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Boof Bonser posted:2.) I don't like bonds. Plenty of reasonable people are likely to disagree with me on this, and that's fine, but I don't plan to retire for another 30 years, so there's almost no reason for me to have bonds in my portfolio right now. The opportunity cost risk from not being 100% in stocks exceeds, in my view, the capital loss risk of a recession. Vanguard will generally have you at least 10% in bonds in the target date funds. Depending on your age you might want that to be 5 or 0. (Or if you are particularly anxious you might want it to be 20-30--that's fine too. The point is I like being in control of the asset allocation.) You know, I'm really not happy with bond funds either. They generate dividends that I really don't want to pay taxes on right now, and they frankly have been underperforming for a long time. But I'm not 30+ years from retirement, and bond funds are also the traditional asset class to balance risk in a portfolio. I've been looking for a while as to what to switch to reasonably, but the investing community still seems sold on a bond fund as one of the legs in the "U.S. broad equity, international board equity, bond fund" stool. I also have bond funds in my taxable brokerage account. I would like to get the dividend generation out of that, but don't really see how without creating a taxable gain, and I'm also not sure that I want to be stuck with my less risky investment being more untouchable until I'm 60 something (or at least without an early withdrawal penalty).
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Jan 19, 2020 01:32
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Boof Bonser posted:1.) Expense ratios. The Vanguard Target 2045 fund has an expense ratio of 0.15%. It's comprised of 4 component funds: Total stock, total international stock, total bond, and total international bond. In most plans, you can just buy these individual component funds and they will have lower expense ratios. Total international is 0.11%, total US stock is 0.04%, and total bond is 0.05%. So you're paying about 10 basis points for the service of having Vanguard rebalance for you. But rebalancing on Vanguard takes literally about 3 minutes, and you can do it once every 2-3 years and be fine. Ten basis points isn't huge, but it does make a difference. Suppose that your current account balance is $20,000 and you contribute another $1,000 per month. After 35 years at 8% you'd have $2,452,060 (ignoring taxes, inflation, etc.). After the same time period at 7.9% you'd have $2,394,134. So your future self basically paid about $60,000 in order to save roughly 90 seconds per year. Fees are a certain drag on returns, so you want to do everything you can to reduce them. Every basis point is significant. Edit: Looking into this a bit more, I'm currently in the VFIFX... Vanguard Target Retirement 2050 Fund @ 0.15% ER it contains... Vanguard Total Stock Market Index Fund Investor Shares @ 54.10% Vanguard Total International Stock Index Fund Investor Shares @ 36% Vanguard Total Bond Market II Index Fund Investor Shares @ 7% Vanguard Total International Bond Index Fund Investor Shares @ 2.9% Individually, the ERs are... Vanguard Total Stock Market Index Fund Investor Shares VTSMX 0.14% Vanguard Total International Stock Index Fund Investor Shares VGTSX 0.17% Total Bond Market II Index Fund Investor Shares VTBIX 0.09% Vanguard Total International Bond Index Fund Investor Shares VTIBX?? 0.13% How do I calculate the ER to see if it's more than the VFIFX? Is it as simple as finding the average? obi_ant fucked around with this message at 08:14 on Jan 19, 2020 |
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Jan 19, 2020 07:36
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obi_ant posted:Edit: Looking into this a bit more, I'm currently in the VFIFX... Weighted average. If you are 60% into total stock market fund add 0.6 times 0.14%, do the same for the others. Sum is your portfolio's effective expense ratio. edit: and if I did my math right, you would pay an effective expense ratio of 0.14701% to hold the target fund components individually. Meaning you are paying three tenths of a basis point for automatic rebalancing. There are many valid reasons to hold the constituent funds directly, but I'm not sure minimizing the funds' expense ratios should be top of your list. Rebalancing really is painless though, assuming you do it regularly and dispassionately. I probably wouldn't bother switching out of the target date fund if I was in your shoes, unless I convinced myself there was a lower-enough tax bill waiting for me at the end. pokeyman fucked around with this message at 09:19 on Jan 19, 2020 |
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Jan 19, 2020 09:04
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I've considered opening an HSA for a while, but I live in California where HSAs (as such) are not exempt from state tax. Does anyone have experience investing an HSA in federal bonds / bond funds for a state tax fix? If so, what HSA provider did you use for this?
