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BnT posted:I'm unlikely to be able to contribute to a Roth IRA in 2012 due to AGI limitations. I'm reading more about this backdoor Roth IRA business, but I have an existing traditional IRA that is 100% funded from a previous employer's 401k rollover. I have no intentions of converting this traditional IRA to a Roth IRA. If I roll this traditional IRA into my current employer's 401k now, will I be able to fund a backdoor Roth in late 2012 or will I have to wait until 2013? If I'm understanding correctly, this traditional IRA is from contributions for 2011 or before. If that's the case, and your only contributions for 2012 is into your 401k, you should be able to fund and backdoor a Roth without any problems in 2012. Moving a traditional into a 401k is just re-classifying and shouldn't effect any of your contribution limits. One question though is why would you want to roll your traditional IRA into your 401k? You'll likely have less options and the rules for withdrawing are going to be tougher. The only reason I could think of doing it is if your traditional IRA is incredibly small and it is making it difficult to buy funds.
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Jan 9, 2012 05:26
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If I'm reading this article properly, only a percentage of a backdoor funded Roth is tax-free, equal to your non-deductible contributions divided by your combined balance of traditional IRAs. For someone with no traditional IRAs, that means 100% tax-free. But for me only a small percentage would be tax-free unless I roll my current traditional IRA into my current employer's 401k. See also this Caution section. I think I'm understanding this, but then again I'd rather not screw up my taxes.
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Jan 9, 2012 06:50
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I'm sorry, you're right on that. I wasn't thinking and for some reason assumed your Traditional IRA contributions this year would be deductible. But as you mentioned, your income puts you over the Roth limits and thus over the Traditional deductible limits as well. Which brings me to a question of my own for people. I am in a similar situation this year and wondering if a Simple IRA for my business counts the same as a 401k. For instance, could I roll my SEP-IRA (which is essentially treated as a Traditional IRA from what I've read) from last year into a Simple IRA we are creating this year to avoid running into the pro rata rules? The Self-Employed 401k is another option but seems like a bigger pain in the rear end to setup and run.
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Jan 9, 2012 07:12
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I set up an individual 401k for a self employed individual at Vanguard last year. The only issue I had was calculating the proper employee and employer contributions. That required reading the relevant IRS publication. If you're talking about a business with employees though, good luck. I assume Vanguard can do it easily for you because most office managers running them for small businesses aren't especially sophisticated.
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Jan 9, 2012 18:54
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I originally posted in the newbie finance thread but it's probably better here.totalnewbie posted:I have the sinking feeling that my dad is right about this and I don't care about the money, I just hate it that he's right. Niwrad posted:Tough question to answer. It really comes down to whether you can afford to do so or not. I think you'll find a lot of people feel that if you can fund it, you should. totalnewbie posted:I can afford it. Thing is, I already put 3k into a Roth so it sounds like I can only put 2k into a Traditional? El_Elegante posted:It's not an easy question to answer-but the ideal sequence of events for a Roth IRA is basically you putting in the max every year for a while -> your income goes over the limit so that when you retire you have at least one source of income not subject to taxes. Traditional IRAs as I understand them may benefit more if your income does not go over the limit, but leaves you with taxable income once you start drawing it down. Niwrad posted:If you didn't make much money at all this year, I think the Roth is the smarter option. I mean after your own deduction, how much tax would you really be paying this year? Odds are it would benefit you much more down the line. Okay so let's for the sake of argument that between August 2011 and Oct 1 2011, I made $5000. Since my income for 2011FY is only 5000, I am subject to a 10% income tax. If I were to put all that into a Traditional IRA, I would be able to deduct 5000 from my income, thereby saving me 500 dollars in income tax. However, for 2012FY, I would contribute to a Roth IRA. It would be meaningless to keep that 5000 in a Traditional IRA account and so I would roll it over into my Roth. But when I do that, it would be taxed (for the first time) since I didn't pay taxes on that 5000 in 2011FY. Therefore, it is pointless to contribute to a Traditional IRA for 2011FY. Do I understand the situation correctly?
