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Evil SpongeBob posted:Had my first phone call with Vanguard personal advisors since I started saving 20 years ago. Received my recommendations for 90 stock/10 bond. They want me to get out of vanguard health care though. 😖. I've been in it since I started my IRA.
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Jun 16, 2017 19:17
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Hoodwinker posted:That's interesting but... your avatar though, man. Come on.
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Jun 16, 2017 19:21
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Mom and dad are gonna have to deal with that poo poo on their own, I guess. Dad probably isn't doing anything monumentally stupid, so they're probably fine - I'm just aware of how they'll eventually be my responsibility once they get old(er). Reading the If You Can handbook, it seems like the basic idea is to max out employer 401k matching, max out a Roth IRA for each year, and dump the rest in the 33/33/33 portfolio split (i.e. Vanguard stuff). The handbook does say to avoid mutual funds that aren't Vanguard, so should I just directly open an account with Vanguard and get that set up, or go through Scottrade or something instead? Pollyanna fucked around with this message at 20:16 on Jun 16, 2017 |
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Jun 16, 2017 20:12
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Pollyanna posted:Mom and dad are gonna have to deal with that poo poo on their own, I guess. Dad probably isn't doing anything monumentally stupid, so they're probably fine - I'm just aware of how they'll eventually be my responsibility once they get old(er). There is no reason to not open the account directly with Vanguard unless for some reason you are emotionally attached to another institution.
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Jun 16, 2017 20:24
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I Like Jell-O posted:I think you may have a misunderstanding on how this works. What do you mean you'll maintain a traditional IRA above the $5500 limit? That limit applies to both Roth and traditional IRAs collectively, so there is no tax advantage to contributing to an IRA above $5500/year. 401k limits are separate, and sometimes have a Roth option, which may be part of the confusion, but that is all tied up with your employer. Ah, I did misunderstand that part about the limit. But yeah, I actually was unemployed for the first ~4 months of the year (sold a house and moved across the state) so I expect a low tax burden this year.
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Jun 16, 2017 20:28
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Ixian posted:It gets more unreal the more I learn about it. Roth's were purposely set up to keep wealthy people from getting yet another way around taxes, then the law changes to what is for all intents and purposes a wink and a nod. There's no real limit on how much you put in one as long as you first put money in a traditional IRA then pay taxes on what you convert.
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Jun 16, 2017 20:28
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Ixian posted:There is no reason to not open the account directly with Vanguard unless for some reason you are emotionally attached to another institution. Sounds good to me. When they say to put emergency funds (was that the "6x monthly expenses" thing?) in a taxable account, are they referring to a non-401k/Roth thing? Would my BofA savings account be one? If so, is the general idea that I keep ~6x monthly expenses in my BofA savings account for emergency funds, while the rest goes into a Roth IRA and...uh, something else? Am I expected to hold a Roth IRA/401k alongside what Vanguard calls a "general savings account" (e.g. individual account, joint account, trust account)?
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Jun 16, 2017 20:37
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Space Gopher posted:Insurance and investments are opposites. When you buy insurance, you're paying somebody else to take on an unlikely risk*. When you invest, you're exposing your capital to some level of risk, with a likely return. The caveat to this is if you are retired, when SPIAs (single premium immediate annuities) are actually not bad at all, since they can protect you against you outliving your money. They aren't a bad product and tend to be priced fairly. When I get to that age, I may buy an SPIA which can cover basic living expenses, and then live it up on whatever is left (or not if the market tanks that year.) Pollyanna posted:Reading the If You Can handbook, it seems like the basic idea is to max out employer 401k matching, max out a Roth IRA for each year, and dump the rest in the 33/33/33 portfolio split (i.e. Vanguard stuff). The handbook does say to avoid mutual funds that aren't Vanguard, so should I just directly open an account with Vanguard and get that set up, or go through Scottrade or something instead? Things have changed a bit, especially with ETFs; you can get low-cost index funds through Fidelity, Schwab, and iShares. I go through Vanguard because I like them, but on the other hand I've had much better customer service with Fidelity and can't fault someone wanting to go through them instead.
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Jun 16, 2017 20:37
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monster on a stick posted:Things have changed a bit, especially with ETFs; you can get low-cost index funds through Fidelity, Schwab, and iShares. I go through Vanguard because I like them, but on the other hand I've had much better customer service with Fidelity and can't fault someone wanting to go through them instead.
