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How to Invest for Retirement
- Thread starter Piecake
- Start date
Wait until next year. The limit is annual.
What should I do now? I'm saving a lot of my income and I don't want it to rot in a bank. Does this means I have to start paying capital gain taxes and whatnot?
Put the rest into a 401(k)?
Randolph Freelander
Member
Are you contributing to a 401K through your employer? If not, start. If so, max it. If maxed, yes, you can start investing in the market on your own. You would only pay taxes on gains if you sell, and would pay the capital gains rate if you hold the investments longer than a year. If under a year, gains would be taxed as ordinary income, subjected to whatever your top applicable marginal rate would be.
Though if he hasn't filed taxes yet, he should still be able to do $5500 for last year.
Randolph Freelander
Member
It's worth a shot, though I think the account has to be open by December 31 of the tax year, and then contributions can be made up until the tax filing deadline.
Like others said, 401k would probably be your best bet. And that 5.5k IRA contribution for last year is also something you should definitely look into.
Well, this option is a bit more tricky and unlikely, but another option is to have an HSA account (health insurance). This is obviously not open to everyone since your job might not offer the correct HSA insurance that allows you to fund the 3k HSA account. The account can either be used for health care or retirement.
If you think you have the option of enrolling in one, I would research it a bit more if you are interested since their are definitely drawbacks (high deductable insurance) and I don't believe it is as easy to set up like an IRA.
If you can't do any of those things and still have money left over to spend, I would invest it in a taxable account. That'll still be a lot better than having it sit in a bank account and you can always use that fund to fund big purchases as well as retirement.
I know little about real estate, but even if I did know a lot I would imagine that I would need a lot more information from you to be remotely helpful.
I have not filed taxes yet, but I'm getting ready to. Vanguard had an option for putting it in for 2014 or 2015, so I put it in for 2014. I read here that I have 15 months from a year's start to contribute. This means I can put in another $5,500 this year?
I'm not contributing to 401k. It sounded like a bad deal when my employer went over it with us - the company puts the money into some mutual of their choosing and there's no company match. Is this still worth it?
I'm really new to how this all works. What happens if I leave the company before retirement? I've heard that it can be rolled into a Roth IRA, but I'm gonna be maxing that.
Well, what is the fund that they are sticking it into? Definitely max your Roth first if your company isnt matching it, but so long as the fund they are forcing you to invest in isnt terrible it 'might' be worth it.
Like you said, one benefit of a 401k is that you can roll it over into an IRA after you leave. That means that you can take your 401k funds and stick them into your IRA. So if your 401k has 50k in it and your IRA has 20k, you roll it over into your IRA and now you got 70k.
Another benefit is capital gains. You avoid that with a 401k. I honestly don't have the math skills to determine at which point a high expense ratio becomes more expensive than your capital gains tax. Even then, it still might be worth it since you will be able to roll it over into your IRA after you quit your job.
Oh, so I can roll the 401k into the Roth IRA even if I've maxed out my IRA contributions?
Randolph Freelander
Member
The employer match would have been nice, but the tax advantages of a 401K are still worth it. You can contribute the lesser of $18,000 or 50% of your income to a plan. Most plans will be traditional, which means the contributions are pre-tax and therefore reduce your tax liability in the current year (think: less being withheld from your paycheck and/or higher refunds). Some employers offer Roth 401Ks, which are after-tax contributions (therefore not reducing your tax liability) but would be untaxed when you start withdrawing after the age of 59.5. Either way, this account would be separate from your outside Roth IRA, so you can still maintain your IRA and contribute to it each year.
If you leave your current job, you can roll your 401K over to a new employer's plan, or for greater control, roll it into an IRA. Traditional 401Ks would roll to a traditional IRA, Roth 401Ks would go to Roth IRAs. You could convert from one to another, but that's getting too far ahead of ourselves.
Yup, a roll-over does not impact that annual limit
Is this the closest we have to a personal finance thread?
I have been reading up through here and am planning on getting a better grip on my finances through 2015. Currently messing about with the Mint.com app.
The retirement I have from my company is a SEP-IRA and they contribute 15% of whatever I earn(I bill hourly) to it.
Been reading the whole thread, but its plenty long so that will take a few more sessions. Thanks everyone for your advisement.
I have been reading up through here and am planning on getting a better grip on my finances through 2015. Currently messing about with the Mint.com app.
