Thanks for that link, that is where I have been confused. I am over the AGI limit so there would be no deduction. If that is the case should I still stick with Traditional or should I just throw into a Roth or just go blow the money on the market
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How to Invest for Retirement
- Thread starter Piecake
- Start date
Thanks for that link, that is where I have been confused. I am over the AGI limit so there would be no deduction. If that is the case should I still stick with Traditional or should I just throw into a Roth or just go blow the money on the market
Randolph Freelander
Member
Thanks for that link, that is where I have been confused. I am over the AGI limit so there would be no deduction. If that is the case should I still stick with Traditional or should I just throw into a Roth or just go blow the money on the market
Roth. Though, check its income limits, as well.
If you don't qualify for that, consider the "backdoor Roth," which only serves to prove how income limits on the Roth are silly.
Backdoor it is, damn that is just silly on the income restrictions. Thanks for the info that really helps!
Restrictions on both types of IRAs are ridiculous, considering their low contribution limit.
People actively planning for retirement shouldn't be hindered.
Randolph Freelander
Member
100% truth.
The annual contribution went in at Friday's closing price. I'm happy. I'm also sorry...but not really.
I can understand why there is some limit because it could probably be used as an easy tax dodge by the rich.
If anything, there should be a total yearly retirement limit, like 30k. People can then freely choose which retirement account they want most of their money invested in. Having a much higher limit on 401ks is just stupid because not everyone has access to them. It makes no sense to put such a low limit on the only retirement vehicle that everyone has access to.
Randolph Freelander
Member
To be clear, the complaint is about the income limit, not the contribution limit (which I've advocated before should be combined). $5500 isn't dodging a great deal of taxes, and putting an income limit on the ability to make such a paltry contribution just seems ridiculous, particularly when the limits are hitting people in the middle class.
Yes, thank you.
Though I do think 401k/403b and IRA limits shouldn't be separate.
Has the reasoning for the limits ever been bought up by whoever decides that?
Randolph Freelander
Member
Yeah, who knows. The Roth, specifically, was created by the larger piece of legislation, the Taxpayer Relief Act of 1997, and the income limits were probably put in to placate one side or the other. That, or some intern threw in the language for giggles and nobody noticed.
AppleBlade
Member
Would like some opinions on aggressive allocation listed below:
Background info:
32 years old, planning to retire in about 30 years or so.
I am a teacher and my wife is a school nurse. We both contribute to mandatory state/city pension plans.
I opened up a Roth IRA to supplement our pension and am currently trying to come up with an asset allocation. I am thinking about doing an all-equity portfolio. I understand that the biggest risk is that I will jump out when the market is low, and I am promising myself to not do that and to regularly invest during good times or bad. Here is what I am thinking:
60% Total US Stock Market Index Fund
20% International Index Fund
10% Emerging Markets Index Fund
10% Global REIT
What are your thoughts? I have no bonds to try and maximize returns. Do you think this is nieve?
Background info:
32 years old, planning to retire in about 30 years or so.
I am a teacher and my wife is a school nurse. We both contribute to mandatory state/city pension plans.
I opened up a Roth IRA to supplement our pension and am currently trying to come up with an asset allocation. I am thinking about doing an all-equity portfolio. I understand that the biggest risk is that I will jump out when the market is low, and I am promising myself to not do that and to regularly invest during good times or bad. Here is what I am thinking:
60% Total US Stock Market Index Fund
20% International Index Fund
10% Emerging Markets Index Fund
10% Global REIT
What are your thoughts? I have no bonds to try and maximize returns. Do you think this is nieve?
If you are comfortable with that allocation, then that looks fine to me. I just hope you are clear that you are placing a bet that emerging markets and global REITS will perform better than the market average over the next 30 years.
If you think that and plan on sticking with it (meaning not sell when either of those suck) then go for it. I think the most important thing, besides fees, is investing in something that you are comfortable with. If you are worried about jumping out when things go to shit, I would probably recommend dropping Emerging markets and the REIT. For me, I couldnt care less if the market goes down or up because I am placing no bets. When I did bet though, well, that did not go as well for me. Again, if you think you can handle it and want to invest this way, go for it.
I also don't invest in bonds and believe that growth should really be the only goal when you have years left to invest.
percephone
Neo Member
I would add a value and/or a small cap index funds since you want to be aggressive.
With that, i would change the Total Stock Market Index Fund to a S&P 500 Index Fund, which is mostly a large cap growth fund, just to minimize the overlap between the 3 funds.
The trick is to stick with it. Re-balancing and putting new money and keep to your allocation! You want to sell your winners and buy your losers. Always! Don't chase the returns.
Re-balance in-between 1 or 2 year. You don't need to do it yearly.
Every time I make a contribution. I don't do all $5,500 at once. 2014 was actually the first year (of the three years I've been contributing) that I hit the cap.
hipbabboom
Huh? What did I say? Did I screw up again? :(
If I have the money, every year I just dump the 5.5k in immediately. If not, as soon as possible.