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Jun 16, 2017 20:51
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Ralith posted:The nice thing about Vanguard is that they're obligated to do right by you, while the others are obligated to try to screw you at every turn. Sure, you're probably smart enough to come out on top anyway, but with Vanguard it's not a concern.
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Jun 16, 2017 21:12
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Pollyanna posted:Sounds good to me. Yes. You need it somewhere you can withdraw without penalty, and that isn't subject to market volatility. Mine is in a "high rate" savings account. Some people like to do CD ladders with theirs. Pollyanna posted:If so, is the general idea that I keep ~6x monthly expenses in my BofA savings account for emergency funds, while the rest goes into a Roth IRA and...uh, something else? Am I expected to hold a Roth IRA/401k alongside what Vanguard calls a "general savings account" (e.g. individual account, joint account, trust account)? You're mashing a bunch of stuff together here. Let's unpack. You generally want to maximize your tax advantage accounts. So If you have access to a 401k that's $18k of space. If it has access to good funds with low expenses, great. Fill that up. If not things get more complicated, but you should always put in enough to max out any employer matching that is being offered. After that you may be able to contribute to an IRA or Roth IRA (depending on income) and your 401k may also allow you to contribute as Roth above that $18k limit. Now for the rest of your investments in taxable accounts: you do this because you have maxed out your tax advantaged space for the year, or because you are saving for something pre-retirement on an investment-level-horizon (5+ years). All you need is a brokerage account. Choose one that makes sense for the kinds of funds you want to invest in (i.e., just open a Vanguard account already!) All of this joint/trust. etc has little to do with investing: it's just who own it. I have trust accounts for my minor children so that I can manage them now, but these assets revert to being 100% theirs when the reach the age of majority for whatever state they live in (18 or 21 - and I honestly don't even know which one that is for my state and it doesn't really matter to me at this point). My brokerage account is joint because I'm married so both my wife and I are the owners. Before I was married it was an individual brokerage account. Even if it still were an individual account with only my name on it it wouldn't matter for me as I live in a community property state: she would still own half.
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Jun 16, 2017 21:15
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Pollyanna posted:Sounds good to me. Yes, you should keep your emergency fund in a very stable, liquid place like an FDIC-insured savings account. A lot of people like to use high-interest accounts from places like Ally Bank. There is essentially zero risk, and you might as well eke out that one percent or so that will hopefully keep pace with inflation. Don't try to invest your emergency fund. When the economy goes haywire, your job is at risk, meaning you'll be more likely to need the emergency money, and your investments are also at risk, so they might not be worth enough when you go to cash them in. Those rules can change if you're so filthy rich your taxable investments could lose two thirds of their value and still carry you through any conceivable emergency (just one of the many ways it's easier to get rich when you're already rich!) but I'm guessing that's not you. There's no hard-and-fast rule for how much emergency savings to keep around, but 3-6 months' fixed expenses are a good idea. If you're young, single, and don't have a ton of responsibilities nailing you to people, places, and things, then 3 months is probably fine. If you've got a mortgage and a special needs child who needs expensive medicine, 6 months might be the bare minimum. It can be an interesting exercise to run through your spending and figure out what "I just lost my job, just the essentials" expenses might look like - not only will it get you a better number for your emergency fund, but it'll also help you identify things you're spending money on that you don't particularly care about. You shouldn't need to hold a Vanguard taxable account, although you can if you want to. If you have a 401(k) at work (or another plan like a SIMPLE IRA), then definitely use that, even if the fund selection isn't great. If you don't, but you're self employed, you may be able to set up a solo 401(k) and sock away fantastic amounts of tax-advantaged money. Once you've run out of tax shelter space, then there's not much else to do but set up a taxable account and invest there.
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Jun 16, 2017 21:25
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Space Gopher posted:You shouldn't need to hold a Vanguard taxable account, although you can if you want to. Are you saying just in terms of emergency savings, or at all? If you're talking about outside of emergency, I find the taxable brokerage acct necessary. I max out my Roth IRA, contribute to my 401k at 10%, and put most of the rest in taxable. Sure I could increase my 401k savings but I like having access to it if needed from the taxable acct.
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Jun 16, 2017 21:38
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Michael Scott posted:Are you saying just in terms of emergency savings, or at all? If you're talking about outside of emergency, I find the taxable brokerage acct necessary. I max out my Roth IRA, contribute to my 401k at 10%, and put most of the rest in taxable. Sure I could increase my 401k savings but I like having access to it if needed from the taxable acct.
