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[Randolph Freelander]

Question about RRSP (Canadian 401k); if I contribute more than my limit this year, does it mean I can just offset my tax credit to another year, or do I get some sort of penalty? Cause I'm guessing if I write off the maximum from my taxes, additional contributions having no impact would mean no penalty right?

I'm going to get a bonus and want to invest it in the same funds and let it start growing now, even though I'd end up contributing over my limit. If there is no penalty, the year I buy a house I was thinking I could make 0 contributions to my RRSP and just use the previous years' excess contributions. Good or bad idea?

You might need to check Canadian law, but in the United States, you'd have to get a refund on the excess amount, and you'd be responsible for taxes on the amount and on earnings. If you wait until after April 15 of the next year, you'd actually get taxed on those funds twice, in addition to early withdrawal penalties.

Snippet of the policy in the US:

If the total of a plan participant’s elective deferrals exceeds the limit under IRC Section 402(g), to avoid failing IRC Section 401(a)(30), the excess amount plus allocable earnings must be distributed to the participant by April 15 of the year following the year of deferral. Excess deferrals not timely returned to the participant are subject to additional tax.

Timely withdrawal of excess contributions by April 15

- Excess deferrals withdrawn by April 15 of the year following the year of deferral are taxable in the calendar year deferred.
- Earnings are taxable in the year they're distributed.
- There is no 10% early distribution tax, no 20% withholding and no spousal consent requirement on amounts timely distributed.

Consequences of a late distribution

- Under IRC Section 401(a)(30), if the excess deferrals aren't withdrawn by April 15, each affected plan of the employer is subject to disqualification and would need to go through EPCRS.
- Under EPCRS, these excess deferrals are still subject to double taxation; that is, they're taxed both in the year contributed to and in the year distributed from the plan.
- These late distributions could also be subject to the 10% early distribution tax, 20% withholding and spousal consent requirements.

 

[Ether_Snake]

You might need to check Canadian law, but in the United States, you'd have to get a refund on the excess amount, and you'd be responsible for taxes on the amount and on earnings. If you wait until after April 15 of the next year, you'd actually get taxed on those funds twice, in addition to early withdrawal penalties.

Snippet of the policy in the US:

But I wouldn't ask for a refund over the maximum allowed limit for that year.

 

[Randolph Freelander]

But I wouldn't ask for a refund over the maximum allowed limit for that year.

Well, out of curiosity, I checked into RRSP a little bit and apparently (?) it allows you to exceed your limit by as much as $2000 before a 1% tax penalty per month kicks in. But it also lets you carry forward unused contributions from prior years, effectively raising your limit for the current year.

Being that it wasn't my problem to solve and my head was spinning, that's when I checked out.

 

[simplayer]

Question about RRSP (Canadian 401k); if I contribute more than my limit this year, does it mean I can just offset my tax credit to another year, or do I get some sort of penalty? Cause I'm guessing if I write off the maximum from my taxes, additional contributions having no impact would mean no penalty right?

I'm going to get a bonus and want to invest it in the same funds and let it start growing now, even though I'd end up contributing over my limit. If there is no penalty, the year I buy a house I was thinking I could make 0 contributions to my RRSP and just use the previous years' excess contributions. Good or bad idea?

Does this include all your carry forward amounts from previous years?

 

[Ether_Snake]

Well it says I have unused contributions from previous years, I guess those are from going over the limit in the previous years, not sure.

I guess I can't bust the limit, it would have to be invested in a different account.

I just like those funds and they aren't available outside the RRSP, but I guess I can find equivalents easily since they aren't too specific.

 

[simplayer]

Well it says I have unused contributions from previous years, I guess those are from going over the limit in the previous years, not sure.

I guess I can't bust the limit, it would have to be invested in a different account.

I just like those funds and they aren't available outside the RRSP, but I guess I can find equivalents easily since they aren't too specific.

Unused contributions from previous years means you DIDN'T go over the limit for that year. You can use that extra room to use towards your RRSP contributions for this year.

So if you've only used your max contributions for this year (18% of your salary I believe) and haven't been digging into your carry forward amount, you can use your carry forward amount for your bonus.

