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While we're on the topic of mega backdoor IRAs: I think I must be thinking about this wrong. I'm not to the point where I can contribute post tax money to a 401k yet, but I'm hoping to get there in a year or two. There are some things I don't understand yet though. To lay out my situation, I have a very high cost 401k plan (S&P500 index fund's ER is .8%, and everything else is well over 1%). If my plan offers in service rollovers, does that mean I can transfer that money to another provider? Everything I've googled keeps talking about in service distributions for when you're 59 1/2 or whatever. Even if I didn't contribute post tax money, could I roll (standard, pretax) 401k contributions to a rollover IRA at Vanguard? If so, considering the ER at my company, would that make sense?
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Feb 6, 2017 21:37
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I'm setting up my wife's Vanguard Roth IRA here and the application didn't ask about her income, married status, etc. What am I missing here before I hit submit?
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Feb 7, 2017 01:04
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Uhh why would they need to know that stuff? It's your job to make sure that your contributions are allowed. Marital status doesn't matter other than beneficiary.
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Feb 7, 2017 01:27
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potatoducks posted:Uhh why would they need to know that stuff? It's your job to make sure that your contributions are allowed. Marital status doesn't matter other than beneficiary. I have no idea, I've never set up an investment account before. I just called them though and confirmed that I wasn't missing a step or something. The application seems a little thin is all.
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Feb 7, 2017 01:32
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That's the nice thing about after-tax accounts. Also the fact that if you contribute too much for your income, that's your problem, not Vanguard's.
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Feb 7, 2017 01:38
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AndrewP posted:I have no idea, I've never set up an investment account before. I just called them though and confirmed that I wasn't missing a step or something. The application seems a little thin is all. Well you can't trade on margin and do other leveraged trades in an IRA, so you're only ever playing with your own money, so they don't really need to know your income since they won't be extending you credit. If you're ineligible to contribute because of income or marital status, all the penalties would fall on you through your tax return, so it won't really affect them either.
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Feb 7, 2017 01:42
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Ancillary Character posted:Well you can't trade on margin and do other leveraged trades in an IRA, so you're only ever playing with your own money, so they don't really need to know your income since they won't be extending you credit. If you're ineligible to contribute because of income or marital status, all the penalties would fall on you through your tax return, so it won't really affect them either.
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Feb 7, 2017 08:45
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ShadowHawk posted:To comment on this further, it's possible to do some very unexpected things in an IRA. Mitt Romney had millions of dollars in his by way of investing it into his partner's hedge fund startup. No, worse than this, he used his position within that hedge fund to SERIALLY identify and buy depressed shares which had, because of his fund's acquisition, triple digit returns and allowed these gains to compound. Doing this once with one stock would still not net you anywhere near what he had in his IRA. He is almost certainly the most successful IRA investor of all time, and it's an unbelievable loophole available to a tiny cadre of investors allowed to trade routinely and benefit personally on what amounts to (IMO) insider information.
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Feb 7, 2017 13:55
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Thanks for the help. I decided on the Target 2050 fund, set up a monthly auto contribution and called it a day. Still trying to decide if I should keep my TSP entirely traditional or make some or all of it Roth (not a conversion, just future contributions I mean). Feel like I should just go Roth if I don't NEED the tax break now. Not sure if we'll be in a higher bracket by then but fairly confident we won't be in a lower one .
