“Do I need an IRA?”
Maybe it is because a lot of my friends are about to hit their thirties, but I feel like I’ve been asked this question every week this summer!
Now I’m not a financial advisor, but at my past three schools none of them offered retirement accounts! So my answer is that if you are an international teacher then you most likely do need to sign up for some kind of retirement account on your own. If you don’t have US earned income you cannot open a Traditional or Roth IRA, but you can have a taxable account and still open the Vanguard Target Retirement 2050 account.
So my first question to them would be, does your school (job) offer a retirement program? If not, my second question would be, if you don’t have a retirement account, do you plan on working until the day you die? Do you have some kind of US earned income? If you have US earned income then get an IRA, if you are earning all of your money overseas make sure you have a taxable account. Check the IRS website about what counts as “compensation/income“.
My current school offers 3% retirement matching. That means I put in 3% of my total salary and my school will put in the same amount. FREE MONEY!! I can think of very few situations where I have ever received free money (hey Grandma!), so I would invest as much as I need to so that my school will give me as much as possible.
So lets say that I make $3000 a month. 3000*.03= 90. That means I need to put $90 into my account and my school will also put $90 in my account every month. Even though my school is forcing me to put the money into a separate investment account (not Vanguard), I will do it because they are matching whatever I add to the account.
From what I have read in various books and blogs, a lot of people recommend saving at least 10% of your current salary. That means that if I am making $3000*.10=300. That means I should be investing that $210 elsewhere.
This is where either a taxable account, Roth IRA, or Traditional Roth come in. Basically you should remember that with the traditional IRA = pay taxes later; Roth IRA = pay taxes now.
Most money blogs I read say to get the Roth IRA because you will most likely be in a higher tax bracket when you are older, so it is better to pay taxes now when you are in a lower bracket. However, I was not allowed to sign up for a Roth IRA because I didn’t have any US earned income because I’ve been living and working overseas.
The best part is that once I tell my school that I want them to take out the 3% every month from my paycheck, and I set the amount I want to automatically invest in my Vanguard 2050 Targeted Retirement account from my checking, then I am automatically paying myself first. I never have access to this money so I don’t spend it.
So, should you have an IRA? If you are an international teacher only earning income abroad, you probably cannot have an IRA, but unless you are investing at least 10% of your income in an employer created retirement account, then I believe you should open a taxable account through Vanguard or Fidelity.
Again, I’m not a financial advisor, nor do I have anything beyond my minor in Business Administration. I’m only an international teacher who wants to retire on a warm beach one day.
Please comment below. Does your school have a retirement account you are paying into? Does your employer offer a matching program? Do you have a taxable account, Roth, or Traditional IRA?
If you would like to read up on the subject a little more, here are some links you might like:
http://www.getrichslowly.org/blog/2007/06/07/how-to-start-a-roth-ira-and-where-to-do-it/ (This one is a little older, but it is the exact article that I read back in the day that got me started with my retirement account.)