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I know nothing about the Vanguard stuff. I just checked out their website, so am I correct in assuming that you guys recommend opening an IRA with them as opposed to say my credit union or anyone else?
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Feb 26, 2014 19:15
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Henrik Zetterberg posted:I know nothing about the Vanguard stuff. I just checked out their website, so am I correct in assuming that you guys recommend opening an IRA with them as opposed to say my credit union or anyone else? Yes, this is generally because their fees are much lower. Look around and compare, but I doubt you'll find much lower than one of the vanguard target retirement funds at .18% Edit: and the people around here generally recommend roth IRA instead of the traditional but that kind of depends on your tax bracket and expected earnings. If you're 28% or lower in your tax bracket then it seems like everyone recommends roth.
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Feb 26, 2014 20:00
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Even if you're in a high tax-bracket, there's still advantages to going Roth, like hedging against future tax increases (especially if you're contributing pre-tax to your 401k), flexibility of withdrawal without penalty, and effectively higher contribution limits (since 5k post-tax is more money than 5k pre-tax).
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Feb 26, 2014 20:15
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The other reason that doesn't get mentioned as frequently to prefer a Roth is if you are investing young (20s, early 30s). This is because not just your principal is tax-free when you withdraw but also ALL of the gains it makes between now and retirement. If you're mid-career or closer to retirement, the tax savings immediately will probably equal the tax savings of having untaxed gains. But if you're early-20s, having 40 years of tax-free growth is a pretty good benefit.
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Feb 26, 2014 20:21
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GoGoGadgetChris posted:This is what I do. My 401k offers what is essentially the Total US Stock Market (Vanguard's 500 Index and Extended Market Index, which at 80/20 are functionally identical to VTSAX). So I'm 100$ VTSAX in the 401k and use my Roth to add international and bond exposure. The much smaller contribution limit for the Roth makes it easy to keep my allocations, too.
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Feb 26, 2014 21:33
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kaishek posted:The other reason that doesn't get mentioned as frequently to prefer a Roth is if you are investing young (20s, early 30s). This is because not just your principal is tax-free when you withdraw but also ALL of the gains it makes between now and retirement. I prefer Roth for several reasons, but the gains being tax-free isn't really an extra benefit, it's part of the core feature that makes it an option on par with traditional. Assume you are in the 25% tax bracket now and will be in the 25% at retirement. You put $100 in a traditional account and the funds you pay into go up by a total of 500% by retirement age(oversimplification but the principle is valid), you'd have $600. When you withdraw it, this is taxed at 25%, so you end up with $450. Now if instead you had put it in a Roth account, you had $75 to start with that appreciates by 500% again. This ends up being $450 again. The fact that the gains aren't taxed is an ancillary feature that isn't an additional reason to use the vehicle; in fact if Roth gains were taxed again, they'd be patently worse than traditional. Potentially saving some money on initial contributions(but without 100% assurance because you don't know the tax codes in the future or what you will necessarily withdraw each year) wouldn't be worth basically paying double taxes on most of your money. Nail Rat fucked around with this message at 21:45 on Feb 26, 2014 |
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Feb 26, 2014 21:43
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Joiny posted:Yes, this is generally because their fees are much lower. Look around and compare, but I doubt you'll find much lower than one of the vanguard target retirement funds at .18% Ok this is starting to make more sense. I do have a few more IRA newbie questions though. The link in the OP was alright, but honestly had way too much information for me to process and keep straight. I've decided on a Roth since I'm 32 and in the 28% bracket. - How do I actually make contributions? Do I just log in and dump money from my bank account whenever I want? - Is it possible to automatically have money dumped in from every paycheck, so it's basically money I don't see/have the opportunity to spend? - The cutoff for contributions for the