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totalnewbie posted:Does "Hey, the markets just wiped out gains for the year, let's max out our yearly index fund Roth" count as "market timing"? Isn't that the best time to invest money (theoretically)? Being greedy when everyone else is scared? Even if the Eurozone completely implodes, something will emerge at the end of the day. Or am I just horrible at investing? 
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Jun 5, 2012 17:45
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Oh well, that's risk!
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polyfractal posted:Isn't that the best time to invest money (theoretically)? Being greedy when everyone else is scared? If you were going to buy something anyway, then it would be better to buy it when it's cheaper. However, with the stock market if you wait to buy something, the chances are just as great that it will go up (be more expensive). The point being, at the time you made the decision to wait to invest, you didn't know which way it was going to go.
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Jun 5, 2012 19:14
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polyfractal posted:Isn't that the best time to invest money (theoretically)? Being greedy when everyone else is scared? What flowinprose said. And also what Warren Buffet said about hamburgers or some poo poo. If you are a serious long-term investor and you think that you've found a good long-term investment, then yes; drops in price from market panic are your opportunity. But don't mistake that for specific advice regarding market timing. That's not what Warren Buffet was talking about. He was talking about regularly scheduled, confident, equally sized investments over a long period of time, not trying to pick a specific entry point. Timing the market is the domain of technical analysis, AKA the astrology of finance.
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Jun 5, 2012 20:15
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Gotcha, that makes sense. Thanks for the clarification 
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Jun 5, 2012 22:01
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Why is it suggested to max out an IRA after your 401k match limit, but before maxing out your 401k? I'm in a weird situation in that my employer decides their matching amount at the end of every year, as an alternative to giving year-end bonuses, so I have no way of knowing what it will be ahead of time. I'm currently maxing out my 401k contribution, but was wondering if there's a really good reason why I should reduce some of that and put it into an IRA instead? I'm also a bit confused by the phase-outs on IRA contributions based on income. Does that just mean traditional IRA contributions are no longer tax-deductible? Does it have any impact on Roth IRAs? If I have extra money to save I usually just take 1,000 or so and buy a 5-year CD. Maybe I should at the very least be putting those into an IRA instead?
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Jun 5, 2012 23:10
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SlightlyMadman posted:Why is it suggested to max out an IRA after your 401k match limit, but before maxing out your 401k? I'm in a weird situation in that my employer decides their matching amount at the end of every year, as an alternative to giving year-end bonuses, so I have no way of knowing what it will be ahead of time. I'm currently maxing out my 401k contribution, but was wondering if there's a really good reason why I should reduce some of that and put it into an IRA instead? Roth IRAs are generally considered to have the best tax treatment, in that you do not get a deduction on them, but distributions (once you reach the requisite age) are tax-free. 401(k) get you a deduction now, but any matched funds are essentially free, and free is the best. As for the income limits, limits apply to traditional (deductible) IRAs if you're eligible to participate in an employer-sponsored retirement plan, regardless of whether you choose to participate or not. There are different income limits on Roth IRAs, and these are imposed regardless of your eligibility or participation for other plans.
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Jun 6, 2012 00:00
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SlightlyMadman posted:Why is it suggested to max out an IRA after your 401k match limit, but before maxing out your 401k? I'm in a weird situation in that my employer decides their matching amount at the end of every year, as an alternative to giving year-end bonuses, so I have no way of knowing what it will be ahead of time. I'm currently maxing out my 401k contribution, but was wondering if there's a really good reason why I should reduce some of that and put it into an IRA instead? That advice refers specifically to Roth IRAs, because they are the form of retirement account with the most favorable tax treatment (taxed now, but all gains untaxed when realized at retirement age) - better than 401k. The reason to max your 401k up to the max employer match is because that's essentially "free" money that you would otherwise be leaving on the table, and more money to begin with is better than tax favorability.
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Jun 6, 2012 01:45
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The tax structure of 401k compared to Roth IRA does not necessarily make one more "favorable." If your tax rates are the same in the future as they are now, the tax considerations are a wash between the two. One might be more favorable than the other depending on your individual circumstances. The real advantages of Roth IRA vs. 401k are thus: 1) Ability to withdraw contributions tax/penalty free. 2) More freedom of investment choices 3) No minimum distributions required at a certain age These advantages give sufficient reason to fund a Roth IRA to maximum prior to maximizing 401k contributions.
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Jun 6, 2012 02:20
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flowinprose posted:3) No minimum distributions required at a certain age This is why I think they work so well with a 401k. The goal being that you live off your 401k for the first part of retirement and let your Roth grow tax-free for another decade or two.
