Questions About Roth IRA Conversions, Guitars, Bread Dough, and More!

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to summaries of five or fewer words. Click on the number to jump straight down to the question.
1. Financial independence impossible?
2. Postponing happiness
3. Bread dough advice
4. Figuring out retirement plans
5. House hunting and family
6. Warehouse clubs versus other sales?
7. Roth IRA conversion ladder details
8. Learning the guitar inexpensively
9. Uses for outdated technical books
10. Roth IRA or mortgage payoff?
11. Moving forward after accident
12. Praying for a solution

I had an opportunity recently to stop at the Como Park Zoo and Conservatory in Minneapolis, MN, and I highly, highly recommend it as a part of a frugal trip to the area.

The zoo and conservatory are free to the public – they have a donation box and a suggested donation of $3 for adults and $2 for kids, but it is free to enter if you so choose. Inside, you’ll find perhaps the best free zoo I’ve visited, with several well-maintained areas for various types of animals. I really enjoyed the wolves, who seemed to be playing some sort of game together as I was watching them.

The conservatory was really well done, too, with several botanical areas and a nice bonsai garden. It’s worth your time to explore the whole conservatory building, because I almost missed an area where there were several very nice rooms to explore.

If you’re wandering by yourself, the zoo and conservatory will probably eat up two or three hours; with a family, it’ll take even longer. In the summer, the zoo is adjacent to a small amusement park with some “pay as you go” rides; it wasn’t in operation while we were there.

Our whole family is planning a camping trip in Minnesota and North Dakota next summer and we’re likely to go through the Twin Cities on our way. It’s very likely that we will be stopping there as a family as it’s very nice and a wonderful inexpensive thing to do in Minneapolis.

Q1: Financial independence impossible?

I think it’s ridiculous that you talk about retiring early and stuff. Normal people can’t do this. You have to be making millions a year to be able to pull it off.

– Susan

It’s simple math. Anyone can actually do this. The catch is that it requires giving up creature comforts that many modern Americans refuse to give up.

For example, if a person saves about 40% of their income a year for 20 years, they can absolutely retire immediately and live for the rest of their lives on that level of spending, even accounting for inflation, and Social Security will boost that, too. (This is back-of-the-envelope quick math, but it’s accurate.)

The thing is, most Americans would never give up enough little pleasures and creature comforts to reach that level of savings. They certainly could do this, they just choose not to. Try to convince a person who makes $60K a year to live like a person making $36K a year. It’s not going to happen for the vast, vast majority of Americans, though there are definitely some that will do this.

It requires living in a much smaller house than one could afford. It involves skipping out on a ton of little things, like eating out. It involves driving a very old car and keeping it on the road as long as possible. It involves doing almost entirely free things for entertainment. It involves doing a lot of things entirely for yourself – cooking food, mending clothes, repairing the car, changing oil, and so on. It involves going without cable television and without a smartphone and without home internet.

The more things you shake your head and say, “NOPE!” to, the more distant you make early retirement. It’s a choice – you’re choosing your iPhone and your quite new car and your big house and your sweet treats and your meals at restaurants over retiring early. That’s a choice.

Choosing not to do something that’s quite easily possible doesn’t immediately make that thing impossible. It just means you’re choosing one path over another.

This is hard to do on a low income, don’t get me wrong, but the average American household (which earns about $60K a year) can definitely pull it off. They just choose other things.

The next question is related to this one, but from another reader.

Q2: Postponing happiness

It seems to me like most of personal finance is about postponing happiness. “I can take on these burdens now when I’m young, making life unhappy, and then when I’m old I’m unhappy because I wasted my youth.” Sounds awful.
– Jim

Let’s look at it another way. When I think about the things I cherish most in my life right now, my family comes first. It doesn’t matter what house we live in or what car we have or any of that. I’ll go over to the park and kick a soccer ball around with the kids for a while and we’ll have a blast. I think of things like curling up with a book from the library or making a batch of homemade food or just hanging out with my wife.

