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I'd suggest 3-6mo of emergency fund, then get your retirement contributions to at least 15%, then continue to add to efund until 6-12mo - whatever amount you want to do. I'm a fan of a 6mo emergency fund. Zerstorung, depending on your situation, I'd max your 2013 Roth, and then beef up your efund, and then continue with contributions. That's just me.
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Mar 29, 2014 19:12
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Dead Pressed posted:No. slap me silly posted:Why not? It's all happening in the same year. It's fine. Because you already "contributed" that amount. Just because you take the withdrawl out doesn't mean you can redeposit it later in the year. You are absolutely limited to the $5,500 limit in contributions, not net value of contributions and withdraws. E.g., I put $5k in May 1st. I withdraw all $5k June 1st for X. I get a bonus in September for $5k. I can't just put $5k back into the account. My total contribution is limited to $5.5k. I have already contributed $5k. Thus, I am limited to just the $500 remaining to equate to $5.5k total contributions. http://www.bankrate.com/finance/retirement/use-roth-ira-as-your-backup-emergency-fund.aspx posted:Don't be tempted to dip into your Roth for vacations or other nonessentials. For one thing, you can't simply "return" the money later. Any money you put back into your Roth is considered part of your allowed contribution for that particular year. It's out of the scope of the original conversation... but there is a "60 day rule" where one has 60 days to replenish contributions (both Roth and Traditional are eligible for this). This is not recommended as its a play with fire type of game. Miss the reup on your contributions for any reason and you've subject to all taxes and penalties that are in place. slap me silly posted:I guess you have to withdraw any earnings from the first contribution as well though. You don't have to withdraw any earnings on the Roth. You can pull just the contributions 100% at any time without any tax implications or penalties. That's the reason many people use the Roths as an outlet for a high-level savings fund in the first place... Its the earnings made that are subject to penalties and special circumstances such as first time home buyers, etc. Dead Pressed fucked around with this message at 20:02 on Mar 29, 2014 |
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Mar 29, 2014 19:42
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Aside from the contribution/withdrawal question, he shouldn't put his emergency funds into anything other than cash. So, if you do decide to make that deposit for your 2013 Roth IRA contribution, do not invest it, just let it sit in the money market account. The reason should be obvious, but in case it isn't: in the very long term, we assume our index funds will make a positive annualized return. But in the short term it's entirely possible for the value of any fund to go down, and you don't want your emergency money potentially being eaten up by poor market performance right before some emergency where you were counting on having it.
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Mar 29, 2014 20:50
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Dead Pressed posted:Because you already "contributed" that amount. Just because you take the withdrawl out doesn't mean you can redeposit it later in the year. You are absolutely limited to the $5,500 limit in contributions, not net value of contributions and withdraws. I agree that Roth IRA and emergency fund are incompatible things, by the way... slap me silly fucked around with this message at 23:53 on Mar 29, 2014 |
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Mar 29, 2014 23:48
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slap me silly posted:Curious to know what you are getting this from. I am reading Pub 590 which says "If you withdraw contributions (including any net earnings on the contributions) by the due date of your return for the year in which you made the contribution, the contributions are treated as if you never made them." From that I infer that you could make a contribution later in the year in the normal way. I linked the article I pulled it from, so no be-wonderment is needed. There is nothing in your linked document for "putting in, taking out, putting back in". I would not infer anything not explicitly written in the 590 documentation. The section you've pulled that from is for "excess" contributions. Eg, I am over the income limit, and am only eligible for $3k in contributions, but I have put in $5.5k prior to knowing my contribution is to be limited for the year. I can withdraw the extra $2.5k prior to the end of the tax year, as well as those earnings (and paying tax on them). This withdrawal equates to never over-contributing, and I am not dinged with penalties. This does not equate to contributing, withdrawing, and contributing again.