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Jan 11, 2012 04:49
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totalnewbie posted:Therefore, it is pointless to contribute to a Traditional IRA for 2011FY. Do I understand the situation correctly? Yes. If your income is so low that you're basically not paying taxes anyway, a traditional IRA is not what you want. A Roth on the other hand makes a lot of sense.
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Jan 11, 2012 05:07
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nelson posted:Yes. If your income is so low that you're basically not paying taxes anyway, a traditional IRA is not what you want. A Roth on the other hand makes a lot of sense. Right, because when I take money out of the Traditional, it would be taxed at a much higher rate, and so I end up losing out, yeah? So here's a more general question: my tax rate was the same from day 1, obviously. Is this determined by my wage? So if I make enough money to put me in the top bracket for annual salary but actually didn't make enough to put me over 8700 because of starting so close to the end of the fiscal year, I pay 35% on that first pay period but when I do my returns, I get most of that back since in that fiscal year, I actually made much less?
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Jan 11, 2012 05:24
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totalnewbie posted:So if I make enough money to put me in the top bracket for annual salary but actually didn't make enough to put me over 8700 because of starting so close to the end of the fiscal year, I pay 35% on that first pay period but when I do my returns, I get most of that back since in that fiscal year, I actually made much less? Yes, this is how it works.
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Jan 11, 2012 06:28
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I was hoping to get some opinions on retirement portfolio allocations. I keep seeing different things from different places about the makeup. Some say 120-age for what you should own in stocks, some say age in bonds, and I've even read some (Fool.com) that says unless you're over 40, it's stupid to have any bonds at all. Mine is currently setup to have around my age in bonds, but I'm wondering if I'm going overboard. I did find it interesting that bonds have actually outgained stocks over the last 30 years (first time since 1861). Probably a short blip though. Does anyone have thoughts on this? It's been really bothering me, especially since I've got a nice amount in my retirement savings right now. Would love to hear some opinions.
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Jan 13, 2012 19:51
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Ultimately it depends on your risk tolerance. All these short hand rules are based on historical market trends and we all know that past performance can not predict future results. Some people are of the opinion that we are in the midst of a lost decade, others think it's a temporary recession. Personally I think the USA of today is fundamentally different from the one when all these rules were devised so I take them with a grain of salt.
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Jan 13, 2012 20:40
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I've been enrolled in my employer's 401(k) plan for 6 months now, so I figure it's a good time to review where I stand as far as my investments go. First, some background: I'm 22 and I make $46k/yr gross and I'm not planning to retire until I'm in my 60s. So far this 401(k) is the only retirement savings I have, though I plan to start a Roth IRA after I kill my student loans later this year and then contribute to the limit on that the next year. My employer has a 50% match on up to a 6% contribution and I'm at a 6% contribution right now. The 401(k) is managed by Principal Financial and right now all of my contributions are allocated to go into their "Principal LifeTime 2055 R4 Fund" which has a 1.21% expense ratio (which is among the lowest of the funds I can choose from) and has its assets allocated as follows (bolded rows are categories): pre:Investment Option Allocation Bonds 8.44% High Yield Fund I 4.09% Preferred Securities Fund 2.28% Bond & Mortgage Securities Fund 0.95% Bond Fund I 0.90% Bond Market Index Fund 0.23% Domestic Stock 55.80% LargeCap Growth Fund I 13.02% LargeCap Value Fund I 12.60% LargeCap S&P 500 Index Fund 8.01% LargeCap Growth Fund 6.72% LargeCap Value Fund 6.46% SmallCap Growth Fund I 2.43% MidCap Growth Fund III 2.27% MidCap Value Fund I 2.17% SmallCap Value Fund II 2.11% International Stock 28.87% International Value Fund I 7.97% Diversified International Fund 6.77% International Fund I 5.27% Emerging Markets Fund 4.98% Equity Index Fund 3.90% Real Estate 5.12% Global Real Estate Securities Fund 3.18% Real Estate Securities Fund 1.94% Specialty 1.78% Real Asset Fund 1.12% Global Multi-Strategy Fund 0.65% So, is this a good fund? Is it properly diversified for my age? Should I keep putting 100% of my 401(k) contributions in to it or should I look at some of the other funds that are available?
