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QuarkJets posted:-- 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." I'm no expert, but isn't a 401k contribution "on an after-tax basis" the same as a Roth 401k?
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Jun 13, 2012 02:18
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Echo 3 posted:I'm no expert, but isn't a 401k contribution "on an after-tax basis" the same as a Roth 401k?
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Jun 13, 2012 02:25
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I don't understand how it works, but I have seen someone have pre-tax 401k, post-tax 401k, and a Roth 401k options at work before. This was for an HR benefits consulting firm, so I assume they know what they're doing. Here's a link talking about the three different kinds: http://www.money-zine.com/Financial-Planning/Retirement/Comparing-401k-Contributions/
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Jun 13, 2012 02:35
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Alereon posted:I am also no expert, but I think that would just shift the burden to you to deduct it when you file your income taxes, not magically make it tax free when you withdraw the money after retirement (like a Roth 401k). This is correct.
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Jun 13, 2012 03:59
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The Ferret King posted:I haven't done an application yet. It involves giving urine and blood. But here's what we've discussed. I tried googling TSP and whole life to see if there was some super special benefit, but all I found were insurance websites selling certainty with whole life insurance.
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Jun 13, 2012 03:59
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So this is an entirely theoretical exercise just because I'm curious, but what (if anything) should you do different in your long-term retirement accounts if you suddenly had a million dollars? Is the investing strategy the same? Put your money into total-market, low fee index funds? Or are there new considerations when you have large amounts of capital to work with?
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Jun 13, 2012 04:10
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polyfractal posted:So this is an entirely theoretical exercise just because I'm curious, but what (if anything) should you do different in your long-term retirement accounts if you suddenly had a million dollars? As far as what sort of instruments you use, it's pretty much the same, lower cost indexing is just generally the best for passive investing, even for pretty hefty sums. The biggest difference is your need to take risk, so you probably end up with a somewhat more conservative allocation.
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Jun 13, 2012 04:13
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polyfractal posted:what should you do if you suddenly had a million dollars?
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Jun 13, 2012 04:23
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Unormal posted:As far as what sort of instruments you use, it's pretty much the same, lower cost indexing is just generally the best for passive investing, even for pretty hefty sums. The biggest difference is your need to take risk, so you probably end up with a somewhat more conservative allocation. Eh. At $1M in 2012 dollars, you already have enough to retire comfortably. Any extra beyond that amount might as well go into riskier investments with higher potential returns. Investing in a local business plan, say.
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Jun 13, 2012 08:56
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Harry posted:I tried googling TSP and whole life to see if there was some super special benefit, but all I found were insurance websites selling certainty with whole life insurance. Their angle is that it has more to do with allowing me to draw the full amount from my pension instead of selecting the option for a 25% or 50% survivor benefit from it, which requires I take less money from my pension while I'm alive. They also frequently cite their familiarity with my field's pay/retirement structure as reason to listen to what they have to say. If nothing else, they've alerted me to the fact that my federal group life insurance gets expensive after about age 49 so I need to be looking into other options (from there, we've been on this Whole Life discussion for the last few weeks). From my notes, the policy they're discussing with me estimates a 5% rate of growth, which they assure me is a very conservative estimate. The cash value of the police can be accessed in a couple ways. Through a withdrawal, which reduces the death benefit pay out, or a policy loan, which is probably what the above poster mentioned involving interest. I am attempting to Google for a deeper understanding of many facets of financial planning, I'm just looking for help on what specifically to read, so I don't end up buying something like gold, or possibly whole life (though, without the proper background knowledge, I can't prove to myself that those would be bad investments, I'd just be going off the advice of bloggers and forums users). I do appreciate everyone's help so far. Please offer anything you can and I will continue to read up. I plan on checking out Four Pillars and Intelligent Asset very soon. One of the advisers I've been speaking with is also mailing me a book he says I should read. We'll see what that's about once it arrives. The Ferret King fucked around with this message at 13:05 on Jun 13, 2012 |
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Jun 13, 2012 12:49
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Fuschia tude posted:Eh. At $1M in 2012 dollars, you already have enough to retire comfortably. Any extra beyond that amount might as well go into riskier investments with higher potential returns. Investing in a local business plan, say. $1m would only really throw off something like $30k of inflation adjusted returns per year. So while you could live off of it, it wouldn't really be a comfortable retirement.
