Looking at my company 401k options, and as far as I can see my only option for indexed funds (S&P 500 Index high, mid, or small cap) all still have annual fees over 1%. They do offer a small match (about $2k a year on my salary), but I wonder if the high interest rate outweighs this and I'd be better off investing myself with a robo. Anyone have thoughts?
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How to Invest for Retirement
- Thread starter Piecake
- Start date
Randolph Freelander
Member
You still want to use the 401k. The instant return of the company match far exceeds the cost of fees.
Contribute whatever it takes to get the full match, not one penny more afterwards until you max an IRA, if you can afford to, then back to the 401k because of the tax-advantaged savings.
In the meanwhile, petition the company for better investment options and/or consider your employment options.
Randolph Freelander
Member
Nothing to penalize. You just pay taxes on gains. For assets held less than a year, you pay at ordinary income tax rates. For assets held longer, it would be at (lower) capital gains rates.
Is that something you have to manually track or will fidelity automatically include that in the end of year tax documents they send you?
Randolph Freelander
Member
Your sales should show up on year end documents. If the gains are substantial and the resulting taxes are significant, you might need to pre-emptively pay estimated taxes to the IRS (or increase your withholdings with your regular paychecks) to avoid underpayment penalties.
https://ttlc.intuit.com/questions/2...ear-to-avoid-an-april-2016-tax-filing-penalty
hockeypuck
Member
After much hemming and hawing, decided to sign up for my employer's 457b plan. It's not a government 457b, so it's not protected from creditors should the employer go bankrupt, but man, hard to pass up another $18,000 in pre-tax retirement savings. Thank god 2-3 funds are decent (index funds with ERs = 0.10% or less).
CopperPuppy
Member
Need a little insight. Think I might already know the answer but guess I need someone to give it to me harsh.
I am an attorney and not covered by an employer-sponsored retirement plan. To reduce my AGI and thus student loan payment obligation, I take advantage of the full traditional IRA deduction each year. Like everyone else, I want to convert to a Roth. To do so, the full amount of the conversion will be taxed at my highest bracket ("dumped on top"), correct? Because it's converting deductible contributions, that is. Meaning a Roth conversion is not a realistic possibility absent a drastic reduction in income in a given year, correct?
Just want to make sure I've heard all options for pursuing a deductible IRA -> Roth conversion. Thanks in advance.
I am an attorney and not covered by an employer-sponsored retirement plan. To reduce my AGI and thus student loan payment obligation, I take advantage of the full traditional IRA deduction each year. Like everyone else, I want to convert to a Roth. To do so, the full amount of the conversion will be taxed at my highest bracket ("dumped on top"), correct? Because it's converting deductible contributions, that is. Meaning a Roth conversion is not a realistic possibility absent a drastic reduction in income in a given year, correct?
Just want to make sure I've heard all options for pursuing a deductible IRA -> Roth conversion. Thanks in advance.
All correct. What makes you want to convert to Roth, though?
CopperPuppy
Member
Just the usual reason of avoiding tax on withdrawal to guard against future tax bracket uncertainty. Forgive my ignorance - is this not as big of a deal as I am thinking? It's always seemed like a valuable tax status to have on retirement assets and I fret a bit about foregoing it by taking the deduction presently.
It depends on your tax rate now and how you plan to live in retirement. It's not something I would agonize over, though.
I did move to a much less aggressive 60% stocks and 40% bonds allocation. And to be honest maybe that is a bit market timey. But I'm still in the market. While it's true I have the time horizon to wait out volatility, it's also true that because I've started so early I don't need to take on as much risk to reach my financial goals.
Anyway, here's a chart of nominal bond yields over the past 300 years. One think you might draw from this is that financial markets have survived some pretty huge events.
Do you have anything overseas? I'm a little different portfolio wise for investing because I think overseas and emerging markets need to play some catch up for growth and are starting to do so. Still, even if you aren't, not sure you want to be that bond heavy unless closer to retirement. Reinvesting dividends is where a substantial amount of returns come from.
