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How to Invest for Retirement

R

Randolph Freelander

Member
Deadly Cyclone said:
Gotcha. Thanks guys. I submitted a change to remove the year fund and add

Vanguard Extended Market Index Fund Institutional Plus Shares 74%
Vanguard Institutional Index Fund Institutional Plus Shares 26%
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Kind fellow, you have this one backwards (unless you intend to have a huge tilt towards small and mid caps). Institutional Index should be your larger component if you're trying to closely approximate a total stock market blend.
 
G

GhaleonEB

Member
Cyan said:
Ghaleon with the stab in the back.

Edit:
For the record, Deadly Cyclone, holding zero bonds is generally considered quite aggressive. For some reason a lot of the GAF investing folks are super into it, but don't think that that's the standard.
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In fairness, I did sort of point that out, but I will be more explicit that it's aggressive going forward. I see the purpose of bonds being to moderate short to medium term volatility, at the trade off of growth. I don't think it makes sense to make that trade off decades from retirement, when short and medium term volatility are not a concern, unless you're worried about such volatility and the bonds make you feel better.

It's very much the norm to hold some, I'm just not persuaded it's wise that far out.

Cyan said:
If you decided that you wanted some bonds in your mix, Vanguard Total Bond Market is a reasonable option.
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Yup. A standard allocation of bonds would be in the 20-30% range. Needless to say, I'd go with the low end of the scale. :p
 
C

chaosblade

Unconfirmed Member
I have a bunch money in company stock. Thinking about selling it and just investing it in a taxable account with index funds. Maybe use that to max my IRA. I've been letting it sit since I haven't know what to do with it.
 
G

GhaleonEB

Member
chaosblade said:
I have a bunch money in company stock. Thinking about selling it and just investing it in a taxable account with index funds. Maybe use that to max my IRA. I've been letting it sit since I haven't know what to do with it.
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Definitely a good idea to diversify the stock into some index funds; they're basically opposite extremes in terms of diversification. My wife and I funded our IRA's the last few years with company stock - it's worked out quite well.

If you have a lot to sell, be sure to consider the tax implications. We drew our stock balance down over a couple years to spread out the tax hit.
 
S

Swig_

Member
I'm transferring a 401K/457 into a private IRA with Vanguard. I want a Roth IRA, but if I do this, they'll take out taxes from my balance, which are pretty hefty (20% plus state taxes).

I currently have a Roth IRA with T. Rowe Price. I may want to consolidate this all sometime in the future.

Is there a good reason to move this into a traditional IRA over a Roth for this, or would it be a better idea to take the tax hit now?
 
P

Piecake

Member
Kod1ak said:
I'm transferring a 401K/457 into a private IRA with Vanguard. I want a Roth IRA, but if I do this, they'll take out taxes from my balance, which are pretty hefty (20% plus state taxes).

I currently have a Roth IRA with T. Rowe Price. I may want to consolidate this all sometime in the future.

Is there a good reason to move this into a traditional IRA over a Roth for this, or would it be a better idea to take the tax hit now?
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It is hard to say because I don't know your exact tax situation, but another option is to move your 401k into a traditional IRA and then do a back door roth, moving funds from traditional to Roth IRA, when it is a tax benefit for you.

I think you might be able to slowly move funds over as well, so you would be doing a bunch of little back door roths. I would see if that is actually a thing though.
 
R

Randolph Freelander

Member
Kod1ak said:
I'm transferring a 401K/457 into a private IRA with Vanguard. I want a Roth IRA, but if I do this, they'll take out taxes from my balance, which are pretty hefty (20% plus state taxes).

I currently have a Roth IRA with T. Rowe Price. I may want to consolidate this all sometime in the future.

Is there a good reason to move this into a traditional IRA over a Roth for this, or would it be a better idea to take the tax hit now?
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That 20% is I think a default withholding value for a disbursement. The full weight of the tax implication will be revealed when you file your return. If you're in a higher marginal bracket at the top when all is said and done (>20%), your tax payment will be higher (or you'll get a smaller refund, considering your overall tax situation), and if you're in a lower marginal bracket at the top (<20%), you'll get some money back (or have a smaller payment, once again in consideration of your overall tax situation).( In light of this, you might want to consult a tax advisor to see if you run the risk of getting a penalty due to underpayment.)