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Mar 30, 2014 00:04
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Actually it's not from the excess contributions section, it's from a section called "Are Distributions Taxable?" And it's the actual IRS rules, not a bankrate dot com fluff piece. The bankrate article appears to be discussing what happens if you withdraw contributions and then want to make them up in a later year - which indeed you can't do. The 60-day rule is regarding rollovers, which are (often) an amount much more than the annual contribution limit -not the scenario we're talking about. Wouldn't hurt to have an actual tax pro weigh in, though 
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Mar 30, 2014 00:18
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You should never treat your retirement account as emergency savings. Using your emergency savings to capture IRA contributions that would otherwise be lost is a bit different, however. Since the 2013 deadline is coming up, moving a portion of your savings that you don't expect to have to dip into to a Roth IRA savings account at your bank can be a smart move, provided that you're prepared to do a little extra tax paperwork if you do have to pull it back out, and it doesn't compromise your discipline in leaving your actual retirement money alone. Dead Pressed posted:No. Actually, IIRC you get something like 60 days to put the money back in, this is so you can do rollovers manually. Trying to use this to "borrow" against your IRA is still a terrible idea though. edit: Whoops, missed the new page. Oh well.
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Mar 30, 2014 06:46
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obi_ant posted:It's called an emergency fund because you want to be able to take it out ASAP if needed. Car repairs, unforseen bills, hospital stuff, family get kidnapped by ninjas and you need money to pay back the ransom etc. I suppose you can transfer the funds over to a checking, but that might take a few days and the possibility of you needed the cash sooner is always there. Well, assuming the ninjas take Visa. Could be awkward if they're cash-only.
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Mar 30, 2014 10:06
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Veskit posted:I would venture to say this is overkill, and instead of saving for a years worth of expenses, why not save for 3 months worth of expenses, then work on retirement funds while saving up to 6 months and stop at 6. A full year seems like too much to me. Uranium 235 fucked around with this message at 15:40 on Mar 30, 2014 |
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Mar 30, 2014 15:38
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Hello all, Does anyone have experience with Custodian's for self-directed IRA investments? Looking for a custodian that is responsive, solid record keeping, and reasonable fees. Doing some online research these two seem like reasonable choices fee wise... https://www.trustetc.com or http://www.iraresources.com/ Thank you for the help!
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Mar 31, 2014 18:13
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J4Gently posted:Does anyone have experience with Custodian's for self-directed IRA investments? It sounds like you're a total beginner in terms of investing. Go read the OP and then get a target retirement fund from Vanguard. No fees, minimal expense ratio. If you're actually quite experienced and are looking to invest in very esoteric asset classes, what are those?
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Mar 31, 2014 19:34
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baquerd posted:It sounds like you're a total beginner in terms of investing. Go read the OP and then get a target retirement fund from Vanguard. No fees, minimal expense ratio. Doesn't sound that crazy on its face... I know people who own oil leases, rental properties, and other revenue-paying assets in their IRA's. Obviously, more advanced than this thread is geared toward, but why poo poo on his question?
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Mar 31, 2014 19:58
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baquerd posted:It sounds like you're a total beginner in terms of investing. Go read the OP and then get a target retirement fund from Vanguard. No fees, minimal expense ratio. I am not a beginner, I have the basics covered with the very low fee index funds (vanguard of course).I have consistently scrimped and saved since my first job and have a nice chunk of change in retirement accounts, so it is the esoteric variety investment. A co-worker of mine is starting his own company (commercial real estate investment) and I think he will do well, so I want to make an investment in him with <10% of my retirement funds. Doing this (self directed IRA) would require a 3rd party custodian (something I AM a total beginner with) so I am looking for feedback if anyone has experience with these types of IRA custodial companies. A search of SA just had one mention on SD-IRA in this thread from a long time ago, but nothing about specific firms. Though looking into this more I need to learn about UBTI as well. Edit: As the poster above has said, It is a bit outside the normal scope of this thread so I would be happy to take it to PM if anyone has thoughts or experience in this. J4Gently fucked around with this message at 20:02 on Mar 31, 2014 |
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Mar 31, 2014 20:00
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A word of caution. You can't deduct losses in an IRA. One of my friends invested in some private company startup and lost almost everything he invested. On top of that he did it through an IRA so couldn't even use the losses to offset his taxes.