Well, I'm Canadian so overseas might be a bit different for me. But basically I have the "balanced" CCP portfolio, which is 40% Canadian bonds, 20% Canadian equity and 40% all world ex Canada equity. I do know about the importance of compounding, and the portfolio is intended for retirement. But I figure my financial goals/plans might change as I uh, enter the workforce. So for now I think this is a good balance of playing it conservatively and not missing out on time in the market. I have no interest in buying property for fear of locking myself down, but if I did I'd probably just have it all in a short bond fund right now. I'll see where I'm at in a while and probably rebalance to be more aggressive, maybe pick a glide path. Also at that point I might (fingers crossed?) need to figure out how to arrange my stuff for tax efficiency instead of just having everything in a TFSA (IRA-ish).
LordOfChaos
Member
Query, I'm in canada, my current bank and a recommended one for index fund investments have very similar portfolios, but my banks MER (management expense ratio) is 1.07, the other banks is 0.57. Would you switch for that?
TD E series is what I'm thinking of switching for.
TD E series is what I'm thinking of switching for.
Why not switch to something without those crazy MER's like Vanguard?
Both of those are unacceptably high for an index fund, but definitely avoid the higher one. The impact to returns over time is non-trivial. Defiantly take another option if you can via Vanguard or Fidelity, as Smiley said.
My US S&P 500 Vanguard index fund has a 0.02% expense ratio (institutional class), as a reference point. Anything over 0.2% is too high for a stock index fund, IMO.
Americans are blessed. Anyway, the optimal thing in Canada would be to open an account at a discount brokerage like Questrade and buy some ETFs. These are basically mutual funds, but units are traded over stock exchanges. Besides that there's nothing really special about them, except that in Canada they offer far lower fees than you can get through traditional mutual funds.
Check out this blog.
I have holdings in the following:
VUN.TO, MER 0.16%
VDU.TO: MER 0.21%
VEE.TO: MER 0.24%
The morningstar ETF's have performed extremely well for me as well, I also have holdings in the CAD-unhedged ones (the CAD unhedging itself has made me a pretty decent profit lol, since it was banking on the CAD losing value which it did)
XXM.B.TO: 0.60%
YXM.B.TO: 0.60%
which is somewhat higher of an MER but has fared me well either way.
I'm using Questrade which also saves me pretty much all fees. No fees to buy ETF's and a very small fee to sell them, as well as no account holding fee at all.
I'm starting to look into investing into index funds. I'm currently 25 and would like to start saving more. I'm tired of having my money in my savings account making nothing!
I currently put 8% of my salary into a ROTH IRA through my employer. They match 3% and also put in profit sharing yearly (been 15% of my total salary each of the last two years). Currently have about 43k in my retirement through them after about 2 and a half years.
Right now I'm looking into starting an account with Vanguard.
My first transaction looks like this:
$5,000 into Vanguard Total Stock Market Index Fund expense ratio 0.16%
$3,000 into Vanguard Total International Stock Index Fund expense ratio 0.19%
Any other suggestions on investments? I am planning on adding money monthly to these accounts along with my Roth IRA (probably $90 to the Total Stock and $60 to the International monthly).
I do have some more money I could invest if needed, about 24k more in my savings.
I currently put 8% of my salary into a ROTH IRA through my employer. They match 3% and also put in profit sharing yearly (been 15% of my total salary each of the last two years). Currently have about 43k in my retirement through them after about 2 and a half years.
Right now I'm looking into starting an account with Vanguard.
My first transaction looks like this:
$5,000 into Vanguard Total Stock Market Index Fund expense ratio 0.16%
$3,000 into Vanguard Total International Stock Index Fund expense ratio 0.19%
Any other suggestions on investments? I am planning on adding money monthly to these accounts along with my Roth IRA (probably $90 to the Total Stock and $60 to the International monthly).
I do have some more money I could invest if needed, about 24k more in my savings.
chaosblade
Unconfirmed Member
Keeping it simple is a good idea. Don't bog yourself down too much with a whole lot of different funds. Total market (US) + International gives you nearly all the stock diversity you could ask for so that's a good place to start. Eventually you will want to add bonds, but at 25 it doesn't need to be a priority.