The retirement I have from my company is a SEP-IRA and they contribute 15% of whatever I earn(I bill hourly) to it.
Been reading the whole thread, but its plenty long so that will take a few more sessions. Thanks everyone for your advisement.
I mean my current situation is that I am basically putting 100% of my paycheck in the bank every month and living off my expense reports.
Saving for retirement is certainly one of the things I would like to prioritize, but at some point I will move out and getting a place to live is something I would like. My bigger issue with retirement is that all the money in my SEP-IRA is unallocated and not making me any more money and its not fighting inflation at all. With the way that account works is that I cant put any more money into it. So I can look at opening something else like a Roth or just playing the game with stocks. Im unsure and more importantly uneducated.
I'm currently researching all the real costs associated with homeownership like estimating monthly payments, homeowners insurance, property tax, bills to see where I stand on that. Im still weighing all the realities of doing that but Interest Rates are decent right now. Feedback from my co-workers is mixed on home ownership.
At the least it seems like my Experian FICO score is good(743) and the negatives in it were that my lines of credit are not that old.
At the moment I'm looking for the "I wish I had done this years ago" type information and trying to follow up on that.
PflargBlarg
Member
Welp, did you read the OP and things linked from it? It's a good place to start if you just jumped right to the last page right away. Can't tell you exactly what to do myself as I'm not familiar with american retirement vehicles.
Are they 100% equities? If not, couldn't you just pick one of the life strategy funds and get the same result?
If you have a 401k that gets a match, get the match. If not, taxable imo.
You will only pay capital gains when you sell for a profit or the fund distributes them. You can just pick up an index fund if the money will be in a taxable account. For example, VTSAX doesn't (as long as I have owned it) pay out capital gains, and their dividends are only around 2%. Almost all of the dividends are qualified as well (100% for me this year).
Okay, I took a look at my company's 401k, and they offer both traditional and Roth 401k. After maxing my Roth IRA, my plan is to put money into a Roth 401k, and then roll it over into my Roth IRA. But...how does this work?
Does my 401k account close after the rollover?
Can I rollover the funds multiple times?
Can I rollover the funds immediately after contribution to the 401k?
I don't trust their mutual fund and will want to move the funds into Vanguard as soon as possible. I'm just gonna do a taxable account otherwise.
Does my 401k account close after the rollover?
Can I rollover the funds multiple times?
Can I rollover the funds immediately after contribution to the 401k?
I don't trust their mutual fund and will want to move the funds into Vanguard as soon as possible. I'm just gonna do a taxable account otherwise.
You can only roll-over your 401k if you no longer work at the company who provided you with that 401k. So yea, after you quit or get fired, then you can do it.
Easystride
Member
You can't until you switch employers.
Exactly what I'm planning to do with my Roth 403b. Roll into ROTH to get access to some of the higher minimum admiral shares quicker.
List the funds.
Oh shit. I didn't actually check. It lets me pick a basket of funds, including the ones I want. They advertised active funds during the benefits meeting, so I just assumed that was what they had. That solves that problem. I'll just do a Roth 401k and not worry about it.
*Specialty Investment Funds
*SUHAX DWS Health Care *KTCAX
DWS Technology *PRNEX T. Rowe
Price New Era *VGRSX Vanguard REIT Index Signal
REIT Index Signal
Foreign/Global Company Stock Funds
RWIGX American Funds Capital World G & I R6
RNPGX American Funds New Perspective R6
FDVAX Fidelity Adv Diversified International A
VTSGX Vanguard Total Int'l Stock Index Signal
Bonds/Money Market Funds
VIPSX Vanguard Inflation Protected Securities
VIBSX Vanguard Intermediate Bond Index Signal
VMMXX Vanguard Prime Money Market
VSGDX Vanguard Short-Term Fed. Admiral
VBTSX Vanguard Total Bond Market Index Signal
Small/Med. Co. Domestic Stock Funds
FMCDX Fidelity Advisor Mid Cap A
TGVOX TCW Value Opportunities I
VMISX Vanguard Mid Cap Index Signal
VISGX Vanguard Small Cap Growth Index
Large Co. Domestic Stock Funds
RGAGX American Funds Growth Fund of America R6
RWMGX American Funds Washington Mutual R6
DGAGX Dreyfus Appreciation
SVSPX SSgA S&P Index 500
VTSSX Vanguard Total Stock Market Index Signal
Easystride
Member
How does the employer match work for Roth 401(k)s? Is that portion just treated like a traditional 401k, and taxed at retirement when you have distributions?