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Jun 13, 2012 14:45
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Unormal posted:$1m would only really throw off something like $30k of inflation adjusted returns per year. So while you could live off of it, it wouldn't really be a comfortable retirement. Assuming you're 60 when you retire, and you think you'll live to 110, you can also draw down the principle by 20k a year. You can't take it with you.
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Jun 13, 2012 16:02
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EtaBetaPi posted:Assuming you're 60 when you retire, and you think you'll live to 110, you can also draw down the principle by 20k a year. You can't take it with you. Safe withdraw rates typically include principal draw-down over 30ish years. They're still only 3-5%. You have to grow your balance by inflation (3%, say) just to keep up, so 3-5% withdraw is 6-8% nominal growth. If you've got social security and/or a pension, sure 30k a year will make your retirement livable; but it's not like you're going to retire at 25 on a million dollars, unless you have a very low standard of living. (If you don't mind a 30k standard of living, then sure, retirement ahoy!) http://www.bogleheads.org/forum/viewtopic.php?f=10&t=95495
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Jun 13, 2012 16:13
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I just started my first job out of college. I'm starting off making ~30k a year which will most likely increase to ~40k after 6 months. My company offers no matching for 401k and after looking at the funds i could create a well diversified portfolio with expense rates of 0.9% to 1%. Is there any reason to deposit money into my 401k or should i just max out a Roth IRA with Vanguard? Or any other suggestions? I also have $19,000 invested in 12 individual stocks of which i'm not sure what to do with at the moment. I have capital gains of $4000 on the year and paper losses of $6500 with all securities having been purchased between February and April of this year. I use to think that the EMH was garbage and that i could beat the market but no longer believe this and want to eventually move to a well diversified vanguard index portfolio. What should i do? Wait til near the year end and harvest enough losses to cancel out capital gains taxes? Transfer my portfolio to a Vanguard account and sell everything then make my new portfolio? Help! MAN OF MANY MOUTHS fucked around with this message at 23:56 on Jun 14, 2012 |
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Jun 14, 2012 23:51
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Well for your future investments, definitely max out a Roth IRA at Vanguard. Expense ratios there are an order of magnitude lower.
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Jun 15, 2012 00:02
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MAN OF MANY MOUTHS posted:I just started my first job out of college. I'm starting off making ~30k a year which will most likely increase to ~40k after 6 months. My company offers no matching for 401k and after looking at the funds i could create a well diversified portfolio with expense rates of 0.9% to 1%. Is there any reason to deposit money into my 401k or should i just max out a Roth IRA with Vanguard? Or any other suggestions? If you want to try your hand in the market, you can always look into Index ETFs as well. edit: In addition to other conservative investment vehicles.
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Jun 15, 2012 07:46
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I think I finally have my retirement funds all planned out. I'm 33 now and am trying to set myself up to get 50% of my current income (adjusted for inflation) upon retirement at the age of 70. At least according to Mint's goal calculator, that will take a lot more money than I'd thought, so I've decided to really kick up my contributions. All told, I'll now be contributing about 20% of my base pre-tax salary. Is that about right? 20% of salary contributed for 37 years to end up retiring at 50%? I feel really stupid now for not contributing more in my 20s. I've had 401k and IRA accounts open since I was about 20, but usually contributed fairly minimal amounts, and took a lot out of it in the housing bubble to buy a house (stupid stupid stupid). Now instead of contributing a ton of money when my only expenses were video games and pizza, I have to balance my budget carefully to be able to make my contributions and maintain my home. I'm not in bad shape or anything, but gently caress if you're in your 20s and you're reading this, save every cent you possibly can and just live like you're poor while you still can. You do not need that new $700 graphics card.
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Jun 15, 2012 15:19
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SlightlyMadman posted:All told, I'll now be contributing about 20% of my base pre-tax salary. Is that about right? 20% of salary contributed for 37 years to end up retiring at 50%? That seems about right if you only get less than 2% real return, assuming you have nothing saved right now. 2% is a very low number to assume for any 50+% equity portfolio. If you got a 4% real return on investments and assume a 4% safe withdrawal rate, then saving 20% a year pre-tax should give you about 65%. If you actually wait until 70 to retire, then I would say you could have more like a 5% withdrawal rate since you would already be so old and unlikely to live out the 30+ year "safe withdrawal" scenario. Historically, 4% real return is a low number to use for equities also. On top of that you will have some kind of social security income which would add another 20-40% of pre-retirement income.