I'm going on vacation next week so I won't be dropping the 5.5k right away this year. But with how the market has performed... I won't feel that bad about waiting until Mayish to do so.
Randolph Freelander
Member
I'll call back to something I put together last year regarding investing at once versus splitting it up.
It shouldn't be surprising, but going all in on day one, as Piecake mentions as his desired strategy, is the long-term better approach. If the direction of the market is up, and we need it to be up, then the best time to get in is at the beginning. Some years will perform better than others, of course, but the long term trend is clearly on the side of a "day one" strategy.
Anyway, personally, I'll be going in half in about a week, the remainder in March, and then I should be able to go day one next year, if everything remains status quo. I had other financial obligations (house) last year that impacted my ability to do so this year.
I'm not sure if this post is a question or a statement but I'm on the fence about maxing out my Roth IRA contributions at this moment (not because I'm worried about performance). In detail...
I have about 6.5k in a normal investment account right now. I contribute to this (and my Roth) roughly every paycheck (more to the Roth than the normal investment account).
My checking account is about one month ahead as far as bills go. I'm not worried about this (though I'd like to be at about 2-3 months ahead which hopefully should be the case in 4-5 months); my job is very secure and I am lucky enough to have fallback options (my parents are awesome, though I do my best to remain as independent as possible) if the shit hits the fan.
I'm struggling to decide if I should just move money from my normal investment account to cap out my IRA. The money is at least being put to work by being invested right now, but obviously without the tax-free gains. On one hand, it's there for me to take out if I really need it. On the other hand, I could always withdraw from my Roth penalty-free if I really need it as well.
Again, not sure if I'm asking for advice as this is obviously a very specific personal decision, but...what would you all do?
I have about 6.5k in a normal investment account right now. I contribute to this (and my Roth) roughly every paycheck (more to the Roth than the normal investment account).
My checking account is about one month ahead as far as bills go. I'm not worried about this (though I'd like to be at about 2-3 months ahead which hopefully should be the case in 4-5 months); my job is very secure and I am lucky enough to have fallback options (my parents are awesome, though I do my best to remain as independent as possible) if the shit hits the fan.
I'm struggling to decide if I should just move money from my normal investment account to cap out my IRA. The money is at least being put to work by being invested right now, but obviously without the tax-free gains. On one hand, it's there for me to take out if I really need it. On the other hand, I could always withdraw from my Roth penalty-free if I really need it as well.
Again, not sure if I'm asking for advice as this is obviously a very specific personal decision, but...what would you all do?
Randolph Freelander
Member
^If I'm you and I think I can hit my IRA max this year independently, I leave my investment account alone (I'm assuming you're holding stocks and similar investments in that account, not cash). I wouldn't want to do anything to incur additional headache come tax time, really, because I'm lazy like that. If not for that, I might just move the funds over.
If you're not going to hit your maximum, then maybe you think about it harder.
If you're not going to hit your maximum, then maybe you think about it harder.
You assume correct; investments in both accounts are similar (though I have some Apple stock in my personal account--the best performer!)
Basically what I did for 2014 was move over what I needed to hit the cap just a month or so ago. One way or another, I will hit the cap; it's just whether I want to reduce my semi-liquid assets now or later.
You bring up a good point, though. In order to hit my max right now I'd need to sell some holdings which would incur a short-term capital gains tax; where if I wait until later in the year they'd be in long-term territory. It's not going to be a huge difference since my total gains are less than $1,000 in that account, but it's something to think about.
anonymous_abc
Member
I just went the lazy route and picked the targeted 2050 retirement fund. Probably not the best solution, but better than nothing I guess.
Thanks.
I opened my IRA a couple of weeks ago and my funds are currently sitting in cash. I was planning on purchasing funds when I hit the cap in a couple of months.
I think I'll just wait and purchase all at once.
PflargBlarg
Member
Did you guys not read the first post? You have amazing options since you're in the states.
Do a good mix of like 60/40 VTI/VXUS and you're set for a while. As you get older you'll want to add in a low percentage of bonds like BLV or BND.
The above is the super lazy way to go and your returns will be great with minimal interaction.
Can I ask why? Is it because you're worried about the market? Purchasing funds is trivial, so it's not like it takes much effort to create an order.
I'm honestly just curious, not trying to be snarky.
Sorry if this sounds stupid but don't you have to pay a commission to buy into a particular fund?
I'm trying to keep costs low.
Randolph Freelander
Member
Refresh my memory, who did you use? Vanguard and Fidelity both offer a wide variety of no load mutual funds, which means you don't pay commission as long as you can buy the minimum investment and you don't sell too quickly (something like 90 days). I think you can also avoid fees if you sign up for automatic investments, but check to be sure.
Find a fund you like and invest. VTSMX (if with Vanguard) or FSTMX (if with Fidelity) might be a good starting place. Those are their total stock market funds, which are going to get you exposure to the full US economy at about at 8:2:1 ratio of large caps to mid to small, including both growth and value stocks. As your portfolio grows, you can add international, bonds, etc., to suit your particular diversification strategy and risk tolerance.
