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Inertiatic posted:Thanks for the replies guys. I'm very new to this so I really appreciate the patience. What is your savings in tax wise? Is it in a 401(k), IRA, etc. If it's in taxable cash, I would use it to keep from taking so much out in student loans. Also, see if you can't find a student job or other situation where you can generate a W2 with at least $5,000 in AGI so you can contribute to a ROTH IRA. If you haven't done so for 2011, and have taxable income from 2011, I would do the same. The biggest problem with retirement savings is you need to be generating money to get it into the tax advantaged accounts. If you don't have income, you can't contribute to a 401k or Roth IRA (not entirely sure about a traditional IRA and  )Polyfractal Depends on your tax situation. Rolling into a ROTH will make that 4k subject to your marginal rate. Rolling into a traditional is not a taxable event. If you're young and can afford the tax penalty on top of the $4k, I'd say rolling it over into a ROTH is worth it. I have a question for the Vanguard goons. With the bid/ask spread of ETFs vs Admiral shares is it better to just buy regular Mutual Funds instead of ETFs. The only downside is that you won't have the flexibility to sell at a moments notice (which in this thread, I'd call a good thing) Example: VFIAX (MSCI ACWI ex USA IMI Index Admiral shares) is .20% With a 2% penalty for holding for less than 2 months. VXUS (ETF equivalent) is .20% - with a $0.19 premium/discount on a 45.27 NAV. That represents a .4% expense to get out or in. Most other vanguard funds that aren't exotic don't have that hold restriction (I understand. Foreign markets can be less liquid) but still are sold subject to bid/ask spreads. All things being equal am I missing something or for a buy and hold, passive strategy just go with the funds unless they have a significant premium for E/R. Edit: I'm used to the rule of thumb being misguided but I feel I'm missing something here because seriously if the E/R is the same ETF's even with no commission (and most people don't have that luxury) ETFs seem like not the buy and hold/ lazy man's dream that they are often sold as. KennyG fucked around with this message at 04:57 on Feb 17, 2012 |
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Feb 17, 2012 04:48
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Yeah, without any income coming in it makes it tough to get the tax advantages out of retirement accounts like a Roth. However, if you made money in 2011, you can contribute $5000 (assuming you made $5000) into a Roth for the 2011 year still. That would be my first move if it's available to you since you likely won't be able to take advantage of a Roth for a few years.
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Feb 17, 2012 10:06
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KennyG posted:Polyfractal Thanks. I'm young, although poor at the moment. Hoping my new job will pay significantly higher than my old so I'll look into how much the tax penalty for conversion is. 
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Feb 17, 2012 14:05
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I think I read somewhere (here, even?) that you can contribute to an IRA until April of the following year, so I could for example open an IRA with Vanguard, count that contribution towards 2011, and count anything else I can get into it until mid-April towards 2011 as well. Once mid-April rolls around, I could contribute from then to mid-April 2013 toward my limit for 2012, and so on. Is this correct? And if so, is there any downside to it, aside from maybe wanting to file the previous year's taxes as late as possible?
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Feb 18, 2012 22:27
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That is correct, and it doesn't matter when you file your taxes, you still have until Tax Day to make 2011 contributions.
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Feb 18, 2012 22:30
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P.D.B. Fishsticks posted:That is correct, and it doesn't matter when you file your taxes, you still have until Tax Day to make 2011 contributions. If there's a tax advantage to your contribution, though, it makes sense to do it as late as possible so as to not having to deal with going back and submitting an amended return though, right?
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Feb 18, 2012 23:07
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A Roth IRA is funded with dollars you've already paid income taxes on - it doesn't reduce your taxable income, and funding one shouldn't change your tax forms at all.
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Feb 19, 2012 00:06
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P.D.B. Fishsticks posted:A Roth IRA is funded with dollars you've already paid income taxes on - it doesn't reduce your taxable income, and funding one shouldn't change your tax forms at all. I think he's talking about a regular, deductible IRA, not a ROTH.
