I think I'll split the difference and just do periodic lump-sum payments while continuing to invest. Thanks, everyone. You've all been a great help.
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How to Invest for Retirement
- Thread starter Piecake
- Start date
demosthenes
Member
The only sort of way to alleviate yourself is to donate them or just hold on to them.
Donation example, shamelessly stolen from the internet.:
RumblingRosco
Member
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My partner works at a company that gave her stock which is now vesting. At the time they transferred the stock to her, some of it was withheld to account for taxation (whether income or capital gains, I'm not sure).
Does anyone know, if we sell that stock, how is it taxed? Capital gains on 0 initial investment? Income tax at our bracket?
*edit* Having realized I'm an idiot, I decided to just Google it. Looks like it will be taxed as capital gains based on any change in value from where it was when it vested.
Does anyone know, if we sell that stock, how is it taxed? Capital gains on 0 initial investment? Income tax at our bracket?
*edit* Having realized I'm an idiot, I decided to just Google it. Looks like it will be taxed as capital gains based on any change in value from where it was when it vested.
That example makes no sense to me because even with a highest bracket of 6500 in tax savings.......
paying 15% on 10'000 profit nets you 8500.
It isn't to maximize your personal wealth it's because:
A: You were already planning on making charitable donations and this gets you a better tax break than donating cash.
B: You would rather get to choose where your money goes than have the government choose for you, even if it costs a little more.
Randolph Freelander
Member
Vanguard added China A to its emerging market funds in 2015 and continued through 2016 until completed.
https://personal.vanguard.com/us/insights/article/fund-announcement-Z6-092016
VWO (ETF)
VEIEX (Investor Shares mutual fund)
VEMAX (Admiral Shares mutual fund)
Thanks yeah I found it. Seems like the price has been all over the place
Randolph Freelander
Member
Emerging markets aren't for the faint of heart, the volatility can be maddening. If you're going to go in it on your own, keep your allocation low and try to ignore it.
To use Vanguard as an example, their total international index has about 19% in emerging. Vanguard's target funds typically hold 40% of stock in international. Do the math, and they're going for less than 8% of stock holdings in emerging, and this is lessened further by any bond holdings you might have (to follow the pattern of a target date fund).
Don't go nuts with high allocations in emerging markets.
Yeah thanks. I'm certainly going to pass for now. Maybe when I'm so rich I don't have anything better to do with my money than lose it.
ghostofsparta
Member
hi! This is my first post here. I am ready to invest [long term]!
I am investing 10% (or 12 I forget) of my income into 401k . I thought this was the way to go, but I've recently learned (and confirmed with the OP) that is not ideal. Ideally I should invest what my company matches to 401k and invest the rest elsewhere. But where?
I met with an agent that was trying to get me to open a life insurance plan. He basically said, I would set an amount, pay the premium where part of it goes to the death plan and the rest would go into a "cash fund" which would be invested and gain interest. The main selling point was that it was "safer" than a 401k because unlike a 401k, there is floor. This floor prevents me from losing money. He explained to me if the market crashes I could lose all my 401k, but the money in the life insurance plan would still be there because of this floor. The downside is there is a ceiling, so I may not get as much as a 401k.
This sounded good to me, honestly. Anybody know more about this?
I am investing 10% (or 12 I forget) of my income into 401k . I thought this was the way to go, but I've recently learned (and confirmed with the OP) that is not ideal. Ideally I should invest what my company matches to 401k and invest the rest elsewhere. But where?
I met with an agent that was trying to get me to open a life insurance plan. He basically said, I would set an amount, pay the premium where part of it goes to the death plan and the rest would go into a "cash fund" which would be invested and gain interest. The main selling point was that it was "safer" than a 401k because unlike a 401k, there is floor. This floor prevents me from losing money. He explained to me if the market crashes I could lose all my 401k, but the money in the life insurance plan would still be there because of this floor. The downside is there is a ceiling, so I may not get as much as a 401k.
This sounded good to me, honestly. Anybody know more about this?
thekonamicode
Member
Someone trying to sell you whole life insurance as a retirement plan is looking to cash a fat commission check. Do not talk to this person about your finances ever again.
