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Captain Melo posted:My understanding of it was that I should do the Roth and pay taxes based on my extremely low tax rate now as opposed to when I'm older and in all likelihood have higher taxes. Is that correct or would I be better off going with the traditional? Traditional also has the advantage of the contributions being tax deductible, The Roth IRA tax free advantage mainly works if you have much higher tax bracket in the future.
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Apr 18, 2014 01:16
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Captain Melo posted:My understanding of it was that I should do the Roth and pay taxes based on my extremely low tax rate now as opposed to when I'm older and in all likelihood have higher taxes. Is that correct or would I be better off going with the traditional? etalian posted:Traditional also has the advantage of the contributions being tax deductible, The Roth IRA tax free advantage mainly works if you have much higher tax bracket in the future.
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Apr 18, 2014 02:55
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I based it on the fact that currently, I'm at one of the lowest tax brackets for where I live. Is it a wrong assumption to assume that I will obviously move up in the tax brackets as I get older, especially with education?
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Apr 18, 2014 05:51
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Captain Melo posted:I based it on the fact that currently, I'm at one of the lowest tax brackets for where I live. Is it a wrong assumption to assume that I will obviously move up in the tax brackets as I get older, especially with education? I think that is a very reasonable assumption, particularly if you are going to school for something where you know your career will end up with a much higher salary.
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Apr 18, 2014 13:56
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etalian posted:Traditional also has the advantage of the contributions being tax deductible, The Roth IRA tax free advantage mainly works if you have much higher tax bracket in the future. Having a known quantity is good. We don't know what the gently caress the tax laws will be in 35 years.
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Apr 18, 2014 14:21
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Captain Melo posted:My understanding of it was that I should do the Roth and pay taxes based on my extremely low tax rate now as opposed to when I'm older and in all likelihood have higher taxes. Is that correct or would I be better off going with the traditional? A little bit of A, a little bit of B. It is true that your top tax bracket will likely increase in the future, both because our current tax rate is historically low, and because people tend to make more money later in their careers. However, we have a progressive tax system, which works to your disadvantage with a Roth. The money you contribute to your Roth has been taxed at the highest tax bracket you fall into. If you made $45k and contributed $5k to your Roth, that $5k was taxed at your top tax bracket of 25%. Money going into the Roth is always taxed at the "top" of your income. Let's look into future. You become a baller, pull down $200k, and the government increases tax rates so that your top bracket is 35%! This could happen. I believe in you. But then you retire. Now you aren't pulling down $200k a year. Your income is now whatever you choose/need to pull from your various retirement investments. At this point, the money you pull out is taxed starting at the "bottom" of your income. In 2014, married and using a standard deduction, you could $30k out of a taxable retirement investment and only pay $1800 in taxes, an effective tax rate of 6%. If you had used a Roth, you would have been effectively taxed 25% on that money. It's also more likely that at retirement have little to no mortgage left to pay, no student loans, no kids living in the house, no kids student loans to pay, lesser bills due to lack of a daily commute, etc. You may simply need less money to fund your daily life as a retiree. Subtracting out rent, commute costs, and money spent on food/coffee at work, I'd easily get by with my hypothetical wife on $30k. We haven't even talked about geo-arbitrage in this hypothetical, but I digress. Point being, don't look at top tax brackets over the course of your career; look at overall effective tax rates and costs of living. That said, you should definitely have both. If you have sweet pot of money you can pull out tax free, you can use it do to transiently expensive things like extensive travel. So you pull $30k from your traditional for annual living, but then if you want to go to Italy for a month, you pull out $10k from your Roth tax free.
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Apr 18, 2014 17:18
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The post above is good advice. It's good to diversify your assets in both type and what their tax status is. I still contribute to a Roth despite my top marginal bracket being 28% because I'm still young, still in the relatively nascent stages of my career, and have more tax-deferred assets in my 401k. Also, entirely speculative, but like the post above I also am inclined to believe that tax rates will be higher in the future because they are at historic lows right now and we continue to have federal budget issues. That could be entirely wrong, but I have a hard time believing that we will see significant tax reductions in the future.