So as long as what you want to put into your RRSP from your bonus is less than your carry forward amount, you should be totally fine. If you go over that, I have no idea what happens though.

 

[Ether_Snake]

Unused contributions from previous years means you DIDN'T go over the limit for that year. You can use that extra room to use towards your RRSP contributions for this year.

So if you've only used your max contributions for this year (18% of your salary I believe) and haven't been digging into your carry forward amount, you can use your carry forward amount for your bonus.

So as long as what you want to put into your RRSP from your bonus is less than your carry forward amount, you should be totally fine. If you go over that, I have no idea what happens though.

I see, so here is an example:

2014 RRSP deduction limit: 15000
Unused RRSP contributions available to deduct for 2014: 10000

The deduction limit is actually not the limit, because it would be 25000 due to unused contributions available? So I could contribute 25000 in such a year?

 

[simplayer]

By that phrasing it sounds like your total deduction limit (earned in 2014 and carry forward) is 15000. Check the CRA site to see your current deduction limit.

 

[Ether_Snake]

Yeah that was where I got the info from (not those actual numbers, just an example).

So what can I do with the unused contribution part?

Found this: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/cntrbtng/nnsd-eng.html

It seems that as long as I don't withdraw the contributions from the plan I won't be taxed on it, but what happens at retirement? It's really confusing.

Anyway I'll call them to see what I can do. If I can withdraw it with penalties I could recontribute it.

 

[GhaleonEB]

Just maxed our Roth IRA contributions for the year. I wish the cap was higher - $5500 is really low and makes it difficult to really build a (tax advantaged) retirement account. It should have the same limits as the 401k so those without access to one are not disadvantaged.

 

[Husker86]

Just maxed our Roth IRA contributions for the year. I wish the cap was higher - $5500 is really low and makes it difficult to really build a (tax advantaged) retirement account. It should have the same limits as the 401k so those without access to one are not disadvantaged.

It's a pretty pathetic limit. With how vital individual retirement accounts are to financial security in this country, I can't understand why they don't make it easier to build it up if a person so chooses.

Well, I can understand...they want the tax revenue on gains. But they really shouldn't be so restrictive on people who are trying to be personally responsible for their future.

 

[Randolph Freelander]

Just maxed our Roth IRA contributions for the year. I wish the cap was higher - $5500 is really low and makes it difficult to really build a (tax advantaged) retirement account. It should have the same limits as the 401k so those without access to one are not disadvantaged.

I agree. IRA limits (traditional or Roth) should match 401K, maybe they add some collective personal contribution cap across all retirement accounts, but otherwise, I don't know why the IRA limit is $5500 when the 401K is $17500 in 2014. Call it $23000 across whatever retirement accounts you're using and be done with it (for those below age 50).

Further, I don't really see a need for income to play a part in phasing out eligibility. The tax deduction on traditional IRAs, the contribution phase out on Roths, I don't see the point, particularly when the contribution limit is $5500. The wealthy aren't accumulating a lot of additional wealth with such a "small" amount, but people in the middle class are certainly getting cut off.

 

[GhaleonEB]

I agree. IRA limits (traditional or Roth) should match 401K, maybe they add some collective personal contribution cap across all retirement accounts, but otherwise, I don't know why the IRA limit is $5500 when the 401K is $17500 in 2014. Call it $23000 across whatever retirement accounts you're using and be done with it (for those below age 50).

Further, I don't really see a need for income to play a part in phasing out eligibility. The tax deduction on traditional IRAs, the contribution phase out on Roths, I don't see the point, particularly when the contribution limit is $5500. The wealthy aren't accumulating a lot of additional wealth with such a "small" amount, but people in the middle class are certainly getting cut off.

I really like the idea of a collective limit across retirement accounts, but the enforcement would be tricky. For a traditional IRA or 401k, you can report the combined contributions and if you exceed them, you don't get the tax break on the contributions that went over the limit. For a Roth, if you go over the combined limit...I'm not sure what the consequences would be since the tax benefit comes much later. Perhaps a penalty or something would work to deter people from over-contributing. Though it might be easier to set a high cap on both and call it a day.