Your call on what you want to do with the taxes. If it's me and if I'm in a higher tax bucket, I'm sticking in traditional, as I do not expect that my tax hit in the future will exceed the tax hit now. You might have a different expectation, or your upper marginal rates now might be low, which would incentivize you to pay taxes now at a lower rate than you might down the road.
 
T

tokkun

Member
Deadly Cyclone said:
So, I need some assistance. Through my company I have a retirement account via Vanguard in which they match a percentage. Now I'm not contributing as much as I should for matching, but I'll get there as I pay off more short term stuff.

My question is, right now it shows I'm 100% invested in the "Target Retirement 2050 Trust Plus" plan. I see I can add another fund to that mix. Based on the OP it looks like I should be targeting index funds, is that correct? Would I do a 70%/30% mix?

Here are the funds available to me, which should I steer towards?
Click to expand...

Unless you get a lot of entertainment out of tinkering with your fund allocations, I would advise sticking with the target retirement plans.

First off, research has shown that people who take a hands-off approach get better returns on average. Second, the target funds will automatically rebalance for you. Third, they will automatically skew toward a more risk-averse allocation as you get near retirement (if you don't want this to happen, you can just switch to a later retirement target).

From my perspective the only real disadvantage is if your money is spread between tax-advantaged and non-tax-advantaged accounts, because the target funds don't let you place the assets optimally based on their tax status.

I guess you may also be able to shave off a few basis points since you have access to Institutional Plus funds, but probably not to the degree that it would matter much since the target funds are cheap to begin with.
 
A

Azwethinkweiz

Member
Hey guys, I just took a new position at a company and I was hoping to get some advice on where to put my 401k money. The options are quoted below. The default is in the DOW Jones 2045 Fund (which is most likely my target retirement year), which seems to be mostly stocks. Thanks in advance!

DOW JONES TARGET TODAY FUND
DOW JONES TARGET 2010 FUND
DOW JONES TARGET 2015 FUND
DOW JONES TARGET 2020 FUND
DOW JONES TARGET 2025 FUND
DOW JONES TARGET 2030 FUND
DOW JONES TARGET 2035 FUND
DOW JONES TARGET 2040 FUND
DOW JONES TARGET 2045 FUND
DOW JONES TARGET 2050 FUND
DOW JONES TARGET 2055 FUND
100% TREASURY MMKT FUND
WELLS FARGO STABLE VALUE FUND
U.S. BOND INDEX FUND
PIMCO GLOBAL ADVANTAGE STRATEGY BOND I S
LARGE CAP VALUE FUND
S&P 500 INDEX FUND
LARGE CAP GROWTH FUND
S&P MID CAP INDEX FUND
RUSSELL SMALL CAP INDEX
SMALL CAP FUND
INTERNATIONAL INDEX FUND
INTERNATIONAL EQUITY FUND
EMERGING MARKETS EQUITY FUND
NASDAQ 100 INDEX FUND
Click to expand...
 
R

Randolph Freelander

Member
Azwethinkweiz said:
Hey guys, I just took a new position at a company and I was hoping to get some advice on where to put my 401k money. The options are quoted below. The default is in the DOW Jones 2045 Fund (which is most likely my target retirement year), which seems to be mostly stocks. Thanks in advance!
Click to expand...

Wells Fargo? Wells Fargo.

The target date funds there have ridiculously high fees. Avoid. The emerging markets fund has beyond ridiculous fees. Double avoid. Of the rest, you want to stick with the index funds, with S&P 500 being your biggest component, then S&P 400 Midcap, then Russell 2000. You might want to utilize the International Index Fund and maybe Nasdaq 100. It will overlap with the 500 to a degree, but it will expose you to some growth. Or leave it out. The questions to ask are how much you might want in bonds, how much you might want internationally. Vanguard's 2045 fund is about 60% domestic, 30% international, 10% bonds. Do you want to follow that? More or less international? More or less bonds? Of your domestic split, if you followed a total market approach, you'd have ~73/18/9 (%) split between large/mid/small.