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Jun 6, 2012 05:37
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bam thwok posted:Timing the market is the domain of technical analysis, AKA the astrology of finance. I know this is a bit OT, but is it widely believed that technical analysis is bull? My uncle (who is generally a very shrewd and successful guy, if a bit of a crank) is very into it, and is definitely very wealthy. It always sounded like bunk to me, but I've never bothered to really look into this in any detail.
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Jun 6, 2012 06:07
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flowinprose posted:The tax structure of 401k compared to Roth IRA does not necessarily make one more "favorable." If your tax rates are the same in the future as they are now, the tax considerations are a wash between the two. One might be more favorable than the other depending on your individual circumstances. To pile on to Reason #2, many 401k's are invested in lovely funds with high expense ratios. The Four Pillars has a big section about this and warns that if your 401k funds are terrible enough, it may be wise to only take your free match money and not invest anything else in the 401k, despite the tax-advantaged status.
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Jun 6, 2012 12:40
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At what point does that actually happen though? My understanding was that the tax-free status generally outweighed some exceptionally awful expense ratios, not to mention that you can just roll the balance of your 401k into your IRA when you move on to a new company.
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Jun 6, 2012 13:31
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Initio posted:At what point does that actually happen though? My understanding was that the tax-free status generally outweighed some exceptionally awful expense ratios, not to mention that you can just roll the balance of your 401k into your IRA when you move on to a new company. I think the 4 pillars might be a little bit dated in this regard, since at one time it was not uncommon for someone to have a 401k plan full of funds that charged load fees as well as ridiculous (>2%) expense ratios. Over the past 10 years or more, people have started to wise up enough that this is much less common now. It's still possible though to get totally screwed and have nothing but truly awful fund choices, but in almost every case these days there's at least one fund with an expense ratio <1% that you can stick the bulk of your money into and just use your taxable accounts and/or other retirement accounts to balance out a decent portfolio.
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Jun 6, 2012 13:49
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Spitball Trough posted:I know this is a bit OT, but is it widely believed that technical analysis is bull? My uncle (who is generally a very shrewd and successful guy, if a bit of a crank) is very into it, and is definitely very wealthy. It always sounded like bunk to me, but I've never bothered to really look into this in any detail. Widely believed? I don't know. Lots of successful traders use technical analysis so I'm sure they would consider it to be a sound science because of it (or perhaps in spite of it). In academia, feelings are pretty evenly split. I think the shrewdest advocates of technical analysis will tell you that it's more of an art than anything else, insofar as you could call making increasingly complicated candlestick charts an "art".
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Jun 6, 2012 14:15
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So what's the deal with the income-based cut-offs for Roth IRA contribution? I'm having a hard time finding up-to-date information with real numbers.
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Jun 6, 2012 14:27
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SlightlyMadman posted:So what's the deal with the income-based cut-offs for Roth IRA contribution? I'm having a hard time finding up-to-date information with real numbers. http://www.irs.gov/retirement/participant/article/0,,id=188238,00.html
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Jun 6, 2012 14:43
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Thanks, I'll look into opening up a Vanguard Roth IRA then. I'm still running into the problem that my employer doesn't let us know what their match is until the end of the year, but it seems unlikely that it will be more than 10%, so I'll just reduce my 401k contribution to that and put the difference into the IRA. I also have a couple IRAs and a 401k sitting around from previous employers, worth about 70k all together. I was thinking about rolling them into my current 401k, but should I consider converting them into this Roth IRA instead? They wouldn't count towards my contribution limit, would they? I think my 401k is a pretty good plan. It's fidelity and I'm contributing to the FID FREEDOM K 2050 package since I figure they'll have a better investment strategy than something my dumb rear end can come up with.
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Jun 6, 2012 14:56
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That would be one hell of a tax hit, I'd say no.
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Jun 6, 2012 16:25
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You would pay taxes on any funds you move to a Roth IRA. You can move the old retirement accounts to a Traditional IRA. That way you aren't tied to your company's 401k options. You can open the account with Vanguard, or whoever you end up with for your Roth IRA.
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Jun 6, 2012 16:31
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edit: ignore this, I have roles reversed.