 

[Randolph Freelander]

I really like the idea of a collective limit across retirement accounts, but the enforcement would be tricky. For a traditional IRA or 401k, you can report the combined contributions and if you exceed them, you don't get the tax break on the contributions that went over the limit. For a Roth, if you go over the combined limit...I'm not sure what the consequences would be since the tax benefit comes much later. Perhaps a penalty or something would work to deter people from over-contributing. Though it might be easier to set a high cap on both and call it a day.

The US already requires you to take a refund disbursement on excess contributions, these would typically apply when you switch employers mid-year and the employer's own caps wouldn't protect you (in the case of your 401K). I see no reason why the same couldn't be applied if the retirement account caps were combined. You would simply have one limit to work around instead of 2.

 

[simplayer]

Anyway I'll call them to see what I can do. If I can withdraw it with penalties I could recontribute it.

Yes, sorry, probably the best thing to do.

 

[simplayer]

Just maxed our Roth IRA contributions for the year. I wish the cap was higher - $5500 is really low and makes it difficult to really build a (tax advantaged) retirement account. It should have the same limits as the 401k so those without access to one are not disadvantaged.

It would be nice if the system were structured a little more like Canada's.

RRSPs are not tied to employers, you merely need to have made money in that tax year in order to contribute.

The carry forward amount is nice too. If money is tight one year and you get a nice big bonus in another year, your unused contribution room from previous years can be put towards your RRSP this year.

 

[Randolph Freelander]

It would be nice if the system were structured a little more like Canada's.

RRSPs are not tied to employers, you merely need to have made money in that tax year in order to contribute.

The carry forward amount is nice too. If money is tight one year and you get a nice big bonus in another year, your unused contribution room from previous years can be put towards your RRSP this year.

Yeah, playing catch-up would be nice. The US has "catch-up" contributions to the 401K and IRAs, but that's only if you're above the age of 50, and again it's a fixed dollar amount, not based on a prior year. A system where people, young or old, could catch up actual deficits at any point would be quite nice, indeed. It might play a little havoc with mechanisms employer plans and IRAs have in place already about limits, but I'd love to have that problem, since I started my retirement savings a bit later than ideal.

 

[GhaleonEB]

The US already requires you to take a refund disbursement on excess contributions, these would typically apply when you switch employers mid-year and the employer's own caps wouldn't protect you (in the case of your 401K). I see no reason why the same couldn't be applied if the retirement account caps were combined. You would simply have one limit to work around instead of 2.

Interesting, I'd never heard of a "refund disbursement". It certainly would simplify and improve the system to have a single, unified limit.

 

[Randolph Freelander]

Interesting, I'd never heard of a "refund disbursement". It certainly would simplify and improve the system to have a single, unified limit.

I mentioned it on the prior page in the context of Ether_Snake's questions about Canada, and me relating what would happen in the US. Basically, if you exceed the 17.5, you have to withdraw the excess funds and associated earnings. If you do it prior to tax day, you pay taxes on the funds and earnings under the applicable tax years with no penalty (such as the 10% early withdrawal penalty if you're under 59.5). If you do it after tax day, you pay taxes on the funds and earnings in both years (year the dollars were earned and the year the dollars were withdrawn) and you're subject to the penalty, as well. That's kind of a raw deal. Lesson: don't exceed your limit, and take care of it quickly if you do.

Fortunately, many employer plans have checks in place that would cut off contributions at the threshold, but if you switch employers midyear, you could conceivably contribute more than allowed because you wouldn't exceed the threshold at either place indivually. I imagine IRAs would have similar checks in place, but if you operate multiple accounts, you have the same issue.

 

[Paragon Pariah]

Thanks to everyone giving advice in this thread, I've learned a lot that I didn't know from reading it. I have a couple questions if anyone wouldn't mind answering them.

I feel like I'm getting into the investing game a little later than I should here (I'm 27). I just recently got the option to invest in a SIMPLE IRA at my job and they will match 3% of my contributions. They are doing it through American Funds. After everything I have read in this thread and on other websites it sounds like their funds aren't great - high fees and I don't see any index fund options.