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Jan 19, 2020 09:29
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obi_ant posted:Edit: Looking into this a bit more, I'm currently in the VFIFX... You should be using the admiral versions of those funds as they have a smaller ER (but a larger minimum requirement). If you're using investor shares, then it really doesn't make sense to not go with the target date fund if you're ok with their allocations.
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Jan 19, 2020 13:59
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The investor shares for those don't exist anymore. They are admiral with minimum $3,000
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Jan 19, 2020 16:45
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I have my Roth in a vaguard target retirement fund too and I was investigating this situation with the regular and Admiral Shares recently, and it looks like their ETFs have even lower fees than the Admiral Shares do. VTSMX .14 no longer available VTSAX .04 Admiral Shares VTI .03 ETF What's the point of owning anything besides the ETF? I feel like I'm missing something.
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Jan 19, 2020 17:25
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Well with mutual funds like VTSAX you can own partial shares. So if you have exactly $891.04 to invest it will buy that exact amount of VTSAX. With ETFs you have to buy whole shares at a time. So that $891.04 won't be fully used. It's a slight inconvenience but really both VTSAX and VTI are really good.
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Jan 19, 2020 17:28
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Gazpacho posted:I've considered opening an HSA for a while, but I live in California where HSAs (as such) are not exempt from state tax. Does anyone have experience investing an HSA in federal bonds / bond funds for a state tax fix? If so, what HSA provider did you use for this? What problem are you trying to fix? Are you using this like a retirement account / long term growth? If so, pay the 10% tax and get 6% gains in the total market, rather than 0% tax and get 1-2% gain in a bond fund.
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Jan 19, 2020 17:44
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Just want to make sure I know what we’re doing by investing in my wife’s institutional 457. If we leave, do we: 1. Pay taxes on our contributions at our top marginal tax rate? 2. Pay taxes on gains at the long term capital gains rate? My wife’s institution gives us decent fund choices and there’s little concern about stability, but I just want to make sure I understand things correctly. If we’re maxing out 403bs, Roth IRAs, and HSAs, we should max out the 457 as well, instead of putting more money in taxable accounts, right?
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Jan 19, 2020 18:39
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The problem of additional tax complexity, the problem of preserving HSA capital early on in case I have medical expenses, and the problem of having most of my retirement investment in taxable accounts for historical reasons (late start). I’ll prefer the taxable accounts for equity and the exempt accounts for bonds. I don't intend to retire in California (lol) so this is would perhaps be temporary approach if I do it. e: To answer the other question, yes the motive for an HSA is to improve my exempt retirement savings position. Gazpacho fucked around with this message at 19:32 on Jan 19, 2020 |
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Jan 19, 2020 18:49
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Residency Evil posted:Just want to make sure I know what we’re doing by investing in my wife’s institutional 457. If we leave, do we: I am not certain but I am pretty confident that the gains will also be taxed at your top marginal income rate.
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Jan 19, 2020 19:57
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SlyFrog posted:You know, I'm really not happy with bond funds either. They generate dividends that I really don't want to pay taxes on right now, and they frankly have been underperforming for a long time. But I'm not 30+ years from retirement, and bond funds are also the traditional asset class to balance risk in a portfolio. I've been looking for a while as to what to switch to reasonably, but the investing community still seems sold on a bond fund as one of the legs in the "U.S. broad equity, international board equity, bond fund" stool. You could always try mixing in some higher yield options such as JNK, PCI, HYD, etc. Still pretty crappy but better than just using BND.