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Mar 31, 2014 20:25
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J4Gently posted:A co-worker of mine is starting his own company (commercial real estate investment) and I think he will do well, so I want to make an investment in him with <10% of my retirement funds. Doing this (self directed IRA) would require a 3rd party custodian (something I AM a total beginner with) so I am looking for feedback if anyone has experience with these types of IRA custodial companies. So you want to invest in some high-quality startup equity in the field of real estate. You are well aware that you are exposed to ridiculously high risk, so you're getting an amazing deal on the equity versus existing income, or you feel like throwing money away as if you were gambling. First let's assume you would already be maxing out tax advantaged savings. If you're not, stop thinking about this venture now. Suppose this business really takes off. As in 100-1000% ROI good. Of course, you bought in a Roth, so all your gains are tax free, holy poo poo awesome. You win the game. Now, suppose this business flops. If you bought in tax advantaged, this is basically like losing your allowable contributions, plus all the potential gains from those contributions if you invested in a less volatile instrument. If you assume a relatively conservative 5% after inflation, over 20 years, you've just lost 260% of your investment. So, you're essentially betting that this company is one of the tiny percentage that not only survives until your retirement, but also expands at a rate greater than the US economy as a whole when annualized from here until your retirement, or alternatively, that you can get out of the investment before it tanks and loses everything. This is all silly advice though, because since your friend is going to make a serious commercial real estate company, they have hundreds of millions in assets already, and you're going to throw a few million in too, and your lawyer and accountant will look over everything first.
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Mar 31, 2014 21:19
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Is 5% assumed average gains after inflation really that conservative these days? Bernstein seems to think that's overly-optimistic going forward.
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Mar 31, 2014 21:32
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baquerd posted:So you want to invest in some high-quality startup equity in the field of real estate. You are well aware that you are exposed to ridiculously high risk, so you're getting an amazing deal on the equity versus existing income, or you feel like throwing money away as if you were gambling. Geesh not sure what I did to offend you but your response is a bit aggressive. I have professional advice on accounting but what I'm looking for is experience with any of these custodian firms, good or bad. #1 Yes I max my tax deferred contributions every year. #2 As far as breaking down the risk, yes I agree with the majority of what you are saying above (and the 260% opportunity cost is daunting), your are 100% right this is very risky. That is why it is a % of my funds that I can afford to lose (but hope not to). #3 The hope would be this does well and the roth protects the gains. If it does well I would expect to sell in 5-10 years and move the proceeds back to an equities account/low cost index fund. I know it is risky, I'm not investing huge dollars, it is an educated gamble.
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Mar 31, 2014 21:51
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J4Gently posted:Geesh not sure what I did to offend you but your response is a bit aggressive. You didn't offend me, I just post on a personal finance forum. I wanted to make sure you weren't trying to invest $100k in your friend's house flipping adventure. As you know, finance is a field where tons of phrases get thrown around that mean different things in different places, and even people from different divisions of the same bank can sometimes have difficulties communicating with each other. I would wager that 50% of people talking about self-directed IRAs aren't talking about the same thing, and that 99% of the remainder have no business talking about them. But, OK, I accept you've done your homework and understand that the vast majority of people lose money doing what you're doing, that you're extremely familiar with the tax law and the hundreds of pitfalls that you can run afoul of, etc. Anyways, start talking to different custodians and run the numbers. Then run your plan by a tax lawyer. If it's not economical to do so, your plan is not economical.
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Mar 31, 2014 22:24
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Nail Rat posted:Is 5% assumed average gains after inflation really that conservative these days? Bernstein seems to think that's overly-optimistic going forward. Many people in the thread assume 6-7%, Bernstein assumes 4%, I assume almost no returns because of my lack of hope in our long-term economy, and my brother assumes that retirement will be solved by reaching the singularity in 2030. It's a measure of your optimism unfortunately.