previous tax year is April 15. I already filed my 2013 taxes. From what I understand, if I do a Roth, then the contributions are not tax-deductible, therefore this wouldn't have any effect on my already-filed taxes, correct? - So there is a April 15 deadline. If I were to open up the account today, that means I can hit the $5500 limit for 2013, and be able to put in another $5500 for this year, right? If I wait until April 15, then I basically lose the opportunity to contribute to 2013. Is this correct? - How does Vanguard know when I'm approaching the income limit and to adjust the max contribution downward accordingly? Thanks for all the info so far, it's been immensely helpful. Henrik Zetterberg fucked around with this message at 22:18 on Feb 26, 2014 |
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Feb 26, 2014 22:16
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Nail Rat posted:I prefer Roth for several reasons, but the gains being tax-free isn't really an extra benefit, it's part of the core feature that makes it an option on par with traditional. Assume you are in the 25% tax bracket now and will be in the 25% at retirement. You put $100 in a traditional account and the funds you pay into go up by a total of 500% by retirement age(oversimplification but the principle is valid), you'd have $600. When you withdraw it, this is taxed at 25%, so you end up with $450. If your ONLY source of income at retirement is trad 401k/IRA it doesn't make much sense to contribute Roth unless a.) you already have enough in traditional retirement accounts or expect to contribute enough to expect a higher income than your current tax bracket in retirement or b.) your income is taxed at an abnormally low rate this year (in which case you'd not only want to contribute to Roth IRA but you may want to do some conversions, too) Note: situation a.) isn't super unrealistic at all for high earners in the 90K+ per year range, especially those with generous employer contributions - it's less likely for those in the 50-70K per year range If you expect to have other sources of income at retirement - or expect to keep working after age 70 - then you'll want to consider Roth more strongly. This is all according to current tax law. One argument in favor of Roth is that you won't have to worry about future changes in the tax code. Even with my slight mental bias in favor of Roth (favoring the certainty of paying taxes now over the uncertainty of paying taxes later), traditional makes sense a lot of the time. EDIT: Ah crap I'm stupid. Trad IRA contributions are only deductible before a certain income threshold. Time to go gently caress around again, taxes up +++ No Wave fucked around with this message at 23:16 on Feb 26, 2014 |
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Feb 26, 2014 22:40
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Henrik Zetterberg posted:Ok this is starting to make more sense. I do have a few more IRA newbie questions though. The link in the OP was alright, but honestly had way too much information for me to process and keep straight. I've decided on a Roth since I'm 32 and in the 28% bracket. Well there's a yearly limit to IRA contributions, which is 5500 for last year and 5500 this year. You'll want to max out last year first because you still have until april 2015 to contribute to this year if you don't have 11k to invest at the moment. You make an account with Vanguard, tell them all your info, and they'll draw the money from your bank account to invest it into whatever you choose (since you look like you're going for something simple at the moment, just use a target retirement fund for now since you can always move it around later.) I believe you can setup a monthly buy within Vanguard but I haven't used this feature. Most people around here operate on the principle of more time in the market is better so they would suggest you throw in 11k now if you have the chance instead of spreading it out monthly. I'm not sure on your tax question, but I would think you could refile your 2013 taxes. Yes there is the April 15th deadline. Yes if you open an account today you can put in 5500 for last year and 5500 for this year. Yes if you wait until after April 15 you cannot contribute to last year. I'm not sure what you're asking here about Vanguard, if you set up a monthly buy then they would take $5500/12=$458.33 each month. Joiny fucked around with this message at 22:46 on Feb 26, 2014 |
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Feb 26, 2014 22:43
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Joiny posted:I'm not sure what you're asking here about Vanguard, if you set up a monthly buy then they would take $5500/12=$458.33 each month. Vanguard will actually do even better than that: they'll keep track for you and split it up. So if you contribute $2500 now, you can turn on auto-debit, and it will split the remaining 3000 over the 10 months left in the year, so 300/mo.