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Jan 20, 2020 06:12
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Residency Evil posted:Just want to make sure I know what we’re doing by investing in my wife’s institutional 457. If we leave, do we: Withdrawals would be added to your ordinary income for the year for tax purposes. But, every employer has different rules around what the withdrawal options are when you separate from your employer, which can vary from 'must take it out as 1 lump sum' to 'can spread out over 5-20 years in equal installments.' I wouldn't use it unless it lets you spread withdrawals over at least 5 or so years because otherwise there's a reasonable chance you end up paying more in tax than you saved. There's also the possibility that if you switch employers they have an institutional 457b you can roll into, but they specifically have to allow rollovers, so it's a crapshoot. Ran the numbers a while back and it seemed like with at least a 5 yr withdrawal horizon for where we fall income and tax bracket-wise it made sense to use it even if we ended up leaving in the next 5-10 years, so my wife and I do use ours, but it's definitely the last priority for filling up and will be the first priority for withdrawals later.
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Jan 20, 2020 12:31
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Chu020 posted:Withdrawals would be added to your ordinary income for the year for tax purposes. But, every employer has different rules around what the withdrawal options are when you separate from your employer, which can vary from 'must take it out as 1 lump sum' to 'can spread out over 5-20 years in equal installments.' I wouldn't use it unless it lets you spread withdrawals over at least 5 or so years because otherwise there's a reasonable chance you end up paying more in tax than you saved. Thankfully, it allows for withdrawals over 15 years, but why is this necessarily preferable over a lump sum payment? I guess in the event that we’re in a lower tax bracket during a withdrawal? And for additional tax free growth over those 15 years? Residency Evil fucked around with this message at 13:10 on Jan 20, 2020 |
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Jan 20, 2020 12:57
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I'm thinking of opening an IRA for my wife, who's never had one. If I open it in 2020 can we still contribute towards the 2019 limit if we do it before April?
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Jan 20, 2020 15:08
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If you have a large amount in there, you'll want flexibility in how you withdraw it. If you're still working, then to minimize the tax impact you'll want to spread it out as much as possible so it doesn't get taxed at a higher rate than you saved at going in. If it is during retirement, then you still probably don't want it as a lump sum if there's a good amount in there for the same reason. You're essentially weighing using the 457b over a taxable account, and if you end up having to withdraw before retirement, then you're essentially hoping the benefit of lack of tax drag on growth is more than the difference between paying LTCG and ordinary income tax rates on gains. At higher brackets it works, but likely depends on you at least withdrawing in the same bracket or lower than you put money in at. Edit: actually, you're comparing paying ordinary income tax rates on gains in the 457 vs ordinary incomes tax rates on contributions, tax drag on growth, and LTCG on gains in a taxable account, since you're not comparing the 457 to a Roth where if you tax-adjust contributions they're equivalent. So yeah, probably still makes sense to use the 457 if you've got decent withdrawal options. Chu020 fucked around with this message at 15:33 on Jan 20, 2020 |
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Jan 20, 2020 15:09
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Ur Getting Fatter posted:I'm thinking of opening an IRA for my wife, who's never had one. Yup. Must fund before April 15. Make sure you see the option for 2019 limit when you are making the deposit or it could wind up in 2020. It's just paperwork to correct it but why go through the hassle?
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Jan 20, 2020 15:20
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Ur Getting Fatter posted:I'm thinking of opening an IRA for my wife, who's never had one. Also, if you’re doing Vanguard like most people here do, and you’re the money person of the house, file whatever paperwork up front to have you listed as equal control for investments, transfer, etc. I didn’t do that at first thinking I could do it later, and it was a pain point getting it updated. I still can’t transfer funds from my account to her account. Not that I would have to do it often, but it’s annoying. I know I could fix it by filing another form or two, but I can do everything else so I’ve just let it be.
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Jan 20, 2020 15:54
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Thanks! One last question. We are both self-employed and the way our taxes are working out right now, we're paying fairly low income tax due to deductions, but a high self-employment tax. I've always contributed to my Roth IRA figuring I'd take advantage of our fairly low tax bracket, but right now we're getting hit with a fairly high SEP tax. Do any of the retirement vehicles affect Self Employment tax at all or do they all only reduce taxable income?