It's only not ideal if you have fees and poor (expensive) funds. My 401k gives me access to Vanguard index funds with crazy low fees, so I contribute despite the lack of match.
So it really depends what you are investing in and your options. If you post the funds you are in or considering, we can help there.
If you want to invest in retirement outside of your 401k, Fidelity and Vanguard both offer very good, free IRA accounts. All things considered, I'd go with Vanguard due to their larger set of index fund options. (I'm with Fidelity, and in equivalent funds; my 401k is there also so I liked having to deal with just one investment company.)
This is horrible terrible no good very bad retirement and investing advice. Invest in low-cost index funds for the long term and you'll be fine. If it's too good to be true, or if it seems needlessly complex, stay away.
RumblingRosco
Member
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demosthenes
Member
But when GhaleonEB, Soka and Demo all say it's bad advice, he can probably start forming an opinion to direct their research. I agree with the above. Investing in a 401k or IRA is not a bad thing because you can "lose" money in down years.
ghostofsparta
Member
Thank you all for the help!
Soka your explaining was particularity helpful
Soka your explaining was particularity helpful
FullMetalx117
Member
22 years old and about to start a job in the 60-85k range. I have about 25k in student debt loans with the highest interest loan being 4.66% (all are gov stafford loans).
How do you guys think I should maximize wealth? In my situation, it may not be that beneficial to pay off student debts early. I was thinking $250 monthly payment over a 10 year period (additional 0.25% interest reduction if I set up auto payment) while also investing $500/month in a mutual fund. Sound like a good plan?
How do you guys think I should maximize wealth? In my situation, it may not be that beneficial to pay off student debts early. I was thinking $250 monthly payment over a 10 year period (additional 0.25% interest reduction if I set up auto payment) while also investing $500/month in a mutual fund. Sound like a good plan?
RumblingRosco
Member
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That's about the balance I was going to suggest. My main suggestion was going to be to not put off saving for retirement until you get your loans paid off, but you're got the right approach. Just pay off the highest interest one first, if you can, and work them down. Starting now with retirement savings will pay off very well down the road.
SecretMoblin
Member
Make sure you're taking advantage of your tax-advantaged opportunities -- putting your savings into your employer-matched 401(k) or an IRA is much better than opening up a simple brokerage account and dealing with the future tax consequences.
$500/mo is slightly higher than what your IRA contribution limit likely is ($5,500/year) so once the retirement plans are funded and you still have some money, opening a taxable brokerage account is fine.
FullMetalx117
Member
Thanks for the suggestions guys. I can have both a traditional and Roth IRA correct? So today, I should probably open up a Roth IRA right if I am expecting my income to increase in the future? And then down the line open up a Traditional IRA? Also the company I'm working for will match up to 4% so I'm hoping to max it out pretty quickly.
Also I should definitely invest in a mutual fund/entire market indexes? Are surefire stocks like FAANG not safe enough of an investment?
Also I should definitely invest in a mutual fund/entire market indexes? Are surefire stocks like FAANG not safe enough of an investment?
Walter White Walker
Member
As always I point people to Enron, at the time a huge corporation and then *poof* all gone.
http://www.investopedia.com/updates/enron-scandal-summary/
You're far better off investing in the entire market than any small group of companies, especially a single company.
And yes you can have both a traditional and Roth IRA but your contribution between them can be no more than $5500 in any year.
For Canadians, RBC is launching new index funds. http://canadiancouchpotato.com/2017/07/04/rbc-gets-back-to-basics-with-new-etfs/
So hopefully those undercut the others and further lower fees here.
So hopefully those undercut the others and further lower fees here.
Domino Theory
Crystal Dynamics
Am I reading it right that Vanguard S&P 500 ETF has a lower expense ratio vs the investor shares class and no other fees? Why wouldn't you go with ETF in that situation?
Unknown Soldier
Member
The thing about Enron is that they were committing pervasive wide-scale fraud from the top of the company to the bottom.
It's unlikely that Apple, Facebook, Google, Amazon, Netflix, Microsoft, etc. are committing pervasive wide-scale fraud. But who knows.