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Feb 26, 2014 23:19
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Thank you, this is awesome! quote:I'm not sure what you're asking here about Vanguard, if you set up a monthly buy then they would take $5500/12=$458.33 each month. Well, according to this: http://www.irs.gov/Retirement-Plans/Amount-of-Roth-IRA-Contributions-That-You-Can-Make-For-2013 Once I make over $112k/year, then my max contribution amount reduces from $5500 to some lower value. How does Vanguard know what my personal max contribution can be for that given year? Same for when I make over $127k, then I can no longer contribute.
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Feb 27, 2014 00:36
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Henrik Zetterberg posted:Thank you, this is awesome! Vanguard doesn't know, you have to manage it, usually you track it at tax time (since by then you'll know your AGI). If you over-contribute in a year you'll owe penalties on anything earned, etc. Ultimately it's your responsibility, not Vanguard's, and if you contribute over your allowance, that's on you.
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Feb 27, 2014 01:05
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Henrik Zetterberg posted:Thank you, this is awesome! Vanguard doesn't know what your limits are, but they do send a form to the IRS telling them how much you contributed every year. So if you need to explain why you didn't follow the contribution limits it'll be the feds you'll be explaining it to.
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Feb 27, 2014 01:17
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Henrik Zetterberg posted:Thank you, this is awesome! Google "backdoor Roth ira". It takes a couple extra steps, but you can generally avoid the income limitations entirely.
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Feb 27, 2014 02:24
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Nail Rat posted:I prefer Roth for several reasons, but the gains being tax-free isn't really an extra benefit, it's part of the core feature that makes it an option on par with traditional. Assume you are in the 25% tax bracket now and will be in the 25% at retirement. You put $100 in a traditional account and the funds you pay into go up by a total of 500% by retirement age(oversimplification but the principle is valid), you'd have $600. When you withdraw it, this is taxed at 25%, so you end up with $450. Note that the contribution limit is the same for Roth and Traditional, so if you have enough to max it out (say $100 is the max, to fit in with your example above), you will be better off with Roth, having $600 at the end. Echo 3 fucked around with this message at 03:30 on Feb 27, 2014 |
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Feb 27, 2014 03:24
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Now here's something we can all agree on.
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Feb 27, 2014 03:30
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Unormal posted:Now here's something we can all agree on. Haha yeah, I was going to say one thing, decided not to... I think I salvaged it with a mildly interesting post.
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Feb 27, 2014 03:31
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I'm thinking of making the most out of my student loans and invest some of it in a no fee index fund (that's been doing well) that my broker offers. I'm thinking that I'll put in half of whatever I put in my savings every month. That way I'll have money to use if I need them, but half is untouchable and will actually grow (hopefully). Right now it seems like I can easily put away $50-$100 on this a month. The plan is to hopefully work summers and then use half of that to put in higher amounts every month. The rest I'll hopefully use to travel with. Does that sound like a decent plan? MrOnBicycle fucked around with this message at 09:44 on Feb 27, 2014 |
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Feb 27, 2014 09:35
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MrOnBicycle posted:I'm thinking of making the most out of my student loans and invest some of it in a no fee index fund (that's been doing well) that my broker offers. I'm thinking that I'll put in half of whatever I put in my savings every month. That way I'll have money to use if I need them, but half is untouchable and will actually grow (hopefully). No. Pay your loans back early.
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Feb 27, 2014 14:04
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MrOnBicycle posted:a no fee index fund (that's been doing well) Past performance does not guarantee future results.
