As the author of How to be a Financial Grownup, I am the original Financial Grownup. Right after college, I got my Certificate in Financial Planning so I would know enough to ask the right questions. Yeah, I’m that kind of person. I’ve been researching and dishing out advice for as long as I can remember.
But now, I needed to give a little advice to myself. How do I keep investing in a retirement fund after leaving corporate America?
This week was the first week in my entire post-college working life that I did not contribute to a retirement fund. I’d recently left my job at Thomson Reuters, a place I’d worked for 16 years as an anchor and personal finance columnist. It was time – I was burned-out to a crisp.
I’d run the numbers on what leaving would mean for my new self-employed lifestyle, and things would be fine financially. I had opportunities as part of the release of my book, several paid speaking engagements, offers for freelance writing and anchor/reporter fill-in relief from friends at other media outlets. And I’m lucky to have a high-earning spouse with a full menu of benefits. I also own Manhattan real estate.
I’d be ok.
I had contributed to a 401(k) since my very first day at my very first job at CNBC at the age of 22, and I always contributed the match. I have an entire alphabet of retirement accounts: two 401 (k)’s, a 403 (b), an IRA and a Roth IRA. I ran the numbers on all the online calculators and, am proud to say, I was able to stay on track through life’s ups and downs, saving the right amount at the right times. Dollar cost averaging all the way, baby.
Except now, it just stopped.
No more automation. No more matching. No more human resources to call with questions.
The week flew by. I needed to get set up and automated ASAP before the money I could have been earning disappears.
Here are the steps I took:
Step 1: I consolidated my corporate retirement plans, known as 401(k)’s and 403(b)’s from former employers into an IRA I have at a major discount brokerage. But I needed to do more than just dump the money in; I need to then invest the money. And I also need to be vigilant about the fees. I’ve done enough stories to know better.
Step 2: I decided to set up a non-corporate personal retirement fund for myself now that I am self-employed. That should be simple, except it is not. And I’ve been doing stories on this kind of thing for years.
I thought I could just throw money into an IRA, but my husband (he of the high and steady income) has a 401(k) at his job. Apparently that is a big red flag, and I would not qualify for a deduction if we had both. Good problem to have, I know, but still. Due to my husband’s income, I also do not qualify for a Roth IRA because there is an income ceiling to qualify, though as I mentioned I do have one funded from earlier in my career.
Step 3: I formed an LLC a couple of years ago when I got my book deal. So I am now self-employed under that structure. That opens up some options, including a SEP IRA and a Solo 401(k). The big advantage when you have a Solo 401(k) is that you can sock a way a ton of money. The 2017 max is an ambitious $54,000. As a very new entrepreneur, being able to put aside that kind of cash seems dreamy — and unrealistic in the short term. But the option is there.
I chose a Solo 401(k) because it has higher limits than the SEP IRA, and I’m confident I won’t need to take the money out. The withdrawal conditions are stricter with a 401(k) than with an IRA.
I also have to actually earn that amount of money as earned income. In other words, I can’t just move money in from a savings account; I have to generate income. Without a steady paycheck, that income has to come from book royalties, speaking fees and so on. The first $18,000 (of that $54,000) is pretty straightforward. For this year only, I have to subtract the amount I contributed at Thomson Reuters before I left in February. In other words, the total cannot be more than $18,000 when you add up my Reuters 401(k) and my Solo 401(k). The other $36,000 is trickier. I can put away 20% of my income as profit sharing. So I have to really make some cash to maximize that.
Oh, and while I’m fessing up, here’s more proof that even the best of us can let things slip (and how we can all live in denial about our very grownup lives): Despite 10 years of marriage to my husband, along with kids and a dog together, I have somehow not found the time to update my name on my investment accounts to reflect my married status. Maybe it’s my own quiet way of holding on just a bit longer to my formerly less financial grownup way of life.