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Kilty Monroe posted:That's for deducting Traditional contributions, but the phaseout for singles being able to make Roth contributions is from $112k to $127k. If you're not that far over $100k then you can contribute post-tax dollars and then not be taxed when you take your distributions. Those limits are based on MAGI, too, so if you're just over the limit then you can subtract your pre-tax 401k contributions to qualify to make Roth IRA contributions, ironically enough. This whole pre/post 401k/tax contributions is confusing as gently caress. MAGI and AGI make it even harder to understand. So I make ~$120k before taxes and I doubt I'll be making more in the next 5 years. I contribute ~12% of my salary (pre-tax) to a 401k and I make the maximum post tax contribution to my IRA. Where does this land me in terms of traditional vs. Roth? When I chose between tradition vs. Roth, my thinking was that money saved now with the traditional IRA could be worth a lot more than the money I could be saving with non-taxed withdrawals in the Roth IRA. Maybe I'm an idiot though.
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Oct 19, 2013 06:13
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Bhaal posted:stuff I think you are trying to make things way more complex than they need to be. 1 - For joint taxes: Google "joint vs separately calculator" and click the first link. The short answer is that unless you fall under some fairly peculiar (but not entirely unheard of) circumstances you will be better off doing a joint return. When you go to do your taxes, just run it both ways and see which is best, either using one of the many cheap DIY tax options or by being dumb and lazy and having an accountant do it for you. For bank accounts etc: Doesn't really matter. I do ours jointly just for simplicity. Maybe your wife is really independent and wants to keep things separate, maybe not, it is just a personal preference. About the only thing I gave much thought to when I got married was making sure we each had enough life insurance so that if one of us died there would be enough to pay of any debts the dead person had, and setting up beneficiaries on all the retirement accounts so that the other person would get the money if one of us died. I haven't had to worry about a will much since everything is in both of our names, but it could be a consideration if your circumstances are different. 2 - Roth is better if you think your taxes right now are going to be lower than when you want to withdraw the money (so you want to pay them now instead of later). Traditional is better if you think taxes right now are higher than they will be when you want the money (so you want to pay them later). If taxes are the same both times then it doesn't make any difference. You want to think about what you want your income to be when you retire, and then roll the dice on what you think taxes are going to be doing for the next couple of decades. 3 - Roll it over into an IRA with low expense ratio options, possibly Vanguard. This terminology about "seeding" an IRA seems unnecessary to me. Sometimes you need to consider minimum purchase amounts for certain index funds, but with your financial situation I don't think that is going to be an issue. You are just putting a different label on the money, not planting any kinds of seeds. 4 - By "retirement accounts", do you mean the target-date retirement funds in a 401k/IRA? Or are you implying a difference between a 401k/IRA retirement account and a regular brokerage account? For most purposes there isn't much of a difference if you are using them as a long-term investment vehicle, except for the huge tax advantages from the 401k/IRA accounts. You should still be getting plenty of risk/reward in a 401k/IRA. So what should you do? I would recommend the following: 1 - Figure out what you want to do with your life. Set some long term goals. Hell, maybe have a conversation with your wife about it! When do you want to retire, and what kind of lifestyle do you want to have then? How much income will you need? 2 - Come up with an asset allocation which matches that goal. Retirement probably isn't for a long time, so going heavy on stocks is almost certainly what you will end up doing (there's your high risk). Lots and lots of resources are available for this topic, in this thread and elsewhere on the internet and in books. Don't pay any shitfuck in a suit for it though. 3 - Come up with a budget that allows you to max out your tax advantaged investments. Put the most you can in an IRA for you and your wife, and max your wife's 401k too. And if your company gets a 401k option, go ahead and max that out as well (you might start running out of extra money at this point). If expense ratios in your 401k plans are higher than what you can get in the IRAs, roll them over. Re balance maybe once or twice a year based on your asset allocation. 