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Feb 27, 2014 14:26
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^^^^^: Yeah, I know. But it's not that hard to beat 0,05% or whatever bullshit low rate my bank gives me for saved money, right?IAMKOREA posted:No. Pay your loans back early. I could use the money I get to repay the loan later. With an interest rate of 1.2% it's not that hard to beat the loan. If I decide not to, it's pretty much the cheapest loan I'll ever get. It's either that or put it the full amount in a savings account. I should've mentioned that I'm not in the US, and therefore won't be subject to the insane tuition fees and so on. When I'm done with medical school, I'll have a total of $57000 to repay. That will amount to $2500-$3500 a year for 25 years. Obviously I can influence that by paying it off earlier. I'm thinking that until I can build up a financial safety net, I'd like to have saved money in case something shits itself. But I don't like having money sitting in an account not doing anything. Still a bad idea? Edit: By building a safety net I meant having money saved, not invested, instead of using every penny to pay back a loan right away. MrOnBicycle fucked around with this message at 15:30 on Feb 27, 2014 |
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Feb 27, 2014 14:42
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Echo 3 posted:Note that the contribution limit is the same for Roth and Traditional, so if you have enough to max it out (say $100 is the max, to fit in with your example above), you will be better off with Roth, having $600 at the end. Well of course. I just meant that a dollar of earned income is the same in either place if current and retirement tax rates are the same. The gains being tax free is more relevant versus a taxable investment account than a traditional IRA. Which means, as you say, Roth is better even if your retirement tax rate will be the same(possibly even slightly lower) if you can afford to max it out; better the money there than a taxable account. Nail Rat fucked around with this message at 15:30 on Feb 27, 2014 |
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Feb 27, 2014 15:16
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MrOnBicycle posted:^^^^^: Yeah, I know. But it's not that hard to beat 0,05% or whatever bullshit low rate my bank gives me for saved money, right?
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Feb 27, 2014 15:17
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Internet Nobody fucked around with this message at 03:18 on May 5, 2017 |
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Feb 27, 2014 15:33
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Tom Steele posted:Quick question here. Personally I used Schwab's Portfolio Builder and picked the Aggressive Plan. It does like 5% Cash, 50% US Large Cap, 20% US Small Cap, 5% Emerging Markets Equity, and 20% International Equity. (I ignored their 5% cash recommendation) Or if you want some Bonds you can choose Moderately Aggressive and they will put 15% into a mix of bonds.
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Feb 27, 2014 15:52
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Hashtag Banterzone posted:Personally I used Schwab's Portfolio Builder and picked the Aggressive Plan. It does like 5% Cash, 50% US Large Cap, 20% US Small Cap, 5% Emerging Markets Equity, and 20% International Equity. (I ignored their 5% cash recommendation) Regarding the "cash" recommendation, remember that you're looking at your portfolio on the whole. That 5% can include simple things like your bank savings account. Also I'm pretty sure most Mutual Funds carry some level of cash when you look at their detailed composition. So really that 5% cash should take care of itself.
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Feb 27, 2014 17:35
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MrOnBicycle posted:^^^^^: Yeah, I know. But it's not that hard to beat 0,05% or whatever bullshit low rate my bank gives me for saved money, right? It's not hard unless the market tanks and then you are in trouble. Honestly though, the fact that it is 1.2% interest comes close to changing my answer. I still think it isn't a great idea, especially in the US where student loans are not dischargeable through BK (so if you lose it all you are proper hosed). Outside the US I don't know how it works. Unless you are a trader, though, the idea behind investments is specifically to average out over a long period of time, which protects you in the case of - oh poo poo, the market crashed but I need money to pay my loans back. The very real, non-remote dangerous possibility is that the market will go down. You are gambling with the money. If you really don't need it, 1.2% is low enough that it wouldn't exactly be the end of the world (like 6.8% in the States would be really bad), but you are still risking the fact that you wind up owing money with nothing to show for it than stock losses.
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Feb 27, 2014 18:03
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If the investment is for retirement, then the ability to pay the loans back is not in any way dependent on the success of the investment. I think you're being way too cautious. Edit: To elaborate, my advice would be to first build up an emergency fund in a regular savings account, but after that, prioritize long-term investments over paying off the loan.