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Mar 31, 2014 23:31
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You can base your estimates for long-term average future gains on past performance, or you can base them on speculation and guessing. Neither is a sure thing, but the former is slightly more solid of a basis to work from than the latter. In my speculative guesstimation, anyway.
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Apr 1, 2014 05:45
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I'm just saying 5% post-inflation isn't really conservative. It's on the more optimistic end of the spectrum. I think we'd all be ecstatic if that turns out to be the case.
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Apr 1, 2014 11:39
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Leperflesh posted:You can base your estimates for long-term average future gains on past performance, or you can base them on speculation and guessing. Neither is a sure thing, but the former is slightly more solid of a basis to work from than the latter. It's probably better to assume worse than past performance to be sure you are saving enough, though, wouldn't you agree? Even people who are perma-bulls (Jeremy Seigel) don't even expect the market to continue doing as well as it has over the last 50+ years. I think he says something like 4-5% real return, and so that's probably a pretty optimistic outlook. I think 3-4% real return is probably achieveable, and 3% is the assumption I use for calculating my retirement savings.
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Apr 1, 2014 17:14
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flowinprose posted:It's probably better to assume worse than past performance to be sure you are saving enough, though, wouldn't you agree? Based on 3% real return and a 2% annual pay increase(I've been getting 4-5% for the past 3 years), looks like I'm on track for 42k taxable and 17k non-taxable income(both inflation-adjusted) with 4% withdrawals, not taking social security into account...can and will get that higher, but it feels a lot nicer than the zero dollars I had saved for retirement 18 months ago. Nail Rat fucked around with this message at 17:55 on Apr 1, 2014 |
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Apr 1, 2014 17:51
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It's funny seeing conventional thinking change with the broader economic cycles. About ten years ago 10-12% was the commonly accepted return rate for investments, then 8% if you were "conservative," then 6%, now I see people arguing 2-4% is all you can expect. Estimating less is obviously better but even the most optimistic websites don't put more than 8% on their retirement calculators now.
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Apr 1, 2014 21:55
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It probably has to do with whether inflation is taken into account. 3% above inflation is a lot different from 3% total (especially if you consider actual costs of living/real estate/medicine and not just the CPI). I mean, you could get 8% CDs a few years ago.
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Apr 1, 2014 22:03
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My personal assumption is 6% which I adjust to 3% for inflation. If 8% returns happens, great, but I'm planning to be fine with less.
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Apr 2, 2014 00:09
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Nail Rat posted:My personal assumption is 6% which I adjust to 3% for inflation. If 8% returns happens, great, but I'm planning to be fine with less. Now, Dave Ramsey says you should shoot for 12%... That always seemed nuts to me. He also doesn't seem to suggest diversifying asset classes very much.
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Apr 2, 2014 00:48
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SiGmA_X posted:I would argue you are doing it right. I'm a fan of pessimistic financial forecasts. Dave Ramsey is also a wackadoo who thinks credit cards are the devil. His advice is great if you think credit cards are free money but for responsible adults, his methodology will have you miss out of good deals.
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Apr 2, 2014 01:03
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Nail Rat posted:I'm just saying 5% post-inflation isn't really conservative. It's on the more optimistic end of the spectrum. I think we'd all be ecstatic if that turns out to be the case. I'm certainly in favor of making a conservative estimate, but I think it's possible to be overly conservative. Very broadly speaking: I want to have enough money when I retire, to support myself (and my wife) for the rest of our lives. On the other hand, I don't want to live most of my life excessively tight-budgeted; I discount my retirement plans by the opportunity cost of saving vs. spending, and the (however unpleasant to contemplate) probability that I'll die at a given age. It would suck to have over-saved, living below my means from age 20 to age 65, only to drop dead and never get to enjoy the wealth I've accumulated. Of course, most of us would say that running out of money when we're still alive is a worse outcome than dying with money still in the bank. Still, my goal is to make a "reasonably conservative" estimate for how much I need to save to retire, save that much, and make ongoing adjustments to my standard of living/rate of savings each year as my assumptions prove overly pessimistic/optimistic.