It's a good time to start if you haven't filed your taxes yet. Instead of being stuck with the $5500 limit you could contribute up to $11000, by setting half of that as a contribution for last year.
Also don't know that I'd want to keep 40% international long-term, but allocation is up to you. I and I think several other people go for closer to 15-25%, but there are probably also people doing 30, 40, 50%.
hockeypuck
Member
Only open a taxable account (what you're looking to doing) after you maxed out your 401k and IRA. You should be tax-sheltering at least $23,500 (18,000+5,500) a year of your own pretax income before opening a taxable account. If any of that $43K is actually employer contribution and not your contribution, then you're not using your tax-advantaged accounts to their fullest extent. Looks like you have at least another $4000 to save into those accounts before opening an account at Vanguard.
And Roth IRA max out at $5,500 a year, so $11,000 these past two years. The other $32,000 in your savings is in another account.
Ask your employer if they offer a Health Savings Account. That's another $3000 to 6000 of tax-advantaged savings. HSAs can only be paired with high-deductible health insurance, just FYI.
Ask your employer if they have offer a 401a and/or 457b (which may be related to that profit-sharing plan you're referring). These are not mutually exclusive to a 401k. You can have all three!
With excellent employers, the IRS allows you and your employer to potentially defer up to $53,000 a year in tax-advantaged accounts through these various means that you can use to your advantage before opening a taxable account.
Edit: you may have a Roth 401k, not a Roth IRA. Then the 43K makes sense.
Scarecrow
Member
I'm finally getting around to investing a good chunk of money into Vanguard. But for the life of me, I can't figure out how. I want to transfer money from my bank to Vanguard so I can invest in some ETFs. But the only options I can seem to find are putting money into an IRA. And that's only $5,500. Surely there's a way to use Vanguard to invest a five figure amount into stocks, correct? What am I missing?
chaosblade
Unconfirmed Member
You need to make sure whatever you are doing, it's in a non-retirement account. It should be the "general savings" response when creating the account to put the money into.
fatty
Member
You will want to set up a Brokerage Account with Vanguard. For example, I have to have four separate accounts with Vanguard:
Rollover IRA Brokerage (Retirement account - where I transferred my traditional 401k when I switched companies)
Roth IRA Brokerage (Retirement account - where I transferred my Roth 401k when I switched companies)
Brokerage (Non-retirement, taxable - this is the one you want but keep in mind any investments you take out before one year will be taxed at a higher earned income rate instead of the capital gains rate)
UTMA Brokerage - (This is an account I started for my daughter to invest before turning 18)
After you set up a brokerage account, you will then be able to link your bank account to it. Any withdrawals from you bank deposited into this account will go into the Vanguard Federal Money Market Fund which is a Settlement Fund that holds your money. From there you will be able to pick the funds you want to buy and transfer funds from your settlement fund.
zswordsman
Member
Ok. So I stared investing 10% of my paycheck into a Roth TSP. In the army as an E3.
My main question is, how and in what do I invest anything else I have left over for the month? I have like 4k in a savings account and about 1.5 in checkings just sitting there. I feel like the savings account probably won't generate any good interest but as a rainy day fund, that should be enough.
So what do I do? Do I just keep adding to the savings account ? I don't really have any expenses at the moment and I'm more than likely going to Korea so I'll be ok financially. I think I'll probably increase my TSP to 15%. But I usually have maybe a few hundred to just save up and I'm wondering what's the best way to invest that.
My main question is, how and in what do I invest anything else I have left over for the month? I have like 4k in a savings account and about 1.5 in checkings just sitting there. I feel like the savings account probably won't generate any good interest but as a rainy day fund, that should be enough.
So what do I do? Do I just keep adding to the savings account ? I don't really have any expenses at the moment and I'm more than likely going to Korea so I'll be ok financially. I think I'll probably increase my TSP to 15%. But I usually have maybe a few hundred to just save up and I'm wondering what's the best way to invest that.
You need an emergency fund first of all.
And you need to figure out what you're saving for. Short term versus long term. Down payment for a house versus retirement.
And the general rule of thumb for this is ~3 months salary, depending on how much of a safety net you want.
