. We’ll have to settle for making contributions for the 2010 fiscal year.

Between January 1 and April 15, there is an over-lap, and contributions can be made for both 2009 and 2010.  We indicate, using the memo line on our checks, the year for which we are making a contribution.

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Only Six Months Left To Make Year 2009 Contributions To Roth IRA Or Traditional IRA

Here’s a look at our current retirement investment portfolio.  These numbers are current as of today.  This breakdown does not include my wife’s pension plan, nor does it include money invested for college education savings.  We use four accounts to save for retirement (in addition to my wife’s pension).  My 403(b), my Roth IRA, my wife’s Roth IRA, and a SEP IRA for business income investing.

Large Cap / Total US Market = 46%

Mid Cap / Small Cap = 34%

International = 17%

Cash / Bonds = 2%

The majority of the large cap / total US market stocks are held in Vanguard’s VTI ETF – which tracks the broader US market.  The majority of mid / small cap stocks are held in my 403(b) via a REIT.  All of the international stocks are held in a fund with my 403(b).  I recently made a change to my future contributions, so the amount held in cash / bonds should increase, as a percentage of the portfolio, over time.

One of my goals for 2009 is to fully-fund my 403(b) ($16,500).  I also hope to fully-fund my Roth IRA ($5,000) and my wife’s Roth IRA ($5,000).

This is my personal portfolio, constructed after doing my own research and according to my own risk tolerance. I may even change it in the future.  It is not a recommendation to purchase any specific securities.  I am not a financial professional or investment adviser, nor do I play one on the web.

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Current Retirement Asset Class Allocation

I have just gotten off of the phone after the better part of an hour.   I can’t be sure, but I think I’ve fixed a problem, that until today, I never knew existed.

The background -

I have a Roth IRA.  My wife has a Roth IRA.  One of my goals for 2009, is to fully-fund both Roth IRAs.  We have a joint checking account.  From time to time, I will send a payment (deposit) from our checking account to the brokerage where we have our Roth IRAs.  Clear enough?  Good.

The problem -

Last week, I logged in to my checking account, and initiated two payments (deposits), one for my Roth, one for my wife’s Roth.

Today, when checking on the status of said payments, I was shocked to find that the deposit intended for my wife’s Roth IRA was rejected.

Apparently, when my bank sends a payment to another company, the only name on the payment check is my name, even though the checking account is a joint account.  Well, when the brokerage received the payment, and noticed that my wife’s name was not on the check, they rejected the check, because they do not accept third-party payments.

The solution -

I called my brokerage, and they suggested that I send a copy of a recent bank statement, along with my wife’s name and account information, showing that she is, indeed, a joint holder of the checking account.  This sounded like a lot of work, and I’m just not in the mood for a lot of work.

I then called my bank, pressed zero fifty times, talked to a very nice CSR, and had him add my wife’s name to all future online bill payment checks.  Problem, hopefully, solved.

I also canceled the payment to the brokerage, the one for my wife’s Roth IRA.  Once the money, which has already been deducted from my checking account, is safely back in the account, I’ll initiate another payment.  Hopefully, this one will have my wife’s name on it, and all will go smoothly.

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Roth IRA Deposit Gone Awry

From a recent email -

I love your site!  (Thank you…)  I’ve been working on a basic plan for managing my finances.  Could you write a post about your current plan?  Or maybe a post about some of the things you’ve done to get where you are?  Thanks!

I love it when I get questions like these.  It makes me happy to see that folks are taking control of their own finances.  Bravo!  So, here are the basic steps I’ve taken (and plan to take), with links for further reading.

1.  I stopped using credit cards.

Before I could fill in the hole, I had to stop digging it deeper.  Putting my credit card in my wallet, and just leaving it there, taught me to live on the money that I actually make.  I do not like credit cards, and I am of the firm belief that most people would be better off without them.

2.  I started living on a budget.

This sounds very basic, I know, but living on a budget really works.  As a testimony, a brief examination of my own life.  I worked for 16 years, and had over $11,000 in debt and $500 in the bank.  10 months after giving up my credit cards and living on a budget, I was debt free.  Less than a year later, I had $20,000 in the bank.  Living on a budget works.

3.  I created a mini-emergency fund.

During my debt reduction period, I always maintained a cash reserve between $500 and $2000.  This cash reserve came in handy, and I was able to use it for “emergencies”, that in the past, would have required the use of a credit card.

4.  I systematically paid off my debts.

I used a plan like the one outlined in my free Debt Reduction E-Book.  The plan is simple.  It’s easy to follow.  It really does work.

5.  I fully-funded my emergency fund.

As soon as I paid off my last debt, I started to build an emergency fund equal to six months of my wages.

6.  I began to focus on retirement.

I use several accounts to save for retirement.  Here’s the breakdown.

Pre-Tax Accounts -

My 403(b) – 15% of our gross household income is contributed to my 403(b) account.

My wife’s pension – 5% of my wife’s salary is contributed to my wife’s pension.