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Feb 19, 2012 00:09
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Inertiatic posted:Thanks for the replies guys. I'm very new to this so I really appreciate the patience. How much are you paying for grad school? If I were you I'd use the money for school so I didn't have to take student loans and worry about retirement once you get a job.
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Feb 19, 2012 02:13
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P.D.B. Fishsticks posted:A Roth IRA is funded with dollars you've already paid income taxes on - it doesn't reduce your taxable income, and funding one shouldn't change your tax forms at all. True, it doesn't change your taxable income but he might qualify for the Retirement Savings Contribution Credit by contributing to a Roth. In that case, he'd want to file after making that contribution. (At least it would be easier than filing before making the contribution and then filing an amendment.)
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Feb 19, 2012 11:48
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P.D.B. Fishsticks posted:A Roth IRA is funded with dollars you've already paid income taxes on - it doesn't reduce your taxable income, and funding one shouldn't change your tax forms at all. Bagarthach is correct. If you don't make a lot of money, you can get up to a 2000 non-refundable tax credit (iirc) for a $5,000 ROTH contribution.
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Feb 19, 2012 15:49
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I stand corrected, then; is this what you're referring to? http://www.irs.gov/newsroom/article/0,,id=107686,00.html
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Feb 19, 2012 16:04
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that's correct.
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Feb 19, 2012 20:06
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Had an annoying conversation with my stepdad yesterday. He's actively managing his 401(k), and has been doing so for the last ~10 years. His results so far have been mixed, but he's made a few good moves (in particular, going to cash before the big 2008 drop) and based on his performance he's beaten the market by a decent margin. The problem is, he would not accept my statement that by actively managing his account, he was accepting higher risk. His opinion was that he was doing enough research and paying enough attention that his activities were actually reducing his risk (by avoiding upcoming bear markets that he could anticipate). I pointed out that a huge percentage of actively-managed funds underperform the market and that an even larger number of individual investors who try to time the market underperform. The implication is that his performance of beating the market could be because he's super-smart, but it could also be that he was simply lucky; it's almost impossible to tell the difference (and in fact, early success can be highly misleading to an investor). He would have none of it. My decision to keep my own 401(k) in lowest-cost funds, well diversified, rebalanced no more than annually and otherwise ignored was, in his opinion, taking a higher risk than his active management. Why? Because - and this was a point I couldn't refute - he pointed out that the small investor has the option of moving partially or entirely into a different asset class (or cash) where a fund manager is required to stick to the mandated asset class(es) of the fund. E.g., a bond fund has to be in bonds, even if the bond market is bearish; the bond fund manager can't choose to spend the next six months in money markets to avoid the bear bond market. It seems like kind of a good point. Does the small investor, if he is using his active management primarily to move out of risk when he thinks the market will fall, have some advantage over the investor who merely rebalances between selected funds annually? I know the risk of missing a bull market in your assets is the cost of moving to cash, but it's very difficult without a lot of specifics to show that my stepdad failed to gain from upturns that occurred while he was pulled out (and he may not have, at least not during the last few years). And at this point, his primary goal is of course to preserve his existing money, and his secondary goal is to grow it with timed market opportunities. I do not know the specifics of his moves, though; only that he said he avoided most of the 2008 downturn, but also was in certain overperforming assets during the last 10 years and that he made something like $50k one year entirely due to active management. My worry is that he's toying with his retirement at the age of 62. I think he should be in pretty conservative investments at this point, with his wife already retired and him looking at retirement in the next five years. He's got a pension, my wife has a pension, this isn't the entirety of their wealth by any means, but it is probably two or three hundred thousand dollars he's actively shoving in and out of asset classes on a monthly and sometimes weekly basis. (He also has a non-401(k) trading account that he actively trades with and takes higher risks with, if that matters at all). Leperflesh fucked around with this message at 19:57 on Feb 20, 2012 |
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Feb 20, 2012 19:52
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My fiancee is looking to park a sum of money in something interest bearing but safe for an indeterminate amount of time. She has $50,000+ saved for a down payment on a house, but savings accounts and CD's generally are running under the rate of inflation. The simple solution to this seems to be TIPS, but we're not sure how one would go about doing that(a broker?) and whether it's a good idea. Advice?
