401k's and Rollover IRA's

It has been a little over two weeks since I started my new job with a new company in a completely different industry.  I am pleased to report that it has been a fantastic transition!  The atmosphere and culture of the new workplace are very pleasant and welcoming.  There are several other new hires that are in training with me, and I’ve been comfortably busy learning my new job.  I have quite a ways to go before I’m proficient, but I’m very much looking forward to getting a project or two assigned to me. 

Aside from the obvious differences with the job itself, I have also been enjoying some other interesting personal finance changes.  I had a 401k and a cash pension with my old job as well as the option to enroll in a 401k with the new employer.  So naturally there were lots of goings-on with the moneys. 

First, I had to wait.  I could neither rollover my old 401k or sign up for the new 401k until I had received appropriate paperwork from the appropriate financial institutions.  I have many fine qualities, but patience is not one of them.  So the nearly two weeks that I waited to get all of my documents in the mail was excruciating.  This was even worse for knowing that I only had 30 days from my start date to accomplish the changes. 

But eventually, I did get my paperwork for both the old and new 401ks (still waiting on the pension though). The downside to having the paperwork was that the ball was now in my court, requiring my action.  And naturally, my lazy-default-self kicked in and I did nothing for a couple of days. 

Today, I found the motivation to log onto my new employers website and set up contributions for the new 401k.  It was every bit as simple as I could have hoped for, and within minutes I was all set up with the same contributions that I had for my old job.  Even better yet, the 401k is managed by the same brokerage company where I keep my Roth IRA, so it all shows up together when I log in.  Very convenient.

With the first task done, that left rolling over the old 401k.  Having only ever worked one job that offered a 401k (until now), I had no idea how to rollover a 401k.  To complicate matters, my old 401k was a mix of before-tax and Roth contributions, basically a hot mess of tax confusion.  After a bit of googling and some texting to the family investment guru, it became clear that all I would need to do is open something called a Rollover IRA and have everything from the old 401k transferred into it. 

I’m still not really clear on how a Rollover IRA differs from a Traditional IRA or a Roth IRA.  I suspect that it is actually a traditional IRA in disguise under a pseudonym, and I’ll explain why in a minute. 

I went through the process of setting up a shiny new Rollover IRA with the same brokerage company where I have my Roth IRA and now my new 401k, to keep everything tidy.  Next, I called the company that managed the old 401k and told them that I want to roll it over into this new account.  Unfortunately, at this point I was informed that the Roth portion of my old 401k could not be rolled over into the new IRA with the before-tax portion.  Oops. 

After a three-way conference with the new brokerage, we determined that the Roth portion of the old 401k could be rolled into my existing Roth IRA without penalty.  The remainder of the old 401k would be rolled into the new Rollover IRA.  The old brokerage will be cutting separate paper checks to the new brokerage for each of the two accounts.  Plus, since these are rollovers (as opposed to personal contributions) they do not count against my regular annual IRA contributions. 

Have I confused you yet?  Me too. Though I got the impression that it should be all downhill from here.

I’m still not quite out of the woods yet.  Aside from the pension (which I will deal with at a later date), I will still have to actually purchase funds once the money gets to the IRAs.  Since the money was transferred using paper checks, this is supposed to take seven to ten days.  At that time, I will need to log back into the brokerage company and pick some funds.  I tend to favor Index funds, so I’ll probably just buy a bunch of those as opposed to trying anything too fancy.  But I suppose we’ll see in seven to ten days. 

Time for a Change

Hello all!  Did you miss me?   

It has been an insanely busy spring for me, which I’m sure many people can relate to.  In addition to planning my wedding, I was up to my eyeballs at work. 

For the last several years, I have worked at a nuclear power plant.  And before you ask, no – I don’t have gills, I don’t glow, and I haven’t developed any superpowers (that I know of).  I have, however, grown tired and jaded.  Anyone that is familiar with nuclear power will tell you that it is special and unique.  The fuel has a very high energy density, gives off radiation, and gives off a lot of heat even when it’s not active.  Because of these things, nuclear power has very strict regulation and very strict operating processes (think US Navy).  On the one hand, I completely agree that the regulation is necessary, and I sleep better at night knowing that the plants are operated safely.  On the other hand, I find the work environment tedious, demanding, and very stressful.  Some people thrive in strict conditions, but it was wearing me down.