Nice, don't need much more than this.
No match
Some sort if administration fee is pretty standard for most 401ks
MidgarBlowedUp
Member
I'm trying to decide on some ultra safe ways to earn some interest for retirement, and I'm thinking the Series I Savings Bonds (currently 1.48% per year and no state tax) but I'm also looking at the myRA account which is projected to draw an average of 3.xx% a year and appears to have 0 fees. It sounds nice, but it looks like once you reach $15,000 in the myRA you have to roll it over to a RothIRA account and I don't know much about them. Am I correct in thinking you can also just continue to withdraw enough each year to keep the myRA at 95% capacity and reinvest the withdrawal tax free into something else?
I wouldn't be able to contribute but maybe $10,000 per year tops. So I'm trying to find something stable, very safe, and that allows me to withdraw without penalty if I needed to for whatever reason, like unforeseen medical expense or something. I'd also like to avoid as much tax as possible, which is why the I Savings Bonds seem reasonable (no state tax).
I wouldn't be able to contribute but maybe $10,000 per year tops. So I'm trying to find something stable, very safe, and that allows me to withdraw without penalty if I needed to for whatever reason, like unforeseen medical expense or something. I'd also like to avoid as much tax as possible, which is why the I Savings Bonds seem reasonable (no state tax).
anonymous_abc
Member
How old are you?
Why do you want 'very' safe?
You might consider doing a proper risk assessment and determine your risk bearing ability.
I used to think very safe was the way to go, but it's bonkers
and also a very personal decision.
chaosblade
Unconfirmed Member
If you aren't getting a match you might as well not bother with the 401k, just open a Roth through Vanguard or Fidelity and avoid those administrative fees. Unless I'm missing something.No match
MidgarBlowedUp
Member
Old enough to know I don't want to risk anything. I pretty much have negative retirement as it is right now and I'm middle aged. The good news is my life so far is almost paid off and I should have very little bills by this time next year. So, I should be able to really start saving a good bit of my yearly income. I expect to make maybe $40,000 if I'm lucky by next year, so I can probably start living off of half that. Not right now, but in a year or two I could be saving $10,000 - ($15,000 a year if my income increases or I get lucky). I'm thinking $5,000 this year and maybe $10,000 the next, after that It just depends.
I'm wanting to be able to either retire or only work part time in as little as 10-15 years. I'm sure that sounds impossible, but I lived o.k. on just $10,000 last year. I will inherit land and a nice home, both are paid off with no inheritance tax in my state. If I had $150,000 saved up by then I'm set unless America tanks. So, just saving $10,000 a year would do it, but getting some interest on top of that would be great.
I've given up on the idea that I'll ever make more than $40,000 a year so this dream that someone in the US can retire with $500,000 or a million dollars is just a joke to me. That isn't going to happen, people are either lucky or fooling themselves. This realization has forced me to live pretty minimalistic for the past two years and since I'll inherit a home and land, that's a few hundred thousand I don't have to worry about. I even hope to go completely off the grid eventually so I won't have any power bills either. Even have plenty of land to grow half of my own food. The $150,000 may seem like not much money, but it won't be long after acquiring it that my social security age will start to creep up. I'd like to work part time until then, maybe do my own thing 10 or 15 years before I fully retire.
anonymous_abc
Member
Honestly you really should consider at least putting some of that money into the stock market.
Also your timeframe seems totally plausible, if you're saving 50+% of your income.
You might find this interesting. The Shockingly Simple Math Behind Early Retirement
Since they don't match and have ridiculous fees, I wouldn't bother with that 401(k).
If I were in your position I would invest in ETF's using the dollar cost average method (quarterly or biannual to reduce commission fees).
Randolph Freelander
Member
I wouldn't categorize those fees as ridiculous. All but the annual administration fee are for what are basically abnormal activities, and the administration fee approaches 0 (in percentage terms) the larger the portfolio balance is. A 401K is going to give him tax advantages that ETFs simply cannot match, and he has some good funds to select from (certainly funds that we typically recommend).
RumblingRosco
Member
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Randolph Freelander
Member
This person has already maxed his IRA, and has expressed the intention of continuing to do so. The 401K is the next priority.