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Feb 20, 2012 19:58
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Leperflesh posted:Had an annoying conversation with my stepdad yesterday. A few points: 1) It's harder to get high returns with a large account like most fund managers have to take care of. 2) If he's got a system that works for him and he sticks to it, he probably is taking on less risk. My boyfriend's father went from a few thousand he saved as a ship captain to the Chairman of a huge investment corporation that he started doing this stuff, and he basically says and does the same thing. He doesn't believe in investing in funds or anything like that if you want maximum returns with least risk over time, he says you're paying for not having to watch the market.
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Feb 20, 2012 20:04
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Leperflesh posted:when he thinks the market will fall... This. He "thinks". I know it's been said again and again but no one can time the market, he has just been lucky. Leperflesh posted:I think he should be in pretty conservative investments at this point, with his wife already retired and him looking at retirement in the next five years. While you are most certainly correct, it's not worth your time or the conflict it will cause to push the issue. It is not your money, he can do whatever he wants with it. Even though you are looking out for his best interest at the end of of the day you don't have any say in what someone else does with his / her money and it might result in a bunch of negativity if you press the issue. You offered your opinion (and I agree with you) but that's about all you can do.
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Feb 20, 2012 20:06
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Leperflesh posted:Had an annoying conversation with my stepdad yesterday. First of all, your Dad is not taking more risk by market timing. In fact, he is taking less risk because he is spending less time in the market than a non-market timer. Thus, his risk exposure is lower. He is technically correct there. The truth is, he could have also just taken less risk by having a less risky allocation to begin with (since conservative portfolios did better in the last decade) and saved himself a lot of time and stress. But saying he is taking more risk by jumping in and out of the market is inaccurate. Market timers underperform the market because they take LESS risk, not MORE. Less risk equals lower expected returns. Studies on market timing have supported this (market timing in general IS a fruitless venture, but it is the conclusions regarding risk and return that are inaccurate). Also, he is technically correct in that a small investor can do things that a mutual fund manager can't (due to limitations in the prospectus, pressures to be compared to a benchmark every quarter, etc). So if you argue with him on the issue of risk and/or comparing with active managers, then he has you beat. If you want to argue with him, you need to tackle it from a point of view of behavioral risks. On the other hand, I would choose not to argue with him. 80k fucked around with this message at 20:24 on Feb 20, 2012 |
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Feb 20, 2012 20:21
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Would you guys suggest investing in my company 401k plan that does not offer company matching, and the target retirement funds that I can get have expensive ratios of 1.04% or greater? Mind you I am on track to max my roth for 2012.
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Feb 20, 2012 21:19
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Dreadite posted:Would you guys suggest investing in my company 401k plan that does not offer company matching, and the target retirement funds that I can get have expensive ratios of 1.04% or greater? Mind you I am on track to max my roth for 2012. Even with no matching and poor expense ratios, the growth is tax free making it better than a taxable account with super low expense ratios. This is why the typical contribution priority advice in this thread is: 1) 401k up to match amount 2) IRA up to max 3) 401k up to federal max 4) Taxable savings/throw a party
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Feb 20, 2012 22:29
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Daeus posted:Even with no matching and poor expense ratios, the growth is tax free making it better than a taxable account with super low expense ratios. This is why the typical contribution priority advice in this thread is: How does the priority advice change if you contribute to a pension plan? I have 8% pretax put into a pension plan automatically, but I'm thinking of putting away money in either a 401k/403b or a roth IRA. My employer won't contribute to a 401k or 403b, so would I be better off opening up a 401k or a roth IRA?