What I'm thinking of is contributing the 3% so I can get the money from my company, but then opening another IRA at Vanguard and contributing the $5,500 max there. If I am reading the IRS website correctly I can still get the tax deduction even though I have an account through work because I make less than 60k and file single on my taxes.

Does this sound correct or am I way off base here? If I am correct, does this sound like a decent strategy at all?

 

[iamblades]

Thanks to everyone giving advice in this thread, I've learned a lot that I didn't know from reading it. I have a couple questions if anyone wouldn't mind answering them.

I feel like I'm getting into the investing game a little later than I should here (I'm 27). I just recently got the option to invest in a SIMPLE IRA at my job and they will match 3% of my contributions. They are doing it through American Funds. After everything I have read in this thread and on other websites it sounds like their funds aren't great - high fees and I don't see any index fund options.

What I'm thinking of is contributing the 3% so I can get the money from my company, but then opening another IRA at Vanguard and contributing the $5,500 max there. If I am reading the IRS website correctly I can still get the tax deduction even though I have an account through work because I make less than 60k and file single on my taxes.

Does this sound correct or am I way off base here? If I am correct, does this sound like a decent strategy at all?

Yes, this is the standard strategy given the limitations of most employer 401k plans.

 

[GhaleonEB]

Thanks to everyone giving advice in this thread, I've learned a lot that I didn't know from reading it. I have a couple questions if anyone wouldn't mind answering them.

I feel like I'm getting into the investing game a little later than I should here (I'm 27). I just recently got the option to invest in a SIMPLE IRA at my job and they will match 3% of my contributions. They are doing it through American Funds. After everything I have read in this thread and on other websites it sounds like their funds aren't great - high fees and I don't see any index fund options.

What I'm thinking of is contributing the 3% so I can get the money from my company, but then opening another IRA at Vanguard and contributing the $5,500 max there. If I am reading the IRS website correctly I can still get the tax deduction even though I have an account through work because I make less than 60k and file single on my taxes.

Does this sound correct or am I way off base here? If I am correct, does this sound like a decent strategy at all?

Yes, that is a good strategy. American Funds are horrible, terrible no good very bad funds. Get your match, and don't put any further into them. A Vanguard or Fidelity IRA is free and will get you access to very low cost index funds where you can put the $5500 per year.

 

[GhaleonEB]

You married, no? You max out for both you and her?

Yup, $5500 to both. We capped the number of company shares we own, and are funneling the stock we get through the year (three blocks per yer) into the Roth. The plan was to top them off if that wasn't enough, but this year it was, woo.

 

[Smiley90]

feel like now's a good time to invest some more. gonna top up my account by 10% with some money I've saved up and can safely invest now that I have guaranteed income for at least the next 15 months.

 

[Paragon Pariah]

Thanks for the replies! I'm starting with 0 knowledge of any type of investing, so it's nice to hear that I'm on the right track.

I would go with a Roth unless there's a specific reason you need a deduction. At face value it d oesn't look like it.

Thanks, I will read more into it before I pull the trigger on anything. Perhaps I didn't fully understand Roth vs Traditional IRAs.

 

[GhaleonEB]

Thanks, I will read more into it before I pull the trigger on anything. Perhaps I didn't fully understand Roth vs Traditional IRAs.

Traditional: invest pre-tax dollars, meaning you get to deduct the investments from your taxable income, a tax benefit you get to enjoy now. When you withdraw it in retirement, it's taxed as income at the tax bracket you are in at that time.

Roth: Invest after-tax dollars, so you don't get any deduction on what you invest. But the growth is tax free and you do not pay taxes when you withdraw it in retirement. It's a tax benefit you get to enjoy later. And depending on a few factors, potentially a much larger benefit than a traditional IRA.

Two key factors to consider are your current and expected tax rates, and time horizon.

If you expect to be in a higher tax bracket in retirement than you are now, then it's better to get taxed on your investments and not your withdrawals (go the Roth route). Another way to frame this is, by going Roth you pay taxes now and don't have to worry about what the tax rate is when you retire - it won't matter since your withdrawals are not taxed.