My point is that context matters. If you act like every company is the next Enron then you should probably be living in a cabin somewhere in the woods with nothing but your shotgun and your dog for company.
SecretMoblin
Member
If you meet the Admiral Shares threshold then they're effectively equivalent, but some prefer mutual funds for automatic investment options (which aren't available for ETFs) and don't want to deal with admittedly minor things like the bid/ask spread. Otherwise yeah, there's no real reason not to go ETFs, especially if you don't have $10k.
I think it's less about believing that every company is a potential Enron and simply diversifying enough so that in the unlikely but possible event you're holding "the next Enron", it doesn't destroy you. Holding FAANG is fine if you're flush with disposable income and comfortable with the risk of one or more of those companies not being on top of the world a few decades, but for retirement investment it is way, way too risky. Hell, plenty of passive investment gurus are concerned that even broad index funds are too overweight in FAANG.
I think his point was, you don't know where the next Enron will be, so it makes sense to diversify.
chaosblade
Unconfirmed Member
I think there are some differences in how they are traded that make mutual funds a bit more simple than ETFs, but I don't really know the details. I think a lot of it boils down to ETFs needing to be bought as shares, while you can simply invest any dollar amount in mutual funds.
Plus Admiral shares have the same expense ratio as ETFs, so it ends up not making too much of a difference in the long run.
Icelandic_Jazz
Member
I'm pretty sure this year I'll be over the income range for contributing to a Roth IRA. I already maxed my roth this year through Vanguard, and I'm wondering if I should take the money out now or if I should take it out at the end of the year. I may be in the "phase-out" income limit range.
My employer also offers an After Tax contribution option that I can convert to a Roth in plan (Fidelity). Should I take the $5500 out of my Vanguard roth and start contributing to this? And when I do convert the After Tax contribution, should I convert it to a new Fidelity Roth, or roll it over to Vanguard (if that's even possible)?
It looks like Fidelity mentions an In-Plan Roth 401k conversion or an Out-Of-Plan Roth IRA option. Would an Out-Of-Plan Roth IRA let me roll the money over to my existing Vanguard roth? I see something about pro-rata portions of the conversion being reported to taxable income, but that's way over my head right now. Way confusing.
Hope this makes sense. Any help is appreciated as usual.
My employer also offers an After Tax contribution option that I can convert to a Roth in plan (Fidelity). Should I take the $5500 out of my Vanguard roth and start contributing to this? And when I do convert the After Tax contribution, should I convert it to a new Fidelity Roth, or roll it over to Vanguard (if that's even possible)?
It looks like Fidelity mentions an In-Plan Roth 401k conversion or an Out-Of-Plan Roth IRA option. Would an Out-Of-Plan Roth IRA let me roll the money over to my existing Vanguard roth? I see something about pro-rata portions of the conversion being reported to taxable income, but that's way over my head right now. Way confusing.
Hope this makes sense. Any help is appreciated as usual.
You can do either, but you will need to calculate (and then pay taxes on) any appreciation of the money you are recharacterizing. So leaving it in there longer may mean a larger tax bill.
Buckle up, this is where things start getting complicated. There are two different loopholes for getting around Roth IRA contribution limits. They have similar names, but are separate and are not mutually exclusive.
Backdoor Roth IRA (BRI) - This is when you make an after-tax contribution to an IRA, then do a Roth conversion. Anyone is eligible to do this, however it may have complex tax implications if you money in a pre-tax IRA. BRI is limited to $5500 / year.
Mega Backdoor Roth IRA (MBRI) - This is when you do an after-tax 401k contribution, and then either do an in-plan conversion to a Roth 401k or do an out-of-plan rollover to a Roth IRA. This is only available to people with 401k plans that support it. It does not matter whether you already have money in a pre-tax IRA. MBRI is completely independent of IRA contribution limits; it is limited by total 401k contribution limits, which are currently $53K / year.
The Fidelity 401K option you are describing is MBRI.
Those are really two separate questions. Because MBRI is independent of your IRA contributions, it is unaffected by what you decide to do with the contribution.
On the other hand, you might choose to withdraw the contribution and then use BRI to put it back in - this can be done entirely through Vanguard, as it does not involve your Fidelity account.
