Questions answered: 401(k)’s, Roth IRA’s and becoming a CPA

I got a couple questions from Kas and thought they would be better answered as a blog post than just in the comments section. If you ever have a question feel free to post on the blog or you can send an email to kristin at klingtocash dot com.

1) I just now have enough in my 401k for me to actually want to try to do more with it. Do you have any sites that would easily explain to me what the best sorts of investments are? What exactly is a Roth IRA?

Congrats on contributing to your 401(k). Unfortunately, if your 401(k) is with your current employer, you must keep it in their 401(k) plan. You are limited to the investment options they allow. You can however check on their funds on a site like Morningstar. This site independently rates the performance of stocks and mutual funds. The site also tells you what the fund actually holds (bonds, stocks, international, etc), so you can have a good balance of funds and not have all your eggs in one basket. I would also check with the company that administers your 401(k) plan to see if they have a risk tolerance questionnaire you can fill out (there should be a phone number on your statements). By answering a few simple questions, you can gage how much risk you are comfortable with. I, personally, am a very agressive investor with my retirement funds, but I have a lot of time to ride out the market.

There are two types of Individual Retirement Accounts (IRA’s):

A traditional IRA is a retirement account where you put the money in tax free now. Therefore, when you put money in a traditional IRA, you get a tax deduction now. When you take the money out at retirement, the money is subject to federal and state income taxes, just like wages are. With a traditional IRA you are required to start taking money out of the account, called a Required Minimum Distribution, at age 70 1/2.

A Roth IRA is just the opposite. You pay taxes on the money you put into the account today, but it grows tax free and you’ll never pay taxes on that money again.  There are no required minimum distributions required.

There are income limitations on both accounts, so check with a financial advisor or your accountant to see if you can open these types of accounts.

2) I have a friend who would like to try being a CPA. Know any good books or sites for her to look at to make sure it’s what she wants to do ?

The best thing for her to do is talk to CPA’s and see what they do. Each job I’ve had has been different. Plus, there are CPA’s who work in tax, audit, private accounting (internally for corporations), and in a variety of other jobs. She should contact her state society of CPA’s to see if they have a pledge program for college students. She should also see if her school has an accounting club (sounds boring, huh?). The last thing I would suggest is for her to get an internship in an area that she thinks she might be interested in. Internships are great experience and can really help you decide if this is really what you want to do for the rest of your life.

I don’t really have a “typical day”. From January to April, I’m tax, tax, tax. I eat, sleep and breath taxes. From May to December, I work with my clients on budgeting issues, payroll taxes, and training. I am a Certified QuickBooks ProAdvisor, so I work with a lot of businesses to train them to use the software, clean-up their books and setup and reconfigure their company files. Much of what I do is face-to-face with clients. I’ve had jobs where I didn’t have any interaction with clients. There are opportunities out there for all types of people in accounting. It’s a great field and there is currently a shortage of accountants. I love my job and I wouldn’t go back to working for someone else unless I absolutely had to.

Investing in your retirement and saving for your future

I’ve been watching the market, as I’m sure many of you have, wondering how low it will go.  The only money I have is in the market, since we are not in a position where we have excess money to invest. I am not a financial planner and my advice should not be relied upon by everyone, but this is where my money would go.