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Jun 16, 2017 21:49
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Michael Scott posted:Are you saying just in terms of emergency savings, or at all? If you're talking about outside of emergency, I find the taxable brokerage acct necessary. I max out my Roth IRA, contribute to my 401k at 10%, and put most of the rest in taxable. Sure I could increase my 401k savings but I like having access to it if needed from the taxable acct. He/she is saying emergency. 6 months being the general rule of thumb. Meaning, if you (and your spouse/partner if you are in this together) get totally hosed and income stops suddenly you have six months where you don't need to touch your investments, at least. There are many hedges (job severance, disability insurance, etc.) but it's a good conservative amount to have. I blend mine with short term savings for trips so normally have more than 6 but up to you. Outside of this, look at a taxable MF since you will get much better returns (usually). My rainy-day fund is in savings where it earns next to nothing but also isn't at risk. I am looking at Ally since you can get 1.05% there, which is better than nothing, but consider that even 30k will earn you a whopping $315/y, and that it's not an investment that will grow beyond that and what you put in to it. Which is why I was looking at Munis. Probably I will keep the short term savings in an account like Ally and just diversify in to Munis at some point when it makes sense but looking at all the options.
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Jun 16, 2017 22:06
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So my wife and I both max our Roth IRAs each year through vanguard. She does her 401k to the match (6+3 percent) and I am at 10+3 percent for mine. We just do target funds for all of them. Her 401k expense ratio is 0.53 and mine is 0.05, neither have annual fees. I'm guessing it makes sense to keep upping my contribution until I hit the max since my fees are so low? Also could start maxing my HSA since it the most tax advantaged account possible. Have about a year + in our emergency fund and only debt is her car (15k / 3 years) and the house (145k). Was toying with the idea of just paying off her car.
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Jun 16, 2017 22:13
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B-Mac posted:So my wife and I both max our Roth IRAs each year through vanguard. She does her 401k to the match (6+3 percent) and I am at 10+3 percent for mine. We just do target funds for all of them. Her 401k expense ratio is 0.53 and mine is 0.05, neither have annual fees. I'm guessing it makes sense to keep upping my contribution until I hit the max since my fees are so low? Also could start maxing my HSA since it the most tax advantaged account possible. Have about a year + in our emergency fund and only debt is her car (15k / 3 years) and the house (145k). Was toying with the idea of just paying off her car.
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Jun 16, 2017 22:15
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Hoodwinker posted:What's the interest rate on the car? If it's 5%+ you should work on killing that probably. Other than that, any money you can push towards your 401k and HSA is good. HSA might be a higher priority from the tax savings on medical spending standpoint but it's really up to you. The rate is pretty decent, mid 3s. It would just be nice to know the only debt we would have is the house and it wouldn't really negatively impact our emergency fund.
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Jun 16, 2017 22:19
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B-Mac posted:The rate is pretty decent, mid 3s. It would just be nice to know the only debt we would have is the house and it wouldn't really negatively impact our emergency fund.
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Jun 16, 2017 22:20
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Is this mutually compatible with the stock market? Is this an avenue for trying to get your money to make more of itself, or is that a totally different thing? From what I can tell, the whole "MAKE MONEY WORK FOR YOU!!!" thing is a lot harder to pull off than people make it out to be. That doesn't stop my dad from constantly talking about it and trying to goad me into doing that. Also, how do I determine whether I want a Roth IRA or traditional IRA? Pollyanna fucked around with this message at 23:27 on Jun 16, 2017 |
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Jun 16, 2017 23:24
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Pollyanna posted:Is this mutually compatible with the stock market? Is this an avenue for trying to get your money to make more of itself, or is that a totally different thing? It's actually not that hard, "compound interest" is making your money work for you. Investing in a well-diversified low-cost index fund is making your money work for you.
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Jun 16, 2017 23:43
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Yeah, that makes sense. I wonder what my dad was talking about then, but whatever. I prefer the mutual fund idea anyway, so this will work. Way I understand it, Roth IRAs assume that you'll be using it more actively, while traditional IRAs are the set-and-forget type. Is there an advantage to messing around with Roth, i.e. taking things out more often? Sounds a bit more useful, I guess, but...
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Jun 16, 2017 23:57
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Hoodwinker posted:I don't like to come out of the woodwork to make this argument whenever people ask if Fidelity/Schwab are okay but I'm always thinking it. Yeah, the only thing holding me back from switching to fidelity is the long term view that fidelity wants to make a profit for shareholders and vanguard wants more efficient funds that will benefit me.