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Jun 15, 2012 15:38
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It's based on Mint's assumptions of a 5% return on a balanced portfolio, and 3% inflation, which I guess works out to about a 2% total return. My total retirement fund up to this point is only about 3-4 years' contributions at my new rate. I might be over-contributing a little, but if I can it seems like I might as well. If I end up with too much money that's not exactly a bad problem to have, and best case I might end up being able to retire early. Unless the stock market crashes and the world goes to poo poo of course, but that's why I'm diversifying my portfolio with canned goods and ammunition.
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Jun 15, 2012 15:47
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If you are going to over-contribute, the earlier you do so the better (the magic of compound blah blah). You can always slack off later if you need to. Also, do you still own that house? Owning a house outright by the time you retire tends to greatly reduce your fixed expenses, so that's worth factoring in a bit (maybe you already did to arrive at the 50% number though). I think Mint is maybe a bit too conservative with a 2% real return estimate, but it's good to err on the side of being conservative.
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Jun 15, 2012 16:57
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I still own the house, but I'm underwater on it, and will likely end up selling it as soon as the price comes back to the point that I'll get my money back, so I don't know if it makes sense to factor it in. I can definitely afford to contribute the 20% now if I'm a little bit frugal, but I guess my only dilemma is that leaves pretty much nothing for short-term savings. I have my 6 months expenses in a money-market account, but I don't have much else besides that for things like home remodelling or saving for something like a wedding. edit: Actually I looked at some of the numbers and especially if I take social security into account, 17% is still a perfectly fine number, and I can take that extra 3% and put it into savings and CDs to be sure I'm still continuing to add liquid assets as well. Thanks for the advice, guys! SlightlyMadman fucked around with this message at 21:28 on Jun 15, 2012 |
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Jun 15, 2012 21:25
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Hey gang, I have some probably fairly basic questions about my Traditional IRA vs. my Roth IRA. I want to make sure my understanding is correct. So, as I understand it, the only difference between traditional and Roth IRA is that with the traditional you initially save yourself the taxes on (up to) $5k but pay taxes on the appreciation when you withdraw it--presumably after several decades of appreciation by the time I hit retirement. Contributions into the Roth, on the other hand, are taxed initially, but not once you withdraw the money--again, after hopefully appreciating significantly over the years. If my understanding is correct (is it?), and with tax rates as low as they are right now (and probably lower than they will be 40 years from now), is there any reason at all to go with a traditional IRA over the Roth? Follow up: My traditional IRA is currently worth about $26k, and my Roth IRA is about $6k. Is there any way to get my traditional IRA funds into my Roth? I presume there'd be taxes paid on something, but is it feasible, and does it make sense? I'm still looking into other investment accounts as well (not necessarily just retirement and tax shelters), and I definitely appreciate the expertise in this thread--and all for a one-time fee of $10!
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Jun 16, 2012 03:02
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JimTheSarcastic posted:Hey gang, I have some probably fairly basic questions about my Traditional IRA vs. my Roth IRA. I want to make sure my understanding is correct. If you expect your tax bracket at retirement to be higher, and you're below the income limits, then a Roth is better. One thing to consider, that might not be obvious, is that even if the overall tax bracket structure is higher in the future, you may not have or need the same income during retirement as you do during your earning years, so your tax bracket may be lower for that reason.
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Jun 16, 2012 03:33
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Unormal posted:If you expect your tax bracket at retirement to be higher, and you're below the income limits, then a Roth is better. One thing to consider, that might not be obvious, is that even if the overall tax bracket structure is higher in the future, you may not have or need the same income during retirement as you do during your earning years, so your tax bracket may be lower for that reason. To add to this, it is also possible that within our lifetimes we may see the implementation of a significant value added tax (VAT) or something similar. If this is the case, and if it replaces all or a portion of the tax revenue from income taxes, then it would likely be more beneficial to have savings in a traditional IRA vs. a Roth IRA. I would recommend diversifying not only your investments, but also your investment vehicles (by this I mean pre vs. post tax contributions). Do this in a way that makes sense to you in terms of your current tax burden vs. what you predict your tax burden will be in the future as best you can. For example if you are a student currently earning a low wage, but reasonably expect to graduate and go into a career earning much more income (medical residents are a prime example here) then go with a Roth early on. In other words, the future is very difficult to predict but you just have to do the best you can.