4 - Use any money left to pay off your silly car loan ASAP - depending on how "embarassingly high" the interest is on the loan, maybe give this a little higher priority than #3. Based on your income, you should be able to knock this out in a few months, so you might as well go hog wild on it. Then start thinking about extra payments on the mortgage. At such a low interest rate it isn't exactly obvious that paying off the loan faster than required is such a good idea. Having a mortage debt like that is a decent hedge against inflation. You would probably be better off investing more than paying off the mortgage honestly. You could go back to your retirement goal - when do you want that to be? Then maybe target having mortgage paid off by then. From a cash-flow perspective, it is nice not having that monthly payment when you are on something like a fixed income. Basically do 1, 2, and 3, and as long as human civilization doesn't collapse within the next 75 years you will be able to retire young and rich, if that's what you want to do. There's a lot of nuances you can get obsessed with, but focus on the big picture first and you will be 95% of the way there. Zyme fucked around with this message at 17:29 on Oct 19, 2013 |
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Oct 19, 2013 17:07
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theHUNGERian posted:This whole pre/post 401k/tax contributions is confusing as gently caress. MAGI and AGI make it even harder to understand. I'm using pre-tax and post-tax as synonyms for traditional and Roth contributions. Sorry for the confusion. You make $120,000 a year, and contribute 12%, or $14,400, to a traditional 401k plan. Your taxable income is then $105,600, and those contributions are not factored back in when your MAGI is calculated. That is lower than the $112,000 phaseout point for Roth IRAs, so you are then eligible to make the $5,500 maximum contribution to a Roth IRA. If your tax rate is the same when you retire as it is now, then the difference between traditional and Roth is a wash. If you expect your taxes to be lower when you retire, then a traditional IRA would be better for you, though since you don't have a choice in the matter, Roth is better than nothing. Roth also gets the benefit of having a higher effective maximum contribution, since $5,500 post-tax dollars are "worth more" than pre-tax dollars. Kilty Monroe fucked around with this message at 06:02 on Oct 20, 2013 |
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Oct 20, 2013 05:57
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Kilty Monroe posted:I'm using pre-tax and post-tax as synonyms for traditional and Roth contributions. Sorry for the confusion. Thanks. I'll also have my tax advisor look at this situation when she does my taxes in February. I do think that I'll be making less in retirement than I am now. If not, then that's a luxury I'll gladly deal with.
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Oct 20, 2013 18:38
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Kilty Monroe posted:Roth also gets the benefit of having a higher effective maximum contribution, since $5,500 post-tax dollars are "worth more" than pre-tax dollars. This is a critical component and for people who are maxing out their retirement accounts. The additional amount you can save post tax in a Roth can make up for even 4-8% higher taxes in retirement depending on what sort of assumptions you use.
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Oct 20, 2013 18:49
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The past several years, I've been opening Roth IRAs with a different mutual/index fund each year for my goal of diversification. However, this means several different accounts to track, each with annual maintenance fee, .etc. I'm thinking it makes logic sense to move these all to a single account provider. This is easy, right? Any reason I should NOT do this?
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Oct 21, 2013 05:53
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Small White Dragon posted:The past several years, I've been opening Roth IRAs with a different mutual/index fund each year for my goal of diversification. However, this means several different accounts to track, each with annual maintenance fee, .etc. Wait, you opened a whole bunch of IRAs with different companies that each hold a single fund? And you're paying maintenance fees on each one? It's pretty  to me that you did that in the first place. How would you rebalance?Roll them all over to a single IRA with Vanguard, opt in to electronic statements, and stop paying maintenance fees.