I like to do 4 months. That way its 1/3 of a year. I dunno why, I like that better than it being 1/4 of a year even though its just a month more. I'm weird. Haha.
After the TSP, you can put up to $5500 per year into an IRA. If you max that out, you can put money into a normal taxable brokerage account. Look into Vanguard or Fidelity for setting up these accounts.
As for "what should I invest in?" the information in the OP for this thread is still fine. I continue to recommend Vanguard Target Retirement mutual funds for most people.
As for the talk about emergency funds, I personally don't think it is necessary to keep large cash reserves, and that seems particularly true in your case with the army providing high job security and few expenses.
sabertoothzombie
Member
So I have an old 401k account with Fidelity from my old employer. People I've asked have said to just let it sit there and not touch it, but I thought you could roll old 401k's into IRA's. I have a different 401k with my new employer, so I don't really want to have multiple ones. Any thoughts?
This 401k has 10k in it, I'm not sure if that amount makes a difference or not.
This 401k has 10k in it, I'm not sure if that amount makes a difference or not.
RumblingRosco
Member
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If you don't consolidate them yourself you run the risk of the employer charging you fees or even cashing out your 401k and sending you a check - which will hit you really hard on taxes. I would advise against leaving your 401k with old companies. The hassle of getting them rolled into IRAs is nothing compared to the risk of fees or getting hit with taxes on the amounts if the employer closes your account.
lightning2k3
Member
Question for GAF. Lets say that in a few years I expect to be over the income limit for ROTH IRA contributions and I want to backdoor into the Roth IRA. Is it a smart idea to keep my old 401k unconverted at my old company to keep this option open?
Scarecrow
Member
Thanks for the help. Setting up a non-retirement account did the trick.
You don't want a Traditional IRA balance if you are doing a backdoor Roth. So it is better not to roll a Traditional 401K into your IRA unless you intend to later roll it over again into the 401K of your current employer or you want to do a Roth conversion and pay the taxes.
But, I also personally won't be surprised if the backdoor Roth stops existing soon, so I'd weigh that in any decisions.
HawksWinStanley
Member
I recently left a job where I had a 401k through American Funds.
My new employer isn't offering 401k matching yet and I've been lazy and haven't contacted American Funds about just contributing on my own.
Would there be an easy way to roll this into a Roth IRA through Vanguard?
My new employer isn't offering 401k matching yet and I've been lazy and haven't contacted American Funds about just contributing on my own.
Would there be an easy way to roll this into a Roth IRA through Vanguard?
You can rollover to a Vanguard IRA, but keep in mind if you're going from a traditional 401k to a Roth IRA you will have to pay taxes on that amount rolled over. You also have the option to rollover from traditional 401k to a traditional IRA. It's fairly easy to do either scenario that you'd like - https://investor.vanguard.com/401k-rollover/
Kind of a newbie question, but I'm still wrapping my head around all of the rules and benefits here having just started actually diving into the world of investing last week -- I have a 401K with Vanguard that was rolled over into a traditional IRA. Is it better for me to continue contributing to that directly, or should I open up a Roth IRA in addition and start contributing to that one instead? I also looked at converting my traditional IRA into a Roth one, but some of the consequences of that had me feeling like I'd be better off starting from scratch.
Randolph Freelander
Member
Set aside thoughts about your existing IRA balance for now. Look at new contributions.
The first thing you would want to find out is if you're getting any tax deduction benefit from contributing to a traditional IRA. Deductions phase out with income, and the income scale also gets reduced if you have an employer-sponsored plan (such as a 401k). For more, follow this link: https://www.irs.gov/retirement-plans/ira-deduction-limits
If you don't get a deduction, discussion over. Use a Roth IRA for any new contributions. If you do get a deduction, then you would traditionally favor a Roth if you have lower income -- you pay a low marginal rate now, and avoid taxes in the future. If you have a higher income, you might favor a traditional IRA, which reduces your tax liability now at the higher marginal rates and then you pay ordinary income tax later as you withdraw funds, with your bet being that your average tax rate (your income goes through the tax brackets in order) in the future would be lower than your top marginal rate now. This brings risk of being wrong about (a) your future income and (b) future tax rates (imagine a vast expansion of social services [single payer healthcare, for example], which is accompanied by a tax increase), so a lot of people just take the certainty of the tax rates now and go with the Roth anyway.
