That is one of the main reasons I prefer to put money into Roth even if I think my tax bracket will be lower in retirement. And these days you can dump an additional $25-30K into a Roth IRA if your 401K supports rollover of after-tax contributions.
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How to Invest for Retirement
- Thread starter Piecake
- Start date
That is one of the main reasons I prefer to put money into Roth even if I think my tax bracket will be lower in retirement. And these days you can dump an additional $25-30K into a Roth IRA if your 401K supports rollover of after-tax contributions.
anonymous_abc
Member
Seeing as you are browsing GAF I doubt you are too poor to invest. Even 50$ a month will get you started and ahead of the curve.
Wellington
BAAAALLLINNN'
On the plus side of what's been going on with the market this week, I get paid tomorrow, and there's another big fat beautiful contribution to my 401k at these much cheaper prices.
If things continue to push downward like tokkun alluded to the mega backdoor roth contribution becomes a strong play. My savings rate is still pretty high regardless.
Further, though TLH does not have fans in here, Betterment has done more of it for me. I am up to a total of $472 harvested on a relatively small amount of cash in that account. So far the tax savings on the year continue to offset the cost of the service.
If things continue to push downward like tokkun alluded to the mega backdoor roth contribution becomes a strong play. My savings rate is still pretty high regardless.
Further, though TLH does not have fans in here, Betterment has done more of it for me. I am up to a total of $472 harvested on a relatively small amount of cash in that account. So far the tax savings on the year continue to offset the cost of the service.
Zantetsuken
Member
Luckily I work for a cable company so my bill is only about 20. But you're right. What exactly can I do with $50 though? I have been reading but the information is so vast. I have started at the Bogleheads wiki though.
FrenchMovieTheme
Member
i should start my roth ira contribution today with the market down!?
Wellington
BAAAALLLINNN'
You should start immediately and contribute when you get paid without paying attention to the market.
FrenchMovieTheme
Member
can i just put $5500 in there today to reach my limit? thats the yearly max right? i already contribute to 401k separately
Yup, statistically dumping all your money in at once is the right play anyways. Though my guess it is probably only 'right' like 51-60% of the time. Still, retirement investing is for the long term. What price you buy that mutual fund with is going to be pretty inconsequential in 30+ years.
FrenchMovieTheme
Member
i was doing a little research (here and elsewhere) and it looks like for Vanguard a good index fund is 500 Index Fund (VFINX). not really sure though there are a lot of choices :/
Darren870
Member
Wow! The Roth Income limits have shot up hugely since I put my $5k in. It was like $105k back in 2009.
Edit: As pointed out, I was reading it wrong
I personally prefer this one over the 500, though only slightly.
https://personal.vanguard.com/us/funds/snapshot?FundId=0085&FundIntExt=INT
Its cheaper and more diversified.
Randolph Freelander
Member
If you filed as single, then the limit has only grown to 116K for 2015 before phase out. That's under a 2% annual growth rate, if I'm doing the mental math correctly.
Darren870
Member
Oh your right, the first one was married for 183k. I thought that was single for some reason.
FrenchMovieTheme
Member
thanks for the advice brotha. researched both of them in comparison and you are correct
anonymous_abc
Member
I guess you're in the US, so someone else will have to go into detail.
But you will want to just buy a very broad global index fund for x$ every months.
x$ being whatever you can afford.
The goto place in the US should be Vanguard.
Pay no attention to the market or where it stands just stubbornly invest every month.
Randolph Freelander
Member
Attention discount shoppers:
The S&P just finished off its worst week since 2011 and the 16th worst week since 2000. Here are the top 25 worst weeks since we flipped the thousands digit on the calendar.
Of course this would happen after I topped off my 401K contributions for the year, not before. For those of you that had some funds go in today, I'm jealous of your discount.
The S&P just finished off its worst week since 2011 and the 16th worst week since 2000. Here are the top 25 worst weeks since we flipped the thousands digit on the calendar.
