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I'm 30. I went entirely broke recently to go back to school, got a civil engineering degree (no debt) and now work for a pretty large engineering firm with good prospects. I'm saving something close to 30% of each pay check. I'm currently working on building an emergency fund. My present plan is to max out a roth ira before the deadline to do so (which I understand is basically tax day), and continue to build a robust emergency/car/house fund. My company matches 4% if I contribute 5% to the 401(k). 2% of my salary goes to stock options for 1% match from my employer. I'd say I'm middle of the road when it comes to risk. I can be frugal as hell if I need to, and I'm single with no dependents, and will be driving my current car into the ground (again with no debt to my name). If the 401(k) options check out well, I'll probably up my contribution to them as well.
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Dec 7, 2015 01:21
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I have $10k in an old 403(b) and I'm trying to decide whether to roll it over to an IRA or apply it toward my student loans. I have $44k in student loans from 5.4% to 6.8% (~ $12k is at 6.8%). I'm still in school so they're accruing interest but not being paid down (and I shouldn't need to take out any more principal).This is probably the last year I could take it out at the 15% tax bracket, but there's also a 10% penalty which is fairly steep altogether. My instinct is to leave it in an IRA, as I'll hopefully be gainfully employed after I finish my Ph.D. in a year or so and shouldn't have too much trouble paying off the loans. Just want a sanity check on this one.
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Dec 7, 2015 19:29
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So last year I got a promotion and that included me no longer paying into the University's pension fund. So I'm left with trying to figure out what do with my contribution. I can do nothing, and if I hold off until I'm 66 I'll get around $800 per month. I can rollover into another retirement account. I've got about $15,000 that I would be able to invest. I could cash out and pay a 10% penalty plus get taxed on all the the money (This is a bad idea and I'm not going to do it). For reference I'm 29, so 66 would be 37 years. If I put that $15k in a Vangaurd Target Retirement fund IRA or something, would I stand a pretty good chance of it genearting $800/month in income in 37 years? Is that the right way to look at this?
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Dec 7, 2015 20:45
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SurgicalOntologist posted:I have $10k in an old 403(b) and I'm trying to decide whether to roll it over to an IRA or apply it toward my student loans. I have $44k in student loans from 5.4% to 6.8% (~ $12k is at 6.8%). I'm still in school so they're accruing interest but not being paid down (and I shouldn't need to take out any more principal).This is probably the last year I could take it out at the 15% tax bracket, but there's also a 10% penalty which is fairly steep altogether.
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Dec 7, 2015 20:52
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I agree with your conclusion (I think) but I don't know if those numbers are directly comparable, since one is an interest rate and the other is a one-time hit. For example, 75-cents on the dollar invested at 6.8% would recover up to $1 after ~4 years. That fails to take into account the fact any returns in the IRA, which is why I think your conclusion is correct, but I don't think it's as obvious as 25 vs 6.8.
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Dec 7, 2015 21:14
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Dumb question, but I just wanted to make sure the backdoor ROTH IRA process is as straightforward as it seems. And that process is: 1. Deposit post-tax earnings into a traditional IRA 2. As soon as deposit posts on the IRA, convert it to roth IRA This can be done repeatedly over the year, so I could do this monthly.
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Dec 7, 2015 21:23
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To piggyback off the Roth backdoor question above: contributing to a deductible Trad IRA or a non-deductible Trad IRA at Vanguard is the exact same process, right? I just choose not to deduct the dollars for the latter when filing my taxes?
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Dec 7, 2015 22:55
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Chaucer posted:To piggyback off the Roth backdoor question above: contributing to a deductible Trad IRA or a non-deductible Trad IRA at Vanguard is the exact same process, right? I just choose not to deduct the dollars for the latter when filing my taxes? Yes for most high income earners you can't claim the deduction if you have a workplace retirement plan. https://www.irs.gov/Retirement-Plan...nt-Plan-at-Work Most tax software is smart enough to check your basic info and recommend a course of action.