Let's play with the Vanguard splits and you might end up with

44% S&P 500 Index
10% S&P Midcap 400 Index
6% Russell 2000 Index
30% International Index
10% US Bond Index

I actually go with higher on the domestic stocks, and I split off a fraction of the large cap (500) to the Nasdaq 100, and I don't do bonds. But that's me and I'm not you.
 
A

Azwethinkweiz

Member
Randolph Freelander said:
Wells Fargo? Wells Fargo.

The target date funds there have ridiculously high fees. Avoid. The emerging markets fund has beyond ridiculous fees. Double avoid. Of the rest, you want to stick with the index funds, with S&P 500 being your biggest component, then S&P 400 Midcap, then Russell 2000. You might want to utilize the International Index Fund and maybe Nasdaq 100. It will overlap with the 500 to a degree, but it will expose you to some growth. Or leave it out. The questions to ask are how much you might want in bonds, how much you might want internationally. Vanguard's 2045 fund is about 60% domestic, 30% international, 10% bonds. Do you want to follow that? More or less international? More or less bonds? Of your domestic split, if you followed a total market approach, you'd have ~73/18/9 (%) split between large/mid/small.

Let's play with the Vanguard splits and you might end up with

44% S&P 500 Index
10% S&P Midcap 400 Index
6% Russell 2000 Index
30% International Index
10% US Bond Index

I actually go with higher on the domestic stocks, and I split off a fraction of the large cap (500) to the Nasdaq 100, and I don't do bonds. But that's me and I'm not you.
Click to expand...

Yeah, it's Wells Fargo. Since I'm still a ways from retirement, I'd like to be fairly aggressive if I can get away with it.

I'm looking at this currently:

40% S&P 500 Index
26% International Index
13% S&P 400 Index
10% NASDAQ 100
6% Russell
5% Bonds

Too aggressive? Also, the company profit sharing allows for the dividends to be reinvested into the Company ESOP Fund.or get a cash payout. From what I gather from this forum, a cash payout that I can invest how I want is the better option. Correct?
 
R

Randolph Freelander

Member
Azwethinkweiz said:
Yeah, it's Wells Fargo. Since I'm still a ways from retirement, I'd like to be fairly aggressive if I can get away with it.
Click to expand...

The aggressive play would be to scale down the bonds and increase the stocks. More aggressive still would be to bump up mid and small by a few points (don't go nuts), which would slightly decrease the large.
 
Darren870

Darren870

Member
Combined my Australian Retirement accounts so now I only have one.
That leaves me with only 5 retirement accounts left. Woohoooo

Still left in limbo with anything else I can do. Need to talk to my accountant again.
 
W

Wellington

BAAAALLLINNN'
Azwethinkweiz said:
Hey guys, I just took a new position at a company and I was hoping to get some advice on where to put my 401k money. The options are quoted below. The default is in the DOW Jones 2045 Fund (which is most likely my target retirement year), which seems to be mostly stocks. Thanks in advance!
Click to expand...

Dumb question, did you roll over your old work place retirement account? Knowing you I assume you would have already done it.
 
R

Randolph Freelander

Member
Azwethinkweiz said:
40% S&P 500 Index
26% International Index
13% S&P 400 Index
10% NASDAQ 100
6% Russell
5% Bonds

Too aggressive? Also, the company profit sharing allows for the dividends to be reinvested into the Company ESOP Fund.or get a cash payout. From what I gather from this forum, a cash payout that I can invest how I want is the better option. Correct?
Click to expand...

