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I'm relatively new to investment and retirement, and I'm curious if there's a smarter way to handle my situation. I moved from public-sector work to private-sector work at around the age of 40. I left a job with about 11 years in a state pension system which will continue to accrue interest and provide an annuity upon retirement, it's currently at around $160K. I am starting a 401K for the first time and I'm leaning hard on it, about $22K/yr, since these funds have less time to accumulate interest over the remainder of my career. The situation: I am coming into a post-tax $50K windfall of sorts, paid out over the next 2 years. It's a once-in-a-lifetime infusion of funds and I'd prefer to handle it as responsibly as possible. A combination of home repair and savings for future repairs (a new roof being the big one, probably in the next 5-10 years), emergency funds, and investment. The primary investment vehicle would probably be a Roth IRA, which I can top off each year and reach $13K. Ideally I would like to have at least half of this money end up in investment. I can shove it into a high yield savings account and spread the IRA contributions over 4 years, but otherwise I'm not sure what a reasonable strategy might be. Any advice is welcome.
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Aug 11, 2023 16:46
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| # ¿ May 22, 2024 07:57 |
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nitsuga posted:Funding a Roth IRA for a few years is a good idea. Ideally you would make it a habit and keep it up beyond your windfall. Totally get it if you can’t fully fund that and a 401K every year, but any bit helps. Just keep socking away what you can. Alright, so this doesn't sound too complicated, glad to hear it and I appreciate the advice. I didn't know if it made sense to opt for a brokerage account or something similar but all of that space is completely unfamiliar to me. 6 mos in HYSA is probably doable without too much hassle, I have about 3 mos in an account right now. If I break it down to $20K to HYSA, $13K to Roth IRA, $7K for immediate home repair needs, and $10K to HYSA for a future roof it would spend me out and I could hit the 9 mos emergency fund mark (not including the funds set aside for a roof). I have a side business that doesn't make a tremendous amount of money but it's all supplemental, so ideally I would put everything I earn from it into the Roth IRA going forward unless I somehow made more than ~$8500 in a year with it.
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Aug 11, 2023 19:58
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drk posted:Re: your 5-10 year roof fund, a HYSA is certainly not a bad option, but if you think it will almost certainly be at least 5 years and possibly even 10, you could also consider a 5 year treasury or a 5 year CD with a good early redemption policy. This makes sense, I was considering an I-bond but it looks like the fixed rate is sub 1%. Would a CD generally have a more stable rate?
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Aug 11, 2023 22:02
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SlapActionJackson posted:Is your 401k Mega-backdoor eligible? Based on a google search for the term I don't think so, I don't believe it is a Roth and I don't believe my household would meet the income eligibility requirements.
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Aug 14, 2023 15:32
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raminasi posted:Your google search has misled you, because there's no income eligibility consideration. What you're looking for is a pair of 401k plan features that combine to substantially increase your tax-deferred savings space. The necessary features and process are described in this nerdwallet article. Appreciate the direction, whatever I was looking at was giving hard numbers for minimum income for eligibility. I see a lot of references to this being specific to 2023, any idea if this option will be available next year? I have traditionally done my own taxes but things have gotten sufficiently complex that I am going to have a CPA take a look at my stuff in the early spring, and I could discuss this option for 2024 (if it's available) while we're untangling my '23 taxes.
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Aug 14, 2023 15:54
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CubicalSucrose posted:Early spring is the worst possible time to find a CPA. Now is much, much better. I already have a CPA I'm just talking to them in early spring about my taxes
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Aug 14, 2023 16:44
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My favorite Ramsey moment was when he was prattling on about how it's unethical to give a tenant a break on their rent when they lose a job, and in an effort to soften the language he said (paraphrasing) "If it's someone who is dealing with cancer, sure, give them a break, because that's a temporary problem". And he 100% was not talking about the cancer as a temporary problem that will be beaten.
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Sep 11, 2023 14:50
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I have about $12k I would like to put aside for reroofing my house, which is an amount that is probably high-end or overestimating the cost for the size and type of roof replacement, providing a little bit of buffer space if it turns out there's a snag that drives the cost upward. I probably don't need a roof for another 5 years, maybe 10 years, but I would like to have the money set aside and keeping up with inflation now so I'm not caught flat-footed by the cost down the line. What investment vehicle do you think would be appropriate for this kind of saving? It seems like I have to trade-off between higher yield and lower risk of the money being behind a penalty wall when I need to access it. The recent conversation about T-bills made me think this might be a good option, but are there other things to consider?