I had transferred into a new job about six months ago, and it was clear to me very quickly that the position was not a good fit for me.  The hours were much earlier and much longer than I had expected, but at the same time there was not sufficient work load to keep me busy, or even engaged, during the ten-plus hours a day that I spent at work.  I was not happy, and I knew I could not keep doing this for much longer.  I refreshed my resume and started looking for other jobs at the beginning of the year. 

The last time I seriously job hunted externally was after graduating with my bachelor’s degree (before taking a job with company I work for now).  It was a nightmare.  I was working part time for minimum wage and crashing with a family member.  Even though I submitted hundreds of applications, I only got a couple of interviews.  Let’s just say 2010 was not a good time to be job hunting.  When I finally did get a job offer, I took it without hesitation despite knowing nothing about nuclear power.  I was just so relieved and grateful to have a job - any job - in a technical field.

This time around, I had the luxury of already being employed while I was hunting, so the urgency was considerably lower.  I didn’t have to look for any job I could get; I could be picky and try to find something that would really interest me.  So, I was picky.  I applied for all sorts of different industries that interested me, even if my experience was not directly relevant. 

After a couple of months of hunting and applications, I was contacted by a really exciting company.  They brought me onsite for an interview, and I was thrilled with the description of the job and the work environment.  I knew I could be happy there, challenged and engaged.  There was just one little problem – the compensation was not as good as my current gig.  I did a bunch of number crunching and soul searching with my fiancé, and together we decided that I should go for it anyway.  The benefits were very comparable, and the salary was only a little lower than I was currently bringing in. 

That is not to say that the whole process was smooth.  While their initial offer was very strong, it was still something of a disappointment to know that I would be taking a pay cut.  Even though I had never negotiated a salary before (shock horror), I felt very compelled to negotiate for this position.  Partly I felt like it would make a good impression on my new boss, since part of my new job would be negotiating with vendors.  How could they expect me to negotiate effectively for the company if I wasn’t even willing to negotiate for myself?  Secondly, I felt like I was worth a higher salary based on my education, my work experience, and the current market conditions.  After a little back and forth, I was able to raise my offer by 3.5%, closing the gap between the salaries. 

After accepting the new job, I submitted my resignation with my current employer.  Despite the frustrations of my job and the nature of the industry, I still felt a strong sense of loyalty to the company and found it very emotional to hand over my resignation letter.   However, there was a huge sense of relief once I got past that hurdle.  I’m in the home stretch now. 

I am not entirely sure what the new job will bring professionally or how the change will affect my home life.  But I do know that I am already feeling less stressed and very excited about starting a new chapter.  I’m really looking forward to using my business education as much as my technical knowledge and very excited to learn a new industry.  I’m sure there will be plenty of challenges along the way, as well as plenty of adjustments.  But that’s part of the fun of it.  I’m ready for the change!

Better Late Than Pregnant - Fund that IRA

My grandpa was a colorful guy.  And despite the crudity of his characteristic idioms, the truth still rings through.  The right time to invest is as soon as you can.  And it doesn't get any sooner than now. 

In that spirit, I have finally made the move to fund my 2014 IRA.  I know what you are thinking, and yes, I know that it is no longer 2014.  However, IRAs have a handy feature that allows you to fund one up until the income tax filing deadline (April 15) the following year.  This little time cushion is very handy for serial procrastinators like myself.  

Ideally, I would have been contributing $458 every month to the IRA over the last year.  Over the course of 12 months, the $458 monthly payments would result in the IRA reaching the federal limit of $5500 by the end of the year.  However, I had made increasing my cash emergency fund a higher saving priority than funding the IRA, so it sort of fell by the wayside. 