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Apr 18, 2014 17:40
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Yeah the way I see it, if I'm in a fairly high tax bracket(I'm in the 25% now), most of what I'm investing is going to be 401k. Currently it's about double what I put into my IRA, which I'm maxing. So if the 401k is traditional, and the IRA is Roth, its not entirely dissimilar to the recommended split between domestic and foreign stocks  Much as foreign stocks help protect against domestic stocks underperforming, my Roth protects against the possibility of crazy tea partiers instituting a flat 30% tax in the future.
Nail Rat fucked around with this message at 19:00 on Apr 18, 2014 |
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Apr 18, 2014 18:58
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What's the scoop on cash value life insurance? I just started working with a financial planner and his advice is to make use of it as a safe place to store some percentage of our money. I just can't wrap my head around how it's supposed to work and as a skeptical person that's very concerning to me. I've asked a lot of questions and my summation is that you can overpay into your insurance policy and that money can be invested (like a mutual fund) by the insurance policy. The advantage being it's not taxable like a mutual fund would be. According to his projections going the mutual fund route works out better for the first 15 or so years at which point the tax advantages start to work in the insurance route's favor. A couple of hours googling has revealed a lot of negative opinions about this scheme though. To be clear, this wouldn't be our entire portfolio.
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Apr 18, 2014 23:06
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Summit posted:What's the scoop on cash value life insurance? I just started working with a financial planner and his advice is to make use of it as a safe place to store some percentage of our money. I just can't wrap my head around how it's supposed to work and as a skeptical person that's very concerning to me. I've asked a lot of questions and my summation is that you can overpay into your insurance policy and that money can be invested (like a mutual fund) by the insurance policy. The advantage being it's not taxable like a mutual fund would be. According to his projections going the mutual fund route works out better for the first 15 or so years at which point the tax advantages start to work in the insurance route's favor. A couple of hours googling has revealed a lot of negative opinions about this scheme though.
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Apr 18, 2014 23:13
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Summit posted:What's the scoop on cash value life insurance? I just started working with a financial planner and his advice is to make use of it as a safe place to store some percentage of our money. I just can't wrap my head around how it's supposed to work and as a skeptical person that's very concerning to me. I've asked a lot of questions and my summation is that you can overpay into your insurance policy and that money can be invested (like a mutual fund) by the insurance policy. The advantage being it's not taxable like a mutual fund would be. According to his projections going the mutual fund route works out better for the first 15 or so years at which point the tax advantages start to work in the insurance route's favor. A couple of hours googling has revealed a lot of negative opinions about this scheme though. Use insurance for insurance. If you want a tax advantage, then why not use actual tax advantaged accounts? If you have maxed those out, then look for low fee funds and make sure your planner isnt getting a commission for what he's recommending. For your piece of mind, ask if he's willing to document any conflict of interest, and fiduciary responsibility.
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Apr 19, 2014 01:02
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It's a pretty bad hybrid of life insurance and a lovely mutual fund. Buy term life insurance if you want life insurance, and leave the investing to your IRA's and 401k's first.
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Apr 19, 2014 01:25
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I currently have a Roth IRA with about $4,000 in it. I'm 20 years old and have been contributing to this IRA for about 3 years using small amounts from my internship salaries. The IRA was started with AYCO, and it's essentially a Fidelity Roth IRA. I'm not 100% sure what the expense rate on this is.. but it seems like Fidelity Roth IRAs are no fee? I was wondering: -Should I rollover my IRA to a different company if I want to make it fee-free (if I find out that it is not) -Should I also be investing in index funds? Or is maxing out my IRA right now the best plan until I get hired full-time out of college (where I plan to maximize a Roth/401(k) match)
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Apr 19, 2014 02:30
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Fluue posted:I currently have a Roth IRA with about $4,000 in it. I'm 20 years old and have been contributing to this IRA for about 3 years using small amounts from my internship salaries. The IRA was started with AYCO, and it's essentially a Fidelity Roth IRA. I'm not 100% sure what the expense rate on this is.. but it seems like Fidelity Roth IRAs are no fee? I would absolutely suggest investing your Roth vs letting it lose money as cash or money market. I'd go with a Target 2060 fund until you have money to buy in to the various underlying funds.