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Feb 21, 2012 00:31
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Sleipnir posted:How does the priority advice change if you contribute to a pension plan? I have 8% pretax put into a pension plan automatically, but I'm thinking of putting away money in either a 401k/403b or a roth IRA. My employer won't contribute to a 401k or 403b, so would I be better off opening up a 401k or a roth IRA? The priority still applies. Since your employer doesn't match any 401k, skip to step 2.
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Feb 21, 2012 00:59
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My employer will contribute 25 cents for every dollar I contribute up to 6% of my pay. Does that generally mean they will give me 6% of my pay in free money, or that they will give me 25% of 6% of my pay? Also, the vesting period is six years. Is there any point in contributing if I know beyond a doubt I will not work here for six years?
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Feb 21, 2012 01:03
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GoGoGadgetChris posted:My employer will contribute 25 cents for every dollar I contribute up to 6% of my pay. Does that generally mean they will give me 6% of my pay in free money, or that they will give me 25% of 6% of my pay? 6% is the maximum eligible amount of your salary on which they'll apply the match, and $0.25 cents is the per-dollar match rate, so the latter. You can contribute pretty whatever percentage of your salary you want (up to statutory dollar amount limits or plan-specific % of salary limits), but your company will only match the first 6%, at a rate of $0.25 per dollar. As for your second question, there's "beyond a doubt", and then there's beyond a doubt. What's the vesting schedule like? Do you get partial vesting after 1 year, 2 years, etc?
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Feb 21, 2012 02:45
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GoGoGadgetChris posted:Also, the vesting period is six years. Is there any point in contributing if I know beyond a doubt I will not work here for six years? It also depends on what funds are available to you in your 401k. If you have good, low expense funds available in your 401k, then there is not much of penalty compared to putting it in an IRA. I think you should still at least contribute to the match amount because if you do hang around for six years, you'll be kicking yourself for not contributing. If you do leave in three years then it's no skin of your nose.
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Feb 21, 2012 02:51
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80k posted:So if you argue with him on the issue of risk and/or comparing with active managers, then he has you beat. If you want to argue with him, you need to tackle it from a point of view of behavioral risks. On the other hand, I would choose not to argue with him. Yeah, I'm not going to argue with him. We have talked about investing in the past, many times actually. He's a pretty smart guy, but also quite stubborn, and not very open to criticism. On the other hand, he's got a thick skin and doesn't get offended easily, so it'll be fine. We have a good relationship. If he's not putting his retirement to undue risk with his active management, then I'm fine, anyway.
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Feb 21, 2012 04:05
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This thread is borderline overwhelming with how much info is in here. I'm only up to page 40 or so, but drat, there is so much to read and learn. I'm also reading through the four pillars of investing and the bogelheads guide to investing as well. I could use some immediate advice though. Here is my situation: I have a 401(k) through work right now with Wells Fargo. Employer matches first 6%, I dump in 10% and it all goes to a target 2045 fund (WFQPX). Expense ratio is at .52% according to what I can find on Wells Fargo. I just rolled over my old 403(b) from an old employer to a Vanguard rollover IRA. There is about $4k in there right now, all allocated to VTSMX at the moment. I have $20k saved up in an emergency "oh poo poo I lost my job" fund earning 1% in a high-yield savings account. Got another $5k in a house emergency fund earning about the same in a no-penalty CD. Various other amounts not worth mentioning in my normal savings and checking accounts for day to day poo poo. After paying all my expenses for the month, and setting aside some play money to save for vacation or whatever else I want, I have about $1500 a month left over. Previously that money has been going into the emergency fund and house fund. Now that those are where I want them, I'm not sure what to do with that money, and not sure what to do with my current savings. My initial plan was to take $5k from the $20k and put it into an IRA at Vanguard since I have until April to do that for 2011, right? I already filed my taxes if that matters, would I have to file an amendment? I was going to take another $415 a month and start automatically moving that into the same IRA since I can contribute another $5k for 2012, correct? My problem right now is Roth vs traditional IRA. I'm not far from jumping up to the next tax bracket, so my personal thought is that since I'm already paying a decent amount of taxes and will be paying more soon, that the Roth would be less advantageous for me and I should go with a traditional. Even then though, contributing only $415 a month leaves me with another $1100 roughly to do whatever with. Do I max out my iffy Wells Fargo 401(k) or do I start investing that on my own somewhere else?