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Jun 16, 2012 04:01
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There are some other differences. You can withdrawl your contributions from a Roth tax free at any time. You can withdrawl penalty free contributions after 5 years. And a Roth doesn't have mandatory distributions which is a nice feature if you can live off other sources for the start of your retirement (your Traditional IRA for instance). It also has some benefits if you pass away and choose to leave it to kids. You can convert your Traditional to a Roth. Assuming you received the tax deduction for your Traditional IRA contributions, you would have to pay tax on it and it's earnings. You can split that tax payment though over the course of two years. I guess looking at your situation, I don't know if I'd be inclined to do that. You mentioned before that you're pulling in close to $150k a year. If anything you should be looking at ways to reduce your tax liability, not add to it (which converting to a Roth would). You'd be looking at paying 28% tax on the money you convert to a Roth. Here is a calculator you can play around with that can help you with your decision. http://www.smartmoney.com/calculator/retirement/should-i-convert-my-ira-to-a-roth-ira-1304481621417/ One other thing you mentioned was that due to the nature of your job your income can fluctuate a lot. You may be better off waiting to convert to a Roth when you have a down year income wise. For instance you have a year where you're out of work for awhile and only make $20k. You'd be able to convert $20k into a Roth at just over 15% tax instead of the 28% you have now. There is the risk that they will close that conversion option though. I'd play with the calculator but I believe you should be putting your efforts into reducing tax liability. Setting up a SEP-IRA since you're self-employed is a great way to put a lot of money into a retirement account and reduce your tax liability.
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Jun 16, 2012 04:02
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Niwrad posted:I'd play with the calculator but I believe you should be putting your efforts into reducing tax liability. Setting up a SEP-IRA since you're self-employed is a great way to put a lot of money into a retirement account and reduce your tax liability. And if you want to put away even more at any given level of income, an individual 401k is just a little trickier to set up but allows you to contribute a substantially higher percentage at below-max income. (at the top cutoff, I think the SEP and the solo-401k end up being the same amount or very close)
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Jun 16, 2012 04:06
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Niwrad posted:There are some other differences. You can withdrawl your contributions from a Roth tax free at any time. You can withdrawl penalty free contributions after 5 years. And a Roth doesn't have mandatory distributions which is a nice feature if you can live off other sources for the start of your retirement (your Traditional IRA for instance). It also has some benefits if you pass away and choose to leave it to kids. What does penalty free contributions after five years mean? Also, if you do a Roth 401k with your employer can you still withdraw your contributions at any time without penalty? I assume the employer match may be different.
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Jun 16, 2012 08:18
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I'd like some advice on what financial decision we should make next. My wife and I are currently expecting our first child. I'm 28, and we started a Roth IRA in February and put in the maximum for '12. We have 30k in a CD at .9% that will mature in 2 years, when I graduate from Law School, to go towards our down payment on a house. My wife works as a nurse and makes about 52k a year. We currently save 1200 a month and have about $6k in savings. In October we will have paid off our car and that will free up an extra $450 a month. However, I anticipate that much of that will go towards our child once it is born. What is the next step we should do as I realize we are getting a late start (at least for me). I've been told that we should amass a 6 month's salary worth of savings. We are working on that, but I'd like to get on to doing other things as well. Thanks. EDIT: Some more information - The Pension plan at my wife's hospital was absolute trash. We decided to not opt into putting money there so there's no retirement offering from her employer. Stumpus fucked around with this message at 19:34 on Jun 16, 2012 |
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Jun 16, 2012 18:54
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Why not just take out the CD, pay off the car, set aside 6 months living expenses from it and then just start adding left over amounts to the house fund? Depends on the CD, but a lot of them the "penalty" is like 2-3 months of interest.