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Dec 8, 2015 03:41
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Quick Vanguard/rollover question: I had a bit over $3k sitting in a 3121 type account (FICA alternative, basically paid into this instead of social security) from an old job I worked in college, classified as something sorta oddball like a 403a or whatever. I had kinda forgotten about it despite the annual statements, and when I was getting my financial ducks in a row earlier this year rolled it over to Vanguard, both to streamline getting statements, as well as get away from what turned out to be crappy expense ratios. I logged in to Vanguard as I need to sell some other investments to pay tuition next year, and I see that it's sitting in a Rollover IRA brokerage account, with the balance in a money market settlement fund. I'm guessing that even with the in-kind transfer (rollover), they still weren't sure what sort of funds to put it in, so left it in the settlement fund so I could choose myself, right? Also, if I were to withdraw the money from that settlement account, I assume that I'd then have to eat the 10% early withdrawal fee. I am in kind of an unusual situation (American, but living abroad and with no plans to live/retire in the US) so it is likely I will wind up liquidating it early anyways. However, I still have enough money for my immediate needs in non-retirement accounts, so reckon I should pull from those first, and save that (plus the balance of my Roth IRA, which would not be viewed as tax-advantaged in retirement by my country of residence) for later. I might have the opportunity to pull them out penalty free later, either with the first-time homebuyer credit (seems ambiguous whether it can be used for overseas property) or paying for my partner's tuition when she goes to grad school, depending on which school she chooses. edit: assuming I can't get the money out without incurring the penalty, what sort of Vanguard fund should I look for? I was thinking of something more high-risk since I'm not depending on it for anything, although I am admittedly quite new at this despite a fair bit of lurking this and the financial independence thread. I seriously doubt I would leave it in there until retirement, I'd be looking for ways to get it out without taking a penalty (see above), or just eating the 10% in favor of getting it into a local, tax-advantaged retirement account. Not happy about potentially losing the 10% but given that we're not talking about a ton of money I think it'd probably be worth it, especially when I'd be 20+ years away from retirement at the time. Pompous Rhombus fucked around with this message at 04:53 on Dec 10, 2015 |
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Dec 10, 2015 04:43
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I'm 32 and currently have my Roth allocated 10/35/55% to bond, international stock, and domestic stock index funds with Vanguard. I just went to do my first annual rebalancing and ran into a question. I know common wisdom says to sell some of your winners and buy more of your losers when rebalancing, but all of these funds were down this year - do I still sell some of my losers to buy more of the other losers, bringing it back into a 10/35/55% balance?
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Dec 11, 2015 17:34
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Yup. It's in tax protected space so you really don't have to overthink it - just buy/sell until you have your desired ratios back.
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Dec 11, 2015 18:12
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Ideally if you already have a Vanguard account just move everything over to the target retirement fund, so you don't have worry rebalancing every again.
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Dec 11, 2015 20:17
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etalian posted:Ideally if you already have a Vanguard account just move everything over to the target retirement fund, so you don't have worry rebalancing every again. Or don't, if you prefer to pay slightly less in ER and don't mind rebalancing yourself; or if you're doing something like including a few points of REITs in your fund mix. Target retirement funds are fine of course, but if you're willing to do two hours of work a year, you can shave perhaps a tenth or so off your ERs.
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Dec 11, 2015 20:24
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Gray Matter posted:I'm 32 and currently have my Roth allocated 10/35/55% to bond, international stock, and domestic stock index funds with Vanguard. I just went to do my first annual rebalancing and ran into a question. Just a side note, you should really look at transitioning that international stock out of tax-advantaged space if you have taxable accounts. Foreign tax credit is surprisingly effective.
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Dec 12, 2015 21:09
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baquerd posted:Just a side note, you should really look at transitioning that international stock out of tax-advantaged space if you have taxable accounts. Foreign tax credit is surprisingly effective.
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Dec 13, 2015 01:38
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Pompous Rhombus posted:Quick Vanguard/rollover question: Thoughts on this?
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Dec 13, 2015 01:43
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Pompous Rhombus posted:Thoughts on this? If it's already in a rollover IRA account, why not put it in a target date fund and forget about it for 20 years?