Also, the further you are away from retirement, the longer your investments will grow before you retire. If you are 30 years from retirement, your contributions will likely grow a few times over before retirement. So it makes sense to pay taxes on the contributions, but not the (much larger) withdrawals. So again, Roth. The math might be different very close to retirement.

 

[Piecake]

Traditional: invest pre-tax dollars, meaning you get to deduct the investments from your taxable income, a tax benefit you get to enjoy now. When you withdraw it in retirement, it's taxed as income at the tax bracket you are in at that time.

Roth: Invest after-tax dollars, so you don't get any deduction on what you invest. But the growth is tax free and you do not pay taxes when you withdraw it in retirement. It's a tax benefit you get to enjoy later. And depending on a few factors, potentially a much larger benefit than a traditional IRA.

Two key factors to consider are your current and expected tax rates, and time horizon.

If you expect to be in a higher tax bracket in retirement than you are now, then it's better to get taxed on your investments and not your withdrawals (go the Roth route). Another way to frame this is, by going Roth you pay taxes now and don't have to worry about what the tax rate is when you retire - it won't matter since your withdrawals are not taxed.

Also, the further you are away from retirement, the longer your investments will grow before you retire. If you are 30 years from retirement, your contributions will likely grow a few times over before retirement. So it makes sense to pay taxes on the contributions, but not the (much larger) withdrawals. So again, Roth. The math might be different very close to retirement.

You get a pretty big benefit from the traditional IRA if you are a public worker and the income-based repayment plan makes sense. That way, your lower tax bill will also result in lower student loan payments. That's quite nice when they are going to wiped in 10 years.

 

[Yaboosh]

My wife and I are both 30yo. We have money spread out all over the place and no idea how to utilize it.

We have:
$5500 in a Fidelity Roth Ira account that we put in under my name for the first time this year.
$35k in a 401a Fidelity account from a job my wife no longer is at.
$8k in a 401k Vanguard account from my wife's current job.
$57k (eek) just sitting in a Wells Fargo savings account.


We are embarrassingly clueless about what sort of investments the Fidelity and Vanguard accounts are invested in. And embarrassingly clueless about what they should be invested in.

We both get quite overwhelmed by all the risks and misinformation and what not when it comes to investment which causes us to lose out on all the money we could be making on returns. As a result we feel behind on retirement investing, at least compared to where we could be had we done something sooner.

We are trying to get a handle on this stuff and don't even know where to start.

Should we get a financial adviser? What red flags do we have that yall see? Is the $57k in a savings account as bad as it seems?

 

[Randolph Freelander]

...

On the savings account, are you currently saving for any large purchases (such as a house down payment)? Is it more or less than a few months expenses if you and/or your wife were out of work?

 

[Yaboosh]

On the savings account, are you currently saving for any large purchases (such as a house down payment)? Is it more or less than a few months expenses if you and/or your wife were out of work?

We are happy renting long term since we get antsy after living in one place for a long time.

The savings account is around 16 months of living expenses.

 

[Smiley90]

We are happy renting long term since we get antsy after living in one place for a long time.

The savings account is around 16 months of living expenses.

That is a LOT.

I have like 4 months of living expenses in my savings and that's considered a lot.

 

[Yaboosh]

Her 401k from her old job is being invested seemingly well, at what I believe to be around a 14% return.

But my Roth Ira isn't invested in anything yet. And obviously all that savings is making diddly squat sitting in our savings account.

 

[Randolph Freelander]

We are happy renting long term since we get antsy after living in one place for a long time.

The savings account is around 16 months of living expenses.

OK. I also noticed that you omitted mentioning a 401K for yourself. Does your employer offer one?

You already have a Roth, even if you just started it, so that's good. What I would also do is either rollover your wife's old 401K either to her new employer's plan (if the fund selections are good and the fees are low) or to an IRA that you can manage. This is simply for consolidation (single 401K) or to give better investment options (self-managed IRA).