But then during my 2014 year in review it became abundantly clear that I had failed completely on my goal to max out the IRA.  An itchy sense of guilt came over me.  I know better than this.  I know that key to compound interest is to start early.  And by letting the whole year go by without making any contributions, I had effectively cheated myself out of a year's worth of interest to the tune of a couple hundred dollars.  

But it's not too late to start.  My emergency fund has grown to a comfortable enough size (6 months of living expenses plus some) that I feel okay pulling out a lump to finally max out the IRA for 2014. 

Be that as it may, investing now is easier said that done in some cases.  For me, it's an issue of security associated with liquidity.  IRAs and other retirement accounts have some great benefits with tax sheltering and security in old age; however, they don't offer a lot in the now.  Taking money out of an IRA is not easy and can even result in financial penalties.  Yikes.  It's a little scary knowing that once my money goes in that I won't be able to take it out for nearly thirty-five years. 

This has been my main issue with funding my IRA.  Over the last two years, there have been a lot of large variable expenses.  So, I have felt like I needed to have more cash on hand in savings accounts, especially while I worked to grow the emergency fund to a comfortable amount.  This is not unreasonable since having the cash savings reduced my financial stress level, but it did mean that my IRA missed out on some sweet interest income.  

Going forward, I plan on being more proactive with funding the 2015 IRA instead of waiting until the last minute for the third year in a row.  I'll probably still do small lump contributions rather than make the tidy monthly contributions.  I'll guess we'll have to see how it plays out. 

The Hidden Costs of Snow Days

Monday was the most fabulous of fabulous holidays, Groundhog's Day.  In case you haven't already heard, I regret to inform you that yet again Punxsutawney Phil saw his shadow, officially predicting another six weeks of winter.  This isn't really much of a surprise to those of us living in the Midwest right now.  Winter storm Linus tore through town Sunday dumping more than twelve inches of snow on my otherwise quiet, suburban neighborhood.  

My first response to this was naturally to wonder when we started naming winter storms.  Isn't that just a hurricane thing, or are meteorologists branching out?

Next, attention turned to the daunting task of digging out of the driveway.  JT was scheduled to work the afternoon shift and had to get to work more than twenty miles away by 2:00 pm.  So we set to the task of clearing the driveway around 10:00 am (not a favorite lazy girl activity).  By the time we had cleared the ten inches of accumulation, there was still no sign of a plow in the streets.  And worse, another one to three inches were still expected.  

Hours ticked by, and no plow.  JT had to call work to let them know he was trapped at home, meaning the day shift person had to stay and work a double.  The first plow didn't come until after 9:00 pm, and even then, it was down an adjacent street, not ours.  We went to bed with the hopes that in the morning, our street would also be clear.  Unfortunately, that was not the case.  There was still more than a foot of snow blocking the street at 6:00 am.  Everyone on our street was still trapped.  Some people tried (and failed) to shovel or snow-blow their way out.  Others tried (and failed) to drive through the snow.  There were many calls to the town Public Works department, but with no success.  Eventually, a local farmer came to our rescue with a plow on his tractor.  

In the mean time, all the shoveling and waiting gave me a lot of time to think about the implications of the snow.  For JT and me the major implication was missing (in his case) and being late for (in my case) work.  We both have reasonably flexible schedules on normal days.  However, since he was scheduled to work on a Sunday, he would have received overtime pay. Since he could not make it to work, we missed out on this extra income.  For me, the concern is that I will have to make up the missed hours by working long days for the rest of the week.  

We might have been able to escape the neighborhood if we had a large truck rather than our small cars.  However, a decent size truck or SUV would come with a whole host of expenses that would put a serious dent in our reasonably tidy budget.  I'll get into this subject at a later date.  

Another thing that struck me while we were shoveling was the number of neighbors with snow blowers.  Growing up in an area that didn't get much snow, I was largely unfamiliar with modern snow blowers, which look like giant push lawn mowers.  From the vantage point of our driveway, we could see more than eight neighbors using these roaring beast machines.  In fact we were one of the few houses that were removing snow the old-fashioned way, with shovels.  At the time of the shoveling, it would have been really nice to have that snow blower.  But then again, would it have been worth it?  