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Feb 7, 2017 15:25
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This question probably gets asked every few pages, but this is a long thread thats nearly a decade old! I am ashamed to say that in my early 30's I know almost nothing about finance or planning my retirement. I read the OP and some of the links to get an understanding of 401k and IRA. Generally, is this list in the OP still the order you should do things? 1) Contribute to 401(k) up to employer match. Always get the free money! 2) Max out Roth IRA ($5,500 limit in 2015). You can skip this if your 401k options are good and you don't need the extra tax-advantaged space. 3) Max out 401(k) ($18,000 limit for 2015) And specifically for me, combined income with my wife is too high to allow for Roth contributions and no tax benefit from traditional either. Would step 2 be replaced with a backdoor Roth then? So it would look something like 1) contribute to 401 (k)/403 (b) to maximize match 2) backdoor Roth 3) max out the 401/403? Where would repaying student loan (thankfully less than 100k at this point) or mortgage debt be on that? Between 2 and 3? zouyan fucked around with this message at 16:11 on Feb 7, 2017 |
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Feb 7, 2017 16:09
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zouyan posted:This question probably gets asked every few pages, but this is a long thread thats nearly a decade old! I am ashamed to say that in my early 30's I know almost nothing about finance or planning my retirement. I read the OP and some of the links to get an understanding of 401k and IRA. Yes. Limits are still the same for 2016/2017 as they were in 2015, as well. It does get asked often but really the tax code here doesn't change aside from the limits going up occasionally as they are linked to inflation. quote:And specifically for me, combined income with my wife is too high to allow for Roth contributions and no tax benefit from traditional either. Would step 2 be replaced with a backdoor Roth then? Probably? It gets more complicated there because if you already have a lot of traditional IRA, the conversion process is complicated and requires you paying taxes on portions of the traditional IRA as it's converted. You can't take a 20k traditional IRA, make a $5500 contribution to it, roll 5500 over to a Roth and say "no that's just the money I contributed this year that I'm not claiming a tax deduction on, we're good." You have to pay tax on parts of it. If you don't have an existing traditional IRA, it's a lot simpler. quote:So it would look something like 1) contribute to 401 (k)/403 (b) to maximize match 2) backdoor Roth 3) max out the 401/403? Yes with the above caveat. quote:Where would repaying student loan (thankfully less than 100k at this point) or mortgage debt be on that? Between 2 and 3? That depends entirely on the interest of the loans and whether you have the emergency cash to keep paying them for awhile in the event of loss of income for whatever reason...in general if the interest is high, you're supposed to attack that while just getting your employer match and worry about retirement after. If we're talking a 3% loan it's probably not worth trying to pay early unless you have the cash around and it really bothers you that much to have a payment.
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Feb 7, 2017 16:41
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zouyan posted:And specifically for me, combined income with my wife is too high to allow for Roth contributions and no tax benefit from traditional either. Would step 2 be replaced with a backdoor Roth then? What I've read (someone correct me if I'm wrong) suggests there's no reason to backdoor Roth unless you need to access that money in 5 years. By keeping it in your IRA and not paying taxes on it for as long as possible, you'll achieve better long term growth through the magic of compounding.
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Feb 7, 2017 17:08
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Nevermind, I think I misread the situation.
CopperHound fucked around with this message at 17:22 on Feb 7, 2017 |
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Feb 7, 2017 17:19
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Pie Colony posted:What I've read (someone correct me if I'm wrong) suggests there's no reason to backdoor Roth unless you need to access that money in 5 years. By keeping it in your IRA and not paying taxes on it for as long as possible, you'll achieve better long term growth through the magic of compounding. You get no tax benefit for contributing to a traditional IRA long before you're barred from Roth. The choice is between post-tax traditional vs backdoor Roth, and backdoor will always win because it has untaxed withdrawals. If that wasn't clear: post-tax traditional IRA is taxed upon deposit (essentially) and upon withdrawal. Backdoor Roth is taxed on deposit only. Now, if you're considering whether you should recharacterize existing traditional funds into Roth funds within an IRA... yea maybe don't do that. The win-win alternative to this is moving your Traditional IRA into your 401k, then backdoor Rothing any future IRA contributions. DNK fucked around with this message at 17:30 on Feb 7, 2017 |
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Feb 7, 2017 17:27
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EAT FASTER!!!!!! posted:No, worse than this, he used his position within that hedge fund to SERIALLY identify and buy depressed shares which had, because of his fund's acquisition, triple digit returns and allowed these gains to compound. Doing this once with one stock would still not net you anywhere near what he had in his IRA. He is almost certainly the most successful IRA investor of all time, and it's an unbelievable loophole available to a tiny cadre of investors allowed to trade routinely and benefit personally on what amounts to (IMO) insider information. What does "because of his fund's acquisition, triple digit returns" mean? How did he fund's acquisition depress shares, and why would he want to buy them if they were depressed?