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Dec 13, 2015 02:35
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Pompous Rhombus posted:Thoughts on this? You seem a bit confused over the difference between selling shares of the money market account and removing money from the IRA. As long as it stays in the IRA you won't pay any taxes or penalties on it.
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Dec 13, 2015 02:47
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baquerd posted:Just a side note, you should really look at transitioning that international stock out of tax-advantaged space if you have taxable accounts. Foreign tax credit is surprisingly effective. I have actually done the opposite. The FTC used to put international at the top of the tax efficient list, until the yields started becoming much higher than domestic stocks and bonds. A lot of the dividends are unqualified, and for me being in a high state income tax state, the high yields made me switch new purchases of international into tax sheltered space.
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Dec 13, 2015 03:32
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Desuwa posted:You seem a bit confused over the difference between selling shares of the money market account and removing money from the IRA. As long as it stays in the IRA you won't pay any taxes or penalties on it. I was, yeah, that makes sense. OTOH, for the second part of my question, I actually was planning on selling it before retirement because I'd rather it go into something that'll actually eventually be tax-advantaged for me (I live abroad and plan to do so the rest of my life, IRA's don't enjoy local protection from taxation in part because they can be liquidated early at a penalty like that). What sort of fund would be a good bet for something around five years or so, and assumes I don't mind risk?
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Dec 13, 2015 04:11
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I have gone deep into a rabbit hole of over-thinking this, and could use some help pulling myself out: Next year I expect I will make too much to contribute to either a deductible Traditional IRA or a Roth IRA, making a "backdoor" Roth my only useful contribution option. For the 2015 and 2016 years I will have an "employer retirement plan" due to some final contributions made in January 2016, but for 2017 onwards assuming I stay abroad I will not have an employer plan (which means no limit to deductible contributions). I have the option to roll my Traditional IRA balance into my 401k before December 31 when my employment with them will end, "hiding" it and allowing me to make backdoor Roth contributions next year (and, technically, onwards). I don't expect to maintain this current level of income when I return from being an expat, so this is really only an issue for however many years I remain abroad (3-5?). The only thing that gives me pause is that my 401k's lowest possible expense ratio is .93%, while Vanguard is approximately .18%. On a five-figure balance, I figured it amounts to a roughly $275 penalty every year I keep my assets in the 401k instead of at Vanguard. I think that the optimal strategy is to roll my Traditional IRA into my 401k, make a Roth contribution for 2015, a backdoor Roth for 2016, then roll the 401k back into a Traditional IRA in 2017 and make deductible contributions going forward. The cost benefit analysis of all possible futures is hurting my brain.
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Dec 14, 2015 17:30
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baquerd posted:Just a side note, you should really look at transitioning that international stock out of tax-advantaged space if you have taxable accounts. Foreign tax credit is surprisingly effective. I'm very raw on foreign tax implications; care to expand on this?
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Dec 15, 2015 16:04
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District Selectman posted:I'm very raw on foreign tax implications; care to expand on this? Part of the reason that international index funds have higher expense ratios is that the foreign taxes are built into those expenses. So if you have big gains in foreign index funds, you get a tax deduction against your earnings for the purposes of capital gains. Someone else can explain better than my readers' digest version, because I just know the general principle from reading Bernstein, etc; I don't yet have a taxable investment account. Soon!
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Dec 15, 2015 18:12
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Yeah, I've never owned foreign stocks in my taxable account until this year. I'm sure I'll learn all about it in the very near future! Taxes are so exciting.
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Dec 15, 2015 18:33
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Nail Rat posted:Part of the reason that international index funds have higher expense ratios is that the foreign taxes are built into those expenses. So if you have big gains in foreign index funds, you get a tax deduction against your earnings for the purposes of capital gains. The foreign taxes do not affect the expenses... It is taxes paid from your dividends, and this occurs whether you have gains or not, even losses. You can get a credit for taxes paid, or you can claim a deduction, but the credit is usually the best way.
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Dec 15, 2015 18:45
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80k posted:The foreign taxes do not affect the expenses... It is taxes paid from your dividends, and this occurs whether you have gains or not, even losses. You can get a credit for taxes paid, or you can claim a deduction, but the credit is usually the best way. I've been misinformed then. Sorry to spread misinformation!