A quick Google search shows that new snow blowers start around $200 and can cost as much as $2000 if you are in the market for the Cadillac of snow beasts.  In theory, you might be able to find a decent used one on Craigslist or at a garage sale for $50.  But then you still have the operating and maintenance costs to consider.  Like a car or a lawn mower, these snow beasts need to be cleaned and have oil changes.  They also need gasoline to run.  Which means you need to have the foresight to have gasoline in your garage before the storm hits.  Perhaps that means a special trip to the gas station the day before the storm.  The costs are mounting quickly.  

Doing a rough, back-of-the-napkin calculation, the snow blower could end up costing upwards of $5 to $10 each time it is used.*  Ouch.  I can think of a lot of thinks I would rather do with $10.  

In addition to being a huge savings, the manual shoveling has some other fringe benefits.  It forces you to go outside in a time of year when you don't get much time outside.  Fresh air and sunlight do wonders for health and well-being.  Plus, shoveling  can be a good workout depending on how much accumulation you got.  JT and I were shoveling drifts of more than a foot on Sunday, and you can bet we felt it the next day in our arms, shoulders, and legs.  

For now, I'll keep my rugged shovels and wait for the city (or farmer) to plow.  Maybe someday I'll move back to an area with a warmer climate.  But until then, I just have to keep taking what Mother Nature keeps dishing out.  


*This assumes: you paid $200 for your beast, it has a 5-year useful life, gas is about $2.25/gal, you have a two car driveway, and you get standard Chicago snowfall over the course of the winter. 

Interest – the discussion begins…

Yes, I know it has been more than a week since my last post.  I warned you upfront that I am a lazy girl, and random gaps in posts are, regrettably, a symptom.  Anyway, here it is – the overdue net post!

The concept of interest fascinates me, from the mathematical perspective and also from the implications.  Interest is powerful, and like any power it can be used for either good or evil.  It can help you build wealth or it can take debt from bad to worse.  

I hate debt.  Debt is the anti-savings. It unbalances the balanced money formula (wealth = income - expenses).  It weights the expenses rather than increasing the income.  The whole debt business is negative – negative net worth, negative interest.   To make matters worse, debt has quietly infiltrated many aspects of modern life until it has become acceptable, even expected.   For many people, it feels unavoidable.  Unfortunately, I am no exception.  

Hello!  I have debt.  And that debt is not free; it earns interest against me.  

Every dollar I pay in interest on debt is a dollar completely wasted.  I might as well have taken a dollar out of my wallet, torn it up into little, tiny pieces, and then thrown it in the air like confetti.  At least that would be more fun than handing that same dollar over to a big evil bank where it will be used to line the jacket of the CEO’s $5,000 suit.  While I’m sure not banks are evil and CEO’s need clothes just like the rest of us, it is still very poor judgment on my part to just go around throwing away my hard-earned money. 

I like to think of debt and savings the same way – in terms of interest rates.  Debt is a negative interest rate; it is always a loss.  Saving in cash has no interest; I’m not losing anything, but I’m not gaining anything either.  Saving in an interest earning asset is ideal.  Money is the perfect little worker – it doesn’t need sleep, and it never gets tired.  

Interest can either work for me or work against me.  I can either use it to build wealth or use it as an excuse to throw money away.  It's a simple decision - debt or asset. I want my money to work for me, not against me.  So, I need to make sure all of the negative is good and gone before building the positive.  

So what am I actually saying?  I've been looping around these concepts at a high level, but haven't really said anything particularly practical.  So here it is.  

First, don't go into debt if at all possible.  Never put more on a credit card than you can pay back in less than a month.  Pay cash for major purchases: cars, houses, etcetera.  Second, if you already have debt, pay it back as soon as possible.  Pay more than the minimum.  Attack that debt with everything you have.  Third, put any leftover money to work.  Small interest rates are good, but big ones are better.  Get the most bang you can find for those hard earned bucks.  

The bottom line is that we need to shift the balance of power from compiling debt to increasing income.  It's as simple as that.