Comments on: Reader Question: How Can My Money Earn More for Me?

By: Carol

Carol — Wed, 06 May 2009 16:36:01 +0000

I’m not sure if your list was meant to be in order of priority but, if so, I’d definitely switch things up. Having an “emergency” fund of 3-6 months (maybe more) living expenses is the single most important component of financial fitness. There are some Vanguard bond funds offering good yields right now that can provide a nice balance with their stock index finds.

By: MyJourney

MyJourney — Mon, 27 Apr 2009 16:17:52 +0000

The only thing I would add, would be the use of a Muni-Bond fund that would provide the liquidity he seems to want, with some additional returns. Concurrently, the Muni-Bond Fund would help out in NJ which like NY is a high tax state.

Everyone is running to the Roth thing – if this guy is a business owner with a teacher in NJ (Teachers in the northeast are usually paid more than one would think) it is likely he wouldn’t qualify. Rather, if the commenters, you, or your buddy love the Roth idea he can start a Roth 401(k) through his solely owned business.

Just some thoughts.

By: Lynn

Lynn — Sun, 26 Apr 2009 19:03:47 +0000

Flexo -
Yes, I have my girls’ accounts in the NJBEST plan (the aged based plan since I set it up when they were a few months old before I really knew anything about them). I still think that the fees for the S&P 500 option are totally ridiculous at .85% (NY’s is still high at .55% but better than NJ). When I was mentioning the tax benefit I actually wasn’t even thinking about it being tax free upon redemption. I was actually thinking about the state tax deduction or credit on your tax return when you contribute to it – NJ doesn’t offer that. They do have a tuition credit of up to $1500 if you go to a NJ college but in actuality, the odds of my daughters going to a NJ school for college are almost zero. I can’t imagine either of them falling in love with Rutgers! HA HA! Princeton maybe, but not Rutgers.

By: Chris

Chris — Sat, 25 Apr 2009 17:55:56 +0000

I’d alter the 401(k) & Roth IRA suggestions. One should contribute to a 401(k) to get any company match. When you’re getting the full match in your 401(k) then put your money into a Roth IRA since you won’t pay taxes on that upon withdrawl. After maxing out your match and your Roth IRA, go back to the 401(k) until you’re saving enough for retirement.

By: Jason

Jason — Fri, 24 Apr 2009 19:17:39 +0000

Nice article. I have to say thought, you should MAX out your ROTH IRA before you open any other IRA’s. The ROTH is the best thing you can do with your $5k. You will have way more money in there in the future than you will have put in, thus not paying as much tax.

By: Flexo

Flexo — Fri, 24 Apr 2009 17:37:55 +0000

Lynn: Do you invest in the NJBEST 529 plan? The earnings in this account are free from federal and state (New Jersey) taxes for New Jersey residents. Source You can get your management expenses under 1% if you invest in the NJBEST S&P 500 portfolio, but in general you're right about the fees. Vanguard has cheaper options, but you're going to find that in general, 529 accounts are slightly more expensive than the corresponding or underlying mutual funds.

By: Mike J

Mike J — Fri, 24 Apr 2009 17:34:50 +0000

Depending on where in NJ, I recommend the $martChecking account from Provident Bank. 5.01% on up to $25,000 and 1.25% (or close to that) thereafter, plus reimbursed ATM fees each month. All if you meet the following requirements:

-10 POS transactions with the debit card (I have found that selecting Credit or Debit/ATM doesn’t make a difference, they both count in the tally)
-1 ACH/Direct Deposit per month (since wife is a schoolteacher, shouldn’t be an issue)
-Must receive electronic statement, no paper statement (easy enough).

I realize this doesn’t address all of the questions but (a) you need a checking account anyway, (b) 5% on $25k is better than 2% on $25k, (c) you can put excess money elsewhere and (d) you’re supporting and getting the customer service of a local bank. I’ve been quite satisfied with the bank so far — I’ve had the account since the beginning of the year. Details also available online:

http://www.providentnj.com

By: Lynn

Lynn — Fri, 24 Apr 2009 16:58:49 +0000

Just an FYI…I am a NJ resident and the 529 plan has no tax benefits and is not very good. I have my daughters college money in it right now but the fees are over 1% and I am doing some research as to where to roll it over. Somewhere that offers a vanguard plan where the expenses are lower and the investments are better.

By: Lance

Lance — Fri, 24 Apr 2009 15:09:29 +0000

Why the 401(k) first over a Roth IRA? Or do you think taxes will be lower in the future?

Either way, very good recommendations!

By: MBirchmeier

MBirchmeier — Fri, 24 Apr 2009 15:02:54 +0000

I would make sure he knows about about market fluctuations etc. remind him it’s not a good idea to check his balance a lot. If he’s always had his money in relatively safe and reliable investment vehicles ht might ‘think’ he’s ok with short term losses/risks for longer term gains, but I’ve seen that change quickly for people that get ni the habit of checking their balances on a regular basis.

-MBirchmeier

By: the weakonomist

the weakonomist — Fri, 24 Apr 2009 12:11:48 +0000

Fidelity is also a good option for low cost funds, but I am partial to Vanguard as well. Be careful with those Target retirement funds. One fund company’s idea of asset allocation for a target 2040 can be completely different than another’s. I won’t go looking for them, but a number of blogs have touched this subject.

With the targets, check what the fund’s balance of stocks and bonds is compared to other target funds of the same date. Because risk doesn’t bother me very much at this age (I’m young), the Target 2050 has a good balance for me. But even then, once they do a 2060 I’ll probably move my funds there even though I’ll retire before then. This is because I handle most of my asset allocation on my own.

As for further advice for the friend, be sure to check out the wive’s 403(b). Some state plans are good, others are very bad. As always consider talking to a financial professional before making any decisions. And by professional, I mean a fee only planner that can be found on the NAPFA website.