With your savings being what it is, I personally would max out 401K contributions as long as I could manage it, including getting an account started for yourself (if it's an option). Essentially, if it's me, I will contribute to the plan as much as I'm allowed until either (a) I reach the maximum contribution for the year or (b) I cut my savings account down, say, 50-60%. If I run into (a) this year, I resume next year until I hit (b). Yes, I do mean tap into savings.

What I basically did when I started my job a couple of years ago and hadn't been contributing to a 401K for the year prior to that, and with a fairly sizable chunk of money in savings, was set my contribution rate to 50% (the max I could set it) and pay myself out of my own savings account to cover the expenses my heavily-reduced net income couldn't cover. This was basically a transfer between my own savings and a 401K, except it was reducing my tax bill while I was doing it, and it helped to kickstart my retirement planning into another gear.

You have money sitting on the sidelines. Whether you get it into your 401K (to reduce your taxable income) or into something like ETFs and other investments, that's up to you, but I'd go the 401K route for the tax savings until I meet my limit, then start looking at self-directed investments.

The next thing to do would be to look at how your funds are allocated within your Roth and 401Ks, but the savings balance is one that I think needs to get channeled into something more productive.

 

[Smiley90]

How's your guys' portfolio doing for this year atm? End of July I was at 7% on my borrow-to-invest (after subtracting the payments) and like 7.5% on my own ETF's, but I didn't invest everything until sometime in February. Coincidentally, February was also by far the best month of the year, probably for everyone.

 

[RumblingRosco]

-

 

[Randolph Freelander]

How's your guys' portfolio doing for this year atm? End of July I was at 7% on my borrow-to-invest (after subtracting the payments) and like 7.5% on my own ETF's, but I didn't invest everything until sometime in February. Coincidentally, February was also by far the best month of the year, probably for everyone.

The weakness this year in small- and, to a lesser extent, mid-caps has been a drag. I'm allocated at 16% in each of those. My total return is 3.62% through the end of July, which is down from 6.16% at the end of June. I actually peaked on July 3, and have recovered only slightly so far in August. On well, marathon, not a sprint.

 

[GhaleonEB]

I'm in a total US index, an S&P500 index and a non-US equity index, so those have basically floated with the market this year. My employer's blended fund retirement contribution (which I can't control) is doing around the same. Probably up in the ~3% range.

The company stock went bananas and since I'm selling all the new shares I get (holding a capped # of them), that puts us up a great deal for the year so far, though I haven't calculated the amount; I'll do that at year end. (One of the chunks of stock I sold gained 124%.)

Curious if anyone else is paying down their mortgage at an accelerated rate, and if you do whether you consider that an investment in the same sense. We have a fixed rate 30 year mortgage, and we're 4 years into it (eight including a refi). We're tracking to pay this 30 year loan off in about 15; about 10 more to go. I consider this an investment, with the return being my interest rate. (So far, the extra payments have saved around $32k in interest.) It's the fixed return portion of our portfolio. (We're paying it down for both financial and non-financial reasons; I have a severe aversion to debt.)

 

[SleazyC]

Anyone have any advice for a soon to be American that will be spending about 2+ years overseas working? I'm moving to Germany in 1.5 to 2 months and have not been on the ball about investing for retirement. My current plan is to to return to the US and I would like to start seriously investing in retirement but have read some horror stories about getting taxed twice when investing from outside the US.

 

[demosthenes]

Anyone have any advice for a soon to be American that will be spending about 2+ years overseas working? I'm moving to Germany in 1.5 to 2 months and have not been on the ball about investing for retirement. My current plan is to to return to the US and I would like to start seriously investing in retirement but have read some horror stories about getting taxed twice when investing from outside the US.

Don't forget to file your tax returns in America and Germany.

 

[Piecake]

I'm in a total US index, an S&P500 index and a non-US equity index, so those have basically floated with the market this year. My employer's blended fund retirement contribution (which I can't control) is doing around the same. Probably up in the ~3% range.

The company stock went bananas and since I'm selling all the new shares I get (holding a capped # of them), that puts us up a great deal for the year so far, though I haven't calculated the amount; I'll do that at year end. (One of the chunks of stock I sold gained 124%.)

