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Author: lcd186 Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: Not IRA eligible: savings ideas? Date: 11/10/2013 3:45 PM
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Not sure where to post this, please refer me to another board if "Tax Strategies" is not appropriate.

I am two years post-bankruptcy chapter 7 and my only income is SSDI for the foreseeable future. I am gradually paying down back taxes (finally under $10,000 total principle, fees, and interest). My long-term hope (meaning 2-5 years from now) seeing if I can return to work, but not an immediate option yet. I am 48, single, no dependents.

My goal is to start a nest egg, long-term savings/investment. I don't expect to have the larger and diversified cushion of traditional retirees, but I want to start something. Before bankruptcy, I used to have a combination of retirement assets (IRAs, 401K, etc.) that was valued up to $250K at its peak, but that value was all lost in the recent declines, or liquidated in my financial crises of the last several years ending in 2009.

My hope is to start very small at an estimated $400 per quarter ($1,600 per year) at this time. Under normal circumstances, my first choice would be an IRA (roth IRA), but SSDI is not "earned income" and IRAs require only earned income. If/when I have at least a part-time job, I know all that earned income can be put towards an IRA, but nothing specific for now.

For immediate purposes, I will consider also taxable accounts as I think the value of having savings, even if taxable, is critical. I've been looking at retail bank flyers for money market accounts, certificates of deposits, and other, but hoping there is more out there I am unaware of. I want to get started.

Any suggestions?

Lois Carmen D.
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Author: JLC Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 119479 of 121061
Subject: Re: Not IRA eligible: savings ideas? Date: 11/11/2013 8:54 AM
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Any suggestions?

... my only income is SSDI for the foreseeable future ...... seeing if I can return to work ...

Check to see if returning to work and/or how many hours would disqualify you from receiving disability benefits. Would suck to try and return to work full time only to not be able to and then have to wait for a year before receiving disability again. Hopefully part time work as a trial run is an option.

With that in mind, build an emergency fund first. The emergency fund is to cover all living needs: rent/mortgage, food, necessary utilities (electricity yes cable TV no), car, etc., etc., etc. Many people say 6 months but in your case I might suggest 12. Nice to have a good cushion. Keep this in a money market account.

Then, and only then, look at investing. And until you have earned income, taxable accounts is your only option.

JLC

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Author: lcd186 Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 119481 of 121061
Subject: Re: Not IRA eligible: savings ideas? Date: 11/11/2013 11:33 AM
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Good morning JLC!

Thank you for your response.

Yes, I know I need at least an e-fund. My initial start-up is with the hopes of starting an e-fund, the first I will have in years, and progress to retirement fund somehow.

I will start looking for taxable accounts at least.

For background, there is a SSA program called "Ticket to Work" for the disabled who hope to return to work. There is quite a bit of information and choices to make for those who participate. The disabled have certain options including a trial work period, income restrictions, and additional transition period to provide incentives and support to get people off disability without fear of losing everything by trying to regain full independence. A brief outline on the SSA site about maximum income restrictions and the trial work period:
http://ssa-custhelp.ssa.gov/app/answers/detail/a_id/317

Thank you,
Lois Carmen D.

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Author: RiskTakerNana One star, 50 posts Old School Fool SC1 Red Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 119484 of 121061
Subject: Re: Not IRA eligible: savings ideas? Date: 11/11/2013 9:10 PM
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In 1999, my husband had a major car wreck...head on collision caused by a drunk driver driving down a freeway the wrong way. He had traumatic brain damage and was placed on disability. After about 4 months of recuperation he thought he could go back to work and so he attempted to do so. After about one month, it was obvious that because of the pain from the physical injuries and the fatigue that was involved with just making it through the day he couldn't concentrate and solve intellectual problems. He resigned and we had to go into the SS office and explain the situation. There was not a problem to continue on full disability. Maybe it was because it was very evident that he had major physical disabilities as well as cognitive disbilities. Anyhow, the best to you in rehabilitating.

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Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 119485 of 121061
Subject: Re: Not IRA eligible: savings ideas? Date: 11/11/2013 9:31 PM
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Lois
I'm a bit confused by your situation. Not to challenge you, but more to clarify...

Were you self employed? If not, how were you able to accrue back taxes? Employer withholding is usually more than sufficient to meet tax liabilities...unless you had some highly appreciated securities you sold or cut your employer withholding to zero.

Retirement assets are not part of a bankruptcy estate so should not have been affected by your chpt. 7 filing. And what recent declines? I assume you mean the stock market, which has done well over the past year. There was a sharp decline 5 years ago, but all of that has since grown past its pre-decline levels.

I don't mean to discourage you, but starting with a balance of zero savings at age 48 means you will not be able to save very much for retirement. For example, saving $400/quarter up until age 66 with an average annual investment return of 7%/yr will provide a bit over $54,000, which will have a 'real' (inflation adjusted) value of about $32,000 in today's dollars.

But every little bit of savings will help, so I would encourage you to begin saving. A taxable account is fine...and I'd suggest using a 2030 target date fund, offered by Vanguard or Fidelity. These funds will automatically adjust the mix of stocks and bonds appropriate to the number of years to your first retirement year.

You don't mention what put you into chapter 7....medical issues without health insurance is probably the most common. If so, you will certainly benefit from the ACA health coverage. But I also agree with the foregoing that it is important to build an emergency reserve and retire as much debt as you possibly can.

Best wishes to you

BruceM

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