Code:
Week of Change %
10/5/2008 -18.20%
9/16/2001 -11.60%
4/9/2000 -10.54%
9/28/2008 -9.40%
11/16/2008 -8.39%
7/14/2002 -7.99%
7/31/2011 -7.19%
3/1/2009 -7.03%
2/15/2009 -6.87%
7/7/2002 -6.84%
10/19/2008 -6.78%
3/11/2001 -6.72%
9/18/2011 -6.54%
5/2/2010 -6.39%
11/9/2008 -6.20%
8/16/2015 -5.77% (*)
1/23/2000 -5.63%
1/13/2008 -5.41%
6/27/2010 -5.03%
9/15/2002 -4.99%
5/10/2009 -4.99%
7/22/2007 -4.90%
2/8/2009 -4.81%
8/14/2011 -4.69%
11/20/2011 -4.69%Of course this would happen after I topped off my 401K contributions for the year, not before. For those of you that had some funds go in today, I'm jealous of your discount.
Your best bet would likely be ETFs. Unlike Mutual funds, ETFs don't have minimums, so you can buy 1 or 2 shares of the ETF you want every month.
There are ETF equilavents for every fund that I listed in the OP.
Randolph Freelander
Member
I do what I can do to help you guys and gals make some extra money.
Randolph Freelander
Member
Monday end-of-day price, unless I'm misinformed.
Does it depend on how long it takes the funds to reach wherever you are investing? I've already maxed my Roth IRA for the year but with the downturn figured why not move some money from my liquid 0.15% "Savings" fund to a Mutual Fund.
Randolph Freelander
Member
You would probably have to verify with your brokerage house. For what it's worth, Fidelity gives me instant access once I've set up the funds transfer.
Vanguard said "2 business days"
And speaking of retirement, I was reading a prospectus TRowe sent me for my work investments, and in it certain funds were marked as "Non-Income (or maybe Non-Intrest?) Funds"
Why would a fund have other funds if those funds aren't producing any income? Only part that I'm still confused about.
How old are you? Do you have to put that much money into it each year?
Mine go in on the 1st and 15th of each month, so I'm rooting for things to stay terrible for a while. (Sorry everyone.)
A few months ago I mentioned I'd shifted to putting more into paying the house down in the near term. Not regretting the timing.
isn't it better to invest (& get an average of 7% a year) rather than pay down a house (which has only an interest rate of say 3.5% a year)?
chaosblade
Unconfirmed Member
Wish you would have told me to wait a week or two, I'd have appreciated the discount when I finished my Roth for the year!
At least the fund I'm investing into for savings is also cheaper. So that's a win.
Wellington
BAAAALLLINNN'
I highlighted the important part. 7% is a conservative average, not the norm. His recent investments happen to be working out better at the moment.
hipbabboom
Huh? What did I say? Did I screw up again? :(
I done fucked up big time in retrospect. I should have taken some money to help with my down payment out of my IRA and bought a home back in 2014... now I gat a shitty IRA and no home. It seemed like a stupid idea at the time I should just remove my IRA from my mint account and never look at it till 55... maybe I could be spared all the horrors and feel like I came out on top at the end
I should just remove my IRA from my mint account and never look at it till 55... maybe I could be spared all the horrors and feel like I came out on top at the end It's true that the math over the long term favors investing vs. paying down the house. However, without major changes, we can pay off the house in 3 years vs. 14. Historically speaking, our 4.625% mortgage is not a good return vs. the market long term, but over such a short term, but it's not really clear cut. And after we pay it off, we'll max our IRA and 401k for every year thereafter. FWIW we're still putting over 2x into retirement each year what we pay down on the mortgage, and are overall tipped heavily toward savings.