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Sep 25, 2023 23:24
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drk posted:If your primary concern is inflation and your time frame is 5-10 years, I Bonds are probably preferable to T bills. The inflation adjusted rate earned by I Bonds is known for their full 30 year term. Excellent, I appreciate the advice! Are I Bonds subject to a strict lock-out period? I don't want to get stuck with the funds locked up at the time in the future when they are needed.
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Sep 26, 2023 15:27
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DNK posted:redeeming I-Bonds early is a completely painless affair that is honestly not very different from transferring funds via a traditional bank. This part is valuable to me, I'd prefer a solution where the money is accessible in a reasonable time-frame (I think 5 years should be fine, but I can eat a 3 mo interest penalty if it turns out not to be the case) and the process is simple.
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Sep 26, 2023 16:05
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Busy Bee posted:I heard some horror stories with some users of Treasury Direct and I Bonds though. Such as?
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Sep 26, 2023 16:14
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I have to start a Roth IRA this year, which will be the first time I've had to directly interact with this space (my previous investment vehicles were a state pension system and 401k set up by my employers, for public and private sector work respectively). Is there a known preferable provider for a Roth IRA, particularly for someone who is not interested in micromanaging their investment details?
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Sep 27, 2023 16:44
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CubicalSucrose posted:Fidelity makes it easy to backdoor, pretty sure Vanguard too. Unsure about Schwab, but they're probably fine. Can you elaborate on the term 'backdoor' in this context?
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Sep 27, 2023 19:08
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CubicalSucrose posted:If you are over the typical Roth IRA contribution income limit, you can still contribute but there are some wrinkles. This is typically called a "Backdoor Roth IRA" contribution. Ah, thanks for the summary. I don't think I will have this problem based on a quick Google search, the joint filing income of the household is probably just over $200k
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Sep 27, 2023 19:28
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Awkward Davies posted:I keep getting emailed by a guy from Masterworks. His email signature says he's the "SVP, Investor Relations". Imagine being an SVP and putting your name on cold emails. The Plain Bagel did a pretty good video about Masterworks here: https://www.youtube.com/watch?v=6ojOkPmm8lw
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Sep 28, 2023 18:26
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Busy Bee posted:The party has to end sometimes though right? It does. And on that day, your assets will be worthless whether you invested them in the system or chose to do something else with them this entire time, rendering the whole issue moot. The rich control the system, so placing your money as close to the rich-people money as possible is the safest place for it to survive the longest amount of time.
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Oct 3, 2023 18:10
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I'm wondering if anyone here is familiar with or has experience with an ESOP as part of their retirement plan, and if there are any things to think about on how it affects retirement plans. My current job is rolling out an ESOP as supplemental to their (very modest) 401K matching program. The mechanics are a little mysterious to me, but for the most part I'm planning to treat it as separate and distinct from my own retirement funds and not rely on the program as part of my overall retirement strategy.
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Oct 4, 2023 22:30
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tumblr hype man posted:Is the company publicly traded or is it privately held? It's a privately held company. I am planning to do as you say and treat the shares as if they were Monopoly money. I'm no business maven but it seems like a system ripe for rapid dissolution of a company. Hit a streak of lean business and retraction and you spook people into leaving so they can lock-in their share values, with the exodus further putting stress on the company to survive and feeding back into more exodus.
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Oct 4, 2023 22:52
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tumblr hype man posted:To be fair there is a requirement to revalue the shares annually. Now that’s significantly more of an art than a science but it does exist. Yeah, I’m not changing my posture on 401k and Roth over it, but your assessment tracks with my initial thoughts about it.
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Oct 5, 2023 01:02
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Apologies if this conversation has already taken place (multiple times): I'm booting up a Roth IRA this year for the first time, I just opened an account with Fidelity. I'm interested in doing a 3-bucket portfolio and follow some basic Boglehead rules, but they all start with "figure out your bond allocation" and the general wisdom for this part appears to cover the spectrum between "10% works fine (google tells me this was a Warren Buffet thing)" to "have (your age)% or more in bonds". So for me, this means my bond allocation is advised to be somewhere between 10-40%, and I don't know how to narrow this down for myself. A lot of "it's based on your risk tolerance" discussion out there, but it's not super helpful if I don't have a great grasp of how much more risk there is in a 90/10 vs 60/40 portfolio or something in-between. Is there a more general consensus on this I can make my decision on? Or does it not actually matter a whole lot and I'm overthinking it? I was thinking of basically splitting the difference and going with a 75/25 portfolio with the majority split Boglehead lazy portfolio-style between Total US/Total International mutual funds, but the initial bond allocation is stumping me. For reference: I'm 40, planning to retire no earlier than 62 when my mortgage is paid off, and my existing retirement portfolio is split between ~10 years in a state pension plan and a 401k I started over the last 2 years switching to the private sector, which I am contributing roughly the max to. So the Roth IRA is supplemental to these other, larger components of my portfolio.