OK, with this additional detail, I don't think that's too aggressive at all. As for company contributions, after one year of service, they're going to do dollar-for-dollar matching on 6% of your earnings (at the end of each quarter, beginning with the first quarter that begins after your 1 year), and they'll also do a non-guaranteed 1-4% profit share that is normally made at the beginning of April, and the first such contribution will be prorated based on your number of eligible quarters. You can move these funds out of company stock immediately, which is what I advise you to do. Don't worry about dividend reinvestment on that stock, just move it into your other funds immediately. Wells Fargo is already the 5th (or whatever) largest component of the S&P 500, so you're already going to be in it by default.
 
A

Azwethinkweiz

Member
Wellington said:
There's no referral for a Vanguard IRA.
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Really? Why not?

Randolph Freelander said:
OK, with this additional detail, I don't think that's too aggressive at all. As for company contributions, after one year of service, they're going to do dollar-for-dollar matching on 6% of your earnings (at the end of each quarter, beginning with the first quarter that begins after your 1 year), and they'll also do a non-guaranteed 1-4% profit share that is normally made at the beginning of April, and the first such contribution will be prorated based on your number of eligible quarters. You can move these funds out of company stock immediately, which is what I advise you to do. Don't worry about dividend reinvestment on that stock, just move it into your other funds immediately. Wells Fargo is already the 5th (or whatever) largest component of the S&P 500, so you're already going to be in it by default.
Click to expand...

Awesome, thanks for the tips!
 
R

Randolph Freelander

Member
Azwethinkweiz said:
I have not done it yet and I know what your next question will be, so if you want me to use your referral, give me some tips on where to put that money.
Click to expand...

One thing about a prior 401K account, and this runs counter to what most people would suggest, is that you might consider rolling it into your Wells Fargo 401K. Wells Fargo's expenses on the index funds we mentioned earlier are competitive with and even beat Vanguard's admiral shares options in their mutual funds or ETFs, and the same is true compared to Fidelity's Spartan class. If you'd like less accounts to manage, this option is there for you.

The downside, of course, is that once you put that money into the 401K, you couldn't move it to a different account unless you switched jobs, whereas you could flip a Vanguard account over to another broker at any time. And, of course, Vanguard is going to have more options for funds, though I personally wouldn't go beyond the blend I already have available.
 
T

tokkun

Member
Randolph Freelander said:
One thing about a prior 401K account, and this runs counter to what most people would suggest, is that you might consider rolling it into your Wells Fargo 401K. Wells Fargo's expenses on the index funds we mentioned earlier are competitive with and even beat Vanguard's admiral shares options in their mutual funds or ETFs, and the same is true compared to Fidelity's Spartan class. If you'd like less accounts to manage, this option is there for you.

The downside, of course, is that once you put that money into the 401K, you couldn't move it to a different account unless you switched jobs, whereas you could flip a Vanguard account over to another broker at any time. And, of course, Vanguard is going to have more options for funds, though I personally wouldn't go beyond the blend I already have available.
Click to expand...

I think it's worth keeping the cost difference in perspective when making this kind of analysis. I was in a similar situation, thinking about whether I should keep money in an an account with Vanguard Admiral funds or roll it into my 401k where I have access to Institutional Plus.

The thing is, the difference in cost was like 2-5 basis points on most of these funds; less than the price of a cup of coffee on an investment of $10K. When I stepped back and thought about it, it wasn't worth giving up the option to move my money elsewhere for such a slim cost savings. It's true that having multiple accounts can be a hassle if you are manually rebalancing, but that can be solved with Target funds.

It can be easy to get over-focused on min-maxing of returns to the detriment of flexibility.
 
M

Movement

Member
I'm jumping into retirement investing. Hoping to grab some good advice here, as well as discuss.
I'm 23, bring in $600/week gross. My goal at the moment is to keep $300 minimum in checking, $2000 in standard savings, a Vanguard (I'll have $3000 by October 31 to start one). I also gave a 401k through work.

What advice, suggestions or changes would you guys recommend?
 
P

Piecake

Member
tokkun said:
Unless you get a lot of entertainment out of tinkering with your fund allocations, I would advise sticking with the target retirement plans.