And since BRI and MBRI are not mutually exclusive, you can do both if you can afford to put even more money in.
Legally, you should be able to do either. However if Fidelity does not allow a direct rollover to Vanguard, it will be more of a hassle. This guy on Reddit says that as of last year, Fidelity did not support direct rollovers to Vanguard.
https://www.reddit.com/r/financiali...g/my_experience_doing_the_mega_backdoor_roth/
Yes. The 3 options from least to most difficulty:
- In-Plan Conversion
- Out-of-Plan Direct Rollover
- Out-of-Plan Indirect Rollover
If you are satisfied with the fund choice in your 401K and are alright with the other 401K vs IRA tradeoffs, you might opt to do the In-Plan Conversion option instead of doing an IRA rollover. Personally I switched from doing Out-of-Plan to doing In-Plan.
Generally pro-rata doesn't matter much for MBRI, as long as your 401K plan lets you select between pre-tax and after-tax money when doing the conversion. It is more of a problem for BRI, because the law does not allow you to select between pre-tax and after-tax money in IRAs.
As for the earlier "should I do it?" part of your question, it mainly comes down to whether you need the liquidity. BRI and MBRI are worth a lot of money in the long run for retirement funds. However, because they involve Roth conversions, that money is not as accessible as it would be with a normal Roth contribution; there is a 5-year waiting period before you can withdraw principle without penalty.
I think both BRI and MBRI are probably not long for this world. If Congress actually manages to do tax reform, I expect that they will be one of the first things on the chopping block.
Icelandic_Jazz
Member
Wow, thank you for all the info. Very helpful information.
For now I think I will start contributing to Fidelity's after-tax 401k, and then convert it to an In Plan Roth 401k. The 5 year wait for liquidity doesn't hurt me too much, since I already have some money in my Vanguard Roth to pull from in an emergency.
As for the income limit on my Roth IRA, I'll try to estimate my MAGI and see if I should take it out sooner or later.
For now I think I will start contributing to Fidelity's after-tax 401k, and then convert it to an In Plan Roth 401k. The 5 year wait for liquidity doesn't hurt me too much, since I already have some money in my Vanguard Roth to pull from in an emergency.
As for the income limit on my Roth IRA, I'll try to estimate my MAGI and see if I should take it out sooner or later.
Domino Theory
Crystal Dynamics
I currently have the Target Retirement 2055 fund in my Vanguard Roth IRA Brokerage. Is it possible to add other funds under it? If so, what else would you guys recommend?
chaosblade
Unconfirmed Member
You could add any other Vanguard funds you want, either by buying more or trading if you already hit $5500 for the year. What's your aim though? The idea of a target date fund is to have something completely hands off with lower risk allocations as you get closer to retirement age.
Just my opinion which doesn't mean much at all, but having a target date fund plus other funds you are managing your own allocations for is counter-intuitive. You are basically giving up the primary advantage of target date funds by managing your own allocations, but still paying that slightly higher expense ratio for it.
Somebody else might totally disagree with me though and provide some good justification for it.
Domino Theory
Crystal Dynamics
Thank you, this is actually what I wanted to hear. I prefer to have one fund in there I can just focus on regularly pumping cash into. My brokerage account is where I like to have more than one fund.
Found out my grandma started me a small annuity for me in the early 90s. It's the only thing the banks weren't able to touch of hers, and it's mine now and worth about 7k now with a fixed 4.5% interest rate. I'm wondering and looking for suggestions for what to do with it. I'm currently maxing out a Roth 457, and have a small pension. I haven't been able to determine if I'm able to roll it into my 457 yet so now I'm wondering if I should just leave it as a cushion, cash it out and pay off a car bill to free up additional income, or cash out/see if I can roll it into a new IRA. I really don't know much about annuities, and what you can do with them.
SecretMoblin
Member
minor news for a company many here have lots of money with: Vanguard's CEO stepping down in Jan '18, CIO Tim Buckley taking over
He's mostly toed the company line on the philosophies of indexing and low fees, but during his CIO tenure Vanguard has dipped its toes in the smart beta and active management waters, so I wonder if that will continue
nearly $4.5 trillion in AUM is nutso, I wonder if they'll ever overtake BlackRock!