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Jan 13, 2012 21:17
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Mr.Radar posted:So, is this a good fund? Is it properly diversified for my age? Should I keep putting 100% of my 401(k) contributions in to it or should I look at some of the other funds that are available? The expense ratio alone is enough to make me say no. For that kind of price premium you should be beating the S&P 500, not trailing it by so much. That said, for a fund that's only 56% in US equities, maybe the S&P 500 isn't the right benchmark, but it's still 3-4% below Vanguard's 2055 retirement fund (VFFVX) over the last 12 months. But honestly? I wouldn't worry too much about 6 month's performance for your retirement account. If they change the available options and you can get something cheaper, go for it. Otherwise consistent contribution matter more than anything else. bam thwok fucked around with this message at 04:40 on Jan 14, 2012 |
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Jan 13, 2012 22:03
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Niwrad posted:I was hoping to get some opinions on retirement portfolio allocations. I keep seeing different things from different places about the makeup. Some say 120-age for what you should own in stocks, some say age in bonds, and I've even read some (Fool.com) that says unless you're over 40, it's stupid to have any bonds at all. I'm wary of the whole "stocks have returns X% over the last Y decades while bonds made only Z%" since so much crazy random awesome crap happened in the 20th and early 21st centuries that it's drat near impossible to extrapolate into the future. I'm a big fan of the asset class performance tool at Vanguard (here is the Australian version, there's probably a US version). In short, it's a total crapshoot of what asset class will perform best in a given year and over the last few decades at least, they've been sort of all over the place. Bonds have made a reasonable showing - not the best very often but also rarely the worst. Asset allocation is tricky but those charts and the last couple of years in particular convince me that the guy who says people under 40 shouldn't own bonds is mistaken. I've read a book or two where the author mentioned that perhaps in the future bonds may outperform stocks (might have been the afterword in my copy of The Four Pillars of Investing, Bernstein writes some stuff about the aftermath of the GFC). Australia has mandatory superannuation but some commentators (including the Prime Minister that introduced the super scheme) have said that the vast majority of superannuation funds don't include enough fixed interest. My parents were in the same fund I was until recently (and I'm in my twenties), a large and well-respected fund with fairly good performance - it only had 10% bonds! They were not very happy post-2008. My-age-in-bonds is a good enough rule of thumb and matches the fact that when I'm old I don't want my savings to get nuked out of the blue.
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Jan 14, 2012 03:19
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Question on behalf of a friend of mine. He and his wife are both starting 3 year military residency programs. The pay in the military programs is much better than in the civilian equivalents, and there's a chance that they'll be bumping up against the cap for Roth IRAs in the next 1-2 years, and definitely after they finish in 3. Is there much point in him opening up a Roth IRA in the first place, or should he stick to a traditional IRA?
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Jan 16, 2012 17:53
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Residency Evil posted:Question on behalf of a friend of mine. He and his wife are both starting 3 year military residency programs. The pay in the military programs is much better than in the civilian equivalents, and there's a chance that they'll be bumping up against the cap for Roth IRAs in the next 1-2 years, and definitely after they finish in 3. Is there much point in him opening up a Roth IRA in the first place, or should he stick to a traditional IRA? If they are at the cap for a Roth, it means they likely won't be able to get a deduction for the Traditional IRA on their taxes. But they can still fund a backdoor Roth IRA which is what they should do. This is a way of getting around the income limits. http://www.bogleheads.org/wiki/Backdoor_Roth_IRA This is assuming though that there are no retirement plans offered at their work.
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Jan 16, 2012 19:32
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Residency Evil posted:Question on behalf of a friend of mine. He and his wife are both starting 3 year military residency programs. The pay in the military programs is much better than in the civilian equivalents, and there's a chance that they'll be bumping up against the cap for Roth IRAs in the next 1-2 years, and definitely after they finish in 3. Is there much point in him opening up a Roth IRA in the first place, or should he stick to a traditional IRA? Does he have access to the Thrift Savings Plan? If so, that is a great option and you would not need to worry about contribution limits on Roth or deductibility of Traditional. And the TSP is just as good if not better than a Vanguard IRA account. The expense ratios are the lowest available and the G fund is a good bond fund replacement.