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Jan 20, 2020 18:58
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Ur Getting Fatter posted:Thanks! SEP tax is intended to be hard to dodge. I don't believe there is any normal/trivial way to dodge it. Do you need this SEP income during the year or can you defer it? You will immediately hit wanting an accountant to handle it for you.
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Jan 20, 2020 19:07
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Ur Getting Fatter posted:I'm thinking of opening an IRA for my wife, who's never had one. Similar question, I have an 18 year old daughter who is a student without much/any income. How would I approach funding an investment to get her started?
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Jan 20, 2020 19:12
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tomapot posted:Similar question, I have an 18 year old daughter who is a student without much/any income. How would I approach funding an investment to get her started? Well if she has ANY income, you can always start funding her Roth IRA. Doesn't take too much to hit that.
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Jan 20, 2020 19:19
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IRAs require income. A child would need to report at least the contributed amount of income on her taxes in order to fund an IRA that much. It doesn’t matter where the money comes from: •she earns $6000 and spends it •you fund $6000 into her IRA •IRS doesn’t care Otherwise you could always have her set up a taxable brokerage account and fund that however you want. If the account is actually in her name, she’ll have some extra work to do on her taxes but otherwise will be owning investments.
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Jan 20, 2020 19:21
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DNK posted:IRAs require income. A child would need to report at least the contributed amount of income on her taxes in order to fund an IRA that much. It doesn’t matter where the money comes from: Careful of screwing with her FAFSA/student loan/grant stuff if that is a thing you're doing. Make very certain you understand how that is working first. (I think the IRA stuff should be fine, the other stuff I am uncertain about.) If you're paying rack rate cash for school then it doesn't matter at all.
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Jan 20, 2020 19:55
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Ur Getting Fatter posted:Do any of the retirement vehicles affect Self Employment tax at all or do they all only reduce taxable income? That's why people say you need a much higher salary to justify working as an independent contractor vs an employee. Self employment is expensive tax-wise.
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Jan 20, 2020 20:40
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DNK posted:IRAs require income. A child would need to report at least the contributed amount of income on her taxes in order to fund an IRA that much. It doesn’t matter where the money comes from: [pedant] IRAs require earned income. [/pedant] otherwise this is spot on.
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Jan 20, 2020 21:40
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DNK posted:IRAs require income. A child would need to report at least the contributed amount of income on her taxes in order to fund an IRA that much. It doesn’t matter where the money comes from: This is pretty much what my parents did to me when I turned 18. They put me on the payroll for the family business for $100/week. Dad then funded my Roth IRA. Now of course, his motives were not pure at the time. He thought he could day trade and earn a ton of money, and lost almost all of it. I think he invested a lot of it in GM before it went to zero. Anyway... that pretty much scared me from investing for years. I have no idea how much he actually lost.
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Jan 20, 2020 22:17
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DNK posted:IRAs require income. A child would need to report at least the contributed amount of income on her taxes in order to fund an IRA that much. It doesn’t matter where the money comes from: H110Hawk posted:Careful of screwing with her FAFSA/student loan/grant stuff if that is a thing you're doing. Make very certain you understand how that is working first. (I think the IRA stuff should be fine, the other stuff I am uncertain about.) If you're paying rack rate cash for school then it doesn't matter at all. Thanks, everyone. All she's eligible for is the yearly $5k-ish Fed Unsubsidized Loan, 529 and cash flowing the rest of her college,
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Jan 20, 2020 22:28
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tomapot posted:Thanks, everyone. All she's eligible for is the yearly $5k-ish Fed Unsubsidized Loan, 529 and cash flowing the rest of her college, Good for you though to get her started. I was lucky that my parents showed me how to save, but they didn’t know how to get me started on retirement other then “hey you should do this.” My biggest obstacle out of college was that Vanguard requires $1,000 to start an account, and while that sounds like not much, as a college graduate it’s crazy. So the downside is I started investing with Edward Jones and paying horrible rates for like, 3-4 years. But man, just being able to start at $50 a month as a recent grad was so much easier. My point is that you helping your kid get kickstarted so he/she has the opportunity to put $20-50 a month towards it, I wish everyone had that opportunity. Also, thank you to SA in general , as SA is how I learned that Edward Jones is um, not good, and thankfully finally switched to Vanguard.