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Oct 13, 2023 17:03
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CubicalSucrose posted:The main thing "risk tolerance" questions are trying to get at is: "Will you be able to stick with your asset allocation even when 'the market is going wild' (crashing, as it does from time to time, and will almost certainly do a few times over the next 22 years)." It's very difficult to actually know how one would actually behave without actually going through a crash or three and seeing (i.e.) your 6 figure number go to a mid-high 5 figure number. The more you'd want to react/change/pull out in such a scenario, the higher a % of bonds you might want. If instead you think "stocks are on sale, wish I could buy more!" then you'd probably be good with 0-low% in bonds. I would sincerely like to think that I'm in the latter group, I certainly wouldn't want to lock in losses when the market is down and I get the meaning behind "rollercoasters go up and down, the only people who get injured are the ones who try to jump off". But, as you say, it's impossible to really know. I might start at 20% bond allocation to give myself room for being wrong about myself. quote:When you get 10ish years out from retiring, then it probably makes some amount of sense to take a good hard look at where you're at and consider larger asset allocation changes depending on whether you've "already won the game" or "still a fair bit behind where you need to be." Also good to know, thanks!
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Oct 13, 2023 17:52
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Leperflesh posted:So.... bonds in your IRA are advantageous during times of negative correlation, assuming you regularly rebalance. And, when stocks and bonds are negatively correlated, pension plans face increased risk of shortfalls and defaults. And, negative correlation seems to occur most when inflation and growth are low... right now, inflation and growth are high, so we should expect bonds and stocks to mostly be moving in the same direction, reducing the attractiveness of bonds in an IRA portfolio but also hopefully reducing the risk to your pension. This may not be the case in 10-20 years. This is a dynamic I wasn't aware of, I appreciate your raising it. Part of my risk profile is associated with a significant portion of my retirement portfolio being sourced from a pension, which can be mitigated with some non-zero amount of bonds in my Roth IRA. I'm sort-of settling on an 80/20 to start and then plan to reassess in a year or two.
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Oct 13, 2023 20:01
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KYOON GRIFFEY JR posted:Carrying bonds is not that much of a hedge against your state deciding to cut your pension benefits. In fact,I don't really think there's a particularly good way to hedge against pension risk (that isn't fairly exotic/probably requires a lot more leverage/scale than you've got) and so I'd be inclined not to try. Alright, does an 80/20 split sound like a not-stupid strategy on its own merits?
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Oct 13, 2023 21:07
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KYOON GRIFFEY JR posted:Sure! It's definitely within a range of reasonable. I carry a little bit less than that and try to keep mine around 10% but I am very risk tolerant and probably at least 25 years from retirement. Alright, I appreciate the sanity check. All of lazy portfolio Bogledom seems to stem from this part.
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Oct 13, 2023 21:15
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Leperflesh posted:I would say that while the comment about risk to pension plans from correlation of stocks and bonds being low is probably correct, in my experience this is not the largest risk to pension plans. By far the larger risk is mismanagement. Inside this pension there are two wolves: one that has defined itself as a gold-standard for pension management for decades and is used as the yard stick by which other state pension plans are measured, and the other that is a rabid state legislature that would enjoy burning the state pension system to the ground just to hear the lamentation of its members. The uncertainty in this situation over the next 20+ years is a small part of the reason why I was comfortable migrating out of public service and into a private sector job with more personal control over my retirement investments.
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Oct 13, 2023 21:26
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I don't know that the particular state makes much difference, as you said the long-term viability of even a well managed state pension plan is up to the legislature. I can imagine significant weakening of the existing plan at some point in the future, I doubt it holds on forever.
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Oct 13, 2023 21:58
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More on Roth Talk: If I'm planning on 80% of my portfolio to be split between a total market index fund and a total international index fund, is there any useful guidance on how to decide those allocations? The bogle-world has example portfolios that range from a 1:1 ratio to a 4:1 ratio favoring the total market index fund. In TYOOL 2023 is there a tremendous difference in how these funds are reflective of the world vs US economy, considering how global the US economy tends to be?
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Oct 16, 2023 19:58
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CubicalSucrose posted:From a while back. That article seems pretty convincing, particularly the issue of US vs international equities being highly correlated during downturns but not during periods of growth. So maybe a 5:1 ratio favoring US equities is warranted.
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Oct 16, 2023 20:41
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I appreciate the recap on this conversation, I assumed this has all been discussed before. I am looking at my equities being split in a 80/20 between US and international, with a 80/20 split between equities and bonds overall. The final numbers are Total Market Index Fund (FSKAX) 64%, Total International Index Fund (FTIHX) 16%, and US Bond Index Fund (FXNAX) 20%.