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Oct 21, 2013 06:26
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I'm trying to figure out a good investment strategy for my rollover IRA. -In my 401k I'm invested in a transamerica index fund of .24% (lowest ER I have available, but its a small amount of $ due to changing jobs recently. -My rollover IRA (most cash) is in a fidelity target date fund (FFFGX, .8% ER bleh) -My Roth IRA is in FSTVX (total market index fund) The performance on my target fund rollover IRA is ...okay, its not keeping up with the market index funds but it also makes sense because it has a collection of international stocks and also 20%ish bonds. Am I really doing myself a disservice if I go all in on total market index funds (more FSTVX?) I'm a youngish guy (29) so I don't mind being aggressive on my portfolio, should I still be picking up a percentage of bonds? The Boglehead wiki says this 3 fund breakdown should be used: Fidelity Spartan Total Market Index Fund (FSTMX) Fidelity Spartan Global ex U.S. Index Fund (FSGDX) Fidelity Spartan U. S. Bond Index Fund (FBIDX) I guess if I should be doing a 3 way spit I'm just not sure what way to cut the pie?
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Oct 21, 2013 17:27
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I don't think you'll be missing out on anything. The outlook for bonds is either low yield or a bloodbath when rates rise.
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Oct 21, 2013 18:06
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theHUNGERian posted:This whole pre/post 401k/tax contributions is confusing as gently caress. MAGI and AGI make it even harder to understand. Putting 12% into pre-tax 401k reduces your income to below the phase-out for Roths. You are still above the phase-out to deduct traditional IRAs. You can put money into your traditional IRA even though it is not deductable, but you should document it with Form 8606. You will need to keep all those 8606 until you retire in order to calculate how much of the withdrawals from your IRA will be taxable, and which will not. http://www.irs.gov/pub/irs-pdf/i8606.pdf If you make above the cutoff for a Roth, you may not contribute to a Roth at all. http://www.irs.gov/Retirement-Plans/Amount-of-Roth-IRA-Contributions-That-You-Can-Make-For-2013
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Oct 21, 2013 18:29
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Huttan posted:Putting 12% into pre-tax 401k reduces your income to below the phase-out for Roths.
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Oct 21, 2013 18:31
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Isn't the Roth backdoor still valid (assuming you don't already have an IRA, else you get into messy complications)? (random google search): http://www.nerdwallet.com/blog/investing/2013/backdoor-roth-ira-high-income-how-to-guide/
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Oct 21, 2013 18:44
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Small White Dragon posted:Doesn't MAGI (the cutoff for Roth IRAs) require you to re-add any pre-tax retirement contributions? Nope, 401k contributions are a great way of reducing your MAGI specifically to make sure you don't exceed the Roth IRA cut-off. edit: To clarify, there are some things that are added back in, but 401k is not one of them. SlightlyMadman fucked around with this message at 21:27 on Oct 21, 2013 |
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Oct 21, 2013 20:46
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Fancy_Lad posted:Isn't the Roth backdoor still valid (assuming you don't already have an IRA, else you get into messy complications)? Yes.
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Oct 21, 2013 21:04
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As an aside, reducing MAGI may become a lot more relevant now that the Affordable Care Act is coming into effect. The subsidy benefits it provides are not structured smoothly with marginal rates like income tax brackets are, so there's an incentive to come in at just below a dividing line rather than just above. Most importantly, there's a hard cap on receiving benefits at all once your MAGI hits 400% of the federal poverty level.BotchedLobotomy posted:I'm trying to figure out a good investment strategy for my rollover IRA. Based on Modern Portfolio Theory, putting at least 10% of your portfolio in bonds cuts down on your total risk without significantly hurting your total returns through the power of diversification and rebalancing. I still have some reading to do on that subject so I can't explain the particulars, but the short answer is yes. I wouldn't put up with that 0.8% ER in your rollover IRA either. Move it to FSTMX, then allocate your percentages in your Roth based on your portfolio as a whole.
