Emergency fund, paying cc, Roth, etc..Help!

[emnah94]

I'm a bit unsure of how best to go about saving, paying off a remaining cc balance, and rolling over my 401k, so I'd appreciate some guidance for the below situation. For reference, I am 29 years old and single, have a $11k school loan at 5.5%, and $3600 cc debt w/ 0% as my only debts. Also, I currently rent, but would like to become a homeowner in the next 3-4 years.

The first situation involves my $2477 401k at a former employer, for which I have already begun the rollover process. I realize that I could roll it over to my current employer's 401k, but my current employer doesn't provide any match at all. Therefore, my next option for the money is converting it to a ROTH IRA once its been rolled over. I haven't yet contributed for 2006, and would like to get as much in there before April 2007 for the satisfaction of knowning that there's something in there for 2006, even if its not the $4k max. I am in the 25% tax bracket, so I estimate that converting the Rollover IRA to a Roth will cost me approx. $693 (do I pay this separately, or is it deducted from the rollover amount automatically? also, are there any other fees associated w/ conversion?) Once converted, I can contribute additional money for the ROTH so it will equal $3000 by April 2007. Is this a sound idea? I thought about leaving it in the Rollover IRA, but then I would only have $1150 in my ROTH for 2006 (what I can afford to contribute between now and April). What am I better off doing?

Secondly, I have about $1000 in ING - trying to build up my emergency fund. Had a few thousand in there last year, but relocation depleted most of my funds. I am currently contributing about $600/month towards this EF. Should I instead put this money toward the $3600 cc debt (for which I am currently paying down at $350/mo. since it is 0% interest) so that it can be paid off more quickly? I feel uneasy about doing this and not building up my emergency cushion.

Finally, I have additional continuous savings for Christmas and Vacation expenses. Where is the best place to house this money? Does ING allow you to have multiple savings accounts for different purposes?

Thanks for your help!

[Coleroo]

ING is VERY easy to have multiple accounts.. and you see them all together on one summary page. You can nick name them as well (kinda like an "envelope" system). I think they are one of the easiest banks to open multiple accounts with - just click "open new account" and verify you are logged in.. say its just you (and not a joint account) and bam, your new account will show up immediately on your main summary page. The trade off is that ING doesnt have AS high a rate as other online banks... but this doesnt particularly matter until you start getting into the very HIGH amounts of money. The amount of interest lost is minimal if what u are shooting for is convenience.

How many months is the 0%? More importantly, at what point does your cc debt start accruing interest (look out for terms like "the first billing cycle that includes such and such a date". Take the number of months and divide them into your total cc debt MINUS your estimated future minimum payments until then. Then put that amount into your interest bearing savings account and do not touch until its time to pay off the entire balance (which should be right before the roll over date where it converts to interest accruing debt).

For instance, if its 12 months @ 0%... $3600 - (minimum payment..maybe $60/month..$720) = $2880 to save for. 2880 / 12 months = $240 a month to put into a savings account for debt (or just $60 a week). Then, when its time to pay off the entire credit card, you will have the exact amount plus any interest that has accrued.

[sweeps]

Originally Posted by emnah94

my next option for the money is converting it to a ROTH IRA once its been rolled over. I haven't yet contributed for 2006, and would like to get as much in there before April 2007 for the satisfaction of knowning that there's something in there for 2006, even if its not the $4k max. I am in the 25% tax bracket, so I estimate that converting the Rollover IRA to a Roth will cost me approx. $693 (do I pay this separately, or is it deducted from the rollover amount automatically? also, are there any other fees associated w/ conversion?) Once converted, I can contribute additional money for the ROTH so it will equal $3000 by April 2007. Is this a sound idea? I thought about leaving it in the Rollover IRA, but then I would only have $1150 in my ROTH for 2006 (what I can afford to contribute between now and April). What am I better off doing?

Your rollover/conversion money is separate from your contribution money. Therefore you can still put in $4,000 for 2006 and $4,000 for 2007, regardless.

If possible you want to pay your conversion taxes out of pocket, and not pull it out of your IRA. There should be no additional fees to roll over or convert, assuming you're picking a reputable company such as Vanguard.

Originally Posted by emnah94

Secondly, I have about $1000 in ING - trying to build up my emergency fund. Had a few thousand in there last year, but relocation depleted most of my funds. I am currently contributing about $600/month towards this EF. Should I instead put this money toward the $3600 cc debt (for which I am currently paying down at $350/mo. since it is 0% interest) so that it can be paid off more quickly? I feel uneasy about doing this and not building up my emergency cushion.

Tough call, since your CC is 0% interest. If you're comfortable with it, you're best continuing to pump your EF and pay off your CC later, before the 0% rate ends.

Originally Posted by emnah94

Finally, I have additional continuous savings for Christmas and Vacation expenses. Where is the best place to house this money? Does ING allow you to have multiple savings accounts for different purposes?

According to others on this site, yes, ING offers sub-accounts so you can divide up your savings by priorities/goals.

[creditcardfree]

Originally Posted by Sweepsplayer

Tough call, since your CC is 0% interest. If you're comfortable with it, you're best continuing to pump your EF and pay off your CC later, before the 0% rate ends.

I think you should continue on your current path of $600/mo towards the EF and $350 towards the CC. You will have that cc paid off in 10 months at that rate and have added $6000 to your EF. Even if you need to stop the EF for a month or two to get the balance paid off prior to the 0% ending that is okay!

I think your plan of converting your roth is excellent. Just add any other funds you have for contribution (up to $4000) before april to count for 2006. Make sure you indicate that it is for 2006 when you send it in. Next year when you file your taxes is when the taxes will be due on the conversion. Plenty of time to prepare for the additional tax either by saving or slightly changing your withholding.

I think you are on an excellent path. Good job!

[LuxLiving]

I would rollover the old money and leave it in a traditional rollover account and just let it grow for now. I wouldn't be willing to take the $693 hit! Even if your employer did match contributions they aren't going to match a rollover amount anyway, only what is deducted from your current salary. Rollover and let it grow.

Regardless of no matching dollars I would still contribute to my employer's 401-K program - it lowers the amount you pay in taxes! $$'s that could be yours to spend!!

Then I would start a separate Roth IRA and begin funding it now for your 2006 contributions. As another poster said - the money already contributed to one in the past does not keep you from putting in the total $4000 additional contributions for '06.

ING is one option for savings. There are other online banks who are offering better interest at the moment.