Curious if anyone else is paying down their mortgage at an accelerated rate, and if you do whether you consider that an investment in the same sense. We have a fixed rate 30 year mortgage, and we're 4 years into it (eight including a refi). We're tracking to pay this 30 year loan off in about 15; about 10 more to go. I consider this an investment, with the return being my interest rate. (So far, the extra payments have saved around $32k in interest.) It's the fixed return portion of our portfolio. (We're paying it down for both financial and non-financial reasons; I have a severe aversion to debt.)

I would consider paying off debt an investment. You'll save/make money you would be forced to pay in interest by paying it off earlier. While it might not be as lucrative as the theoretical stock return, it is a sure thing, which is nice, and it is also just nice to not have debt and worry about payments. I think that is a very real positive.

 

[Randolph Freelander]

Curious if anyone else is paying down their mortgage at an accelerated rate, and if you do whether you consider that an investment in the same sense. We have a fixed rate 30 year mortgage, and we're 4 years into it (eight including a refi). We're tracking to pay this 30 year loan off in about 15; about 10 more to go. I consider this an investment, with the return being my interest rate. (So far, the extra payments have saved around $32k in interest.) It's the fixed return portion of our portfolio. (We're paying it down for both financial and non-financial reasons; I have a severe aversion to debt.)

Well, I get my mortgage in about a month, so I guess it remains to be seen what I will actually do, but I can see myself making the equivalent of 13 or 14 payments in a year rather than 12, and possibly letting my payment size grow further over the course of time.

I will not prioritize it above my 401K or a Roth, but I already pay down my car loan faster than I absolutely need to (it will be paid off under 48 months as opposed to the 60), but not so fast that it cuts deeply into other savings goals, and my intent is to treat my mortgage the same way.

 

[Husker86]

Curious if anyone else is paying down their mortgage at an accelerated rate, and if you do whether you consider that an investment in the same sense. We have a fixed rate 30 year mortgage, and we're 4 years into it (eight including a refi). We're tracking to pay this 30 year loan off in about 15; about 10 more to go. I consider this an investment, with the return being my interest rate. (So far, the extra payments have saved around $32k in interest.) It's the fixed return portion of our portfolio. (We're paying it down for both financial and non-financial reasons; I have a severe aversion to debt.)

My rate is 3.75% and I pay an extra $225-275 per month, depending on my mood. Basically I pay a flat rate (or an extra $50 on top of that), so it works out to just a bit more over my amount owed each month.

I have a loan through my grandpa's investment business, so I could technically just pay the interest + taxes/insurance, but that would be just like renting.

I make myself pay a flat rate that would be similar to a 30 year mortgage, but I try to up it a reasonable amount each year. I probably won't be in this house in 20 years, but if I am I hope to be nearly paid off by then (I've been here for 4 years).

I figure that the interest rate is low, so I don't want to put too much into extra payments, but at the same time my current extra payments are basically just equal to what a real mortgage would be. I definitely don't let myself even consider "well, I could just technically pay what I 'owe' and have some extra money", as like I said before, that would amount to just renting.

 

[demosthenes]

There is a rule to US tax exemption and it is contingent on number of days you visit the US. I believe if you spend less than 330 in Germany, you will have to file taxes in both places. Speak to an embassy or tax professional for further information.

Additionally, i would not hold an investment account outside the US. I would hire a financial advisor stateside (as long ad you have a us resident address you can have statements sent to, you should be golden) and communicate to said advisor via skype. pm me for more details or questions

330 is the correct amount (if I remember correctly). For taxes paid in Germany you will receive a credit on your USA tax return. But as you are intending to come back, do NOT forget to file your America taxes. And yes, holding foreign investments is annoying as a US citizen, just more paper work for your US tax return.

 

[IntoTheBush]

Seems like the perfect place to ask, I recently just got a new job with a 401k offering, I allocated 100% of my contributions to go into a low risk account until I could read up more on my choices as the deadline was looming.