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Feb 7, 2017 17:43
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oliveoil posted:What does "because of his fund's acquisition, triple digit returns" mean? How did he fund's acquisition depress shares, and why would he want to buy them if they were depressed? They weren't really trading, they were buying entire companies and fudging the "share value" along the way specifically to get a ton of money into an IRA. Like if you sold a Picasso to your kid for $1, and they were somehow able to use an IRA to buy it.
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Feb 7, 2017 17:49
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Nail Rat posted:Probably? It gets more complicated there because if you already have a lot of traditional IRA, the conversion process is complicated and requires you paying taxes on portions of the traditional IRA as it's converted. You can't take a 20k traditional IRA, make a $5500 contribution to it, roll 5500 over to a Roth and say "no that's just the money I contributed this year that I'm not claiming a tax deduction on, we're good." You have to pay tax on parts of it. If you don't have an existing traditional IRA, it's a lot simpler. Thanks for the replies. Currently I don't have anything other than the 403b for me. So that should make starting the backdoor Roth more straightforward? And if I change jobs, I'd be better to try and roll that 403b into my next 401k/403b rather than a traditional IRA so I could keep doing the backdoor Roth without worrying about that above scenario?
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Feb 7, 2017 18:03
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zouyan posted:And if I change jobs, I'd be better to try and roll that 403b into my next 401k/403b rather than a traditional IRA so I could keep doing the backdoor Roth without worrying about that above scenario? Yes exactly, but at some point it's not worth doing the IRA contribution. For example, if you work at this place for awhile and end up with $500k in your retirement accounts between you and your spouse, and you quit your job and your choice is a 0.1% Vanguard rollover IRA or a 0.5% new 401k - you will be better off rolling to the Vanguard account and just not doing the backdoor IRA contribution anymore.
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Feb 7, 2017 18:11
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why is our retirement system such a gigantic Rube Goldberg-esque mess?
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Feb 7, 2017 18:39
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It's honestly not. The complications happen due to gaming the tax system and only when you have lots of assets across multiple vehicles. On their own, the taxes and vehicles are very straight forward. If you don't care about maximum tax efficiency or whatever, going full hog into a traditional IRA and dumping it all in a target date fund works from 10k/yr all the way to 2M/yr. e: at the risk of being disingenuous, I do not suggest such a plan if you begin to make more than ~100k/yr because the tax benefits for considering your investment options are considerable, but understanding these things takes approximately 15 minutes of reading the bogleheads wiki, and if you care about money then it is time well spent. DNK fucked around with this message at 18:53 on Feb 7, 2017 |
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Feb 7, 2017 18:43
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401k/403b/etc are an unnecessary complication, those of us here care enough to figure it out but it really is a lot more complicated than it needs to be. There should just be IRAs (Roth or Traditional) with a bigger cap, and employers should be able to contribute to them for you but not exceed whatever the cap is. That would be fairer in addition to more straightforward.
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Feb 7, 2017 19:01
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I agree, it is kinda bullshit only being able to contribute $5.5k tax advantaged with one job vs. $58.5k with another job.
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Feb 7, 2017 19:10
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CopperHound posted:I agree, it is kinda bullshit only being able to contribute $5.5k tax advantaged with one job vs. $58.5k with another job. More, if you have access to a 457.
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Feb 7, 2017 19:19
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So what happens to real estate and bond prices if the stock market falls like in 2008/2009? What happens to stock, bond, real estate prices if inflation shoots up?