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Apr 2, 2014 01:13
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I think what a lot of people miss is that it's just as important to be able to figure out how you're going to be comfortable living when it comes to retirement savings. If you're able to live on (the future's equivalent of) $30K/year, then that's what you want to aim for in your retirement. No matter what, you want a balance of living now without sacrificing future-you. But there tend to be two crazy extremes I see: People that decide they're cool with living like they're in the Great Depression so that they can retire early (Mr. Money Mustache, anyone?), and then the people that are saving up with the assumption that they need %75 of the current salary (inflation adjusted of course) in retirement to live comfortably in retirement. Each can serve as a good wakeup call, but are ridiculous extremes. Personally, I'd rather put in 40 hours a week for ten extra years than BIKE everywhere during my working and retirement years, but at the same time it's very clear to me I'm not going to need anywhere NEAR 75% of my salary when I'm retired. That's going to depend on what your salary is obviously, but if you're saving as much as most people think you SHOULD be to fund your own retirement, you shouldn't even be SPENDING 75% of your salary right now; surely you shouldn't be spending that much when you're retired and not driving to work every day and doing the type of random spending people do. My favorite retirement saving moment ever was when I got a 26% raise a few years back. I was used to logging into my 401k account and seeing that green "Congrats, the amount you're saving saving gives you a great outlook for retirement!" As soon as I got the raise and logged in, it skipped the yellow caution phase and gave me the red "holy poo poo the sky is falling, you're saving so little of your money, you'll never retire!" warning. Ahhhh, you make way more money now, which means you're going to NEED way more money for happiness! Sucks to be you!
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Apr 2, 2014 01:51
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Brian Fellows posted:I think what a lot of people miss is that it's just as important to be able to figure out how you're going to be comfortable living when it comes to retirement savings. If you're able to live on (the future's equivalent of) $30K/year, then that's what you want to aim for in your retirement. Biking is pretty great you should try it.
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Apr 2, 2014 01:55
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Brian Fellows posted:Personally, I'd rather put in 40 hours a week for ten extra years than BIKE everywhere during my working and retirement years,
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Apr 2, 2014 02:08
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Bikers have sexy calves.
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Apr 2, 2014 02:47
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The point I'm making is that the aforementioned MMM retired at 30. Technically he made a a lot of money off of the real estate market, and still makes plenty of money off his blog and landlording, but his ability to retire was based off of saving a freakish amount of money. The biking everywhere is the random example I brought up - sorry if I offended the biking enthusiasts in BFC. I will gladly work until I'm 40 when it's the difference (and it is the difference) between affording an out of country vacation or two a year, or eating out a few times a month, etc. ~13 years of life in the real-job workforce? That's nothing. As I said at the start of my post, it's all about saving for what you WANT. Obviously he's happy. But if I'm saving 70% of my current salary Mr. Money Mustache style, current-me is going to be very unhappy so future-me can have a better time.
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Apr 2, 2014 02:52
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Brian Fellows posted:The point I'm making is that the aforementioned MMM retired at 30. Technically he made a a lot of money off of the real estate market, and still makes plenty of money off his blog and landlording, but his ability to retire was based off of saving a freakish amount of money. The biking everywhere is the random example I brought up - sorry if I offended the biking enthusiasts in BFC.
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Apr 2, 2014 03:02
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Third paragraph in the post directly above my first one talks about saving enough to enjoy retirement but not at the expense of their current life. I am agreeing but adding more to my post than simply saying "Yeah, what this guy said!" Stumbling around, I see that there's a financial independence thread nearby. I'll have to check it out. Obviously I'm not interested in hyper-frugality, but I do enjoy hearing about other people's plans. I'm squarely in the boat where I appreciate compounding interest over time, but still am aiming for retiring early.
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Apr 2, 2014 03:08
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moana posted:Bikers have sexy calves. It's the thighs that get all the action though.  There's a happy medium for a lot of people, but if you're a couple making $60k a year gross and living on $30k, saving an extra $10k is going to be the difference between a reasonable retirement and no retirement. If you're making $160k as a couple and living on $30k, all of a sudden $10k is a relative drop in the bucket. The less you make and the more interested you are in having an actual retirement (or retiring early!), the more interested you should be in doing things like biking to work.