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Jun 16, 2017 23:57
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Pollyanna posted:Way I understand it, Roth IRAs assume that you'll be using it more actively, while traditional IRAs are the set-and-forget type. Is there an advantage to messing around with Roth, i.e. taking things out more often? Sounds a bit more useful, I guess, but... Where did you get this idea? It's either a weird misinterpretation or wrong.
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Jun 17, 2017 00:02
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I was comparing them on the Vanguard website, but I might be totally misinterpreting it.
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Jun 17, 2017 00:11
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B-Mac posted:The rate is pretty decent, mid 3s. It would just be nice to know the only debt we would have is the house and it wouldn't really negatively impact our emergency fund. We paid off our cars even when the math didn't make sense because knowing we didn't have the debt is nice.. When I onboard new people I always suggest they max their HSA and 401k, and assume most don't based on the number of giant trucks and nice cars in the parking lot.
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Jun 17, 2017 00:18
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Pollyanna posted:I was comparing them on the Vanguard website, but I might be totally misinterpreting it. Where does it say the Roth is better for active traders? It really doesn't matter since you don't have to pay capital gains taxes when buying/selling in either. Rule of thumb: Traditional is better is your tax rate now is higher than it will be in retirement. Roth is better is your tax rate now is lower than it will be in retirement.
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Jun 17, 2017 00:22
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Pollyanna posted:I was comparing them on the Vanguard website, but I might be totally misinterpreting it. In a world where you make the same amount of money and pay the same amount of taxes over your life, they're roughly equal in value. In a world where you make more money now and less money later, Traditional is better. In a world where you make less money now and more money later, a Roth is better. I think that about covers it.
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Jun 17, 2017 00:30
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Ropes4u posted:We paid off our cars even when the math didn't make sense because knowing we didn't have the debt is nice.. Giant trucks and nice cars, must be enlisted military!
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Jun 17, 2017 00:31
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B-Mac posted:Giant trucks and nice cars, must be enlisted military! Power plants and wind farms, lots of ex military
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Jun 17, 2017 00:33
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Pollyanna posted:Is this mutually compatible with the stock market? Is this an avenue for trying to get your money to make more of itself, or is that a totally different thing? No. Your dad has been swept up by a very well honed sales pitch. Doesn't mean he is stupid or that what they are doing is illegal but it's not the best way to save for retirement by a long shot. Roth IRA vs. Traditional - might sound funny from a guy who just realized how he should be using a backdoor Roth but I've been familiar with Roth in general for years and recently gotten up to date. There's no simple answer. Roth is a different kind of hedge against the future, really. There's a place for both Roth and Traditional IRAs, it's not necessarily one vs. the other. I think a lot of confusion comes from the fact that tax laws over the last few years have made the entire process complicated, at least at first glance, and more people are rolling prior company 401ks into IRAs instead of rolling into a new 401k. Everyone who spends more than 2 minutes researching them gets that Roth taxes you when you put money in and regular IRAs tax you when you take it out. That's deceptively simple though and a whole bunch of different factors come into play. Will your tax rate when you retire/withdraw be higher or lower than it is when you contribute? You don't really know. You could actually make more in retirement if you are saving well today, or tax rates could change, or whatever. That's one factor. Originally it (Roth) was created in 1997 as a way to encourage younger people to invest for retirement, under the idea that you make less (and have a lower tax rate) when you are young, and will have a higher tax rate in your prime earning years/retirement. The idea was eventually you'd phase out of contributing to a Roth as you made more money. The way the laws have changed, particularly when it comes to back-door Roth, has kind of blown all that to pieces. Added to that is the popularity of firms like Vanguard which, though they've been around since the mid-70's, have found new traction in the last decade or so, combined with a workforce that switches jobs more often. Plenty of people - myself included - decide to roll prior company 401ks into a Vanguard IRA instead of rolling over to the next company 401k plan because often Vanguard has better options, much lower fees, and a greater degree of control. As a result you've got more people with both company-sponsored 401k plans (or 403b/whatever) and traditional IRA accounts. On top of all that there's how different Roth IRAs are from regular IRAs aside from the obvious tax upfront vs. tax later. For example Roth IRAs aren't subject to RMDs (required minimum distributions). Those can have a big impact on future retirement, since not only do most tax-deferred plans have RMDs, but ironically if you save enough and do well you can do *too* well and affect other types of benefits you may be entitled to receive like SS. Not to mention pay more in income tax on said benefits. For example, say that you and the market do well over 40-50 years of saving and while you were never Richy-Rich you managed to save $5m in tax-deferred