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Jan 16, 2012 19:35
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80k posted:Does he have access to the Thrift Savings Plan? If so, that is a great option and you would not need to worry about contribution limits on Roth or deductibility of Traditional. And the TSP is just as good if not better than a Vanguard IRA account. The expense ratios are the lowest available and the G fund is a good bond fund replacement. Yup, he says he has access to a TSP. When he mentioned it I asked him if there was some sort of matching along with it and he said he'd find out. I'm not familiar with TSPs: are they the equivalent of a military 401k?
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Jan 16, 2012 19:41
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Residency Evil posted:Yup, he says he has access to a TSP. When he mentioned it I asked him if there was some sort of matching along with it and he said he'd find out. I'm not familiar with TSPs: are they the equivalent of a military 401k? Yea, it is. And even with no matching, the TSP is a great way to go because it has the lowest expense ratios available.
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Jan 16, 2012 19:44
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80k posted:Yea, it is. And even with no matching, the TSP is a great way to go because it has the lowest expense ratios available. For my own knowledge, wouldn't a Roth IRA still make sense in that a physician is almost guaranteed to be in a higher income bracket in the future, and the money earned during residency put into the Roth would be taxed at a lower tax rate? (Assuming TSP is pretax)
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Jan 16, 2012 19:46
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Residency Evil posted:For my own knowledge, wouldn't a Roth IRA still make sense in that a physician is almost guaranteed to be in a higher income bracket in the future, and the money earned during residency put into the Roth would be taxed at a lower tax rate? (Assuming TSP is pretax) Sure but I thought he was hitting the limit for Roths. The TSP is in fact offering a Roth option. It was announced a couple years ago and should be rolled out in 2012. I am not sure though. But if this is the case, then your friend can do a Roth TSP account and not have to worry about income limits. Either way, the TSP is his ticket to retirement savings, pre-tax or post-tax as he sees fit, if he is hitting contribution limits or deductibility limits on Roth or Traditional IRA's.
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Jan 16, 2012 19:51
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80k posted:Sure but I thought he was hitting the limit for Roths. Sorry, should have been clearer. He's going to hit the limit very quickly, so the Roth will only be an option for the first year or two. Still, it sounds like they should go Roth then TSP until they can, and after just TSP?
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Jan 16, 2012 20:06
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Residency Evil posted:Sorry, should have been clearer. He's going to hit the limit very quickly, so the Roth will only be an option for the first year or two. Still, it sounds like they should go Roth then TSP until they can, and after just TSP? Normally, yea, an IRA is better than a 401k. But the TSP is very good, and since the TSP has the Roth option soon, it really is a wash. I'd be inclined to just use the TSP for simplicity reasons.
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Jan 16, 2012 20:26
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80k posted:Normally, yea, an IRA is better than a 401k. But the TSP is very good, and since the TSP has the Roth option soon, it really is a wash. I'd be inclined to just use the TSP for simplicity reasons. Lets say I max out the Roth 401k once it becomes available. Can I still contribute to and max my Roth IRA as well?
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Jan 16, 2012 20:31
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agentq posted:Lets say I max out the Roth 401k once it becomes available. Can I still contribute to and max my Roth IRA as well? Yes provided you meet the requirements for the Roth IRA.
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Jan 16, 2012 20:42
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Thank you to those who provided feedback on the stock/bond allocation. Long shot here, but I have a question for anyone who uses Fidelity. Is there a way to find out how much I made for a particular time period? It will show the cost basis and realized capital gain, but I'm looking for an overall gain/loss and perhaps by time period. I couldn't find anything on the site that would allow me to do it. I could do it by hand, but hoping there would be something more convenient out there. If not, is there any apps that would do this for me? I know there are some that I can use to show how funds did for the day, but maybe more that go in depth and I can input when I bought it and so forth. I guess the only problem with that would be having to input the dividends/capital gains reinvestments in all the time.