After-Tax Accounts -

My Roth IRA – I make maximum contributions to my Roth IRA.

My wife’s Roth IRA – My wife makes maximum contributions to her Roth IRA.

Side Note – asset allocation (what I invest in) – I buy index-based mutual funds and ETFs.  I am not a professional investor or adviser, and my investment choices are pretty boring.  If you ever take a peek at the Vanguard VTI ETF, you’ll have a pretty good idea about how the majority of my investments are doing.  I do, however, have a small portion of my portfolio invested in very aggressive small-cap and international funds, and I own one individual stock, CLX.  Why?  I like being clean, and I like Clorox.

7.  I began to focus on saving for my kids’ college expenses.

I have opened and continue to fund 3 Education Savings Accounts (ESAs), one for each of our children.  The maximum annual contribution to each account is $2,000.

8.  I save for future major purchases.

After funding retirement and education accounts, I then focus on saving for future major purchases.  Currently, I am saving for the purchase of a newer automobile, and the possible purchase of a new home.  The new car purchase should occur in the next five years, while the new home purchase should occur within the next decade.  (I hope to pay cash for the new home.  It’s a major goal, but one I’m hoping to achieve!)  You can read more hear, about how a few years ago, I paid cash for a new-to-me automobile.

9.  I try to maintain proper amounts of insurance.

I have health insurance, life insurance, renter’s insurance, long-term disability insurance, dental insurance, and automobile insurance.  Insurance coverage can be expensive, but it’s an important part of a well-rounded financial plan.  (We waited until we were out of debt, and then we purchased additional life and disability insurance, but we had a minimal amount of both, even while in debt.)  We also have wills and other end-of-life documents.

10.  I am always looking for ways to save more and spend less.

This step makes all of the other steps possible.  In fact, it could have been number 1.  I’m constantly evaluating my spending habits, and always looking for ways to save money.  At the same time, I’m also looking for ways to increase my income and maximize my earning potential.  By the way, here are some of the best tips for saving money, submitted by my favorite people, you, my awesome readers!

I like to keep things simple – very, very simple.  The outline above is easy-to-follow.  I tend to ignore most of the noise surrounding financial planning, and focus on the things I understand.  I’ll leave the high-risk maneuvers to those who can tolerate violent swings in the economy.  For me, I want to maintain an emergency fund, methodically fund my retirement accounts, plan for major future expenses, and spend the rest of my life… living my life!

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A 10 Step Outline Of Our Financial Plan

Are you a procrastinator?  Good news.  Even if you missed the first four months of 2009,  you still have a full “year” to make contributions!  That’s right.  The contribution time-table runs from January 1, 2009 until April 15, 2010.

For most folks, the annual contribution limit for a Roth IRA is $5000.  (See IRS Publication 590 for complete information about contribution and income limits.)  If you start making contributions May 1st, at a rate of $416.67 per month, and make contributions each month until April 1st, you will have fully-funded (made maximum contributions to) your Roth IRA.

Even if you can’t fully-fund your Roth IRA, you might want to consider making contributions, even small ones.  Remember, after April 15, 2010, you can no longer make “2009″ contributions.  The opportunity to make those “2009″ contributions will be gone forever.

These same rules apply to the Traditional IRA and to the ESA (Educational Savings Account)

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12 Months To A Fully-Funded Roth IRA

Here are my after-tax retirement and education savings goals for 2008/2009/2010. Contributions to Roth IRAs and ESAs can be made from December of one year until April of the next year. I have three children, and I have five months to fully-fund 2008 ESAs for each of them. I’m not sure if I’ll be able to afford to do this, but I’m going to try. Also, my wife needs to fully-fund her Roth IRA for 2008. Once those accounts have been funded, we’ll get to work funding 2009 accounts. The chart should clarify. (Chart corrected.)

To be frank, I would love to fully-fund all 2009 accounts during the 2009 calendar year, but that might not be a realistic goal. Remember, while I’m working to fund these after-tax accounts, I’m also trying to fund my before-tax 403(b) and save for a future home purchase.

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Retirement And Education Savings Goals

As I sat down with my wife to talk about our financial goals for 2009, I realized that I needed to know if the contribution limits for our retirement and education savings accounts were going up in 2009.  After some searching, of both the Internet in general and the IRS website in particular, here’s what I found.  (By the way, if anyone from the IRS is reading this, it would be VERY helpful if you could create a single, easy-to-find page where all of these limits, and the limits for other types of accounts, could be listed.  Also, if such a page already exists, hook me up with a link, please.)

2009 Contribution Limits for 401(k), 403(b), and 457(b) Accounts:

$16,500 – Elective Deferrals (employee contributions)

$5,500 – Catch-Up Contributions (over 50 years of age)

$49,000 – Total Contributions Limit (employee + employer)

For more information and details, please see the following resources -

IRS 401(k) Resource Guide

401(k), 403(b) and 457(b) Contribution Limits For 2009

2009 Contribution Limits for Roth IRAs and Traditional IRAs:

$5000 – under 50 years of age

$6000 – over 50 years of age

Roth and Traditional contribution limits were unchanged from their 2008 limits.