First off, research has shown that people who take a hands-off approach get better returns on average. Second, the target funds will automatically rebalance for you. Third, they will automatically skew toward a more risk-averse allocation as you get near retirement (if you don't want this to happen, you can just switch to a later retirement target).

From my perspective the only real disadvantage is if your money is spread between tax-advantaged and non-tax-advantaged accounts, because the target funds don't let you place the assets optimally based on their tax status.

I guess you may also be able to shave off a few basis points since you have access to Institutional Plus funds, but probably not to the degree that it would matter much since the target funds are cheap to begin with.
Click to expand...

I am not a huge fan of target date funds.

I think one of the major points of holding bonds is being able to sell bonds during a recession when you are in your retirement and need income. If you have a target date fund you cannot do that. You are forced to sell a portion of that fund, which will likely have lost a lot more value than a bond fund due to the TDF including stocks. I think that negates the advantages and then some of target date funds.
 
R

Randolph Freelander

Member
Movement said:
I'm jumping into retirement investing. Hoping to grab some good advice here, as well as discuss.
I'm 23, bring in $600/week gross. My goal at the moment is to keep $300 minimum in checking, $2000 in standard savings, a Vanguard (I'll have $3000 by October 31 to start one). I also gave a 401k through work.

What advice, suggestions or changes would you guys recommend?
Click to expand...

I think you should probably try to add more to your savings, but start contributing towards your 401K at the same time if there is an employer match. If there isn't, start a Roth IRA. Based on your income, I'd recommend you follow the strategy often advocated here, which is to contribute to your 401K until you've gotten the maximum the employer would match, and then contribute to a Roth. If you max out the Roth, go back to your 401K.
 
T

tokkun

Member
Piecake said:
I am not a huge fan of target date funds.

I think one of the major points of holding bonds is being able to sell bonds during a recession when you are in your retirement and need income. If you have a target date fund you cannot do that. You are forced to sell a portion of that fund, which will likely have lost a lot more value than a bond fund due to the TDF including stocks. I think that negates the advantages and then some of target date funds.
Click to expand...

Then convert to individual funds shortly before retirement. The poster I responded to is 35 years away from retirement; I don't see much value in having to regularly manually rebalance your funds over all of that time, unless that level of interaction is something that gives you genuine pleasure and you are disciplined enough to stick with your allocation plan rather than wanting to put money into whatever fund has been the hottest.

Movement said:
I'm jumping into retirement investing. Hoping to grab some good advice here, as well as discuss.
I'm 23, bring in $600/week gross. My goal at the moment is to keep $300 minimum in checking, $2000 in standard savings, a Vanguard (I'll have $3000 by October 31 to start one). I also gave a 401k through work.

What advice, suggestions or changes would you guys recommend?
Click to expand...

Check on whether you have the option of doing either a traditional 401k or a Roth 401k. A Roth 401k will probably give you more money in the long run since you are going to be in a lower tax bracket with your income. On the other hand if you are more worried about building savings that you can tap before retirement if need be, the traditional 401k will net you a larger tax refund for this year.
 
P

Piecake

Member
tokkun said:
Then convert to individual funds shortly before retirement. The poster I responded to is 35 years away from retirement; I don't see much value in having to regularly manually rebalance your funds over all of that time, unless that level of interaction is something that gives you genuine pleasure and you are disciplined enough to stick with your allocation plan rather than wanting to put money into whatever fund has been the hottest.
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But converting means selling, which could be a very bad idea depending on the situation of the market. I mean, what happens if the market is in a recession a few years before you retire and a few years afterwards and you havent converted your target date funds into stocks and bonds? Converting all of it would be a whole lot worse than selling your target date fund for income when you are retired. I don't think the ease of the target date fund is worth that gamble.

I honestly don't think re-balancing once a year is a big deal. I mean, how much time is that? Like 10 minutes? I think your discipline concern is definitely valid, but that really has to be answered by the individual. I know I won't have a problem with sticking with my plan, but if others do, then they should seriously consider target date funds.
 