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Feb 21, 2012 16:06
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You are in a pretty good position and are asking the right questions so I'd say you're already 95% there. As for Roth vs. Traditional no one has a crystal ball so usually we advocate a mix of both to diversify your tax position. For 2011 tax year if you don't want to file an amendment you have to do Roth so I'd make all of 2011 a Roth contribution and then for 2012 make your recurring withdrawals traditional. Once you've maxed out your IRA and the 401k up to the employer match, you'll want to continue contributing to your 401k. The target age fund you are contributing to now looks decent and the tax free growth advantage makes it a no brainier compared to investing in a standard taxable account.
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Feb 21, 2012 18:10
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Unless he lives really cheaply, he might not be able to contribute the full amount to a Roth. What are your monthly expense like? You might want to invest some of that 20,000 into something.
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Feb 21, 2012 18:35
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Zeitgueist posted:My fiancee is looking to park a sum of money in something interest bearing but safe for an indeterminate amount of time. She has $50,000+ saved for a down payment on a house, but savings accounts and CD's generally are running under the rate of inflation. The simple solution to this seems to be TIPS, but we're not sure how one would go about doing that(a broker?) and whether it's a good idea. Sorry to repeat.
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Feb 21, 2012 19:08
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Harry posted:Unless he lives really cheaply, he might not be able to contribute the full amount to a Roth. What are your monthly expense like? You might want to invest some of that 20,000 into something. I do live pretty cheaply, and I make decent money. The $1500 figure in my original post was money left over every month for investing, after paying all the essential bills (mortgage, utilities, car insurance, food, etc) and setting aside some extra spending money for whatever (vacations, entertainment).
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Feb 21, 2012 19:52
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Zeitgueist posted:Sorry to repeat. It looks like you can either buy them directly through here. It says something about competitive and non-competitive bids whatever that means. There's also TIPS ETFs (like this) which I can only assume is comprised of only TIPS bonds. I imagine the ETF would be easier to unload than the direct buy. quote:I do live pretty cheaply, and I make decent money. The $1500 figure in my original post was money left over every month for investing, after paying all the essential bills (mortgage, utilities, car insurance, food, etc) and setting aside some extra spending money for whatever (vacations, entertainment).
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Feb 21, 2012 20:28
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Zeitgueist posted:Sorry to repeat. Depends how "indeterminate" the timeframe really is. TIPS come with 5-year duration at the shortest, and 30 at the longest. If you want to try to do a ladder of some kind, then you'll probably want to go through a broker as you mentioned. I'd suggest a very low risk portfolio of ETFs covering blue-chip fixed income, treasuries, and municipal bonds to both beat out inflation and earn a modest return while you figure out when you'll need the money.