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Apr 19, 2014 03:10
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SiGmA_X posted:If you're paying over 0.2% ER or so, look at moving to Vanguard. Also move to Vanguard rather than get Fidelity's Target fund because Fidelity's target funds are expensive.
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Apr 19, 2014 19:07
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Kilty Monroe posted:Also move to Vanguard rather than get Fidelity's Target fund because Fidelity's target funds are expensive. Not to mention Fidelity Target funds also have a much bigger tracking error aka now following the base index closely in addition to having a much higher expense ratio. If you have Fidelity for a 401k make sure you pick their Spartan low expense ratio funds and the large cap spartan also pays a dividend.
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Apr 19, 2014 20:30
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I went looking for some IRA documents I had issued to me and it's a Fidelity Premiere Select IRA (administered by Ayco). I can't find any information about the fees, though. I do have info about fees for specific funds I'm invested in through the Fidelity IRA, though.. does anyone know where I could possibly look for the overall IRA information?
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Apr 19, 2014 22:56
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Kilty Monroe posted:Also move to Vanguard rather than get Fidelity's Target fund because Fidelity's target funds are expensive. Is there any difference between Vanguard Target funds and Vanguard Target funds served through Fidelity? One of my 401k accounts is through Fidelity and is sitting in a "Vanguard Target Retirement 2040 Trust Plus" fund at 0.07% total ER. I've been hesitant to move it because the 2040 over at Vanguard open to someone with my range of investment (just over $100K to consolidate across four 401(k) plans) has a higher ER for what appears to be identical metrics.
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Apr 20, 2014 15:06
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Sundae posted:Is there any difference between Vanguard Target funds and Vanguard Target funds served through Fidelity? One of my 401k accounts is through Fidelity and is sitting in a "Vanguard Target Retirement 2040 Trust Plus" fund at 0.07% total ER. I've been hesitant to move it because the 2040 over at Vanguard open to someone with my range of investment (just over $100K to consolidate across four 401(k) plans) has a higher ER for what appears to be identical metrics. No difference except ERs sometimes. Investment management companies won't force a workplace to choose from only their own funds when setting up a 401k, so you sometimes see funds from a variety of companies in a 401k plan. They might charge extra for them, which may get passed on to you, so you do want to look at the ERs in the literature that is specific to your plan. You appear to be getting a premium (cheaper) share class not available to individual investors, though, so I'd keep as much money in that Target fund as you can. Kilty Monroe fucked around with this message at 23:52 on Apr 20, 2014 |
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Apr 20, 2014 23:50
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Thanks, Kilty. I appreciate it.  I'm still going to roll my other 401(k) accounts (I job-hop like mad) into Vanguard, but I'll leave that one alone.
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Apr 21, 2014 01:43
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So is the standard IRA advice to put your money in the funds that make up the target retirement fund once you have enough to meet the minimums? I'm transferring my IRA over from my bank to Vanguard but I wasn't sure what was ideal. My 401k is almost entirely domestic stocks and I have a taxable account through Vanguard already that has VWELX (2/3 domestic stocks 1/3 bonds) and VEIEX (international stock) in it, so I think I'm fairly decently balanced for my age (I'm 29). I was originally just going to throw the IRA into a target retirement 2040 fund but I thought this might be an opportunity to step back and see if anything needs to be rebalanced.
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Apr 21, 2014 02:41
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With Vanguard, the expense ratio of the Target funds is equal to the weighted expense ratios of the funds it owns. However, if you have enough for Admiral shares (Typically $10k), those will save you some money.
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Apr 21, 2014 12:25
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I told a friend of mine about the backdoor Roth contribution scheme a couple years ago. So he used it, but neglected to file IRS Form 8606 to inform the IRS that his contribution was non-taxable (which I didn't realize at the time was required, so I hadn't mentioned that to him). This year he got a letter from the IRS stating that he owed them $1500 because they misunderstood his Roth conversion as being taxable since he hadn't filled out the form. Oops! Don't forget to cover all your bases, folks.