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Feb 7, 2017 20:53
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oliveoil posted:So what happens to real estate and bond prices if the stock market falls like in 2008/2009? Stocks and real estate will generally track with inflation. The real value of bonds will not unless they are an inflation protected bond. Real Estate is not intrinsically connected to the stock market. In 2008 real estate values fell by far more than the stock market did. It is entirely possible for the market to tank and real estate to be fine. It is also very geographically dependent.
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Feb 7, 2017 20:58
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Yeah I'm not holding my breath on northside Chicago house prices falling 30% when the S&P 500 does. I'd love to be wrong!
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Feb 7, 2017 21:25
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Thanks, guys! So by what mechanism do stock prices fall? Is it entirely due to the amount of people who are willing to pay for it every day? In 2008/2009, when people say the stock market Dell, does that mean that many more people wanted to sell their stocks than there were people who wanted to buy them? And for lower prices? So that I could say, without missing anything, that the only thing that would cause stock prices to fall would be a falling demand for stock? Trying to lay out a logical argument for why something would raise or lower stock prices, and I think my argument would always be something like "this event causes demand to rise/fall"
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Feb 8, 2017 00:30
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oliveoil posted:Thanks, guys! Stock prices are driven by demand to purchase stock, basically. People buy and sell stocks (and thus change the price) based on a couple major factors that change: 1) The current value of the company (assets, cash flow, liabilities, etc) 2) A guess on how the company will perform in the future (a company announces that they have secured a major government contract or invented something major doesn't immediately make the company more money, but the stock price will usually rise as a reflection that people believe it will be more valuable in the future, so buying it now will make money) 3) The stock structure of the company. Sometimes a company releases a limited amount of stock, an IPO, or enough to change control of the company and this can make the stock artificially more expensive or worthless (this one is closely tied to #2)
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Feb 8, 2017 01:08
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AndrewP posted:Thanks for the help. I decided on the Target 2050 fund, set up a monthly auto contribution and called it a day. I was recently torn between making the same decision and then I discovered that the Roth TSP is not the same as a roth IRA. http://www.fedsmith.com/2016/01/07/roth-tsp-vs-roth-ira-showdown/
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Feb 8, 2017 02:59
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There are complications to falling prices due to that people use leverage or use their equities as collateral for other loans. One the prices starts falling they are essentially forced to sell at whatever price is available which typically further pushes down the price. This is typically resolved by jumping out a window.
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Feb 8, 2017 03:13
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Whats the benefit of VFINX over VOO?
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Feb 8, 2017 03:35
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Nothing. Vanguard ETFs are just a tranch of their mutual funds. Many retirement accounts won't let you trade ETFs though. E: actually the bid-ask spread can make the etf cost more and mutual funds will sell you fractional shares. Murgos fucked around with this message at 03:41 on Feb 8, 2017 |
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Feb 8, 2017 03:39
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I see, it seems as mine allows it. Setting up by Roth IRA investments now. Was thinking: VOO (saw your edit, maybe VFINX?)-60% VGTSX-25% VBMFX-15% Im 25 with a 401k in Vanguard 2060. Should I even bother with bonds in the IRA?
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Feb 8, 2017 03:42
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El Mero Mero posted:I was recently torn between making the same decision and then I discovered that the Roth TSP is not the same as a roth IRA. Thanks, that's a good writeup. The ability to withdraw the principle is the main thing that gives me pause. I certainly don't plan or intend on doing this, but it flexibility is always a good thing. Did you end up opening a separate Roth IRA? Or just going with the TSP?
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Feb 8, 2017 04:16
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Leon Trotsky 2012 posted:Stock prices are driven by demand to purchase stock, basically. Murgos posted:There are complications to falling prices due to that people use leverage or use their equities as collateral for other loans. One the prices starts falling they are essentially forced to sell at whatever price is available which typically further pushes down the price. This makes sense. Thank you! I had another thought: If the performance of the stock market has an expected 5% real return in the long term, then doesn't that imply that any random new should be similar? I.e., a new business should expect a 5% real return. And that any typical (say, median?) new business should see far less than that? If there's 5% on average, but I see lots of big businesses, then the distribution of results for any new business must be overwhelmingly poor outcomes, with just enough big successes to cancel out the failures and result in a 5% positive expectation. Does that make sense?