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Feb 21, 2012 21:37
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Zeitgueist posted:Sorry to repeat. You can buy them from TreasuryDirect. You have to sell TIPS on the open market, however. The following is my understanding, but I am no expert. Selling on the open market can still subject you to interest rate risk. An ordinary savings bond accumulates interest, like a CD, and when you want to cash in the bond, you sell it back to the government for what you paid plus interest (possibly minus a penalty depending on the circumstances). TIPS don't do that. Because you have to sell TIPS on the open market, their value can fluctuate like any other bond. While TIPS are indexed for inflation, this is on top of the real interest rate, which remains fixed for the life of the particular security you purchase. Changes to the real interest rate will affect the value of your TIPS. If real interest rates rise, the value of your TIPS go down. Interest rates now are very low, though the Federal Reserve has promised to keep them low through 2014. This page has a brief explanation for the price of TIPS, and how it relates to interest rate and the coupon rate. http://www.treasurydirect.gov/indiv/research/indepth/tips/res_tips_rates.htm This article talks about the merits of individuals buying TIPS or TIPS funds: http://online.wsj.com/article/SB10001424052748704503104576250752569255210.html Generally, it seems, only buy individual TIPS if you want to hold on them until maturity. TIPS can be a good option, but it's an investment and has risk. A comparable investment could be an intermediate term bond fund. Check out both of these: Vanguard Intermediate-Term Bond Index Fund - https://personal.vanguard.com/us/funds/snapshot?FundId=0314&FundIntExt=INT Vanguard Inflation-Protected Securities Fund - https://personal.vanguard.com/us/funds/snapshot?FundId=0119&FundIntExt=INT A safer investment would be a short-term fund, but you may not keep up with inflation: Vanguard Short-Term Treasury Fund - https://personal.vanguard.com/us/funds/snapshot?FundId=0032&FundIntExt=INT Vanguard Short-Term Investment-Grade - https://personal.vanguard.com/us/funds/snapshot?FundId=0039&FundIntExt=INT
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Feb 21, 2012 21:38
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80k posted:Cum Dumpster's question is sort of pointless without an asset allocation. Looking at any of those funds in isolation is not the way to go. As for VIPSX, most people will probably have the misconception that it is a fund you do not need to worry about. However, it is poised to lose an easy 20% when real rates start approaching historical norms, given its duration and how far real rates can reasonably move from here (I think most people piling into that fund now probably do not know this). Just wanted to quote this post from 80k from a few pages back, because I think it is pertinent to the more recent discussion regarding TIPS. If you were planning on using this money for the down payment on a house, I think the volatility of TIPS might be a little higher than you'd be willing to take on.
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Feb 22, 2012 00:38
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I guess this is the right thread Currently I make 30k a year before taxes ($2k take home a month) and I am 23 Monthly expenses are $750-1k (including student loans, see below) I owe ~23k in fed student loans (interest rate 4.5% - 6.8%) I have 2k in checking 5k in a Navy Fed savings - (.3%) 3k in a 26 week certificate (.6%) and I got a hefty tax return due to some inheritance money and apparently paying way too much in taxes on it I got just over 5k back and started/maxed a Roth IRA Basically My minumum student loan payments are like $175 and I have been paying $400-450 a month Should I be putting more towards the repayments or keeping it around that and putting more towards my 2012 Roth IRA? Or am I completely a idiot and I should do something else? e: poo poo does this go in the budget thread, my question is mostly directed towards saving vs paying debt but ill move it if I should streetlamp fucked around with this message at 01:54 on Feb 22, 2012 |
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Feb 22, 2012 01:27
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Daeus posted:1) 401k up to match amount Where in this very helpful chart would you put paying off student loans with 6% interest rate? I'm guessing after maximizing the ROTH IRA but before maximizing the 401k?
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Feb 22, 2012 05:17
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Tough to say. Paying down the loan is a guarenteed 6% return which is definitely better than the IRA prospect. The only reason I hesitate to say just pay down the loan, is because you'll never get a chance to make another IRA contribution for that year after the window closes. I still think I would take the guaranteed 6% and the mental benefit of knowing I have less debt.
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Feb 22, 2012 05:30
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You might want to add in the tax deduction for student loan interest if you're on the fence between paying down two large debts. If you're higher income, the student loans are likely a higher priority in that respect because you can't deduct as much / not at all of the interest. There's a bit of a curve where it doesn't make as much sense to keep plinking away at debts if it means you'll spend another 10+ years delaying a single retirement savings account. You don't want to be a 40-year old with massive student loans, and $0 in retirement because you've been trying to pay down $100k+ in loans since you were 28 and barely able to make minimum payments.
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Feb 22, 2012 05:40
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DJCobol posted:I have $20k saved up in an emergency "oh poo poo I lost my job" fund earning 1% in a high-yield savings account. Got another $5k in a house emergency fund earning about the same in a no-penalty CD. I forgot to ask this, but where did you get a savings account with that high of a rate? Did it have a minimum amount to get that?
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Feb 22, 2012 19:00
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