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Apr 21, 2014 16:23
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After doing even more research and asking some friends about the whole cash life insurance thing it seems the common opinion is that it's complete crap. I asked planner dude to send me over his projections that had originally convinced me that this seemed like a good idea. If you guys wouldn't mind, what's wrong/misleading in here? (red text is mine, per his in-person explanations) 
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Apr 21, 2014 19:59
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I would have a lot of questions. What's his commission for selling these policies? What are the withdrawal rules of the policy, especially regarding taxation and changes in the death benefit? How much will term life actually cost you? Could you invest the money in a tax-advantaged account instead of penalizing at 39% tax bracket? Will you definitely contribute $20k per year for the next 15 years? What happens if you don't? And don't get fixated on this particular table - you need to understand how it will change when the assumptions that went into it change. The bad press is because these kind of products conflate two things that you can get separately, usually to the advantage of the person who is selling them. It's a complicated contract that was drafted 100% by someone other than you, and the someone is most likely a profit-oriented institution.
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Apr 21, 2014 21:38
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What's the A/T rate? Why are you paying $20k as a premium but their "investment" comparison only invests 19 something? That's bullshit. If you put 20k each year into a mutual fund that gains ONLY 5%, you would have $694,385.04 at the end of 20 years, as per http://www.moneychimp.com/calculator/compound_interest_calculator.htm As compared to their whatever lovely math that gets you $556,112. And would have the fund "have to have" a 6.77% return instead of a 5% return, as in my assumption. I don't know what math they're using, but it looks like a choice between "our lovely mutual fund" and "our lovely life insurance scam" instead of vs "a non-lovely fee-free fund". When things looks overly complicated, it's because they're hiding something with the complications. Run the numbers at 5% a year for however many years until you turn 65 if you want a comparison for that. I'm guessing the nonshitty no-fee 5% fund would still beat their "7.74% mutual fund that doesn't actually return 7.74% for whatever reason."
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Apr 21, 2014 22:08
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The math responsible for that is the 39% tax bracket, which is applied to the mutual fund returns but not the cash value policy. Whether that's realistic depends on their income and the details of the contract I think.
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Apr 21, 2014 22:20
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My previous employer made some major layoffs over the past year so I'm starting a new job next week but unfortunately they do not offer a 401(k). I started a 401(k) (Fidelity) with my previous employer but by the time I was eligible for it they let me go only a few months afterwards so there is less than a thousand dollars in there. I have a Roth IRA with Vanguard maxed for 2013/2014, am I best served to roll that tiny 401(k) into a traditional IRA with Vanguard and then max that out for 2014 as well? Are there any other accounts I can open to help fund my retirement? Thanks!
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Apr 21, 2014 23:03
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The 5500 dollar limit for IRA is total across both Roth and Traditional. If you cobtribute 4500 in a Roth in 2014 you can only contribute 1k to a traditional.
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Apr 21, 2014 23:24
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But a rollover isn't a contribution. You can rollover $1k or $100k from a 401(k) to an IRA and this has no bearing on your annual contribution limits.
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Apr 21, 2014 23:30
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Bearnt! posted:My previous employer made some major layoffs over the past year so I'm starting a new job next week but unfortunately they do not offer a 401(k). I started a 401(k) (Fidelity) with my previous employer but by the time I was eligible for it they let me go only a few months afterwards so there is less than a thousand dollars in there. I have a Roth IRA with Vanguard maxed for 2013/2014, am I best served to roll that tiny 401(k) into a traditional IRA with Vanguard and then max that out for 2014 as well? Are there any other accounts I can open to help fund my retirement? Thanks! Like Leperflesh said, rollovers do not count against annual contribution limits.
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Apr 22, 2014 01:30
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Thank you all for the info. On that note I also am self employed and am my only employee. After searching around a bit I found I could start a SEP-IRA or Vanguard Individual 401(k). Which would be better? The only major difference I see is with the SEP you can only contribute 25% while with the Vanguard Individual 401(k) you can put in up to 100%. I'm probably missing something though. https://investor.vanguard.com/what-we-offer/small-business/compare-plans Is this something I can rollover into?
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Apr 22, 2014 06:35
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Also self-employed; no employees. No experience with the individual 401k, but I can tell you that it's a mild pain in the butt figuring out the exact dollar figure for the max I'm allowed to contribute to my SEP IRA. It ends up just being one more thing my accountant figures out for me. Not sure if the 401k is any easier in that regard. That said, the SEP IRA treats me fine once the money's in there, and I personally don't want to contribute much more than 20-25% of my annual income.