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Oct 22, 2013 01:01
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Zyme posted:Lots of good stuff. quote:4 - By "retirement accounts", do you mean the target-date retirement funds in a 401k/IRA? Or are you implying a difference between a 401k/IRA retirement account and a regular brokerage account? For most purposes there isn't much of a difference if you are using them as a long-term investment vehicle, except for the huge tax advantages from the 401k/IRA accounts. You should still be getting plenty of risk/reward in a 401k/IRA. Thanks for the advice, and sorry for weird terminology like "seeding". I obviously have a lot more reading to do to get more deeply familiar with all this stuff but I think this will definitely get things on track for now. The car loan is like 12%, the recession brought unpleasant times but anyway yeah I think that's gonna get knocked out immediately. I agree on the mortgage being a good hedge against inflation (not that I'm worried about hyperinflation), so I think I'll take a moderate approach at overpaying some so that we can cut out a lot of the interest long term but don't put so much into it that we can't get these other investments up and running. Bhaal fucked around with this message at 02:12 on Oct 22, 2013 |
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Oct 22, 2013 02:09
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Kilty Monroe posted:I wouldn't put up with that 0.8% ER in your rollover IRA either. Move it to FSTMX, then allocate your percentages in your Roth based on your portfolio as a whole. Yeah I ended up doing a full sell of FFFGX (target fund) and moved it into FSTVX which is the "need to put 10K in here or more" fund, its an ER% of .06. Much better!  I'll do the diversification in the roth since I just made the move in my rollover IRA and I do get penalized for selling a fund without holding it for at least 90 days. I don't ever plan to invest in that rollover IRA again unless its rollover from another 401k; my route has been max roth, max 401k, and rest into taxable. A nice little story for you guys, but my company's 401k sucks. I don't get a match, and its through TD ameritrade where the best ER they have is .24 on a S&P index fund. They sell vanguard target retirement funds with a .24% premium over buying it directly through vanguard. I voiced my opinion that our system frankly has bad options and people who are blindly investing into it without know what or where or why are getting boned on fees. My HR manager was taken aback, she had no idea it was a bad deal and assumed it was great based on no negative feedback ever. I ran some numbers and showed the difference between a low fee return over 10+ years vs what we have in ours. Long story short we're probably going to go with a new provider, most likely vanguard starting next year. 
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Oct 22, 2013 02:48
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Zyme posted:4 - Use any money left to pay off your silly car loan ASAP - depending on how "embarassingly high" the interest is on the loan, maybe give this a little higher priority than #3. Based on your income, you should be able to knock this out in a few months, so you might as well go hog wild on it. Then start thinking about extra payments on the mortgage. At such a low interest rate it isn't exactly obvious that paying off the loan faster than required is such a good idea. Having a mortage debt like that is a decent hedge against inflation. You would probably be better off investing more than paying off the mortgage honestly. You could go back to your retirement goal - when do you want that to be? Then maybe target having mortgage paid off by then. From a cash-flow perspective, it is nice not having that monthly payment when you are on something like a fixed income. Just a couple of added home-ownership details to throw in here. If you put less than 20% down on your home, you are probably paying PMI (mortgage insurance). Typically you can stop paying PMI once you get to 20% equity. In this situation, with extra income it makes sense to aggressively pay down the mortgage until you hit that threshold. (PMI insures the lender, not you, so it provides no real benefit to you to keep it.) Another thing to consider, as a homeowner, is your homeowner's insurance policy deductible. It makes sense, if you can, to maintain (in addition to your regular emergency fund) a fund of sufficient size to cover the deductible on your homeowner's insurance. The idea is, if your house burned to the ground tomorrow, the insurance covers "replacement cost" (e.g., the cost to rebuild the structure), less your deductible. Having the cash on hand to take care of the deductible would mean you could take the insurance payout, add your cash, and immediately begin reconstruction. Being able to do this without obliterating your savings or having to borrow from your retirement accounts would be good, especially if you would need your savings to help cover the cost of renting while your home is built (although many insurance policies include living costs), replacing your personal items (although again