I am not sure about Fidelity, but if you set up a Vanguard account and buy vanguard funds you won't have to pay any transaction fees. Signing up for email correspondence will eliminate the brokerage fee as well. What that means is that the only expense you need to pay is the expense ratio of the fund. If you have the money to afford the minimums, there is really no reason to wait
You have Vanguard (as stated in previous posts). Their ETFs/Mutual Funds are commission-free trades.
Put that money to work! If you can't meet the minimums of their mutual funds, get the ETF equivalents.
Randolph Freelander
Member
Yeah, you avoid brokerage fees at Fidelity with electronic delivery of correspondence, as well. Fidelity accounts do have minimum balance requirements and minimum fund buy-ins (on Fidelity's mutual funds), though I think both can be avoided with automatic investments, I just can't find a link.
They don't seem to advertise it, but Fidelity does let you in with less than the minimum if you set up automatic contributions to their funds. Just talk to a rep about it, on phone or IM (I went the latter route).
Found an article that mentions it.
Once your total contributions is exceed the fund minimum, you can turn off or reduce the automatic contributions without any fees. So the entry point is really $200, with a commit to 10 months of $200 contributions, to avoid fees.
You're right, I have Vanguard.
I was looking everywhere for transaction fees but I didn't see anything. I just assumed there was one.
Anyways, thanks again guys.
They will waive the mutual fund minimum investment*
As far as I know, there are no fees for just having a Fidelity brokerage/retirement account.
I never saw anything mentioned about brokerage fees or needing a minimum account balance when I started my IRA with them a few years ago. I tried to research it more and didn't find anything.
Right, the fund minimums are what we were talking about. There are no account fees.
I never knew about back door Roth until last year or so and I think I'm finally going to do it this year because my wife is currently part time so we *might* be at slightly lower tax bracket. I'm not so clear on how to go about it. I have a rollover account at Vanguard and traditional IRA at Etrade. Should I transfer the traditional to Vanguard and then combine them and then do the back door altogether?
What about tax implication? I'm still working through the calculations to figure out how much I would have to pay. It's a bit confusing. But I have read that if you convert too much it may put you into different tax bracket. So would it be worth doing it in batches?
What about tax implication? I'm still working through the calculations to figure out how much I would have to pay. It's a bit confusing. But I have read that if you convert too much it may put you into different tax bracket. So would it be worth doing it in batches?
I never knew about this, just spoke to a rep. They'll also waive the 'low fund fee' so you don't get a fee for being below their minimum. These waivers only apply to "Fidelity Mutual Funds" and apparently don't work on Fidelity's "advantage class" funds like FSTVX which I was interested in..
Well, just got the notice that my company is moving their 401k over to Schwab. I really like the funds my current 401k offers so I am a bit wary. Call me pessimistic and jaded, but I think the only way a company would move 401k providers is to save money, and them saving money has an okay chance of fucking me over.
Let me start with the fact that I am a federal employee and get to use the Thrift Savings Plan which literally has an annual expense of around 0.028% (or 0.0028). I'm 33 and plan on staying with the federal government, because frankly, I have a PoliSci degree, I'm good at my job, and I would make far less in the private sector.
My dilemma right now is that I have $25k in their traditional "401K style" plan with a 5% matching (I know, I know, but it's a start). However, they recently opened up a Roth option. The Roth really appeals to me because you won't be taxed on earnings which will eventually outpace contributions.
There is no way to transfer the $25k to the Roth fund.
Does anyone here think I should switch to the Roth, which has the same matching, despite already having a significant amount in the traditional fund?
My dilemma right now is that I have $25k in their traditional "401K style" plan with a 5% matching (I know, I know, but it's a start). However, they recently opened up a Roth option. The Roth really appeals to me because you won't be taxed on earnings which will eventually outpace contributions.
There is no way to transfer the $25k to the Roth fund.
Does anyone here think I should switch to the Roth, which has the same matching, despite already having a significant amount in the traditional fund?
Why is this the ratio they use?
Randolph Freelander
Member
On a 100 scale, that's roughly 72:18:9, which is supposed to model their percentages of the broader market and economy. Different funds may differ on the actual breakdown, but Morningstar has Vanguard at the allocation referenced here.
Just focusing on this part of your question; whatever your decision is, the bolded doesn't matter and should have no bearing on your choice.
The Roth vs. Traditional is something you'll have to research and decide.
The main points are:
- Do you imagine you'll be in a higher tax bracket at retirement? If so, Roth is generally a better option.
- If you stick with a Traditional plan, would you invest the extra money you save from taxes on your own? If so, sticking with Traditional will outperform your Roth investments alone, including having to pay taxes when taking distributions.
It seems, if the match % stays the same, that the Roth 401k is better than a Roth IRA in the sense that a chunk of that money making you tax-free gains isn't even your money.
Randolph Freelander
Member
Alright, folks. Unload half your stocks, because I'm going half-in on my 2015 Roth contribution today.