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Oct 16, 2023 21:26
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I appreciate the rebalancing conversation here, this is yet another aspect of retirement investing I wasn't aware of. My 401K is in a target-date fund and I basically leave it on autopilot, my Roth is now set up as a 3-bucket portfolio but it sounds like I should consider an annual rebalance and be on the lookout for a sustained bear market. Great info.
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Oct 17, 2023 20:36
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Yeah I think it's probably worth at least getting a handle on what my 401K TDF looks like, it was a set-and-forget thing when I started my job last year. My preference is to maybe rebalance once per year on the buy side if I can manage it, and perhaps do the most morphing of my Roth allocation strategy in the first year or two if I decide I set my targets incorrectly since my buys will constitute 1/2 and 1/3 of my total Roth contributions in those first 2 years.
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Oct 17, 2023 20:47
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I will preface this by saying I am not interested in market-timing, just in case the question comes off that way. Is there any cost/benefit to how often and when in the year you contribute to a Roth IRA? I dropped $6500 into a new Roth account this year all at once, but next year I will probably not have $6500 ready to go on Jan 1. My gut says that doing only a few contributions per year (like maybe half of the max annual contribution every 6 months) would make buy-side rebalancing easier and make sure I'm not over-correcting by trying to make those decisions on a monthly basis. But I lose time in the market in-between those contributions compared to doing them monthly. Is there anything else to consider?
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Oct 18, 2023 16:44
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jokes posted:Also be mindful you can only contribute to an IRA with money earned in that tax year, so a Jan 1st contribution might be, um, "bold" from a tax perspective. This part is very good to know, I appreciate that. I had no idea about this restriction but I guess it makes sense based on how Roth taxes work.
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Oct 18, 2023 16:52
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Fuschia tude posted:How would it be overcorrecting? You just buy whatever you're most underweight in, every buy period. If it's because you have a tiny target allocation class or something, you could split your buy instead of only buying one thing in a given month, or just not worry about it and continually rebalance on the buy-side as you're doing already anyway. I guess my concern would be that monthly contributions with regular rebalancing would be chasing short-term noisy fluctuations in the market rather than actual trends.
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Oct 18, 2023 17:04
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jokes posted:It's technically illegal/improper/whatever to use anything other than earned income in a tax year to contribute to an IRA, and I'm fairly certain the IRS doesn't track that poo poo to the day or even to the pay period. That being said, why risk it-- money is fungible so you can just wait until you've earned the appropriate amount to make your contribution feeling 100% certain you didn't do anything wrong (I have always been terrified of the IRS). I feel like it's a bench warrant sort of situation, they won't put effort into going after you about it but if you're already under scrutiny it will catch their eye?
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Oct 18, 2023 17:50
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a retread on a question I had asked a while ago: I have $12k I would like to set aside, earmarked for a new roof for my house. I have the money now but I don't need the roof yet – just carving it out for the future. I would be surprised if I need the new roof in 5 years, probably closer to 10 years down the road. Are there tangible benefits (tax or otherwise) to keeping these funds in ibonds as opposed to, say, rolling them in CDs? I saw earlier in the thread that there is a $10k per year maximum ibond purchase – if I decided to go with ibonds for this money could I do a $10k purchase before Dec 31 and then buy another $2k on Jan 1?
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Nov 3, 2023 19:32
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mrmcd posted:You go to the doctor for $REASON. This sounds uncannily similar to my wife's struggle to pay a therapist, except the fuckups were entirely in the therapist's office billing department. They kept threatening to put her into collections on a bill that they literally admitted they couldn't explain or even give a balance for. She's on a regular non-HDHP+HSA healthcare plan and is herself a health insurance specialist and it was impossible for her to untangle it even after confirming with her health insurer that they submitted and received payment for the proper amount. She went several rounds pleading with them to just tell her what they wanted so she could cut them a check but eventually she just told them that she isn't going to pay a bill with an unknown balance for an unknown service and if she received a single collections call she would sue, and then cut ties with the place. I think the problem here is US healthcare/insurance broadly, than any particular kind of plan.
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Nov 7, 2023 20:10
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If you tried to negotiate your rent in my city you’d be laughed at.
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Nov 23, 2023 19:59
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I have run into problems with checks that I cannot mobile deposit, but not for being over a maximum cap. At my bank they will not allow mobile deposit on a check that doesn't contain a clear signature line for the sender, which means some business checks require me to deposit in-person.
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Dec 19, 2023 19:37
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If my household ends up above the income limit for contributing to a Roth IRA, what is the next best option (assuming I've maxed out a 401k already)? Opening a traditional IRA or brokerage account or something?
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Jan 3, 2024 00:23
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