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Feb 27, 2014 18:10
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Smells to me like it's just a matter of giving up $220/mo of cash flow for 25 years on the expectation of doing better than 1.2% in the stock market. Doesn't seem stupid, but as personal preferences go I would rather pay off the loan and shove the $220/mo into my retirement accounts instead. By the way, you have to make the loan payments from income, not by drawing down the investment. Drawing down an investment before its targeted time frame increases the risk and reduces the expected gains, and could really clobber your chances of doing well on the deal. If you have a stock-heavy portfolio, your time frame is about the same 25 years as the loan term. If you are planning to draw down the investment you need a much more conservative portfolio right out of the gate (with less expected return). Also, I would advise leaving the money safe in a cash savings account until you finish school. In case it turns out you need it for school. It being a school loan and all. ...Am I missing anything?
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Feb 27, 2014 18:56
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Thanks for the replies, really got me thinking about goals and stuff.slap me silly posted:Smells to me like it's just a matter of giving up $220/mo of cash flow for 25 years on the expectation of doing better than 1.2% in the stock market. Doesn't seem stupid, but as personal preferences go I would rather pay off the loan and shove the $220/mo into my retirement accounts instead. It basically boils down to me realizing that I can put away some money every month from my loan, and trying to figure out what (if) I can do anything better than just letting the money sit in a bank account with little to no interest. But yeah. I think I'll do as you suggest save the student loan part in a regular savings account. I can invest a portion of money I earn during summers / at opportunity. Having a good bank account buffer also reduce the likelihood of me having to touch my investments in emergencies. My goal with investments would probably be to have enough money for a down payment for an apartment / house in the future (8-10 years) or just let the money (hopefully) grow. My financial goal in life is to have only two loans; mortgage and student loan.
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Feb 27, 2014 20:46
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Question for the thread. What's the right amount of money (% of income) to save for retirement? Is there such a thing as too much? I am 25 and make $65 in the NYC metro area. I can afford to cap a pretax 401k and a rIRA, but to be honest it doesn't leave me much flexibility for other savings. If I did not have a paid off vehicle, it would probably be impossible. I pay slightly above minimum on my 5% student loans (I am in grad school part time, so the loans are trending up). It's confusing with the after tax and pretax dollars mixed, but it's greater than 30% of gross salary going to retirement. Reading Bogleheads is enough to make almost anyone feel poor - but how should I feel about this situation? Long term goals like saving for a home downpayment, a car replacement fund, et cetera looks impossible if my goal is to maximize tax-advantaged retirement. antiga fucked around with this message at 23:21 on Feb 27, 2014 |
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Feb 27, 2014 23:17
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I know that feeling. I'm 26 and I save about 25-27% of gross in 401k/IRA/HSA and it definitely makes saving for a good downpayment on a home in my real estate market tough (where a "starter" home is 400k minimum). In previous jobs I had crappy 401ks with no employer match so I instead paid off all my student loans in about 2.5 years which I have no regrets over. Perhaps not the most mathematically optimal path, but they were 6.8% and getting rid of them freed up a lot of cash flow as well as just feeling great to pay off. I'm still slowly working toward that 80-100k for a down payment, and it would go a lot faster if I contributed less to retirement, but I'd rather keep socking away tax-advantaged retirement money in my 20s than become tied down and house-poor in my 20s. I don't believe that renting is throwing away money at all. If your retirement savings are seriously cutting into your present quality of life and important short-medium term savings goals then it might be worth ratcheting those contributions down a little bit. Of course it is important and fantastic to sock away as much retirement money while you're young, but it's also important to live a little in the present. 30% is more than most people save for retirement (however, keep in mind most people are financial trainwrecks), but if you can sustain 30% that is fantastic and puts you on a really good track for comfortable on-time or even early retirement. Unless those loans are dirt cheap (like 2-3%) I think there's a good argument for paying them down faster / taking smaller loans on in the first place by dialing down your retirement contributions. Guinness fucked around with this message at 23:37 on Feb 27, 2014 |
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Feb 27, 2014 23:26
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It's not a cut and dried decision, but I personally would reduce retirement contributions in favor of less loans and more short-term savings. 30% of gross salary is a lot. I've been hitting around 15% since I was your age and I'm on track with retirement and can still do things like buy a house. Are you actually maxing out the 401k, or just putting enough to get the match? I definitely didn't consider maxing out the 401k space when I was making $65k. On the other hand $65k is probably enough to get the full 401k match and max out an IRA, while leaving money for other stuff. At 5% interest, it's also arguable whether it's better to fund an IRA or pay off loans faster.