M

Makai

Member
I recommended my friend start a Betterment account because he can't afford the Vanguard minimum contributions. I noticed the portfolio they automatically gave him is almost 50% international stock. What the heck?
 
W

Wellington

BAAAALLLINNN'
Makai said:
I recommended my friend start a Betterment account because he can't afford the Vanguard minimum contributions. I noticed the portfolio they automatically gave him is almost 50% international stock. What the heck?
Click to expand...

I agree it is absurd. I will be doing some more research in regards to their rationale but I am definitely not a fan.

Betterment invests in vanguard ETFs which have no minimums as was pointed out to me before.
 
M

Makai

Member
Wellington said:
I agree it is absurd. I will be doing some more research in regards to their rationale but I am definitely not a fan.

Betterment invests in vanguard ETFs which have no minimums as was pointed out to me before.
Click to expand...
Their rationale is that international stocks make up about half of the world's stocks and they are following the market instead of betting on USA.
 
W

Wellington

BAAAALLLINNN'
M

Makai

Member
Mr.Mike said:
I'm not really getting why 50% international stocks seems so crazy to people. Diversification is good eh?
Click to expand...
Because international stocks are much riskier than domestic stocks. Diversification is a strategy for decreasing risk. Half-and-half international and domestic stocks is awesomely aggressive for Betterment's standard portfolio.
 
C

Cels

Member
Pretty excited, as I think the time is right for me to start investing in earnest. I have no debt and my emergency fund is set up. I can save 2500-3000 a month. The only money I have saved for retirement besides the workplace pension is 11k in a Vanguard IRA - target date 2055 retirement fund (their current allocation is 90% stocks 10% bonds which I'm fine with).

I am probably going to do my own version of Vanguard's target fund, to take advantage of lower-cost Admiral shares as well as allocate the four different funds myself.

The four funds:
Total U.S. stock market index fund
Total international stock index fund
Total U.S. bond index fund
Total international bond index fund

If anyone has any further advice I would like to hear it.
 
R

Randolph Freelander

Member
Cels said:
Pretty excited, as I think the time is right for me to start investing in earnest. I have no debt and my emergency fund is set up. I can save 2500-3000 a month. The only money I have saved for retirement besides the workplace pension is 11k in a Vanguard IRA - target date 2055 retirement fund (their current allocation is 90% stocks 10% bonds which I'm fine with).

I am probably going to do my own version of Vanguard's target fund, to take advantage of lower-cost Admiral shares as well as allocate the four different funds myself.

The four funds:
Total U.S. stock market index fund
Total international stock index fund
Total U.S. bond index fund
Total international bond index fund

If anyone has any further advice I would like to hear it.
Click to expand...

Does your employer have 401K in addition to the pension plan? Any match?
 
C

Cels

Member
Randolph Freelander said:
Does your employer have 401K in addition to the pension plan? Any match?
Click to expand...

No, just the pension for now. I just started working for the county and I'm on a probationary period, so technically I'm a temporary employee. If I stay as a permanent employee I believe that opens up a 401k where they match up to 4% as well as an optional plan on top of that where they match another 4%.

But for now, I'm in a pension plan where they take 4.5% and match with 3%.
 
R

Randolph Freelander

Member
Cels said:
No, just the pension for now. I just started working for the county and I'm on a probationary period, so technically I'm a temporary employee. If I stay as a permanent employee I believe that opens up a 401k where they match up to 4% as well as an optional plan on top of that where they match another 4%.

But for now, I'm in a pension plan where they take 4.5% and match with 3%.
Click to expand...

OK, I'm assuming that given your original post here, these things should already be obvious, but as soon as that option is available to you, you'll want to utilize it for the match and to either reduce your taxable income now (traditional contribution), or later, if you have a Roth option in the 401K plan (based on your monthly savings target and assumptions that can be drawn about your income, I see value in the traditional option, but your outlook might be different). Beyond that, I assume you plan to open a Roth IRA. After each of these buckets are filled, then use regular old market investments. I think you have a good handle on funds you want to be in, so I have no additional recommendations there.
 