your homeowners insurance typically covers your belongings), or keeping your head above water if you wind up fighting over details of the payout with the insurance company. Thirdly, consider the age and condition of your home and its infrastructure. If you have brand new construction and you bought a warranty, maybe you don't need a lot of cash on hand to cover unexpected repairs. On the other hand, if your house is older construction, you should include in your emergency savings, enough cash to cover some of the more expensive sudden repairs you might need. For example, a new roof, replacement of a sewer line to the street (often involving digging up and then re-paving a driveway or sidewalk or both), foundation repairs, etc. can each cost ten to twenty thousand dollars. Finally, consider the cost of selling your house. If you suddenly get a new job opportunity, decide you're having kids and want a better school district, etc., you may have to cover substantial costs in order to sell, including paying both the buyer and seller's agent fees, repairs demanded by the buyer, or the costs of moving all your stuff into storage so you can stage the house while it's on the market. If you have no plans to sell in the next ten years, this can be part of your non-cash, long-term savings; if it could happen in under 5, it's worth considering as an added bundle for your shorter-term savings planning. Leperflesh fucked around with this message at 22:45 on Oct 22, 2013 |
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Oct 22, 2013 22:43
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Leperflesh posted:Just a couple of added home-ownership details to throw in here. You want to be very careful that you know exactly what you're getting into with the PMI issue. I was initially told by my loan officer that I should be able to stop PMI after reaching 20% equity, but found out later the FHA loan rules had been changed and I had to make payments for a minimum of 5 years on a 30 year loan before PMI could be stopped (and then only if I was at 20% or greater equity). I believe the rules for FHA loans were recently changed in June where for 30-year loans you have to pay PMI for the life of the loan. The only way to get rid of it at that point would be to re-finance. Of course this only applies to FHA loans, but I'm not sure that you can even get a conventional loan anymore with equity <20%.
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Oct 22, 2013 22:48
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Here's a quick puzzle: this year I got a bump up in salary but am also married with a spouse whose PhD grant ran out. We're pretty close to the top end of the 15% bracket filing jointly this year. Next year I expect I will be nudging into the 25% bracket. We have a "savings" buffer of a few thousand dollars, but that does not cover more than a month or two of expenses. In theory, we expect a parental bailout is possible if absolutely needed, and have good insurance and job security. I am new to the higher salary and we are slowly building up this fund but aren't there yet. I started a Roth IRA at Vanguard for my wife and I in 2012 and contributed the max to a Target 2050 for each of us. I have a 403(b) from my old job with ~$10,000 in it at TIAA-CREF. I have 2 different individual stocks (PG, LMT) that my grandfather bought me long ago and each account is worth ~$2,000, and a TIAA-CREF mutual fund account with ~$3,000. I believe that my best move, tax wise, is to roll over the 403(b) into my Roth IRA and take the tax hit. I would also be well served by selling off the individual stocks, and the mutual fund, and moving those funds (totaling ~$7,000) into our retirement funds to shelter future gains from taxes. I would have to pay taxes on my gains made so far. This way I push all of my taxable events into a year when I expect my tax rate to be lower than next year. However, it means that previously liquid-ish investments are now locked into retirement savings. Am I doing myself a favor by maxing my Roth contributions while I'm pre-30 and will benefit the most from having them in there over a long period and saving a few thousand in taxes, or am I screwing myself by de-liquidifying (solidifying?) my investments and neglecting my emergency fund for this year.
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Oct 23, 2013 05:00
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kaishek posted:Here's a quick puzzle: this year I got a bump up in salary but am also married with a spouse whose PhD grant ran out. We're pretty close to the top end of the 15% bracket filing jointly this year. Next year I expect I will be nudging into the 25% bracket. We have a "savings" buffer of a few thousand dollars, but that does not cover more than a month or two of expenses. In theory, we expect a parental bailout is possible if absolutely needed, and have good insurance and job security. I am new to the higher salary and we are slowly building up this fund but aren't there yet. Income tax rates are marginal and progressive. This sounds like a large decrease in liquidity to save a few hundred dollars, unless all of the $17k or so you are rolling over is gains.