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Apr 22, 2014 07:38
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I have a friend who used to work in finance, and he was explaining how his company used to use write covered calls as an easy way to generate high returns for their investors (mostly retirement accounts I think). I got to thinking about it, and it made sense, so for the last few weeks I've been playing around with it. Seems I can get $40-50 for writing call options that are like 5-10% out of the money (single contract) with a week or two until expiration. Obviously that varies by stock, but that's the general ballpark I've seen. I've been doing this for two weeks and I'm gobbling up about $200 a week. What am I missing? This seems too easy.
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Apr 22, 2014 13:40
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District Selectman posted:I have a friend who used to work in finance, and he was explaining how his company used to use write covered calls as an easy way to generate high returns for their investors (mostly retirement accounts I think). I got to thinking about it, and it made sense, so for the last few weeks I've been playing around with it. Seems I can get $40-50 for writing call options that are like 5-10% out of the money (single contract) with a week or two until expiration. Obviously that varies by stock, but that's the general ballpark I've seen. What you're missing is upside. It isn't unusual for the market to move in bursts, and when it does you'll miss those gains. You should also consider the tax implications of being forced to sell your underlying if you have unrealized gains.
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Apr 22, 2014 14:29
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I have to do a backdoor Roth for 2014. In May, I'll be getting a lump sum from an ESPP sale that I can either use to fully fund my 2014 IRA or I can put it in my emergency fund (I have 3 months of expenses and would like 6). I haven't contributed to my 2014 IRA yet (I finished funding my 2013 IRA instead). I think I have have three options:
What should I do? If I go with options 2 or 3, do I do a Roth conversion each month? I feel like I'm totally overthinking this due to being nervous about not dollar cost averaging over the next year...but I'm 24, so it might just all come out in the wash anyway.
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Apr 22, 2014 15:36
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turing_test posted:I have to do a backdoor Roth for 2014. In May, I'll be getting a lump sum from an ESPP sale that I can either use to fully fund my 2014 IRA or I can put it in my emergency fund (I have 3 months of expenses and would like 6). I haven't contributed to my 2014 IRA yet (I finished funding my 2013 IRA instead). Personally I'd do #1, but I'm not worried about my emergency fund only having 3 months of expenses. If you are concerned about your emergency fund you should take the money from your ESPP sale and fully fund your emergency fund, and then max your IRA contributions for the rest of the year. Not dollar cost averaging isn't actually a problem. The expected return of investments is positive, so investing now is on average better than investing later.
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Apr 22, 2014 15:56
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turing_test posted:I have to do a backdoor Roth for 2014. In May, I'll be getting a lump sum from an ESPP sale that I can either use to fully fund my 2014 IRA or I can put it in my emergency fund (I have 3 months of expenses and would like 6). I haven't contributed to my 2014 IRA yet (I finished funding my 2013 IRA instead). In the next 41 years, it's definitely a wash. Do what makes you the most comfortable, eg peace of mind. If you're on track to save 15%+ of gross all the same, I'd do half and half, a $2300 (not quite 50% of 5,500?) bump to your IRA and efund, and step up contributions to the IRA and 401(k). Probably. You need to decide if you'd like more reserves now or over x timeframe. That is the deciding factor, you realistically gain zilch by getting your money into the market for an extra 7mo.
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Apr 22, 2014 16:02
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Bearnt! posted:Thank you all for the info. On that note I also am self employed and am my only employee. After searching around a bit I found I could start a SEP-IRA or Vanguard Individual 401(k). Which would be better? The only major difference I see is with the SEP you can only contribute 25% while with the Vanguard Individual 401(k) you can put in up to 100%. I'm probably missing something though. https://investor.vanguard.com/what-we-offer/small-business/compare-plans Is this something I can rollover into?
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Apr 22, 2014 16:59
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If I've got $12,000 in an Admiral class fund at Vanguard and the market tanks 30%, will they get downgraded to Investor shares? Or do they only downgrade when you sell to below $10,000?
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Apr 22, 2014 18:16
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