Admiral101 fucked around with this message at 18:18 on Jun 6, 2012 |
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Jun 6, 2012 18:16
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As a european (live and work in France) i'm really curious about how your retirement system works: - Once you're retired you can only count on your 401k plan to get a pension ? No public/mandatory pension plan for retired people ? - In France, with our repartition system, right now people can count on 60-80% of their 10 best years during their career maxed at 6k€/month (I believe, not so sure about the numbers)If you want more you have to subscribe to additional private pension plans --> How much of your current income (in %) would it take to invest on pension plans (401k etc) to be able to have a similar pension in the US ? retirement ? Many friends of mine work in the US and usually earn between 30 and 50% more than in France, but I have the hardest time finding out how much of a gain this is if you have to privately fund your future retirement.
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Jun 6, 2012 19:21
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Macnigore posted:As a european (live and work in France) i'm really curious about how your retirement system works: There is social security, which has mandatory contributions (50% from employee 50% from employer). It does not pay very much, about $2500/mo for someone who earned enough to contribute the maximum (someone earning ~100k/yr) Macnigore posted:
That part is really hard to answer. The usual rule of thumb here seems to be save 10-15% of your money for your working life, that combined with social security will see you live somewhat close to how you did during your working years. Direct comparison $ for $ is not relevant, 6k euros/mo would put you well into the top 20% of the population in terms of income. sanchez fucked around with this message at 20:01 on Jun 6, 2012 |
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Jun 6, 2012 19:53
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SlightlyMadman posted:So what's the deal with the income-based cut-offs for Roth IRA contribution? I'm having a hard time finding up-to-date information with real numbers. Roth IRA income limits are actually meaningless due to a loophole that is widely exploited called the "backdoor Roth IRA". I'd recommend you google that and learn to ignore pesky income limits. It works roughly like this: 1) Open a traditional (non-Roth) IRA and fund it with $5,000 post-tax (this is the annual funding limit to all IRAs). 2) Let it settle for a couple days (may not actually be necessary) 3) Convert your entire traditional IRA account into a Roth IRA 4) Normally here is where you'd pay taxes for the conversion, however your money has sat for so short in the traditional IRA that you have virtually no earnings to tax. 5) Rinse and repeat every year. So even though your income might prohibit you from directly contributing to a Roth IRA, with a little workaround you end up funding the Roth IRA regardless.
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Jun 7, 2012 01:31
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keiran_helcyan posted:Roth IRA income limits are actually meaningless due to a loophole that is widely exploited called the "backdoor Roth IRA". I'd recommend you google that and learn to ignore pesky income limits.
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Jun 7, 2012 09:35
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Sorry if this has been asked before. I don't anticipate to be working for pay this tax year but have a bunch of savings that I'd like to dump into a tax-efficient vehicle for investing. So is it a problem to maximally fund a Roth IRA for a tax year if you do not anticipate have any significant taxable income from work?
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Jun 8, 2012 08:08
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shensterz posted:Sorry if this has been asked before. I don't anticipate to be working for pay this tax year but have a bunch of savings that I'd like to dump into a tax-efficient vehicle for investing. So is it a problem to maximally fund a Roth IRA for a tax year if you do not anticipate have any significant taxable income from work? You can't put in more than you made in taxable compensation (that doesn't include your investments). So if you don't make any money this year, you can't put any in a Roth.
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Jun 8, 2012 08:28
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I'm hoping for a little advice. I don't have any debt. I'm married, I rent. Salary 94k/yr. I'm a government employee with access to TSP, and I'll have a pension based off my high 3 year salary when I retire. My employer contributes 1% and matches an additional 4% to my TSP. I currently contribute 15% to my TSP and I've made no other investments, long term or otherwise. My TSP has about $28k in it. 100% of my TSP funds are in the Lifecycle 2045 fund. I don't know if folks here are already familiar with the funds offered in the TSP, so if you need me to look up specifics on funds or expense ratios, please let me know. Starting last month, we were able to contribute post tax to a Roth TSP instead. Employer contribution and match always goes into the tax deferred TSP I'll be forced to retire from my job at 56. I'll be eligible at 49 and I am 27 now. I've probably given too much info in some areas, not enough in others. Here are my concerns: I discussed my finances with representatives from Cambridge Financial. After taking my information, they started pitching a Whole Life insurance policy as a way of protecting my pension annuity. I guess when I want my wife to have a survivor benefit from my pension, I have to collect less from my annuity. How much less depends on whether I select a 25% or 50% survivor benefit for her. They want me to plan on taking the full pension annuity and then cover my wife via the Whole Life policy. They even have a cute name for the product, "Pension Max." I read up on whole life and it sounds awful. But I'm terrible with finances. Is there any reason, specific to my situation, that I should entertain the thought of a whole life policy? The Ferret King fucked around with this message at 21:52 on Jun 10, 2012 |
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Jun 10, 2012 21:13
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The Ferret King posted:Is there any reason, specific to my situation, that I should entertain the thought of a whole life policy? Not that I can see. I'd max out your tax deferred TSP if you aren't already. 94k is a bit much for a Roth to be your best first choice. You're making enough that you should have savings outside your retirement account as well, preferably some kind of index fund, not a life insurance policy. Basically something you can access before you retire (or die) should you find yourself in a situation where you need money.