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Feb 8, 2017 04:57
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oliveoil posted:This makes sense. Thank you! It's complicated, but the short version is that your general thought (most businesses fail; a small amount are wildly profitable) is true. But that doesn't directly relate to the average returns of the market. There's a lot of reasons, but the big ones are: 1) Not all companies are publicly traded or on the major stock indexes. 2) Those 5% average returns are over a 30-year period, so you can have years and years of losses and several huge years and still end up at 5% average, it's not a consistent 5% every year. 3) Many companies don't exist for the full 30 years that the 5% figure is based on. So some will have gone bankrupt or are brand new and not guaranteed to be around in 10 years. 4) % Growth in developed economies (like the US) is going to be structurally capped at lower %s. The biggest companies make up a huge percentage of the stock market's total value and since these companies are huge, they don't have tons of room to grow. For example, Wal-Mart is pretty much penetrated as far into the marketplace as it can get. It can still grow based on population growth, weakness of competitors, and general economic trends. But Wal-Mart stock will never see a 15-30% growth rate like some brand new companies or tech companies do unless there is some major dramatic change in the business landscape. So, your general thought is right, but not for the reasons you were thinking.
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Feb 8, 2017 05:13
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oliveoil posted:This makes sense. Thank you! Briefly: no, for quite a few reasons. First, by "the stock market" you're only really talking about publicly traded companies, and probably a subset of those (because even the "total world stock market" funds don't include terrible penny stocks). You can't necessarily extend the performance of Wal-Mart, GE, and Apple to Jimbo's Crab Shack or FlytePlan, the Uber for blimps. Second, you can't just say that the stock market, or businesses in general, are expected to grow by 5% real returns every year, or any other static percentage. The overall state of the economy has a huge effect here. With all that said, you're right that most new small businesses are destined for failure within a few years, but there are a few superstars who can sustain periods of massive growth for quite a while until they do hit big-corporation size. You just can't attach a specific number to them based on the performance of some other companies of different sizes, in different sectors, and so forth. (Personally, I wouldn't be surprised if the return on a hypothetical "total startup/new-small-business" fund was strongly negative. Venture capitalists make it their business to find good startups, and they're considered very successful if only two thirds of their picks fail. And, there are tons and tons of people out there with theoretically marketable skills, heart, a business plan that they think is foolproof, and absolutely no understanding of how to make it succeed)
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Feb 8, 2017 05:16
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It's an interesting question though - earnings growth of listed US companies in aggregate has always undershot GDP growth so public equities don't completely capture the growth of the entire economy with people supposing that entrepreneurship is the missing factor.
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Feb 8, 2017 05:43
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AndrewP posted:Thanks, that's a good writeup. I'm mostly in the TSP Traditional, but as of last month I started putting some of my contributions toward the Roth without much rationality behind it. Currently I'm 80% traditional/20% Roth TSP, but I'm not sure if this should be flipped or not.
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Feb 8, 2017 05:57
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How do I evaluate a fund? I've got all my 401k contributions in a target retirement fund for 2055 with vanguard, but they allocate 90% stocks and 10% bonds, which bothers me. I was thinking of switching to either one of their earlier retirement funds (e.g., 2025 or 2030 retirement trust select funds, but they don't get me to to the 70/30 stock/bond split I want. The 2025 one appears to be 65/35 stocks/bonds and the 2020 one appears to be 72/28 stocks/bonds, which seems strange. There only thing in my plan that appears to be pure bonds is MWTSX, but there seems to be VGSNX for REITs, which seems neat, but either there's something wrong with my eyes or the vanguard description for that really says there $5,000,000 minimum investment in that fund, which seems impossible to reach in a retirement fund.
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Feb 9, 2017 04:50
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