Though the real reasons are not about investment, but life style. Not having any debt at all has been a goal for a long time, and would enable me to (for example) change careers knowing our living expenses were far lower and thus I could afford a pay cut. We decided to go for it for those kind of reasons rather than the investment math. As such I can't recommend it from an investment standpoint, it's just how we decided to prioritize. (If we had a <3% mortgage, I probably would not do it.)
anonymous_abc
Member
I buy on the 1st.
For those of you so excited to take advantage of the market correction or wringing your hands about investing earlier, let me draw your attention to this post made just one day earlier:
Let that be an illustration that just because the market is down one day does not mean it won't be down the next. If you look at that 'worst week' table posted earlier, you'll see that in 2011, there were 4 such weeks within 4 months.
On the flip side, if you had been holding your money waiting for a correction in the previous 4 years, you would have missed out on double-digit growth per year.
Attempting to time the market is likely to hurt you more often than it helps.
Let that be an illustration that just because the market is down one day does not mean it won't be down the next. If you look at that 'worst week' table posted earlier, you'll see that in 2011, there were 4 such weeks within 4 months.
On the flip side, if you had been holding your money waiting for a correction in the previous 4 years, you would have missed out on double-digit growth per year.
Attempting to time the market is likely to hurt you more often than it helps.
Original Famous Ray
Member
Stay the course indeed... holy hell did my Roth IRA and 401k tank. lol ok..Tank is a strong word but wow. Its going to be awhile before it goes back to what it was just 3 days ago. I can see how something like this can scare people off from investing but I'M NOT SCARED DAMMIT.
I'm still trying to decide if I should switch my Roth 401K to a regular 401K (rather, start investing in a regular vs. a Roth, obviously won't be cashing out the Roth and moving it or anything). I am in the 28% tax bracket for this year, likely moving to the 33% bracket next year. I like that I have already paid taxes on that income and the matter is done and dusted. Additionally, company matches and other contributions appear to be pre-tax, so I have an element of a traditional 401K in my Roth 401K.
The goal is obviously to save up so much that my distributions would put me in an even higher bracket, but I don't know if that's realistic. I just feel like I can't make a decision on this and am losing money.
I also max a Roth IRA and have a taxable account I am using to save for a house (I know I shouldn't save in equities, but honestly I DGAF if I buy a house in the near term or not). I feel like I have tax diversification with the traditional elements inside of my Roth 401K.
Argh.
The goal is obviously to save up so much that my distributions would put me in an even higher bracket, but I don't know if that's realistic. I just feel like I can't make a decision on this and am losing money.
I also max a Roth IRA and have a taxable account I am using to save for a house (I know I shouldn't save in equities, but honestly I DGAF if I buy a house in the near term or not). I feel like I have tax diversification with the traditional elements inside of my Roth 401K.
Argh.
I've only contributed $1500 to 2015 so far. Guess now is a good time to buy. I'll sprinkle payments in the next couple of weeks.
Edit: Y2Kev, I'm no expert on which is right for who, but I chose Roth in the belief that I will be in a higher tax income bracket when I retire than now. So maybe for you, if you think you will be in a lower tax bracket come retirement then the traditional 401k is the better choice. I am just going on a hedge that I will be in a higher bracket since I am just 3-5 years young in my career and there is much room for growth.
Edit: Y2Kev, I'm no expert on which is right for who, but I chose Roth in the belief that I will be in a higher tax income bracket when I retire than now. So maybe for you, if you think you will be in a lower tax bracket come retirement then the traditional 401k is the better choice. I am just going on a hedge that I will be in a higher bracket since I am just 3-5 years young in my career and there is much room for growth.
No, I can adjust how much I put in. However that's how much I can afford to right now and be able to maintain my current lifestyle. 34 years old so I got a long way to go.
Congratulations on becoming one of the 1%.