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Feb 27, 2014 23:38
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antiga posted:Question for the thread. What's the right amount of money (% of income) to save for retirement? Is there such a thing as too much? Hello me! At 5% interest it would be a good idea to pay downs those loans ASAP. The interest rates on your loans are a known quantity while future market returns are not. Also, if you lose your job or have a financial emergency it'd be nice to have those loans gone or down to a manageable amount.
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Feb 28, 2014 03:58
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THE RED MENACE posted:Hello me! At 5% interest it would be a good idea to pay downs those loans ASAP. The interest rates on your loans are a known quantity while future market returns are not. Also, if you lose your job or have a financial emergency it'd be nice to have those loans gone or down to a manageable amount. My immediate reaction to this is that market returns over the 35 year horizon should be >5% annually. Maybe that's not a good assumption? Obviously if I needed the money in 5 years I would feel differently but this is tax advantaged retirement space only. To clarify, I am maxing the allowable 401k contribution (17500) as well as full HSA which I forgot to mention. The student loan payments are manageable, but I guess on reflection if I lost my job high rent and increasing student loans would pressure me to find another job before the emergency fund starts to run out. I definitely would not be able to afford to continue school without employer sponsorship. I would not say the paycheck withholding is severely infringing on my quality of life, I'm not a candidate for extreme cheapskates by any means but the difference is noticeable. My 401k has really excellent fund choices and I can't forget the fact that the dollars I contribute now are theoretically more valuable than ones I contribute in later years. Clearly there needs to be a balance somewhere between keeping the student loans under control, healthy amounts of fun money, and retirement savings: that's the kind of input I wanted to hear. Can't ask this sort of thing to friends/co-workers because many of them are absolute disasters and if I told them I had almost a year's salary in my 401k (and not in COMPANY STOCK) they would call me stupid. Thanks for the replies so far. antiga fucked around with this message at 04:33 on Feb 28, 2014 |
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Feb 28, 2014 04:30
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Edit: I'm an idiot, got you mixed up with the other dude.antiga posted:My immediate reaction to this is that market returns over the 35 year horizon should be >5% annually. slap me silly fucked around with this message at 05:05 on Feb 28, 2014 |
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Feb 28, 2014 04:56
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2014 may be the last year my AGI is below the max income limit for Roth IRA contributions. Does that make my 401k and my existing IRA contributions the only tax-advantaged accounts I can take to retirement? I can look into an HSA at least but I am unsure if my insurance's deductible qualifies me after reading the IRS website. e: I understand there's the backdoor IRA option but I have a trad 401k I rolled over to a trad IRA. From what I read, that changes how the backdoor would work and I'd have to take the tax hit and convert it to a Roth IRA to take advantage of the backdoor loophole. Please correct me if I am wrong though. Prince Turveydrop fucked around with this message at 14:44 on Feb 28, 2014 |
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Feb 28, 2014 14:39
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Unless I'm missing something, you should be able to contribute to your existing traditional IRA. It's not Roth but it is tax-advantaged at least.
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Feb 28, 2014 15:23
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Thanks. Is there any restriction on contributing to an IRA I used for a rollover?
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Feb 28, 2014 15:37
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Nail Rat, at >$70k AGI traditional IRA contributions aren't deductible any more, which makes them a lot less useful. Beyond that I won't talk because I would just be reading you the bogleheads wiki...
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Feb 28, 2014 16:12
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