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Apr 2, 2014 03:21
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Brian - I think you are also missing out on the fact that for many people who want to "retire" early MMM style, early retirement doesn't mean eight extra hours of browsing the forums. For many it means working at something that's not profitable you really want to do. Maybe it's starting an organic farm, or a bike shop, or craft distillery, or an orchard, or sailing around the world, or doing humanitarian volunteering, etc. Personally, I would rather keep working at my current job and save more than spend my time doing what MMM or some of the other early retirement bloggers do. I'm not criticizing them - it's just that their version of early retirement isn't mine. But ten extra years under the fluorescent office lights just so I can drive a Lexus instead of ride a bike in retirement and stay in a hotel instead of a youth hostel when I go on vacation? No thanks. I'll probably live longer if I ride the bike and meet more people in hostels anyway. There's an overused Thoreau quote that I like: "This spending of the best part of one's life earning money in order to enjoy a questionable liberty during the least valuable part of it reminds me of the Englishman who went to India to make a fortune first, in order that he might return to England and live the life of a poet. He should have gone up garret at once."
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Apr 2, 2014 04:01
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I don't view retirement as my reward for working hard during my healthy years. I don't love my job, but I only have to do it 40 hours a week and it lets me enjoy the rest of my time. Maybe I'll be healthy and active and travel a lot when I retire, or maybe I'll die before I hit retirement age, but the most likely outcome is that I'll spend much of my retirement dealing with health issues that reduce my ability to go out and do a bunch of fun stuff I put off until then. The one thing that concerns me about folks who are sure they're going to do all this great stuff when they retire, is the tendency to ignore the fact that aging kind of fucks you over physically. It also bothers me when people's financial plans for retirement are "oh I'll never retire, I love my job." You might not have a loving choice! My stepdad had a lot of big plans for his retirement, various motorcycle projects and stuff. 35 years of hard work as a pipe fitter on construction sites took its toll, and he was really pushing hard the last few years to earn as much OT as possible at his lifetime-high pay rate, lock in the best payout from his union's pension plan, and basically wearing himself down physically and mentally in the process. He's spent the first nine months of his retirement having a knee replaced and then dealing with a serious (potentially fatal) staph infection that he will have to treat for the rest of his life (once it's in the bone, you can't ever be sure it's eradicated). And he still needs his other knee replaced. He still owns three sports bikes but there's a decent chance he'll never ride again. He's still in total denial about that. I hope he doesn't have too many regrets but my own thinking is that he would still have a comfortable retirement with plenty of money if he'd scaled back a little, especially during the last five or ten years of work, and spent more time on his motorcycle hobbies while he was still in his 40s. This is the long-term investing and retirement savings thread, so obviously our focus is on saving for retirement; and statistically, we know a significant majority of Americans have not adequately planned or saved for retirement. I think it's appropriate for us to emphasize conservative estimates of returns, saving more rather than less, becoming educated about retirement savings, and cutting back on frivolous luxuries now in order to ensure one isn't impoverished in old age. But it's also reasonable to say that there's limits to that, and encourage people to put thought into exactly where the balance should be between spending and savings. That thought should be based on sensible consideration of the future - people who think they'll never retire, or who think they're never going to get old, are probably just rationalizing their lack of savings. At the same time, if you're 25, you've maxxed a 401(k) and IRA options and you still have more cash to save, you're in pretty good shape and maybe should think about doing your backpacking trip in Europe sooner while you're young and healthy, rather than later when you're older and maybe not healthy.
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Apr 2, 2014 17:35
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Since you started out by replying to me, I'll say that I'm not living as a pauper or anything, and I'm not maxing my retirement accounts, though I'm happy with where they're heading. What about me saying that I use 3% as an estimate led to "be reasonably conservative, not overly conservative"?
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Apr 2, 2014 17:51
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