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Jun 16, 2012 23:33
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The Ferret King posted:Their angle is that it has more to do with allowing me to draw the full amount from my pension instead of selecting the option for a 25% or 50% survivor benefit from it, which requires I take less money from my pension while I'm alive. http://www.smartmoney.com/plan/insurance/term-or-whole-life-8011/ http://voices.yahoo.com/financial-experts-agree-buying-whole-life-insurance-4305795.html http://www.foxbusiness.com/personal-finance/2011/08/04/how-much-money-will-your-whole-life-insurance-policy-generate/ http://www.badfaithinsurance.org/reference/Life/L0455a.htm http://www.bogleheads.org/forum/viewtopic.php?f=2&t=97691&start=0 http://whitecoatinvestor.com/8-reasons-to-avoid-whole-life-insurance-and-4-reasons-to-consider-it/ http://poverty-action.org/sites/default/files/Anagol-Paper.pdf That last link is to a research paper showing that when life insurance salesmen are required to disclose the amount of money they make on a life insurance product, the less likely they are to pitch it. That should be all you need to know. There is almost no one who is better off with whole life instead of buying term and then investing the difference on your own. This isnt even a controversial area of financial planning. Nearly everyone agrees that whole life policies are a waste of money except in very narrow exceptions. The only people who disagree are whole life salesmen. They are trying to sell you a product for which they are compensated handsomely, and you should ignore their pitches just as you'd ignore the pitch of a car salesman. They "assure" you that 5% is a conservative estimate for your return. Ask them if they'll put that in writing and guarantee that. They won't, because they know that they have no idea what your actual return will be, and they don't care, because by the time you've figured it all out, they've already pocketed their cut of the deal. What they're trying to sell you is the idea that with whole life, you don't have to worry about leaving a survivor benefit from your pension because your wife will be taken care of with the value of the whole life policy. What they're not telling you is that you can do the exact same thing on your own and not pay them their exorbitant fees! If you take the $4,450/year that you'd pay into the policy and invest it in a regular taxable account (or even in an IRA, setting your wife up to receive an inherited IRA account), you get to the same result with significantly lower fees. Whole life policies aren't magic. Your money is invested and is subject to market conditions just like any other investment. Let's say you take that $4,450/year and invest it in a regular account. Let's give you the same 5% "conservative" return that the whole life guys promise you. After age 65 you'll have about $530,000 to leave to your wife. You can also buy a 30-year term policy for a couple bucks a month and leave that money too. Insurance is insurance. Investments are investments. Insurance is not an investment. It's a tool to hedge risk of early death. Trying to commingle them is an exercise in futility. Also, not to try and read your mind too much, but your first instinct after receiving some replies here was to decline whole life. Then you said you were back on the fence and have since made more than one reference to not trusting the word of anonymous Internet people. It strikes me that maybe you told the whole life salesman that you weren't interested, they asked why, you said you had read some things on the Internet, and the salesman criticized you for it. If that's the case, this is Sales 101. It's right up there with questioning who wears the pants in a relationship after a guy tells a salesman he wants to talk it over with his wife. I'm also a federal employee with FERS and I've looked into all of this. There is no way, with a government salary, that you're going to come out ahead with a whole life policy. Final thought: if you're still unsure, ask the salesman to print you a copy of all of his projections, fees, terms, etc. and then take everything to an independent financial planner who does not also sell any insurance products. Ask the independent person for their input after showing them the projections. It'll cost you a couple hundred bucks for the consultation but that's chump change in the long run. 10-8 fucked around with this message at 14:40 on Jun 17, 2012 |
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Jun 17, 2012 05:40
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Is there a good discussion on whether 529 plans are appropriate somewhere?
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Jun 19, 2012 00:52
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JimTheSarcastic posted:Hey gang, I have some probably fairly basic questions about my Traditional IRA vs. my Roth IRA. I want to make sure my understanding is correct. You should probably only go with a traditional IRA if you expect your taxes to be much lower in the future; with a Roth IRA you don't have to pay taxes on the earnings, which can be considerable and can even exceed your principle, so with a traditional IRA there's a chance that you're cutting off your nose to spite your face (because you pay taxes on everything with a traditional IRA, whereas with the Roth IRA you only paid taxes on the contributions). If you make less than $100k/yr then you're probably better off doing a Roth IRA and trying to get a Roth 401k, or if it's not offered by your employer yet then do a pretax 401k (I don't know why anyone would do a post-tax 401k, you still pay taxes on the earnings). If we end up in some sort of bizarre Ron Paul future with no income taxes then you'll be kicking yourself for having paid taxes now but that probably won't happen. Echo 3 posted:I'm no expert, but isn't a 401k contribution "on an after-tax basis" the same as a Roth 401k? After a lot more reading, they are different. pre-tax 401k means that you deduct the 401k contributions, and then when you withdraw you pay taxes on everything that you withdraw. Everything gets taxed. after-tax 401k means that you pay taxes on the contributions, and then when you withdraw you only pay taxes on the earnings. This means that everything is still taxed at some point (contributions at contribution time, earnings at withdrawal time) Roth 401k means that you pay taxes on the contributions, but then you pay no taxes when you withdraw. This includes no taxing of the earnings. Of course this is way way better than an after-tax 401k, but Roth 401k is still new so a lot of employers don't do them yet. QuarkJets fucked around with this message at 08:20 on Jun 19, 2012 |
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Jun 19, 2012 08:13
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What are the chances of me being able to roll my Fidelity 401a offered by an old employer into my (unknown firm) 401k offered by my new employer in a different state? Any potential problems here?
