Advanced Personal Finance

As of the new year, my employer started offering the Roth 401(k) in addition to the Traditional 401(k). I love Mr. Roth. What I’ve been struggling with during open enrollment late last year and these first few months of this year is my mix of the two.

To make it even more complicated, the company also greatly increased the percentage of your salary you can put into the plan. You can now contribute up to 25% of your salary up to the IRS maximum. Halfway through 2006, they also instituted this discretionary match in addition to the dollar-for-dollar on the first 6% match. It allows the board to determine an additional match after assessing year-end results. The discretionary match is capped at 3%. In exchange, we essentially gave up our pension (in case you were wondering, we weren’t asked).

Here’s where I started. As of December 2006, I had 16% of my pretax salary going to my 401(k). It was the maximum percentage allowed by the plan and got my within spitting distance of the IRS dollar maximum for the year. I’d been at this level ever since joining the company six years ago.

For 2007, I started with a mix of 9% Roth 401(k) and 8% Traditional. I didn’t want to drastically change anything because I didn’t want my net paycheck amount to go too far down. It’s always a surprise what it’s going to be that first paycheck. Some things make it go up (small gross pay increase) and some down (rising cost of insurance). Anyway, after the first couple of pay periods when I was sure what my net pay was going to be, I made additional incremental changes.

I’m now at 11% Roth and 8% Traditional. I’m pretty cool with what the net pay is and those percentages get me to the yearly IRS maximum.

Here’s the part I’m struggling with. What should my balance between the two be? There are several factors to consider but the overarching one is taxes. I’m not very concerned with minimizing current taxes. I’m personally much more interested in taxes at retirement. The questions are:

• What kinds of taxes will we be subject to? (income? flat tax? VAT?)
• What will income tax rates look like when I retire in 30 years?
• What bracket will I be in? What will the brackets even be?

I know my answers would be pure speculation, but I have the strong feeling taxes in the future will only go up. America just can’t keep spending more than it makes. I will personally love withdrawing a huge chunk of Roth cash and not having to give any of it to the man. But I have the sneaking suspicion somehow the tax code will change and I’ll be hearing some variation of, “You know how we said that Roths weren’t going to be taxed. Well about that…”

So what’s your mix?

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We have a bunch of paper savings bonds from when I first started working. Payroll deduction made it easy and at the time I knew almost nothing about personal finance, so I enrolled. So over the course of several years we accumulated quite a few bonds, both EE and I.

I thought it might be a good idea to convert the bonds to electronic format, if possible. My thinking being that in the event of a fire or theft, it would be one less thing to worry about. The down side of doing so was that now they wouldn’t physically be anywhere, so they might also get forgotten. I figured the benefits outweighed the costs, so I went looking to see if it could be done.

Enter Treasury Direct. For those who don’t know, Treasury Direct is the government-run website where you can buy Treasure notes and bonds. Looking around, I found that you can in fact convert paper savings bonds into electronic form. Here’s the process:

1. Sign up for a Treasury Direct Account. They actually have a pretty cool secure sign-on page that consists of entering your password on this “keyboard” on the screen where they jumble up all the letters. The idea being a keystroke logger can’t get your password.
2. E-mail them and let them know you want your account set up for conversions.
3. Once they email you back that your account is good to go, you create what they call a manifest. It involves painstakingly entering the date and serial number of each bond. Not particularly fun.
4. After you complete the manifest, all you do is print it, sign it, and mail all the bonds with the manifest to them. (This is the step I’m on)

I’ll let you know how it goes after I drop my bonds in the mail. One thing to note about their site is that you can’t use your browser navigation buttons. If you do, you’ll have to log the whole way back in.

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Welcome and thanks for reading.

Advanced Personal Finance is a blog dedicated to moving past the basics of personal finance. I’ll be touching on topics that are more…well… advanced. This won’t be so much of a teaching blog as a learning blog. I’ll be doing most of the learning, but I hope it will be of some value to you, too. People who have established a personal finance base of knowledge will hopefully find some good useful information here.

In this blog, I’ll be covering retirement saving, amateur tax planning, finance information, investing, and college saving. I won’t be focusing much on debt reduction, frugal living, or budgeting. Many sites do a much better job on those topics than I could and you can find them in the Blogroll.

Who I am and why I’m doing this

I’m a thirtysomething guy living with my wife and little girl (with one on the way) in the Mid-Atlantic area. I’ve been reading personal finance sites for a while now and thought I would add my take. When I went looking for personal finance information beyond the basics, I couldn’t find a lot. Thus this site was born.

My money-managing background is strictly amateur. So consider this the standard warning: I am not a financial professional. Please know that I will post the best information I can to help others as I help myself, but you should not substitute this blog (or any blog) for professional personal finance advice.

I graduated college over ten years ago with what is becoming the standard post-college debt situation. I had several maxed credit cards, student loans, and no money management skills whatsoever. Shortly after, I met my wife and she set me on the path to better financial discipline. She’d probably tell you now she created a monster. Within a few short years, we were out of debt and actually saving money. She sparked my interest in personal finance and I’ve been excited about it ever since.

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