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Jan 18, 2012 06:15
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So here is my situation: I'm turning 40 and figured I had better knuckle down and start saving (better late than never, I guess.) I'm trying to figure out the best course of action and hoping you guys can help. - I am at a town government job where I have a pension (knock on wood.) Deductions are automatic and are maxed out. - The wife has a 401K that is matched to 6% (currently, I think we are at a mandatory 3%, but I'm going to up this to the full 6% as soon as I get the account info from the company.) - We had about 10K in savings, but that was blown on a new roof (didn't want to pay the 20-25% financing.) In other words, no savings at the moment. What do I do now? I'd love to get some savings, in case of emergency, and I'd also like to start investing something to get more of a return than I'm currently seeing in my ING savings account (.8%.) At this point, I can safely set aside about $400 per month for saving/investing (maybe more later.) Any advice?
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Jan 18, 2012 22:44
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berzerkmonkey posted:At this point, I can safely set aside about $400 per month for saving/investing (maybe more later.) Save it. As a homeowner/person-who-is-alive you need an emergency fund. You should not be concerned with investing beyond retirement deferrals at the moment. Not until you're at the point where another home repair won't knock your savings back to zero. Are you planning on having kids and sending them to college? If so, that may change the calculus a bit.
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Jan 18, 2012 22:59
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I need to start funding a 403b (no match  ). My choices are between Vanguard, Fidelity, and TIAA-CREF. Very generally speaking, is Vanguard the best choice to start an account due to lower expense ratios? Are there any TIAA or Fidelity funds/advantages I should be considering? I also have a regular trading account so I figure I can do risk-on stuff there and just buy index/bond funds for IRA/403b.
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Jan 19, 2012 00:05
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PsychoAndy posted:I need to start funding a 403b (no match Depends on the funds you want to buy. Fidelity is actually cheaper on the stock index funds but more expensive on the bond index funds compared to Vanguard. If that's all you're going with, I think either one is a good choice. I use Fidelity because I think their support is incredible.
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Jan 19, 2012 00:12
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bam thwok posted:Save it. As a homeowner/person-who-is-alive you need an emergency fund. You should not be concerned with investing beyond retirement deferrals at the moment. Not until you're at the point where another home repair won't knock your savings back to zero. Are you planning on having kids and sending them to college? If so, that may change the calculus a bit. I agree with this. Building up that emergency fund should be your top priority. However, you may also want to look at setting up a Roth as well. Since you have other retirement you can live off of initially, the Roth can grow tax-free deep into retirement since there are not mandatory withdrawls. You can also pull out your contributions tax/penalty free in the event of an emergency. I wouldn't fund it over your emergency fund, but maybe when you get that built up you can start siphoning off a portion of that toward your Roth.
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Jan 19, 2012 00:19
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berzerkmonkey posted:So here is my situation: I'm turning 40 and figured I had better knuckle down and start saving (better late than never, I guess.) I'm trying to figure out the best course of action and hoping you guys can help.
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Jan 19, 2012 03:33
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cowofwar posted:Some people are of the opinion that we are in the midst of a lost decade, others think it's a temporary recession. Personally I think the USA of today is fundamentally different from the one when all these rules were devised so I take them with a grain of salt. I really agree with you. One small point is that just because you live in the US doesn't mean that all of your investments have to be within the US. In fact, a reasonable argument can be made that you should invest in foreign markets in the same proportion of the global GDP that they make up (so something like 60% foreign if I'm not mistaken). In any case, though, I almost feel like we need another thread for "Long-Term Investing and Retirement Savings for People Who Are Really Cynical." Personally I think people who assume that the market will gain 10% year over year are delusional. Sure that was true from WWII to ~2000 or so, but from 2000->2050 I think 5% is optimistic. Still, I don't know what to do other than just stuff all my retirement money into the Vanguard 2045 fund :-/
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Jan 19, 2012 06:22
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gp2k posted:I really agree with you. One small point is that just because you live in the US doesn't mean that all of your investments have to be within the US. In fact, a reasonable argument can be made that you should invest in foreign markets in the same proportion of the global GDP that they make up (so something like 60% foreign if I'm not mistaken). I'm just happy I'm getting a return at all. I'm planning based on a 3% annual return.