C

Cels

Member
Randolph Freelander said:
OK, I'm assuming that given your original post here, these things should already be obvious, but as soon as that option is available to you, you'll want to utilize it for the match and to either reduce your taxable income now (traditional contribution), or later, if you have a Roth option in the 401K plan (based on your monthly savings target and assumptions that can be drawn about your income, I see value in the traditional option, but your outlook might be different). Beyond that, I assume you plan to open a Roth IRA. After each of these buckets are filled, then use regular old market investments. I think you have a good handle on funds you want to be in, so I have no additional recommendations there.
Click to expand...

Thanks.

I don't think the 401(k), once I'm eligible, has a Roth option. Traditional only, where you can choose their target date fund or create and manage your own portfolio. I am definitely going to put at least 8% in to get the 8% match.

The Vanguard IRA I opened is a Roth, and I have already hit my 5,500 limit for 2015, so I will have to open a plain-old taxable account.
 
T

tokkun

Member
Cels said:
Thanks.

I don't think the 401(k), once I'm eligible, has a Roth option. Traditional only, where you can choose their target date fund or create and manage your own portfolio. I am definitely going to put at least 8% in to get the 8% match.

The Vanguard IRA I opened is a Roth, and I have already hit my 5,500 limit for 2015, so I will have to open a plain-old taxable account.
Click to expand...

Since you are planning on saving $30-36K / year, you may want to look into whether the 401k plan has the features necessary to pull off the so-called "mega backdoor Roth IRA" trick.

http://www.bedrockcapital.com/blog/...ng-for-retirement-the-mega-backdoor-roth-ira/

For people putting away more than $25K per year, you can save a lot in taxes with that approach vs just putting 401k/IRA overflow in a taxable account, provided you are OK not withdrawing the earnings until age 60 or the principle for 5 years after deposit.
 
W

Wellington

BAAAALLLINNN'
tokkun said:
Since you are planning on saving $30-36K / year, you may want to look into whether the 401k plan has the features necessary to pull off the so-called "mega backdoor Roth IRA" trick.

http://www.bedrockcapital.com/blog/...ng-for-retirement-the-mega-backdoor-roth-ira/

For people putting away more than $25K per year, you can save a lot in taxes with that approach vs just putting 401k/IRA overflow in a taxable account, provided you are OK not withdrawing the earnings until age 60 or the principle for 5 years after deposit.
Click to expand...

What is the benefit of the mega backdoor Roth contribution to the normal backdoor Roth contribution?
 
T

tokkun

Member
Wellington said:
What is the benefit of the mega backdoor Roth contribution to the normal backdoor contribution?
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Significantly higher cap. 53K total limit on 401k contributions; subtract off the 18K that is tax advantaged plus any employer matching, and you have 25-35K for the mega backdoor - so 5X the normal backdoor. Dollar for dollar, they are the same.
 
P

PflargBlarg

Member
Cels said:
Thanks.

I don't think the 401(k), once I'm eligible, has a Roth option. Traditional only, where you can choose their target date fund or create and manage your own portfolio. I am definitely going to put at least 8% in to get the 8% match.

The Vanguard IRA I opened is a Roth, and I have already hit my 5,500 limit for 2015, so I will have to open a plain-old taxable account.
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Since you're saving a massive amount more than most people do per year you may be able to consider significantly early financial independence. I don't know what your annual expenses are per year or how old you are but I'd guess that you could probably stop thinking about money before you're 50.

Kind of depends on how much money you require per year if you stop working.
 
C

Cels

Member
Wormdundee said:
Since you're saving a massive amount more than most people do per year you may be able to consider significantly early financial independence. I don't know what your annual expenses are per year or how old you are but I'd guess that you could probably stop thinking about money before you're 50.

Kind of depends on how much money you require per year if you stop working.
Click to expand...

Heh. You can probably take a good guess at my age since I've put money in a 2055 target date fund.