I've mentioned before that I prefer Roth. Others here disagree with me, but let me restate the main reasons I like Roth accounts:
1. I like having the option available to withdraw the principal from my Roth without tax penalty if I decide to retire early. In the past, this would have been less of an issue, since the assumption would be that if you are in a position to retire early, you also need to have fairly substantial savings in a taxable account. However, with the current IRS rules that allow you to put ~$50K into a Roth account per year, it is possible to build up an almost entirely Roth-based retirement portfolio and still have enough to comfortably retire early. This is a somewhat speculative strategy, based off an assumption that Congress will not OK the closing of the Roth conversion loopholes in the next few years, but I am comfortable with that.
2. If you are maxing out your tax-advantaged retirement savings, you can "pack" more money (in terms of its value in retirement) into a Roth account than a traditional account because they have the same maximum contribution despite the Roth dollars being post-tax. Packing in more money early is way of mitigating the risk of future financial losses (job loss, medical costs beyond insurance, etc.). I am also much less likely to frivolously spend money in my Roth IRA as opposed to in a taxable account because of the additional opportunity cost associated with withdrawing from the Roth.
3. There is a certain peace of mind that can be derived from the fact that you can withdraw as much as you want from the Roth account (barring early withdrawal penalties) without worrying about how it impacts your tax rate that year. You also don't have to worry about whether tax rates may be higher in your retirement, which is another method of risk mitigation.
Note that 2 out of those 3 reasons are less about ensuring that you will have enough money to get by in retirement, and more about ensuring that you can get the maximum amount of happiness out of your retirement savings. I think that for people in the 28%+ brackets, that is really the way to go. If you are making $100K+ and you are the type of person to agonize over the tax advantages of Roth vs traditional, there is a high probability that you will end up with more money saved than you really need. So, I would say go with Roth unless you are really worried about absolutely maximizing the amount of money you can leave to your beneficiaries in your will (although if that is what you care about, I would encourage you to focus more on putting your money into an HSA or setting up a trust).
Hope that helps.
I'm starting to rethink if I'll actually be in a higher tax bracket when I retire. It seems like an impossible thing to predict so early at 25 years old. I'm not expecting a massive growth in salary throughout my career so maybe I shouldn't be putting it all in a Roth. At the same time the tax brackets could be completely different. I have a pension which will get taxed, but other than the addition of that I'm having a hard time coming up with taxable retirement income that will be significantly higher than what I'm earning now. Any tips?
Edit: the response above helped some. Thank you
Edit: the response above helped some. Thank you
Wellington
BAAAALLLINNN'
Anecdotally I bought my house in November of 2008. I figured the market bottomed out I could could a deal and be ok. Wrong, the housing market and interest rates continued to plummet afterwards and I was under water for a long time. I'm better off now but still, trying to time the market really screwed me up for a few years.
My retirement contributions are made automatic with every check and my taxable investments are made every other check and it'll stay that way, regular intervals and my standard contributions.
Check the OP. I listed the ones that I think are the best for the long-term index investor. That would be:
Total US Stock Market
Total International Stock Market
Total US Bond
I personally do not invest in a bond fund right now because I see bonds as something to have and sell in retirement for income when the stock market is down (you definitely don't want to sell stocks then). My thinking is that I can move into bonds 10 years or so before retirement and be fine because it is about then that TIME stops being such an awesome hedge, because then you are running out of time to not get stuck selling stocks to buy bonds when the market is doing terrible.
That is my thinking. That might not be right for you though. This requires some deep introspection. Are you going to get nervous when the market goes to shit 5-10 years from now? Are you going to stress out and possibly panic? Will owning some bonds help relieve that panic and stop you from doing that? Or are you simply more comfortable holding bonds, and using them as a way to manage your asset allocation? Well, if so, then you should own bonds.
Another question you need to ask yourself is if you are a fiddler. Are you going to chase good performers or are you going to stick to your plan? If the US stock market is doing awesome, are your going to sell your international (or not balance your portfolio if things get out of wack). If you think you are fiddler who will chase after the hot play and disregard the plan, then managing your asset allocation might not be for you. Or do you simply not want to bother with asset allocation at all? Does putting it on complete auto-pilot sound good? Well, then I would look into Target date funds.