He's mostly toed the company line on the philosophies of indexing and low fees, but during his CIO tenure Vanguard has dipped its toes in the smart beta and active management waters, so I wonder if that will continue
nearly $4.5 trillion in AUM is nutso, I wonder if they'll ever overtake BlackRock!
Randolph Freelander
Member
Probably, yes. In fact, I was reading an article yesterday about that being part of Vanguard's strategy to not fulfill Bogle's fear of indexing actually breaking the stock market. I almost came in here and joked that we should do our part and start suggesting active funds.
http://www.marketwatch.com/story/vanguard-may-solve-an-indexing-problem-it-helped-create-2017-07-12
demosthenes
Member
Didn't realize I missed replying to this, thanks for responding on my behalf!
SecretMoblin
Member
heh, I saw that article -- reporting can be dicey when talking about massive inflows to "passively-managed" funds, when the bulk of that is into ETFs which are very often not held passively. The frenzied chatter whenever QQQ or XLF swings more than 1% suggests there are still enough people who don't care about broad indices for it to not be an issue, ever.
which is better for us!
which is better for us!
DreadfulOmen
Member
If i open an IRA account and buy US Total Stock Market and Total International Market, do I just leave my money there, or do I have to manage it by selling and buying stock? I am sorry, but kinda confused about this stuff.
I graduated from college about a year ago, and work as a home health PTA, but I don't get benefits or 401k, so I would like to start something to plan for retirement.
I graduated from college about a year ago, and work as a home health PTA, but I don't get benefits or 401k, so I would like to start something to plan for retirement.
Randolph Freelander
Member
Leave it there, just continue to buy as you put more money into your account. Only sell when you are taking a distribution (retirement) or if you're changing strategy.
DreadfulOmen
Member
So I think the yearly maximum for the IRA is $5,500, so as I add more money to hit the limit of $5,500, I keep buying US Total Stock Market and Total International Market, right?
Thanks
Randolph Freelander
Member
Yes, that's the max, and just keep buying as you make deposits and maintain your allocations in whatever split you've decided you prefer. Sell parts / all when you've decided you want a different allocation or prefer a different blend of funds altogether.
DreadfulOmen
Member
Thank you Randolph!!
Celcius
°Temp. member
Last year I had my roth 401k at my company and I also had a roth IRA at my local credit union. The IRA didn't have much so in December I rolled it over into my company's 401k (the entire process only took me 2-3 days). I did an indirect rollover since neither my bank nor my job would send the other the necessary info (so they gave me a check and I mailed it to the other one).
If I want to withdraw everything in my company roth 401k and transfer it to a roth IRA at my credit union, can I just do another indirect rollover or do I have to wait 1 year before doing it again to avoid any tax penalties? If I do have to wait, would it be possible to do a direct rollover without any tax penalties?
If I can't do a transfer without tax penalties now, what would happen if I quit my job or got fired?
If I want to withdraw everything in my company roth 401k and transfer it to a roth IRA at my credit union, can I just do another indirect rollover or do I have to wait 1 year before doing it again to avoid any tax penalties? If I do have to wait, would it be possible to do a direct rollover without any tax penalties?
If I can't do a transfer without tax penalties now, what would happen if I quit my job or got fired?
In order to rollover a Roth 401k while employed at the company you must
1. Be age 59.5 or older
2. Have a 401k plan that allows in-service withdrawals / rollovers
If you leave the company, you're free to do so.
Wellington
BAAAALLLINNN'
Good problem to have, by the end of the month I'll have hit the max on my 401k before I have to adjust downward to be able to get the company match through the end of the year. Feels good man.
I am going to take the extra post tax cash that I ring up per check and throw it into my Vanguard account. I'm going to focus more heavily on bonds thru the end of the year, the rally over the last 8 or so months has made my numbers a bit lobsided.
Thanks... Trump?
I am going to take the extra post tax cash that I ring up per check and throw it into my Vanguard account. I'm going to focus more heavily on bonds thru the end of the year, the rally over the last 8 or so months has made my numbers a bit lobsided.
Thanks... Trump?