2009 Contribution Limit for ESAs (Education Savings Accounts):

$2000

ESA contribution limit was unchanged from 2008 limit.

I’ll keep these limits in mind as I think about my 2009 goals.  As it looks now, more than 50% of our gross income will be allocated for retirement and education savings.  I’ll let you know, in just a bit, what we decide to do.

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Retirement And Eduction Savings Contribution Limits For 2009

It’s hard to believe, but in just 15 days, it will be 2009.  I have started thinking about my financial goals for the coming year.

Last year, I set some pretty aggressive goals, and I managed to accomplish most of them.  I fully-funded my 403(b) retirement account, my 2008 Roth IRA, and my wife fully-funded her pension plan.  We are still working to fund my wife’s 2008 Roth IRA and ESAs for our kids.

In April, my wife gave birth to our third child, a beautiful baby girl.  My wife is an educator, and she did not work during the months of April, May, or June.  Her income for 2008 was much lower than it was in 2007, due to the time off, so it was much harder to meet out 2008 goals than I had at first anticipated.  Of course, having the new baby also means that we’ll be able to claim an additional dependent, so our tax bill for 2008 should be lower than it was in 2007.

Due to the different timetables for when contributions can be made, it’s hard to create financial goals based on a calendar year.  For instance, all contributions to my 403(b), which are made pre-tax by my employer, must be made between January and December.  Contributions to a Roth IRA or Education Savings Account, on the other hand, can be made from January 1st of one year until April 15th of the next year.  Some of my 2008 goals will be rolled-over into 2009.  Those goals, including funding ESAs for our kids and my wife’s 2008 Roth IRA must be accomplished by April 15th, 2009.

I haven’t created my official goals for 2009, but here’s a preliminary list of things about which I’m thinking.

Retirement -

I know that I want to fully-fund my 403(b) and it’s mandatory that my wife fully-fund her pension plan.

I need to fully-fund my 2009 Roth IRA.

My wife needs to fully-fund her 2008 Roth IRA and her 2009 Roth IRA.

I also have a SEP-IRA, for income earned from blogging.  I’ll make contributions to it, so that I can reduce our taxable income.

Education -

I have three kids, ages 9, 4, and eight months.

I would love to be able to fully-fund ESAs for all three of them, for the years 2008 and 2009.  At $2000 per child, per year, that’s $12,000.

Savings -

One of my long term goals is to pay cash for a new house.  I’m not sure how this goal will fit in with my other goals, but it’s something I’m definitely thinking about.  In fact, I have given some thought to reducing my retirement contributions, for a brief time, in order to bolster my long term non-retirement savings.  We shall see.

I’m going to sit down with my wife, and we’ll discuss our plans for 2009.  Once we have decided what we want to do, I’ll let you know.  When I right my “official” Goals for 2009 post, I’ll include contribution limits and some specific figures.

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Thinking About My Financial Goals For 2009

Last December, I created some goals for 2008.  Throughout the year, I have been tracking my progress.  Here’s where I stand, with one month left in December, and with five months left to fund my wife’s Roth and my kids’ ESAs for 2008.

Technically, the 403b and my wife’s pension will be fully funded at some point in December, but I went ahead and included them in my calculations, since they are automatic contributions from our paychecks.

I have five months, between now an April 15th, to fund my wife’s Roth and Education Savings Accounts for both of my kids.  Unfortunately, I had hoped to fund my Son’s ESA for 2007, but I missed the April 2008 deadline.  So, instead o $4000, as per my original goal, I’m working for a $2000 contribution before April 2009.

Looking back, the new baby and high gasoline prices really had an impact on our finances in 2008.  I am happy to note that I was able to fully-fund my 403b for the second year in a row.

My original plan was to fully-fund all of these accounts by the end of 2008, but there’s just no way.  I like to have a cash cushion in my emergency fund, and I’m not willing to dig into it in order to make an artificial December 31st deadline.  As long as I make the contributions before April 15th, I’m cool.

How did you do during 2008?  Are you on pace to reach your goals?  Did the higher gas prices or the falling economy set you back?  Leave a comment and let us know!

More reading -

Saving For College – What Is An ESA?

Contribution Goals And Time Frames For Retirement Accounts

As a side note, I did not include my SEP-IRA contributions in my original 2008 goals article, but I am working to put some money in this business-related retirement account.  The amount will be determined when I compute my income taxes.  And, at one point, I set up automatic contributions for several of the accounts mentioned above, but I never actually pulled the trigger on those automatic contributions.  Why?  Well, I was focusing on adding additional money to our non-retirement savings account, and decided to wait a few more months to begin the automatic contributions.  Never fear, those automatic contributions will begin, in January.

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Taking A Look At My 2008 Goals