In other words, the most joyful things in my life right now are time spent with people I love and time spent actually doing things I enjoy. It doesn’t involve buying piles of stuff or extravagant experiences.

Another thing that I relish is going to bed at the end of a well-spent day. A well-spent day can be one where I really bonded with my family or I spent a lot of time doing those enjoyable things I mentioned, but I also find a lot of pleasure in going to bed knowing that I took care of things in my life so that I can keep enjoying those things as long as possible in the future.

A day spent doing a lot of quality work or planning ahead for the future is one that, at the end of the day, causes me to go to sleep just as happily as a day I spent with my kids or with my hobbies or with my wife. That’s because I know a day of hard work or a day of planning turns into several days of freedom down the road at a point where I might not be able to handle this work as well.

To me, it’s “wasting my youth” to spend a day where I’m not doing one or the other of those things (or some combination thereof). A good day is one where I’m either doing something deeply meaningful to me or doing things that will enable me to do deeply meaningful things in the future. If I’m not doing one or the other… what am I doing with my life?

Q3: Bread dough advice

I went by your directions word for word, step by step and all my ingredients were new, fresh and up to date. My dough never raised. I have made 2 different batches and neither Turner out or raised at all. Please explain why this could of happened. I even used fresh bottled spring water when water was needed. Please advise.
– Jerry

There are a number of reasons why this can happen. The most obvious one is that the yeast didn’t work. There are a lot of causes for bad yeast – usually it’s too old, it got put in water that was too hot (which killed it), or it got put in water that was too cold (which generally won’t kill it, but will make it rise really slowly).

If you don’t notice the bread rising after a few hours and you’ve followed the recipe, 99% of the time, the blame is on the yeast.

This can even happen sometimes with yeast freshly bought at the store, as it’s hard to tell how long it’s been on the shelf.

A good way to test your yeast is to put a spoonful or so into a cup of warm water, about warm enough so that it feels slightly warmer than room temperature to the touch. Add just a pinch of sugar and the yeast and stir it up and let it sit for a while. If you see bubbles in fifteen minutes or so, your yeast is fine – it’s started to eat the sugar in there and is forming CO2, which is making the bubbles.

Good luck with your bread!

Q4: Figuring out retirement plans

I just started a new job at a public university in the state of North Carolina. For our retirement plan, we are to choose between a TSERS (Teachers and State Employees Retirement System) and an ORP (Optional Retirement Plan) In both plans we are required to contribute 6%. In the TSERS, the employer contribution is pooled together for all employees, and the funds are picked by the NC Dept of State Treasurer. After 20 years of service, we receive a certain amount that is close to our average salary as a monthly payout, like a pension. In the ORP, the employer contribution is 7% and we get to pick the funds that we invest in. We receive this amount after 20 years as a lump sum. This lump sum is portable after 5 years, whereas the TSERS plan is not. I was curious as to which plan you think would be best?
– Adam

The number one question I’d ask you is how long you plan to stay at this job. Is this a permanent job you’re thinking about staying at for as long as possible? Or is this a stepping stone.

In general, if you’re thinking about staying in a position for more than ten years, a defined benefit plan like TSERS starts to shine, and the longer you stay there, the better it becomes.

If this is a relatively short term stop on your career path, a defined contribution plan like ORP is a better option, because it takes a healthy number of years for TSERS to really get rolling.

So, it’s really up to you. My opinion is that if you seriously intend to spend more than ten years with the university, you should go with TSERS; if you’re not sure or view this more as a career stepping stone, you should go with ORP.