savings. Nice problem to have! And you don't need to have had a ridiculous salary to manage that either thanks to compound interest/savings. So, starting the April after they turn 70.5 a retiree with that amount would need to take an RMD of at least $190k (rounded) a year - and pay taxes on 190k/year - per current RMD tables published by the IRS. SS benefits also are affected at that level. You are also more likely to have less deductions in this scenario too. Now say you have that same $5m in retirement, but half of it is in a Roth IRA. Your RMD is 94k (based on 2.5m) meaning your taxable income as it applies to all things is the same. You can take however much on top of that you want out of the Roth, and it isn't taxed so the money is worth more, doesn't contribute to your tax rate, or against SS benefits, etc. You can also keep contributing to a Roth (even via back-door, unless they change the tax code again) after you are that old, if you are happy to continue working/getting other income. That is a simplistic example for sure but illustrates what I mean by, retirement investing should include both. Until the tax code was amended 4, 5 years ago you couldn't do a Roth at all over a certain, low income threshold. Now that you can backdoor them anyone can have one and apparently a lot of people are. All this goes back to the basic rule: If you are under the income limit for Roth , first max your employer plan particularly if there is a match. The match, unless it is poo poo, can easily make up for limited fund choices and high fees. Then fund a Roth. Then if you still have money go back and fund the 401k again. Then fund taxable savings in a mutual fund. Don't overlook HDHP and HSA if your company offers them (if they do I would put HSA funding first overall since it is truly tax free end to end). Etc.
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Jun 17, 2017 00:46
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Ixian posted:No. Your dad has been swept up by a very well honed sales pitch. Doesn't mean he is stupid or that what they are doing is illegal but it's not the best way to save for retirement by a long shot. I know this all too well (well, except for the not being stupid part). It's how I ended up invested in a bunch of loving trash high-expense, low return Ameriprise funds for all of my 20's  What do you mean that hot girl at the lunch and learn who guilted me into coming in for a consultation didn't have my best interests at heart?!?
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Jun 17, 2017 00:57
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monster on a stick posted:Where does it say the Roth is better for active traders? It really doesn't matter since you don't have to pay capital gains taxes when buying/selling in either. rule of thumb on the rule of thumb: future tax rates are not predictable. Always do Roth if available.
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Jun 17, 2017 01:00
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Docjowles posted:I know this all too well (well, except for the not being stupid part). It's how I ended up invested in a bunch of loving trash high-expense, low return Ameriprise funds for all of my 20's All I can do is repeat what others have said - put your oxygen mask on first, then help everyone else. The only likely way you'll get your dad to change is by doing well yourself...and then, maybe. Hopefully it hasn't gotten to the point where his life insurance brokers are his "buddies" or whatever. There was an article linked earlier in this thread about a pro wrestler who got completely taken by a lovely whole-life insurance broker. Greed is what gets many. Shitload of people out there staring 5-7% returns in the face and thinking, with my savings/lifestyle choices that won't be enough, how do I beat the system? Which almost always ends in tears. Bernie Madoff is a classic, if extreme example that caught a whole lot of otherwise smart people up in that kind of mindset.
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Jun 17, 2017 01:05
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greasyhands posted:rule of thumb on the rule of thumb: future tax rates are not predictable. Always do Roth if available. Doesn't that go the other way too? They could be higher, they could be lower.
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Jun 17, 2017 01:21
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Pollyanna posted:Doesn't that go the other way too? They could be higher, they could be lower.
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Jun 17, 2017 01:26
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On the flip side, you probably won't be making much if any income in retirement aside from traditional retirement account distributions, since otherwise you wouldn't need to be drawing on retirement accounts, so regardless of tax code changes your personal effective income tax rate is not likely to be high. If it looks like you're going to have several million 2017 dollars in your traditional accounts then sure, switch to Roth, but most people won't have that problem.
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Jun 17, 2017 01:59
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Ixian posted:As with any Muni the growth and return is tax-free, one of the few non-retirement vehicles that allow such. I don't think Munis are exempt from cap gains.
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Jun 17, 2017 02:29
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It's essentially impossible to be an IRA multimillionaire with target date funds due to the $5500 contribution limit. You'd need to max contribute for a long time. 40 years of $6000 @ 7% is $1.2m -- good luck with that 30 year olds...
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Jun 17, 2017 02:41
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Skinnymansbeerbelly posted:I don't think Munis are exempt from cap gains. They are typically exempt from fed and almost always exempt from state if it's a muni in your state.
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Jun 17, 2017 02:46
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