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Jan 19, 2012 18:56
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gp2k posted:In any case, though, I almost feel like we need another thread for "Long-Term Investing and Retirement Savings for People Who Are Really Cynical." Personally I think people who assume that the market will gain 10% year over year are delusional. Sure that was true from WWII to ~2000 or so, but from 2000->2050 I think 5% is optimistic. Still, I don't know what to do other than just stuff all my retirement money into the Vanguard 2045 fund :-/ gvibes fucked around with this message at 01:51 on Jan 20, 2012 |
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Jan 19, 2012 19:36
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Citizen Z posted:I'm just happy I'm getting a return at all. I'm planning based on a 3% annual return. When you say 3% is that nominal or real? If it's nominal what is your inflation assumption?
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Jan 19, 2012 20:28
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Savings it is then. Thanks guys.
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Jan 19, 2012 21:45
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gvibes posted:If the cynicality just changes expected returns, then I think this thread still works - it just changes how much you think you are going to need to save. If you think that asset allocations are going to need to change over the coming years, then I still think this is the thread to talk about that, because asset allocation questions affect all long term investors, regardless of expected returns. That's a good point. I guess I'd have to say that my interest in investing is one of assert preservation in the face of inflation, rather than building up free money from the magic of the market. Even in that context, this thread is still valid. I think another aspect of my long-term retirement planning is to not buy poo poo I don't need and prevent myself from getting up to my eyeballs in debt. That couldn't hurt.
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Jan 20, 2012 03:15
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Daeus posted:How old are you? If you're under 40, you really want to be seeing a down market so your contributions now are buying more for less. Everyday I am hoping and silently cheering for the market to tumble. I'm new to investing and nervous about this market and seeing losses in my Roth. You say this bear market is a good thing for the long term, but for what investment types? Stocks, bonds, what?
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Jan 20, 2012 04:05
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Metajo Cum Dumpster posted:I'm new to investing and nervous about this market and seeing losses in my Roth. You say this bear market is a good thing for the long term, but for what investment types? Stocks, bonds, what? Depressed prices are good for long term investors pretty much regardless of investment type, but people usually say this about stocks, ETFs, and mutual funds.
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Jan 20, 2012 14:55
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Doesn't that assume that prices are on a long-term trend at some fixed rate, and that currently depressed prices do not affect that long-term trend? I've been seeing this argument a lot, I've repeated it myself, but I've lately been thinking about it and wondering how valid it really is. Here are some poorly drawn charts using MSPaint that I hope will illustrate what i'm talking about. In the first chart, there's a value we're pointing at for retirement based on some assumed rate of appreciation over time. A downturn interrupts that trend, but the slope climbs more steeply after the downturn, restoring the long-term target. In the meantime, we got to buy discounted shares! Hooray!  In the second chart, again there's a value we're pointing towards for retirement, but after the downturn, the slope merely returns to its former steepness. In other words, the downturn was not "compensated for" by a period of more rapid growth. During this period, since we followed the market down and then back up, we got cheaper shares... but our target retirement amount was not reached because the overall average appreciation during the period was lower than we expected up front. Boo!  In the third chart, the historical trend of increasing prices is never restored. There is a long-term downturn that means buying any shares at all is literally worse than storing everything in cash. Every share bought is money thrown away.  In the first chart, it makes sense to keep buying shares. In the second, I believe we'd have been better off going cash-only until the upward slope is restored, even though we might have gotten discounted shares, because the final value on the right is not much better than the peak value before the downturn. This is further complicated by the need to shift out of the assets we bought during the first two thirds, and into safer assets, as we approach retirement. In the third chart, we are reminded that there's no guarantee that the future must follow the trends of the past. There is always the risk that a downturn will continue long enough to destroy our investment during the time-frame we have to invest in. Am I way off base here? (I hope so...)
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Jan 20, 2012 23:54
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