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Jan 21, 2020 00:03
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What options are there for a small company looking to provide 401k options?
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Jan 21, 2020 00:07
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Ropes4u posted:What options are there for a small company looking to provide 401k options? My GF uses guideline at her business.
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Jan 21, 2020 00:26
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Ropes4u posted:What options are there for a small company looking to provide 401k options? Depending on how small you could just use a "SIMPLE IRA" plan with say Fidelity.
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Jan 21, 2020 00:32
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Ropes4u posted:What options are there for a small company looking to provide 401k options? I used some combination (forget who did what off the top of my head) of Ascensus and Mesirow to get Vanguard 401(k) plans for mine. Both trad and Roth contribution options, and going with Mesirow, you don’t have to worry about the 3(38) fiduciary responsibilities (i.e. Mesirow takes on the “risk” of selecting the specific funds to offer you, which in the all Vanguard lineups, if that fails, so has society)
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Jan 21, 2020 00:36
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Ropes4u posted:What options are there for a small company looking to provide 401k options?
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Jan 21, 2020 01:21
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Around 20 people - thank you for the responses I will rose a look at those.
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Jan 21, 2020 01:21
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Comparatively, the Life-Strategy Moderate Growth fund and Life-Strategy Growth fund have the same funds in it as as the Target Retirement 2050 fund; just a different percentage of each one... Does the difference in percentages of each fund make that big of a difference? Example: Vanguard Total Stock Market Index Fun Investor Shares 36.10% vs 48.20% vs 54.10%. It seems a bit weird to me that I already have a majority of my money in the TR2050 and it seems that the 'best' mutual fund for me is basically a retirement account... (although I understand that the percentages are different, I can't seem to grasp how big of a difference those percentages make).
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Jan 21, 2020 02:42
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obi_ant posted:Comparatively, the Life-Strategy Moderate Growth fund and Life-Strategy Growth fund have the same funds in it as as the Target Retirement 2050 fund; just a different percentage of each one... Does the difference in percentages of each fund make that big of a difference? Yes, the allocation makes a huge difference. Stocks grow quickly during good economic times but can crash hard. Bonds grow slowly but tend to be resilient when the economy goes to hell. Keep in mind that the Target Retirement fund will shift its allocation towards bonds over time, to take advantage of riskier stock growth at the outset, and settle into a more stable source of income as you get close to retirement age. LifeStrategy funds keep a constant allocation over time - they'll rebalance to keep that allocation in line with their targets, but they won't adjust it based on a date.
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Jan 21, 2020 04:58
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Yeah, just look at their respective performances: Growth: https://investor.vanguard.com/mutual-funds/profile/performance/vasgx Moderate: https://investor.vanguard.com/mutual-funds/profile/performance/vsmgx Over the last 10 years, growth returned ~$3000 more than moderate off an initial $10k principal, which is pretty good. Keep in mind that the last decade has been a raging bull market where the higher equity portfolio will naturally outperform. Under bear conditions, the opposite would hold, so it's all about your risk tolerance. Usually you want to skew high equity when you're young since you have more time for equities to grow and then dial back when you approach retirement age so you don't get wiped out when you're close. The target date funds naturally do that, which is why people like them.
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Jan 21, 2020 14:14
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Ropes4u posted:Around 20 people - thank you for the responses I will rose a look at those. We're in Fidelity at ~55 heads but we used Fidelity back when we were ~30 heads.
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Jan 21, 2020 15:07
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