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Oct 23, 2013 16:02
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So this might not be the right place for this question but I can't find another applicable thread. I just got married and decided to re-start a saving's account. The old one I'd had was through my bank and I used it to save up for my study abroad trip. Of course the account disappeared when I cleared it out to go to Denmark. Now that I'm married we want to start a joint savings account. Neither of us have jobs (I'm in nursing school and he's looking for one) at the moment but he's saved about $5k in savings, while I've only got about $1k. We were also given some money in wedding gifts to use to start an account. So I just want to open a simple savings account but I have no idea which bank to go through. The internet is telling me GE Capital Bank is my best bet with interest (0.9%) but I'm unsure about having an online savings account. Is it safe/practical to pick GE Capital? Which bank would you suggest I set up an account through?
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Oct 23, 2013 16:16
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JibbaJabberwocky posted:So this might not be the right place for this question but I can't find another applicable thread. I just got married and decided to re-start a saving's account. The old one I'd had was through my bank and I used it to save up for my study abroad trip. Of course the account disappeared when I cleared it out to go to Denmark. Now that I'm married we want to start a joint savings account. Neither of us have jobs (I'm in nursing school and he's looking for one) at the moment but he's saved about $5k in savings, while I've only got about $1k. We were also given some money in wedding gifts to use to start an account. So I just want to open a simple savings account but I have no idea which bank to go through. The internet is telling me GE Capital Bank is my best bet with interest (0.9%) but I'm unsure about having an online savings account. Is it safe/practical to pick GE Capital? Which bank would you suggest I set up an account through? Interest rates for any savings account are going to be pitiful, especially at your savings levels. It shouldn't be what determines your choice. Pick a bank that's convenient for you. Lots of ATMs in your areas, easy-to-use website, no fees for anything ordinary, etc.
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Oct 23, 2013 16:59
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Check out some local credit unions for potentially better deals. My credit union offers an interest checking account with 2.25% APY (was 3% last year, but adjusts by market) for up to $25,000, provided you use online banking, have direct deposit, and use a minimum amount of debit transactions. My CU might be an exception to the norm, though...
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Oct 23, 2013 17:38
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ETB posted:Check out some local credit unions for potentially better deals. My credit union offers an interest checking account with 2.25% APY (was 3% last year, but adjusts by market) for up to $25,000, provided you use online banking, have direct deposit, and use a minimum amount of debit transactions. My CU might be an exception to the norm, though... Wow, what credit union is this? I can't even get interest that good on CDs at my CU.
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Oct 23, 2013 17:45
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MickeyFinn posted:Income tax rates are marginal and progressive. This sounds like a large decrease in liquidity to save a few hundred dollars, unless all of the $17k or so you are rolling over is gains. Selling the stocks and mutual funds will result in capital gains, which are going to be taxed at the long term capital gains rate of 15%. This rate is separate from ordinary income tax rate (for his purpose) so going from 15 to 25 makes no difference here. The stocks should be sold, it's an unnecessary risk to hold them outside of a diversified portfolio. Rolling the 403(b) into a Roth IRA would result in the amount rolled over being taxed at ordinary income tax rates, which if he's just short of the 25% bracket would effectively be 25% or about $2500. There wouldn't be a capital gain tax on the rollover. I would sell the stocks and mutual fund and keep the cash as extra emergency funds. Definitely roll the 403(b) into an IRA to get more fund options and potentially lower fees. Roth is probably the best option since the current tax bracket is low, but a traditional IRA wouldn't be a bad choice if you feel like you can't afford the 2,500 tax on a Roth rollover.
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Oct 23, 2013 19:10
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Crabby Abby posted:Selling the stocks and mutual funds will result in capital gains, which are going to be taxed at the long term capital gains rate of 15%. This rate is separate from ordinary income tax rate (for his purpose) so going from 15 to 25 makes no difference here. The stocks should be sold, it's an unnecessary risk to hold them outside of a diversified portfolio. Thanks for the advice. I will definitely roll over the 403(b), which would be included as income. I think, with the exemptions and the standard deduction, my income plus realized income from the conversion to Roth, will be in the 15% bracket. I know about marginal rates, I just wanted to keep as much as possible in the lowest bracket. The bit about the capital gains resolves a bit of confusion I have. It actually appears that if I am in the 15% bracket the rate on capital gains is 0%? If so that makes it even better to sell this year - the LMT stock is almost 100% gains - it was purchased long, long ago for a pittance. It is also at a record high. Realizing all those gains while they are tax free would be great!