Q5: House hunting and family

My wife and I have started a family recently and would like to purchase a house for the family to grow in rather than rent like we currently do. The unfortunate thing is that things are completely unaffordable where we currently live. We made an agreement that we would never take a home loan for more than $100,000 with the desire of a low payment in case of job loss or another financial emergency. So, if we were to buy a $300,000 house we would have to have $200,000 down payment. We currently have essentially zero in savings but no debt. Based on affordability calculators we could afford nearly $2,000 a month but do not desire that since that would be a $250,000 loan. That just so happens to be what homes run around here and the only homes we can afford based on our constraints are run down trailer houses that are not accommodating for a family of 4 and growing.

We live in Arizona and it is becoming increasingly geriatric. Our family also lives here in Arizona so that is also something that we are considering in our decision-making process. The dilemma comes in because housing in the Midwest and elsewhere seems to be incredibly affordable. What would get us a rundown 2 room 1 bath 800 square feet condo or trailer in an unsafe neighborhood here would net us a 4+ room 2+ bath 2000+ square feet in a safe and nice neighborhood in a different state. If we were to buy a home here in Arizona we would have to save $200,000 dollars which would take 15 to 30 years and by then the kids would be grown up. If we bought a house in another state, we will probably own it completely in 15 to 30 years and be preparing to downsize. The question is essentially, what should we do, or what’s your advice/what would you do? The only thing really holding us back is that our entire family lives here. Parents, siblings, and grandparents.
– David

The obvious financial move is to get out of the area and find work elsewhere, but that’s not necessarily the right social and familial move.

What you’re really doing is trying to balance the value of living near family next to the financial benefit (and to a lesser degree the non-family social benefit) of moving to another area in the country. What that effectively means is that you’re putting a financial value on living near family, and that’s always really hard to do.

I think you need to sit down and really assess the value for you and for your kids that will come from seeing your family more than a few times a year. How much value is there in that? For some people with close family ties, it’s a lot. For others where family isn’t all that tight, the value really isn’t all that great.

In other words, for me, it would depend on how tight I was with my family.

Q6: Warehouse clubs versus other sales?

There is now a Sam’s Club open about 2 miles from my house. Never used a warehouse club before. I usually buy nonperishables and household supplies when they’re on sale and buy a bunch of it. Is Sam’s Club worth the annual cost?
– James

Without seeing your grocery list, I can’t really tell you whether Sam’s Club would be a good deal for you. Instead, what I suggest is printing off a one day pass and visiting that Sam’s Club to see what it’s like.

Come equipped with a list of things you often buy at the grocery store and what the price you usually pay is. Be sure to bring a “price per unit” for those things – how much do you pay for a roll of toilet paper? For a jar of sauce (and how many ounces are in that jar)? For a gallon of milk? You get the idea.

Then, just do some price comparisons as you wander around the store. You’ll probably find that Sam’s Club is cheaper on some things and not cheaper on others. If you find that Sam’s Club saves you enough on the things that are cheaper, go sign up for a membership.

Q7: Roth IRA conversion ladder details

Can you explain exactly how a Roth IRA conversion ladder works? I have been told that it can be used to access IRA savings early without penalty.
– Alex

A Roth IRA conversion ladder is a strategy that some early retirees use to access money that’s in their normal IRA early (before age 59 1/2) without penalty. They do this by slowly converting the money in their traditional IRA into a Roth IRA each year to cover their living expenses, which incurs very little taxes, and then after that money’s been in the Roth IRA for five years, they can withdraw that “contribution” penalty free.

Let’s say you retire at age 50. At that point, you convert your entire 401(k) into a normal IRA, something that many people do when retiring early to get more control over their money. So, let’s say you now have $750K in your normal IRA. You decide to start a ladder of $30K per year, which will last for about 25 years.

Each year, you convert $30K out of your normal IRA into your Roth IRA, which incurs a little bit of a tax hit. It’s small, maybe $1,000 or $2,000 depending on your lifestyle – no big deal. For the next five years after the contribution, you can’t touch this money in your Roth IRA. If you move it on January 1, 2020, you can’t touch it until January 1, 2025 without a hefty penalty.