I haven't thought about financial independence because I don't know if I can maintain this level of saving. I'm not married and am happy with my lifestyle, but maybe I'll want to buy a house or start a family in the next few years. Career-wise I'm just a couple years in so I might change jobs a few times/relocate and that could also have a financial impact.

So, my thinking is just to save as much as I can now, while I can.
 
W

Wellington

BAAAALLLINNN'
Cels said:
Thanks.

I don't think the 401(k), once I'm eligible, has a Roth option. Traditional only, where you can choose their target date fund or create and manage your own portfolio. I am definitely going to put at least 8% in to get the 8% match.

The Vanguard IRA I opened is a Roth, and I have already hit my 5,500 limit for 2015, so I will have to open a plain-old taxable account.
Click to expand...
I think in your situation if you're saving that much you should follow the line of thinking Randolph has been advocating here and max out your 401k for maximum tax benefit.

Meaning you should increase the percentage you contribute to the fund which will in turn decrease your take home/savings rate.
 
C

Cels

Member
Wellington said:
I think in your situation if you're saving that much you should follow the line of thinking Randolph has been advocating here and max out your 401k for maximum tax benefit.

Meaning you should increase the percentage you contribute to the fund which will in turn decrease your take home/savings rate.
Click to expand...

Definitely. I just have to wait until I'm eligible for the 401k.
 
T

TylerD

Member
Got pissed off at 1.9K left on my cosigned student loan @ 5.75% and just paid it off in one shot. Down to 5500 @ 5.25% left on student loans... Hope to kill them by the end of the year then my retirement savings can take off a lot more. Getting them taken care of slightly before that 2022 date at the minimum payments :D
 
W

WoodWERD

Member
numble said:
If you are taking advantage of the foreign income exclusion or foreign housing exclusion, you cannot use any income excluded with those exclusions to fund a IRA. So if you have $40,000 income but you exclude it all from tax with the above exclusions, you have no money to put in an IRA.

If you max out the foreign income/housing exclusions, you are likely in an income territory that cannot enjoy IRA benefits (the IRA benefit phases out after you earn $114,000 in income--this figure must include any amount you excluded with the foreign income/housing exclusions, and the max foreign income+housing exclusion is usually $131,040, unless you live in one of the designated high-cost cities).

If you live in a high-tax country, it may make better sense to take a foreign tax credit instead of using the foreign income exclusion.
Click to expand...

Huh, this is relevant to my interests...glad I checked in and hopefully numble is still around. None of what you mentioned applies to the purchase of stocks/funds through a traditional brokerage account right? I'm WAY below the taxable income threshold but have been sitting on some cash for too long.

Which reminds me, are any of you using USAA's investment platform? I was overwhelmed by the number of funds/stocks they had access to and really didn't know the best way to filter them, so I just sorted their index funds by lowest cost and glanced around before eventually giving up. Blah.
 
Darren870

Darren870

Member
WoodWERD said:
Huh, this is relevant to my interests...glad I checked in and hopefully numble is still around. None of what you mentioned applies to the purchase of stocks/funds through a traditional brokerage account right? I'm WAY below the taxable income threshold but have been sitting on some cash for too long.

Which reminds me, are any of you using USAA's investment platform? I was overwhelmed by the number of funds/stocks they had access to and really didn't know the best way to filter them, so I just sorted their index funds by lowest cost and glanced around before eventually giving up. Blah.
Click to expand...

The basic rules for Americans working overseas are:
You can't contribute to retirement accounts in the USA. Unless you don't claim the income as an exclusion. Which means US Tax on it (or double tax).
You can't open a brokerage account overseas to invest in mutual funds/index funds/etfs. This needs to be done in US accounts only or you invest in individual stocks.

There are ways around both, but it involves claiming income in different ways. Or paying way too much in tax then its worth.

I haven't lived in the US for 7 years and I haven't put money in a US retirement account since then. I looked into opening a brokerage account and buying some index funds here, but then ran into the issue of my second point. The only real option I have is to send money home and do it, which isn't worth it to me.

Most people use Vanguard or Fidelity as they have proven to be the cheapest and the best around. Not too sure on USAA.
 
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