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Jun 10, 2012 22:48
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These same guys told me I should switch my TSP contributions to the Roth side and max it out. Something about my tax rate likely being higher at retirement age than it is now.
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Jun 10, 2012 22:59
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Whole life may have some benefits for estate tax avoidance if you've got a few million in assets you didn't mention, but thats a conversation to have with an accountant and tax lawyer, not an insurance salesman.
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Jun 10, 2012 23:25
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The Ferret King posted:These same guys told me I should switch my TSP contributions to the Roth side and max it out. Something about my tax rate likely being higher at retirement age than it is now. That's rather unlikely. Most people make more money while they are working. I recommend looking at the tax bracket table from the IRS. Find the bracket you are in now. Now look at the income band for the next higher bracket. Will you realistically be there in retirement? Tax rates might go up significantly in general. But still, unless you're a special snowflake, you'll make less after you receive your last paycheck than before and therefore will probably have lower taxes. And if you are a special snowflake, you'll be able to afford the extra taxes anyway. All things considered, it's better to take a guaranteed tax break now than depend on one in the future that may not happen. nelson fucked around with this message at 23:28 on Jun 10, 2012 |
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Jun 10, 2012 23:26
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At this threads insistence, I looked into Roth IRA since I'd previously been contributing only to my 401k, and all I could find was really good reasons on both sides of the argument. What I personally decided was that it could easily go either way, so when in doubt, diversify. I'm moving my contributions over to about a 2:1 401k to Roth IRA split (401k more mostly because a good deal of that's matched).
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Jun 11, 2012 16:15
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Thanks for the input folks. I'll be declining the Whole Life offer for sure. Now I need to do more reading/research on whether or not to start contributions to the Roth TSP and how much, if any, to split. Also revisiting my 100% allocation in the L2045 fund once I know better what to do.
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Jun 11, 2012 20:40
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polyfractal posted:Isn't that the best time to invest money (theoretically)? Being greedy when everyone else is scared? “Be greedy when others are scared, and be scared when others are greedy.” -- Warren Buffett He knows a thing or two about investing and it is generally good advice. Unfortunately, it takes absolute balls of steel to pick a bottom when everyone is scared. If you would of bought equities at the "bottom" of the 08-09 debacle, generally speaking you would of made a killing (obviously this depends on the individual stocks or etfs). The problem with the stock market since the 08-09 crash is that the market is now artificially inflated and propped up by quantitative easing (the fed). If the euro completely implodes, the best investment that comes to mind would be physical silver and gold bullion. Both are hedges against financial/worldly uncertainty and inflation. If the euro collapsed it would cause both gold and silver to shoot to the moon. You could always short the euro, but that's a pretty crowded trade at this point.
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Jun 12, 2012 03:46
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I just started working for WA State government and I have to choose a retirement plan. The two options they offer are Plan 2 and Plan 3 explained here. You should read the link because my understand may be incorrect and need a BFC goon to correct me. I am 23, so Plan 3 has a lot of appeal for higher returns and also is much more flexible than Plan 2. Plan2: Defined Benefit Contribution is dictated by the State, historically between ~.5-5.99%. Retire at 65 with Five years of service Early Retirement (with reduced benefits) 55-64 with 20 years of service Plan3: Define Benefit with Defined Contribution Defined Contribution 5%-15% (fixed for life of the job, I think it's a 401a) They can Build and Monitor or I self Direct the funds. Retire at 65 with 10 years of service or 55-64 with reduced benefits. Also, if I'm reading it correctly I can leave after ten years take my defined contribution with me (roll over to a new 401/IRA) while my defined benefit grows 3% each year until 65 where I can then collect full benefits. My thoughts: I think plan 3 at 5% contribution would be ideal. I'm not sure weather I should self direct or allow them to manage for a target retirement date. I also will be looking into opening an IRA/Vanguard account, so I can invest there as well, but have a lot more control. I haven't researched the Funds or Indexes. Honestly, that will take a weekend of research--or more. So any suggestions, thoughts, ect.?