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Oct 23, 2013 20:41
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kaishek posted:The bit about the capital gains resolves a bit of confusion I have. It actually appears that if I am in the 15% bracket the rate on capital gains is 0%? If so that makes it even better to sell this year - the LMT stock is almost 100% gains - it was purchased long, long ago for a pittance. It is also at a record high. Realizing all those gains while they are tax free would be great! You're right, I was thinking that only the 10% bracket qualified for the 0% capital gains rate, but it applies to the 10 & 15% brackets. That makes it a no brainer. Not only could your income go up in the future, tax rates can go up to. Might as well liquidate while you can do it for free.
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Oct 23, 2013 22:58
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SlightlyMadman posted:Wow, what credit union is this? I can't even get interest that good on CDs at my CU. Advantis Credit Union. I don't work for them, but I love them to death, so I love promoting them.
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Oct 23, 2013 23:59
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flowinprose posted:You want to be very careful that you know exactly what you're getting into with the PMI issue. I was initially told by my loan officer that I should be able to stop PMI after reaching 20% equity, but found out later the FHA loan rules had been changed and I had to make payments for a minimum of 5 years on a 30 year loan before PMI could be stopped (and then only if I was at 20% or greater equity). Yes, this is a good point, although it's actually 22% equity for FHA loans. For FHA, PMI is called MIP (Mortgage Insurance Premium); there is an up-front MIP cost (which can be rolled into the loan) and then a monthly MIP. The percentages and terms for these have changed at least three times since 2009. Depending on when you got your loan, you might be able to discharge MIP once you have achieved at least 5 years of payments and reach 22% loan-to-value; or, you might not be able to discharge it at all. However! You can get out of either by refinancing into a conventional loan. If your LTV is above 20%, you can probably refinance. Of course, if your FHA loan is carrying a very good interest rate, you might not want to re-fi, since rates have gone up this summer... but you need to do the math to be sure, since eliminating the MIP might save you more than a moderately higher interest rate costs you. To answer your other question, you can get conventional loans with less than 20% equity. The main reason folks went with FHA loans en-masse from 2008 to 2012 is because the FHA rates were universally lower than market rates for sub-20% down payment loans once you took PMI/MIP into account, and they also had a lower minimum down payment (as little as 3.5% of the purchase price). Now that congress in its infinite wisdom has chosen to make MIP much more onerous (ostensibly due to concern that Freddie had extended too many "risky" low-down-payment loans), conventional sub-20%-down loans with PMI often look more attractive than the FHA loan with the same down. If you have (say) 15% to put down, a conventional loan with a few years of PMI may be more attractive than an FHA loan with lower monthly MIP that lasts the life of the loan. What all this really boils down to, though, is to be aware that you can get rid of mortgage insurance once you're above 20% (or 22%) loan-to-value; doing so may cost nothing, or it may require a refinance, but it's an important factor to account for when deciding how much money to put towards your mortgage in the near term. And refinancing may cost anything from zero to several thousand dollars, so one should save for that, too, if it's an option. Leperflesh fucked around with this message at 06:56 on Oct 24, 2013 |
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Oct 24, 2013 06:52
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I'm currently putting 4% (my employers match rate) into my 401k. I'm dumping another 20% of my income (pretax) into a bank account. Obviously, I'd like to do something better with that money. I could just put it all in to 401k/IRA without hitting the limits, but honestly I'm really not at all into the retirement thing. I want to save money but I'd rather use it to start a business in 20-30 years or buy a boat or whatever (I don't actually have plans but I'm certain they wont involve buying a boat). So, would putting my money into something like a Vanguard mutual fund be the right choice? Or should I just put it into my 401k/IRA anyhow and eat the penalties if I decide to withdraw in 20 or 30 years? I understand that the tax advantages are really huge with a 401k but I have no idea how to weigh that against the penalties.