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Dec 15, 2015 19:25
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How is that a benefit though? You are still paying the taxes somewhere.
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Dec 15, 2015 20:00
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Xenoborg posted:How is that a benefit though? You are still paying the taxes somewhere. If you hold the funds inside a tax-advantaged vehicle then you still are paying the taxes on the foreign end but have no way to deduct them from your income taxes, meaning that the gains are effectively taxed twice. Thus it is beneficial to hold them in taxable accounts since you can actually take the deduction/credit to offset the foreign taxes.
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Dec 15, 2015 20:07
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One of the perks of my current employment is that I can take 3% of my pay and buy company stock, which the company then matches. (This is in addition to the 401(k), not in lieu of it.) I haven't touched it in a few years, and now the amount in company stock is between 20 and 25 thousand dollars. Since that's a lot to have in one specific stock, and since I'm only putting 6% into my 401(k), I could definitely stand to have more socked away. I've basically been treating this company stock as almost like a savings account, just shoving money in and forgetting about it. Am I correct in understanding that I could sell $11,000 worth in January, open a Roth IRA, and make both the 2015 and 2016 $5500 contributions at the same time? Am I also correct in understanding that, since it would be post-tax, that $11,000 is still freely available to me to withdraw, even before the 5-year rule, before I'm 59 1/2, and when I'm not buying a house yet (as long as I'm just withdrawing the $11,000 deposit and not any of the gains). If that's all correct, does that even sound like a good idea? It seems like moving my moderately-sized pile of cash from a fairly volatile single equity and into something more diversified, while still maintaining access to use the money if I need it doesn't have a downside (other than suddenly realizing a few grand in capital gains... oh poor me).
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Dec 15, 2015 20:57
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Wouldn't you have to pay long term capital gains upon selling the stock? If it's gone up significantly since you've owned it, that could be a significant chunk, so you may want to account for that. Other than that, I think you're correct, and diversifying away from one stock appears to be the right move.
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Dec 15, 2015 21:05
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Not a Children posted:Wouldn't you have to pay long term capital gains upon selling the stock? If it's gone up significantly since you've owned it, that could be a significant chunk. Other than that, I think you're correct, and diversifying away from one stock appears to be the right move.
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Dec 15, 2015 21:07
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SiGmA_X posted:Yes, he could choose to sell lots that have less gain potentially though. Depends on the investment provider. I'd say screw it and sell anything that you've held long enough for LTCG treatment, and possibly spread the sale between 2015&2016. And make sure you aren't going over the MAGI limit for Roth when you sell. If you think you'll be close, just backdoor it.
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Dec 15, 2015 21:16
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CellBlock posted:One of the perks of my current employment is that I can take 3% of my pay and buy company stock, which the company then matches. (This is in addition to the 401(k), not in lieu of it.) I haven't touched it in a few years, and now the amount in company stock is between 20 and 25 thousand dollars. Since that's a lot to have in one specific stock, and since I'm only putting 6% into my 401(k), I could definitely stand to have more socked away. Taking your Roth IRA principal is not "free" in the sense that if you loot your account you lose the tax advantaged contribution forever. If you're saving for a house don't do it in your IRA.
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Dec 15, 2015 21:40
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BEHOLD: MY CAPE posted:Taking your Roth IRA principal is not "free" in the sense that if you loot your account you lose the tax advantaged contribution forever. If you're saving for a house don't do it in your IRA. I don't think it should be encouraged, but if the choice is between saving in a Roth or not contributing at all and saving elsewhere then the former at least potentially uses the tax advantages space.
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Dec 15, 2015 23:16
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BEHOLD: MY CAPE posted:Taking your Roth IRA principal is not "free" in the sense that if you loot your account you lose the tax advantaged contribution forever. If you're saving for a house don't do it in your IRA. That's true; maybe I'll just make it a 1-year IRA contribution and move a bunch into another account, like a savings account or some other sort of investment fund.