Target Date funds
I know Tokkun is a huge fan of these (and can probably better explain the rationale), and if you are the person in the above paragraph, then I would probably recommend this and only this, because I think he is right that if a person is not able to stick to his/her asset allocation plan then you will probably be better off having someone manage your asset allocation for you. It is a way to save your self from chasing gains (which rarely works).
I think there is a pretty significant drawback in this method though, and that is my thinking on bonds. You can't sell bonds in a market downturn if it bonds, US stocks and International stocks are combined together in one fund.
So yea, you need to figure out if you think that is a big deal, and figure out how you will psychologically react to the market. Once you figure that out, that will probably determine which combination of funds you choose.
Thanks for the info. It'll be put away and ignored.I'll look into it more, but stress isn't a factor.
I ran into this calculator a few days ago, and it seems to heavily suggest Roth 401k in most situations. I believe you'll also want to consider the fact that when you take your money out of a regular 401k, you are taxed not only on the money you put in, but also on the GAINS. And if you invest early, those gains are going to be making up most of the balance in retirement. So just get taxed once with a Roth right now and you should have more $ in retirement!
Randolph Freelander
Member
tokkun gave you the Roth approach, I'll go the counter.
You're throwing money away, dude. Your average tax rate is going to be far lower than 28% or 33%. You'll have deductions that reduce your taxable income (based on your income level, state/local income tax [if applicable in your locale] will be enough to get you to itemize, before factoring in such things as property tax, mortgage interest deductions, charitable contributions, etc.), You might top out in a high tax bracket, but your effective tax rate will be far below that. But let's set that aside for a moment and take a look at 2015 tax brackets. The below is for someone filing as single:
To break that down into true tax rates, I put together the following for the 25, 28, and 33 % brackets, respectively. If your taxable income tops out in any of these brackets, you can see the range of what your effective income tax rate will be.
Code:
Rate Min Income Min Tax True Rt Max Income Max Tax True Rt
25% 37,450.00 5,156.25 13.8% 90,750.00 18,481.25 20.4%
28% 90,750.00 18,481.25 20.4% 189,300.00 46,075.25 24.3%
33% 189,300.00 46,075.25 24.3% 411,500.00 119,401.25 29.0%The question then becomes why would you choose to lock in the marginal rate (25, 28, 33) on your 401K dollars when the maximum true rate is below that, and the minimum true rate is well below that? You'd have to wager that tax rates will be higher in the future (perhaps significantly so), or your taxable income will push you into yet higher brackets, or both. (Keep in mind, brackets adjust with inflation, so even if you project your earnings to grow, these brackets will also move further up the income scale).
It's true, you can effectively put more into your 401K by contributing Roth, but it's costing you a lot more when you do that, and that effective gain is more than negated by the extra taxes incurred. If you're in the 33% marginal bracket, it's costing you $27,000 in pre-tax income to fund your 401K (based on the $18,000 limit in 2015, and assuming your account is fully funded), and that's before factoring in state and local income taxes, if any. Alternately, if fund your 401K pre-tax, you'll save a minimum of $9000 in pre-tax income, or a minimum of $6000 in after tax income, and you can funnel tax savings into other investments.
Bottom line. you don't want to pay 33% on those dollars now unless you think there is a reasonable probability you'll be paying more than 33% on those dollars tomorrow. Personally, I wouldn't make that bet.
Randolph Freelander
Member
That calculator doesn't tell the whole story, as it doesn't factor in how you might invest your tax savings now, and how that would impact your retirement income in the future.
I'll grant you that if you do not invest the tax savings that a traditional 401K provides, then you might as well go Roth if you can afford it. But the traditional is giving you extra money now, all things considered, and that extra money now can still turn into retirement income for the future.