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Oct 24, 2013 17:52
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USSMICHELLEBACHMAN posted:I'm currently putting 4% (my employers match rate) into my 401k. I'm dumping another 20% of my income (pretax) into a bank account. Obviously, I'd like to do something better with that money. How are you putting pretax income into a bank account? Have you somehow characterized it as an IRA? I would suggest just putting your money into a Roth up to the max for now, and increasing your contributions to the 401k too. You can withdraw all of your contributions from the Roth at any time without penalty.
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Oct 24, 2013 18:23
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Yeah, even if you did decide to buy a boat, you could just do so from your Roth with no penalty except retiring on a broken old boat with nothing to eat.
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Oct 24, 2013 18:30
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baquerd posted:How are you putting pretax income into a bank account? Have you somehow characterized it as an IRA? Sorry, I just meant that I calculate how much money to stick in the bank based on my pretax income. It's closer to 30% of my take home income. I didn't realize you could withdraw from IRAs without penalty. I'll look into them more deeply. I thought they were very similar to 401ks.
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Oct 24, 2013 18:30
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You can take them out of Roth IRAs without penalty, not Traditional. So you should atleast be doing a Roth, and for the rest of the money try to aim for total market or tax managed funds since those tend to be most tax efficient.
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Oct 24, 2013 18:41
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OK thanks. I'll look into it and probably come back with more questions!
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Oct 24, 2013 18:42
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USSMICHELLEBACHMAN posted:I didn't realize you could withdraw from IRAs without penalty. I'll look into them more deeply. I thought they were very similar to 401ks. You can withdraw the contributions from a Roth IRA penalty-free, but not the gains. However this is still not generally a good idea because you cannot re-contribute that money later; you're still limited to $5500/yr in contributions. Also if the money in the Roth is from a conversion, there is a 5 year wait period before you can take it out penalty-free. You can take your money out of a traditional IRA, but you will owe regular income tax on it plus a 10% penalty if you are less than 59.5 years old.
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Oct 24, 2013 18:43
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Guinness posted:You can withdraw the contributions from a Roth IRA penalty-free, but not the gains. However this is still not generally a good idea because you cannot re-contribute that money later; you're still limited to $5500/yr in contributions. Yeah, but it's better to put money into a Roth and maybe take it out in the future, than to just sit it in a savings account. Don't talk him out of it, as I'd rather not have an extra person in line at the soup kitchen where I'm volunteering to pass time in my leisurely well-funded retirement.
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Oct 24, 2013 18:47
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Oh absolutely, I'm not trying to talk him out of it, just clarifying the rules. It's much better to have the money in a RIRA with the option of taking it out than not having it in there at all. It's still generally best to just leave it alone, but there are definitely scenarios when withdrawing the contributions from your RIRA make sense, like a dire emergency or even a house purchase sometimes. It's one of the advantages of a Roth vs. a traditional IRA. Guinness fucked around with this message at 18:55 on Oct 24, 2013 |
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Oct 24, 2013 18:51
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I asked a colleague (mid-20s) how she had set up her 401k at work, because I was looking at my own distributions. She said "oh, our CFO helped me set it up, I put it in the most aggressive thing they had". I asked her if I could see her distribution, and she logged into our online portal to show me. Since 2010, she has been investing all of her money into a single bond fund. 100% of her contributions have been into that one bond fund, and she was contributing 2% because she thought that was the maximum match (it is actually 4%). I did not have the heart to show her the comparative return if she had actually invested it "aggressively" into a stock index fund. For all of her money for 4 years, she has made a return of ~2%, with even more of that eaten by an expense ratio of 1.05% I talked with her a little bit, and showed her how to rebalance into stocks and to increase her contribution to the max. Check your accounts, people, don't just trust others to do it for you.
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Oct 24, 2013 19:49
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