Thanks for taking the time to respond; the last sentence was my big takeaway after diving into this stuff but it's a brave new world for me so I appreciate the help.
Emerson
May contain jokes =>
Can somebody explain something to me?
I'm currently investing in a Vanguard target date fund with my 401k, and with my relatively new Roth IRA I'm investing in a dividend appreciation ETF and an REIT ETF. I was looking at international ETFs such as VEA and VWO, but looking at their history they've been essentially flat-lined for nearly a decade.
Why, if any reason, would I consider investing in these international funds rather than putting more into what I've already got?
I'm currently investing in a Vanguard target date fund with my 401k, and with my relatively new Roth IRA I'm investing in a dividend appreciation ETF and an REIT ETF. I was looking at international ETFs such as VEA and VWO, but looking at their history they've been essentially flat-lined for nearly a decade.
Why, if any reason, would I consider investing in these international funds rather than putting more into what I've already got?
hockeypuck
Member
Only for diversification. International funds go great in a taxable account due to the foreign tax credit.
Go here and look at the returns prior to the financial meltdown
https://www.bogleheads.org/wiki/FTSE_Emerging_Index
Emerging Markets has been hurt by the strong dollar and oil being down but over the long term countries like India should be capable of tremendous growth as their economies develop. I think VWO should be a good holding for any young person
Unknown Soldier
Member
I bailed out on VXUS awhile back because VTI was just destroying it. Of course these days I'm heavily in VIOO. Been thinking about moving my VIOO to IVOO though.
International and US historically have traded blows. So there are two ways of looking at the recent trend:
1. Something has changed, and US is now just a fundamentally better market than International.
2. Things will revert to the mean, therefore International will outperform US in the future.
I think it will be the latter. CAPE is quite high in the US compared to the rest of the world:
http://www.starcapital.de/research/stockmarketvaluation
CAPE valuations have historically been one of the better predictors of intermediate term stock market returns. One caveat to that is that if Republicans pass corporate tax cuts, the US CAPE values should fall somewhat.
Also worth noting that the US dollar is fairly strong right now:
http://www.macrotrends.net/1329/us-dollar-index-historical-chart
A strong dollar not only makes it harder for US companies to compete, but if the dollar were to fall, you would also see international funds rise purely on changes in the exchange rate.
hockeypuck
Member
What's funny is that there was recently a thread on Bogleheads that asked what percentage of stocks should be in International, and it turns out Vanguard said, "start at 20%" and John Bogle said, "no higher than 20%" so now everyone was like "awesome, 20% it is!" Lol. I personally am shooting for roughly a 2:1 ratio just because.
fatty
Member
A while back I did an in-kind transfer to roll over mutual funds from an Roth IRA to my Vanguard account. Looking at the account, I have a lot of investments in different mutual funds that I no longer want to keep due to performance/fees/etc.
What is the easiest way to move these all to the Vanguard Total Bond Market Index (VBMFX)? Pretty much just sell all of the funds individually and have them apply to my money market fund inside the Roth IRA? Then buy shares in VBMFX as long as I have over $3000?
I'm thinking this is the case but it just seems like there will be a lot of individual times I will have to do this (~ 23), wish there was a way to select more than one at a time. But in some cases if I sell them there is a $20 Vanguard fee which is pretty substantial for some of the funds that have barely any money in them. I wish I would have liquidated them before moving them over, any advice on how to handle them now?
What is the easiest way to move these all to the Vanguard Total Bond Market Index (VBMFX)? Pretty much just sell all of the funds individually and have them apply to my money market fund inside the Roth IRA? Then buy shares in VBMFX as long as I have over $3000?
I'm thinking this is the case but it just seems like there will be a lot of individual times I will have to do this (~ 23), wish there was a way to select more than one at a time. But in some cases if I sell them there is a $20 Vanguard fee which is pretty substantial for some of the funds that have barely any money in them. I wish I would have liquidated them before moving them over, any advice on how to handle them now?