MidgarBlowedUp
Member
Thanks for the link. I had a small 401k account that I had to pull out after I lost my job in 2009. The money was in a stable value and luckily didn't lose anything, many other people lost money so they couldn't pull out. I also had money in company stock, we could purchase at a discount. However, the stock fell and people lost tons their money. Those that pulled out early made a ton of money though, but they were few.
I just can't take these risks anymore. There are just too many unknown variables so I just think saving my money is the smartest option. But, finding some safe interest makes more sense too.
I'll keep reading the thread and links. I got plenty of time to learn before I have any real investment money
Randolph Freelander
Member
Keep in mind that the floor in 2009 was in response to the worst economy and financial disaster since the Great Depression, these type of downturns do not happen every year or every decade. In the time since, the market has made up all of its losses and then some. The market is up 29% from its pre-crash high (S&P closed at 2019.42 on January 16, 2015, closed at 1565.15 on October 9, 2007, which was the peak before the downturn), and is up 198.5% from its crash low (S&P closed at 676.53 on March 9, 2009). The people that sold in 2008 and 2009 are the people that locked in losses. Those that remained in the market and kept investing funds into the market have made a good deal of money.
I don't remind you of this with the intention of getting you to abandon your ultra-conservative strategy, only to suggest that you might not want to base your entire investment outlook on the worst economy most of us will ever see, particularly when the losses were entirely on paper unless you cashed out. (Unfortunately, those in the immediate run-up to retirement were indeed hit pretty hard.)
With that said, I do want to caution you on your anticipated budget. If I recall correctly, you're mentally giving yourself a $10,000 yearly budget, and if that covers your normal expenses, that's great! However, you have to also plan for the abnormal, and particularly as you age, you have to think about medical expenses. In the United States, even with insurance, a single medical event (surgery, hospital stay) can essentially wipe out what you've budgeted for the year. You can certainly hope for good health, but don't bank on it. Even those that take excellent care of themselves will eventually have their bodies fail in a myriad of ways.
I currently have a 401(k) through my employer, and my own brokerage account on the side. My question is in multiple parts, so it's kind of dense to ask, though I hope the answers are fairly straightforward.
My question is: if I were to change jobs, could I use the opportunity to convert my current 401(k) to a Roth IRA -- paying requisite taxes -- without rolling it over to the new 401(k)?
If that's possible, do the same annual limits apply?
If they do, what happens to the remainder of the original balance?
If they do not, does it count against the normal annual contribution limit of $5,500?
This has been puzzling me for a while, so thanks in advance.
My question is: if I were to change jobs, could I use the opportunity to convert my current 401(k) to a Roth IRA -- paying requisite taxes -- without rolling it over to the new 401(k)?
If that's possible, do the same annual limits apply?
If they do, what happens to the remainder of the original balance?
If they do not, does it count against the normal annual contribution limit of $5,500?
This has been puzzling me for a while, so thanks in advance.
MidgarBlowedUp
Member
Good points and info, thank you. That puts my mind more at ease about maybe doing some light risk investing. Medical expense scares me though.
So, what about EE Bonds? I'm still confused on them but it sounds like you get .1% a year, virtually nothing. However, when the bonds matures at 20 years it doubles? I feel to old for that, but it sounds like something safe I could get for my kids if I have any.
Randolph Freelander
Member
I am probably the least knowledgeable person on bonds there is, so I had to educate myself a bit on those. The 0.1% interest they're currently paying (semi-annually, I believe) is pittance. The doubling of the bond value at the 20 year maturity date is better, though it equates to gains of roughly 3.5%, compounded annually. This figure should be high enough to stay ahead of inflation and offer you some small rate of return, but not much more than that.
Speaking for myself, if my time frame is 20 years, I'd like to get into something with more potential (and, yes, more risk).
RumblingRosco
Member
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Wow, I don't even get my W-2 till February!
I'm saving a lot of my income. I opened a Vanguard account last weekend and contributed the max into my Roth IRA for 2014. I can still contribute for 2015 but will max that soon. After that, I need somewhere else to put my money. I'm considering the 401k because the tax advantages might be worth it.
EDIT: Oh, didn't see someone had responded first.
Just remember that 401k distributions get taxed as ordinary income. No capital gains rate to lower the bite.
What tax bracket are you in? Do you foresee yourself having extra to invest for years to come?
Taxes shouldn't be that big of a deal in a taxable account till the balance really starts to get big. Foreign tax credit could help a tad too.
My income bracket is 25%, but I'm also entry level. I expect my savings rate to increase when I get raises.