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Jun 12, 2012 04:17
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I'm starting a new job for the first time out of college, so I'm new to this. I have a lot of questions. I'm trying to save up for a house down payment (IN THE LONG-TERM, I mean like 5+ years down the line, less if I'm lucky), but I also want to keep kicking in money to my retirement account. I'm being hired at $85k/year. I have a Roth IRA with some money in it and my employer has a nice-sounding 401k plan. -- My offer letter says that employees "may contribute up to 25 percent of their base salary on a pretax basis, an after-tax basis, or a combination." From what I've read, there's also a Roth 401k that would basically work like a Roth IRA; does this mean that I'm ineligible for a Roth 401k? It seems like Roth 401k would be optimal for the same reasons that a Roth IRA is optimal, in that the earnings aren't taxed and the contributions were already taxed. If I can't do a Roth 401k, then I would think that pretax contributions would be optimal for my income, as I'm now in a middle-range tax bracket. Right? Basically, should I go for a Roth 401k if at all possible? -- For my 401k, my employer kicks in 3% of my base pay, matches 100% of the first 4% of my base pay that I contribute, and matches 50% of the next 4% of my base pay that I contribute. So if I contribute 8%, then my employer kicks in 3% + 4% + 2% for a total of 17% base pay per year. That's 17% of 85k, so $14450, or is there some other meaning to "base pay" that I'm not understanding? And most of it was free money? -- From my 401k alone, at $14450/year and conservatively only assuming that I receive raises that match inflation plus interest that matches inflation, I'd retire in 35 years at about $500k in today's dollars. That feels really small. Why does this feel so small? Did I do something wrong? It feels like this should be a lot more money than it is. Should I max out my contributions beyond employer-matching? It will probably kill any prospect of affording a 10% down payment in the next 5 years, is this worth it? -- I have a Roth IRA already, is it worth always doing Roth IRA or should I start doing a traditional IRA now that I'm in a higher tax bracket? I'm making some 5x more than I've ever made before. On the other hand, with a traditional IRA I'll not only be taxed on the principle but also on the earnings, so maybe Roth is still the way to go except for filthy rich millionaires? -- Am I wrong in thinking that using my Roth IRA to fund a home down payment is probably a terrible idea? I can only continue adding money back into the Roth IRA at the normal yearly rate, so I can no longer earn sweet tax-free interest on any of the withdrawn principle. It's probably better to continue maxing out Roth IRA contributions, never withdraw from the Roth IRA, and save up for a down payment separately, right?
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Jun 12, 2012 09:25
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I'm still on the fence about whole life insurance. Where can I read some trusted, reputable information for and against such policies?
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Jun 12, 2012 12:56
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The Ferret King posted:I'm still on the fence about whole life insurance. Where can I read some trusted, reputable information for and against such policies? It's more expensive than term life insurance. It gets pitched as a savings tool, but any quick simple math will show that if you invest the money you save when you buy cheaper term insurance instead of whole life, you'll come out ahead. The return is utter crap on the money you 'invest' in the policy. Whole life is much, much more profitable for the companies selling (for the reason above) which is why these policies get pushed so hard by salesman. Insurance is a tool used to the protect your loved ones when something terrible happens. Term life insurance is the cheapest way to get coverage for a period of time which is what you want. You usually don't need life insurance before you have kids or after you retire so why pay for it? What are you on the fence about? Have you gotten any quotes we can tear apart?
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Jun 12, 2012 15:45
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QuarkJets posted:I'm starting a new job for the first time out of college, so I'm new to this. I have a lot of questions. Regarding the total retirement calculation, you're assuming that your 401(k) would be entirely in cash. If you assume an annual 3% growth rate it'll be $875,000, 4% growth = $1 million.
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Jun 12, 2012 16:28
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Daeus posted:What are you on the fence about? Have you gotten any quotes we can tear apart? I haven't done an application yet. It involves giving urine and blood. But here's what we've discussed. Approximately $4450/yr for $500,000 coverage, begins accruing cash value after 3 years, and paying dividends. They run this out using some fancy looking software and show me how at age 65 I'll have $890,000 of death benefit of which $466,000 of that would be cash value. They go on to say that with that coverage, I could take my full pension without a survivor benefit and also spend out of my TSP more freely knowing the whole life policy was in place. There were graphs showing tax benefits too, but I don't recall the specifics. I have a lot of reading to do before I'm anywhere near capable of making a decision like this without relying on opinions from random people on the internet.
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Jun 12, 2012 23:57
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