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Dec 16, 2015 00:34
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asur posted:I don't think it should be encouraged, but if the choice is between saving in a Roth or not contributing at all and saving elsewhere then the former at least potentially uses the tax advantages space. If you put 5.5k into a ROTH, let it grow for three months and take it out, then the only thing you've lost is the ability to put 5.5k into your ROTH for that year -- which you are about to lose anyway come tax day. But you've gained whatever earnings it made as tax-free-growing-till-retirement. The only exception to this is if for some reason you need the earnings on your money before retirement, such as if you have a big expense coming up in 4 years. But if that big expense is a house, then you can still use an IRA, as you are allowed to withdraw your contributions +10k in earnings if those earnings go towards a first time home.
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Dec 16, 2015 04:55
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CellBlock posted:One of the perks of my current employment is that I can take 3% of my pay and buy company stock, which the company then matches. (This is in addition to the 401(k), not in lieu of it.) I haven't touched it in a few years, and now the amount in company stock is between 20 and 25 thousand dollars. Since that's a lot to have in one specific stock, and since I'm only putting 6% into my 401(k), I could definitely stand to have more socked away. The reason is that, even without owning any stock, you are already investing way too much into one company than an "efficient" portfolio would have -- because your future salary is likely very correlated with the success of this one company. If the company folds or has a serious downturn, your job will likely be affected, or at least your career growth. Following this line of reasoning further the smart thing to do might actually be to hedge by actively betting against your own company, however this is generally prohibited by basically every company policy. So the next best thing is to sell your stock matches and grants as soon as you're allowed.
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Dec 16, 2015 05:00
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As someone who is young/doesn't own a house/unmarried should I be making pre or post tax contributions? I don't contribute enough to max anything (think, 3-4 thousand a year). Also, and this is the important part, why is whichever one the correct one? I've been told by lots of coworkers that I ~have~ to make pre tax contributions because this is the "most I will ever be taxed in my life" which, with no plans/particular aims to get married/own a home... I'm not... So sure...? When you're retired are you just paying way less taxes on retirement income regardless?? None of these same coworkers have given me a straight on this other than "you're a young woman of course you're going to marry/have kids/need a house!!!" Although typing this all out I guess pre tax + interest - taxes might just be greater than post tax + interest if Given enough time? I guess I'd like a more definitive answer anyway although I imagine with as little as I'm contributing it doesn't matter....
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Dec 16, 2015 17:41
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GenericGirlName posted:As someone who is young/doesn't own a house/unmarried should I be making pre or post tax contributions? I don't contribute enough to max anything (think, 3-4 thousand a year). Also, and this is the important part, why is whichever one the correct one? I've been told by lots of coworkers that I ~have~ to make pre tax contributions because this is the "most I will ever be taxed in my life" which, with no plans/particular aims to get married/own a home... I'm not... So sure...? When you're retired are you just paying way less taxes on retirement income regardless?? None of these same coworkers have given me a straight on this other than "you're a young woman of course you're going to marry/have kids/need a house!!!" If tax rates stay the same and you are taxed at the same rate for your entire life then pre/post contributions will come out the same. If you think you will make more money later on or that tax rates will rise you should do the post tax (Roth) contribution. If you expect to make less money later on or that tax rates will go down you should do a pre tax (Traditional) contribution. I personally am just splitting the difference and contributing almost 50/50 to a traditional 401k and a Roth IRA. In retirement I think it will be best to have some of both. Your Roth isn't taxed so it doesn't raise your tax bracket, meaning the traditional contributions are taxed less than if 100% of your retirement income was from a traditional account. On the other hand if 100% of your money is tax free you aren't actually taking advantage of your super low tax bracket. A Roth IRA also has a few structural benefits, mainly being able to withdraw your contributions early without a penalty.
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Dec 16, 2015 17:55
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How does the Roth vs Traditional 401(k) equation change if you're in a state without income tax and expect to retire in a state with income tax? That's effectively a ~10% advantage on paying the taxes now vs. in retirement, right? Is there something I'm missing, is it crazy to keep contributing into a Roth in a 25% or 28% marginal bracket?
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Dec 16, 2015 17:58
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