So why are you converting? After January 1, 2025, you can now access that contribution tax free, and then when you reach 59 1/2, all of the gains made in that Roth IRA are tax free.

So, what you’re effectively doing here is making your tax bill each year really small provided you can survive those first five years (when you can’t touch the Roth IRA contribution).

A person doing this might want to have, say, $150K in savings and $750K in his IRA when retiring super early provided that they can live on $30K a year (until Social Security kicks in). So, for the first year, they live off of $30K of savings and convert $30K of that $750K from traditional IRA to Roth IRA, leaving them with $120K in savings, $720K in the IRA, and $30K in the Roth IRA. Their tax bill that year will be tiny, on the order of $1,000 or so. That repeats for the second year, leaving that person with $90K in savings, $690K in the IRA, and $60K in the Roth IRA (not including investment gains). After the fifth year of this, the person will have nothing in savings, $600K in the traditional IRA, and $150K in the Roth IRA (not including investment gains). Starting in the sixth year, that person will keep moving $30K a year out of the traditional IRA into the Roth IRA, but they’ll start withdrawing $30K each year out of the Roth IRA without any penalty to live on. This repeats for the rest of their life (or until the traditional IRA is empty). As soon as this person reaches age 59 1/2, the investment gains in the Roth IRA can be withdrawn tax free, and eventually the traditional IRA will be emptied out and fully in the Roth.

Basically, what the ladder does is spread out your taxable income from the traditional IRA over a ton of years so that you pay the least amount of taxes overall.

Q8: Learning the guitar inexpensively

What is the most inexpensive approach to learning to play the guitar? I have one that I was given by my uncle and it sits there taunting me. I want to learn to play it but can’t afford lessons.
– Jeremy

The best inexpensive approach to learning any skill these days is to start with Youtube and branch out into supplementary materials like books which you can get from the library.

The absolute best channel I’ve found on Youtube for learning how to play the guitar is Justin Sandercoe’s channel, JustinGuitar. I suggest starting with this playlist, which is just wonderful for getting started.

Obviously, you’ll want to have a guitar, which you already have. For readers interested in this but who do not have a guitar, Justin has a good video discussing this. I completely agree with Justin in that if you’re shopping for a guitar, ask a friend who has some idea of what they’re doing. If you don’t have such a friend, just get a very very very low end one to play around with until you know enough to realize what you don’t like about it and you’re not investing much until you figure out if you’re really into this.

Just start with Justin’s lessons and see where it goes for you. If you find that you’re actually practicing and enjoying the practicing and getting better, that’s great! Keep it up! If not, that’s okay, too. It may just not be the right hobby for you.

Q9: Uses for outdated technical books

What exactly should a person do with outdated technical books? I have a bunch of old programming books from the mid 2000s. No one seems to want them. Do I just recycle them?
– David

Recycling them is definitely one option. Another option is to donate them to a library for their book sale, as someone may want them. You can turn them into book safes. You can simply cart them out to the curb on a nice day and put a sign on them that says “FREE BOOKS TO GOOD HOME.”

All of those options are completely reasonable, depending on where you live and what you want to do with them.

I had a ton of technical books back in the mid 2000s and have donated most of them to library book sales, which is what I do whenever I clear off my bookshelves. The ones that remain are ones that are kind of timeless, like The Pragmatic Programmer.

Q10: Roth IRA or mortgage payoff?

We cash flowed me going back to school and I got my masters. I was able to get a new job now making 115k per year up from the 45k I was making prior. My wife makes 46k but she will quit her job in June. We have our first child and after this school year (she is a teacher) will be a stay at home.
I have a question about what to do now.
I am 31 and my wife is 28.
We just started maxing out my 401k and Roth IRA
No debts other than our mortgage. $276,000 @ 3.75% 30 year mortgage. Original loan amount was $327,750 but we have aggressively paid it down to 80% LTV over the last 3 months. Purchase price $345k.
We just recently started contributing to retirement so we only have roughly 25k in our retirement accounts.
Emergency fund is roughly 16k but will increase that to about 25k in the coming months.

