The Retirement Gamble

If you have a 401(k) or IRA or any investments at all, click here for a must-see video "The Retirement Gamble" from last night's FRONTLINE on PBS.  The moral of the story:  When it comes to investing, expenses are your enemy, and index funds are your friends.

During the video, Jack Bogle, the founder of Vanguard and the inventor of the first low-cost index mutual fund, stated that over a lifetime many investors keep roughly one third (1/3) of their investment gains while Wall Street takes two thirds (2/3).  As shocking as it may seem, I wanted to reiterate that Jack Bogle's figures are correct.

Take the following example

Do I earn too much to have a Roth IRA? Nope.

There is an income limitation for contributing "directly" to a Roth IRA ($173,000 Modified Adjusted Gross Income for 2012 for married couples filing jointly).  However, back in 2010, the income limitation for Roth "Conversions" expired, completely.  Thus, it is not possible to earn too much to have a Roth IRA.  If you exceed the income limitations for a direct contribution to a Roth IRA, one just needs to make a non-deductible contribution to a Traditional IRA then "convert" the Traditional IRA to a Roth IRA as soon as possible.

Annual contribution limits for IRAs and Roth IRAs are $5,000 per person in 2012 and $5,500 in 2013 unless you are over 50 in which case your annual limits are $6,000 and $6,500 for 2012 and 2013, respectively.  Thus, a husband and wife can EACH put $5,000 away this year for a total amount of $10,000, or $12,000 if they are both over 50.  I recommend everyone get money into a Roth IRA every year if at all possible since earnings grow tax free and withdrawals in retirement are also tax free.