My question is with all the talk of the stock market crashing again, which seems very likely, would it be wiser to wait for stocks to drop low and start allocating my contributions to different mutual funds or will it not matter as much and should I just do so now?

 

[Easystride]

Seems like the perfect place to ask, I recently just got a new job with a 401k offering, I allocated 100% of my contributions to go into a low risk account until I could read up more on my choices as the deadline was looming.

My question is with all the talk of the stock market crashing again, which seems very likely, would it be wiser to wait for stocks to drop low and start allocating my contributions to different mutual funds or will it not matter as much and should I just do so now?

I think the general suggestion is to not try to time the market when saving for retirement.

 

[SleazyC]

330 is the correct amount (if I remember correctly). For taxes paid in Germany you will receive a credit on your USA tax return. But as you are intending to come back, do NOT forget to file your America taxes. And yes, holding foreign investments is annoying as a US citizen, just more paper work for your US tax return.

I've read at various expat forums that using money you earn in a non-US country to invest in the US market is usually subject to double taxation since Germany does not recognize retirement investment vehicles in the US as something that should be tax exempt or taxed lower as they are in the US.

I'm likely going to be doing all my taxes through a tax advisor in Germany, the paperwork does seem enormous.

 

[demosthenes]

I've read at various expat forums that using money you earn in a non-US country to invest in the US market is usually subject to double taxation since Germany does not recognize retirement investment vehicles in the US as something that should be tax exempt or taxed lower as they are in the US.

I'm likely going to be doing all my taxes through a tax advisor in Germany, the paperwork does seem enormous.

Unless you're talking about investing LARGE amounts of money I feel like you'll be saving yourself stress by just investing in American stuff.

edit: The guy in Germany will tell you good information though and what makes the best sense for you

 

[GhaleonEB]

Seems like the perfect place to ask, I recently just got a new job with a 401k offering, I allocated 100% of my contributions to go into a low risk account until I could read up more on my choices as the deadline was looming.

My question is with all the talk of the stock market crashing again, which seems very likely, would it be wiser to wait for stocks to drop low and start allocating my contributions to different mutual funds or will it not matter as much and should I just do so now?

You are very unlikely to beat the market with your timing, and over the time horizon of your retirement savings such timing will not matter. Best to pick a low-cost fund and strategy, start as soon as you can, and stick with it.

 

[Randolph Freelander]

Seems like the perfect place to ask, I recently just got a new job with a 401k offering, I allocated 100% of my contributions to go into a low risk account until I could read up more on my choices as the deadline was looming.

My question is with all the talk of the stock market crashing again, which seems very likely, would it be wiser to wait for stocks to drop low and start allocating my contributions to different mutual funds or will it not matter as much and should I just do so now?

Bad call. First of all, what makes you say a crash is "very likely?" Secondly, what makes you think you can time it? Would you have known to get out of the market in October 2007? Would you have known to jump back in the market in March 2009? Keep in mind the market shot up like a rocket. Seriously, the bottom was March 9. On April 9, the S&P was already 27% higher. By May 8, it was 37%, and it finished the year up 65% from the bottom. When would you have jumped in? The commentary on the stock market on March 9, 10, 11 was all gloomy. But if you didn't jump back in at precisely that moment, you missed one major upturn. If you missed getting back in by a week, you missed 11%. By two weeks? 22%. Convinced yet?

tl;dr: don't try to time it. Just get in and be patient.

 

[Enker]

I, several years too late, rolled a traditional IRA I started a few years ago (when doing so got me down a tax bracket) into a Roth. This was about 8k, on top of which I added $5500 for 2013 and $1500 (so far) in 2014.

I invested all of the money into a 3-ETF portfolio, 35% SCHB, 35% SCHF, 30% SHY, which in theory I’d continue to put fairly equal money in from now until I am legally prohibited from doing so.

I have at least 35 years until retirement, so I know not to panic that the funds are either flat or mildly negative so far this year, but its kind of depressing when my Vanguard Target Retirement 2055 is up 5% YTD (which the entirety of my 401k is in).

In GAF’s opinion, have I set up my IRA well enough? Fairly new investor, so I think I comprehend the Bogle theory, but you never know.