My question is this: Do I contribute to my wife’s spousal IRA or use that money to pay down the mortgage at a 15 year rate? I can’t see any big expenses coming in the next few years except maybe another child.

Intellectually I want to put that money in my wife’s Roth account but emotionally I want to pay down the mortgage.

Do you have any thoughts on this? My wife is indifferent and either decision is ok with her. She just wants me to make a decision lol. I do want the choice to cut down on work when my wife starts working again in 10 years and have the choice to fully retire at 55 if i wanted when the time comes..
– Connor

If your goal is for both of you to fully retire at age 55, then you should be putting money into her Roth IRA as that will almost assuredly offer a better return over that timeframe than an early house payment. If that is your primary goal, then the decision is pretty straightforward.

However, if your primary concern is being able to get through this decade where you’re the sole income earner and your wife is a stay at home parent, then you’re better off cutting your monthly expenses as much as possible. This likely centers around paying off the house as fast as possible. I don’t know how fast you can do this without a full budget, but if you can get it done in the next few years, I would prioritize it. If you’ve budgeted this out and there’s no way you pay off the house in the next ten years no matter what, then I wouldn’t even consider this path.

Having a paid-off house will make your current living arrangement last for as long as possible, even through any career hiccups you might have. If you can’t get there, then I’d just fund the Roth IRA and assume “normal” house payments.

Q11: Moving forward after accident

I am 42 and single. Three years ago I was in a car accident that left me severely injured and I am finally reaching a point where I can walk around with minimal pain with use of a cane. I received a very nice settlement for the accident but it is not enough to support me for the rest of my life. My previous employer laid me off during the recovery as I was unable to work as a dental hygienist. They no longer have a position for me and I am struggling to find a new one. I can survive for several years on settlement money but I am starting to doubt whether I can return to dental hygienist work. How long should I keep trying or should I start training for something else now?
– Janelle

I am assuming from your question that your injury at this point won’t interfere in any way with dental hygiene work.

I think it really comes down to whether you want to stick with the field or not. If you do, consider applying to places outside of your current location. Expand your horizons a bit and be willing to move to find a good job. I don’t know if there are other requirements keeping you in your current location or not. It may just be that there aren’t any jobs available in your current location, so try to find jobs elsewhere.

If you think you just want to switch careers, keep applying for hygienist work while you figure out what it is that you want to do. I don’t know your personality or skill set, so I can’t really offer suggestions – that’s something for you to decide. I would encourage you not to leap into something given your situation, as it sounds like you have some breathing room to make a decision.

Janelle ended her note to the mailbag with a quick comment that I wanted to write about.

Q12: Praying for a solution

I have prayed for a solution for this and I hope you will answer it.
– Janelle

First of all, thank you for taking the time to pray for me and my (hopeful) ability to help you with your question. It is deeply appreciated.

At the same time, however, I would strongly encourage you to pray for your own strength and wisdom as you figure out a path forward.

My best advice for anyone who is using prayer as a tool to solve their personal finance or other life issues isn’t to pray for outside intervention, but to instead seek solace in the Serenity Prayer (or a similar prayer or meditation in line with your spiritual or philosophical tradition).

God grant me the serenity
to accept the things I cannot change;
courage to change the things I can;
and wisdom to know the difference.

– Reinhold Neibuhr

Lead with that. Use that in your prayers. Take it into your heart. It will guide you to far better solutions than my words ever can.

I welcome and appreciate your prayer for me, but I also sincerely hope that you include yourself in your prayers, at least in terms of praying for the strength to overcome challenges and the character to be a good influence in the lives of others.

Got any questions? The best way to ask is to follow me on Facebook and ask questions directly there. I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive many, many questions per week, so I may not necessarily be able to answer yours.

Trent Hamm

Founder & Columnist

Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.