Roth IRAs, low-cost hobbies, moving to paradise March 31, 2007 Make It a HabitMelody Thompson has always been a saver. When she was a kid, her dad gave her quarters to play video games. She'd add the money to her piggy bank instead. "By age 10, I had about $300," says Melody, now 26. In college, she enrolled in a dual-degree program to earn her BA and MBA in five years -- saving thousands in tuition. She also met her future husband, Deonte. To save money on their wedding, the two scheduled the ceremony for the same weekend as Melody's graduation, when family members would already be in town. The Thompsons, who live in Pflugerville, Tex., make a habit of saving money. To avoid land-line long-distance charges, they use their cell phones to make all their long-distance calls, and they get free directory assistance by dialing 800-373-3411. They signed up with their bank to get rewards points when they use their debit card. They attend free plays, movies, shows and jazz concerts through a local organization for which Melody volunteers. With the money they save, they have $500 per month automatically transferred to a high-interest savings account. Deonte (a computer engineer with Dell) and Melody (a graphic designer with her own company, Identity Designs Co.) invest heavily in company retirement plans. Says Melody: "Saving is a part of our lifestyle." Advertisement 50 WAYS TO SAVE Budgeting and Saving College Travel and Cars Spending Tax-Free Income My income is too high for me to contribute to a Roth IRA, but I plan to convert some of my traditional IRA to a Roth when the $100,000 income limit for conversions disappears in 2010. I know I'll have to pay taxes on the converted amount, but I think it's worth it to have future retirement income that's tax-free. -- Rodney Dunn, Morrisville, N.C. KIP TIP: Earn too much to contribute to a Roth IRA? (Limits are $114,000 for singles and $166,000 for married couples.) You can make a nondeductible contribution to a traditional IRA for each of the next four years and then convert it to a Roth in 2010, when the $100,000 income limit for conversions disappears. In some cases you'll pay tax only on the earnings. Low-Cost Retirement Advertisement Forget the rules about needing 70% to 80% of your previous income. I retired last year at 58 and live comfortably on less than 40% of my previous income. Before retiring, I paid off my house, bought a smaller car and drew up a budget. I live on my military and civil-service pensions and don't plan to touch my savings until I have to. I stay busy volunteering and gardening, I have season passes to the zoo and local museums, and I travel around the world on military flights. -- William Borgilt, Jacksonville, Fla. Golden Girls I live with my sister and two friends -- one widow, two divorcees and a single woman. Two of us own a house in Florida, two pay rent, and we share the other expenses. My sister and I also own a house in Massachusetts, where three of us spend our summers. It works great, and each of us can afford to live better than any of us could alone. -- Joan Forrester, Rotonda West, Fla. Fast Start Advertisement My fiancé and I are in our early twenties, and we each contribute 10% of our salary to a 401(k) plan. That totals about $7,000 a year, and my fiancé has a company match. -- Natalie Perez, Pensacola, Fla. KIP TIP: Saving early lets you reap big rewards later. If you start at age 20, an annual contribution of $7,000 that earns 8% a year would be worth nearly $3 million by age 65 -- not including the employer match or future increases in your contributions. Painless Saving In addition to contributing 12% of our salaries to our retirement plans at work, we each contribute to a Roth IRA through a monthly automatic payroll deduction. We realize that if we don't see the money in our paychecks, we won't miss it. We're in our thirties and want to retire as soon as possible. -- Brian and Jennifer Reilly, Takoma Park, Md. KIP TIP: When you open a Roth IRA, consider the T. Rowe Price Retirement funds (800-638-5660; www.troweprice.com). You pick the fund whose name includes the year closest to your planned retirement date, and your money is automatically invested in a portfolio that's appropriate for your age.