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Jun 19, 2012 08:22
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QuarkJets posted:If we end up in some sort of bizarre Ron Paul future with no income taxes then you'll be kicking yourself for having paid taxes now but that probably won't happen.
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Jun 19, 2012 13:41
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10-8 posted:Or Congress could decide it needs revenue. That's why I'm not sold on Roths. Put aside whether your rate will be higher or lower when you retire. You still have no guarantee that a new Congress won't change its mind in 20 years and impose a tax on Roth earnings. For me, the guaranteed tax benefit now is worth more than a possible tax benefit 20 years from now. A bird in the hand, and all that.
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Jun 19, 2012 14:58
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Saint Fu posted:That would essentially be the same as Congress taxing withdrawals from your bank account. Do you keep all of your cash under the mattress? Not really. They'd know what your basis is, and could tax earnings.
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Jun 19, 2012 15:01
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Saint Fu posted:That would essentially be the same as Congress taxing withdrawals from your bank account. Do you keep all of your cash under the mattress?
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Jun 19, 2012 15:11
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QuarkJets posted:You should probably only go with a traditional IRA if you expect your taxes to be much lower in the future; with a Roth IRA you don't have to pay taxes on the earnings, which can be considerable and can even exceed your principle, so with a traditional IRA there's a chance that you're cutting off your nose to spite your face (because you pay taxes on everything with a traditional IRA, whereas with the Roth IRA you only paid taxes on the contributions). I'm honestly confused every time I hear this argument, and haven't been able to get anyone to explain it to me. I've heard all sorts of analogies, like "if you're planting a field, would you rather somebody take a portion of the seeds or the crops" but I don't see how it's any different. If you pay the taxes up-front, your earnings are still less, so assuming tax rates are the same, the end result doesn't change. Let's say I have $5,000 to invest for 30 years with a 5% interest rate. My tax rate is 25% now and will be the same in 30 years. If I put that $5,000 pre-tax in a traditional IRA, it becomes $21,609.71. I pay the 25% tax and that leaves me with $16,207.28. If I pay taxes on it now and put it in a Roth IRA, I'm only starting with $3,750. In 30 years, that becomes ... $16,207.28. I don't have to pay taxes on that again, so I end up with the exact same amount of money. The only way it seems one could be better than the other is if your tax rate changes, unless I'm missing something?
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Jun 19, 2012 15:17
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SlightlyMadman posted:I'm honestly confused every time I hear this argument, and haven't been able to get anyone to explain it to me. I've heard all sorts of analogies, like "if you're planting a field, would you rather somebody take a portion of the seeds or the crops" but I don't see how it's any different. If you pay the taxes up-front, your earnings are still less, so assuming tax rates are the same, the end result doesn't change. That's a big assumption.
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Jun 19, 2012 15:31
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If your tax rate is exactly the same as it is right now, then it will work out to the same amount of money. Most likely though, it will change in some respect even if you ignore changes to the tax code from congress (which I personally think are impossible to realistically anticipate). Maybe you expect your earnings to really take off, and plan to travel the world on your hard-earned savings - so you'll need to withdraw more money sooner, and you'll see a higher tax than you do today. Maybe instead you have more modest plans, a paid-off house, and no other retirement income other than your IRA. If so, that would drastically reduce the amount of money you need - which means that you can withdraw less, and have a correspondingly lower tax rate.
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Jun 19, 2012 15:36
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