Author Topic: I am Rollover IRA Ignorant  (Read 516 times)

ChaseMcD

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I am Rollover IRA Ignorant
« on: March 16, 2017, 03:14:17 PM »
I have a very small Rollover IRA ($2,200)  from a previous job and in the past 8 months it has grown a whopping 0.11%....

I don't know much but I know that percentage kind of sucks. What can I do with this money that will perform better? And will I be taxed on it based on what I do with it?

Thanks in advance.

bender

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Re: I am Rollover IRA Ignorant
« Reply #1 on: March 16, 2017, 03:24:42 PM »
Sounds like it isn't invested properly. 

Login to the account, tell us what the investment is.  Probably some cash / money market sort of thing that earns very close to 0.  That may have been the default selection when you opened and funded the account.

Next step is to fix that.  If you want better returns over the long term, consider investing in Vangaurd Total Stock Index (VTI).

Bonus points if you want to go the extra effort and transfer the account to Vangaurd, where you'll incur $0 trading fees when you buy Vanguard funds like VTI.


Bracken_Joy

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Re: I am Rollover IRA Ignorant
« Reply #2 on: March 16, 2017, 03:26:41 PM »
So the IRA is just the bucket. What you put inside that bucket, that's what determines how much of a return you get. (Ie, an IRA is a type of account. You still need to invest within that. We around here tend to encourage index investing. If you have questions on the investment front- ex how to decide on your asset allocation, why index funds, etc, let us know and we can direct you to further resources!)
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ChaseMcD

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Re: I am Rollover IRA Ignorant
« Reply #3 on: March 16, 2017, 05:39:54 PM »
Thanks for the help folks. I knew even less than I realized...

It is "Fidelity Government Cash Reserves"....so apparently I never did anything with it.

Bracken_Joy

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Re: I am Rollover IRA Ignorant
« Reply #4 on: March 16, 2017, 05:52:03 PM »
Thanks for the help folks. I knew even less than I realized...

It is "Fidelity Government Cash Reserves"....so apparently I never did anything with it.

Don't worry, we all start there! =)

So what's your plan from here?
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NoStacheOhio

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Re: I am Rollover IRA Ignorant
« Reply #5 on: March 17, 2017, 06:32:39 AM »
Thanks for the help folks. I knew even less than I realized...

It is "Fidelity Government Cash Reserves"....so apparently I never did anything with it.

On the upshot, you didn't invest it in a high-fee fund that lost money!

Just buy some ITOT (assuming this is a Fidelity account, it's free to purchase, with very low expenses).
The first step is acknowledging you have a problem, right?

https://forum.mrmoneymustache.com/journals/digging-out-of-a-hole/

ChaseMcD

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Re: I am Rollover IRA Ignorant
« Reply #6 on: March 17, 2017, 04:10:17 PM »
So invest it or pull it and take a 10% tax penalty.

The only reason I would consider pulling it is because we should be moving in the near future and could use the extra cash. The move is not the smart mustachian thing but it is sort of the what the family needs thing.


Dezrah

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Re: I am Rollover IRA Ignorant
« Reply #7 on: March 17, 2017, 04:34:08 PM »
So invest it or pull it and take a 10% tax penalty.

The only reason I would consider pulling it is because we should be moving in the near future and could use the extra cash. The move is not the smart mustachian thing but it is sort of the what the family needs thing.

There's no way anyone here would give you the green light to cash it out without knowing this was really your last option. 

I admit I'm worried for you if you feel this $1500 (that's roughly what you'll have after taxes and penalties) is going to make or break your family.  If that's true why not just take a short-term, part-time job?  I don't expect an answer; I just want to get you thinking.

You might consider writing up a case study.  https://forum.mrmoneymustache.com/case-studies/how-to-write-a-'case-study'-topic/

Fair warning, if you're willing to listen, this crowd will be your biggest cheerleaders.  But if you keep coming back with excuses as to why you can't pursue ANY of the multiple ideas offered to you, they can turn on you fast.

Best of luck to you.

Spork

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Re: I am Rollover IRA Ignorant
« Reply #8 on: March 17, 2017, 05:10:24 PM »
So invest it or pull it and take a 10% tax penalty.

The only reason I would consider pulling it is because we should be moving in the near future and could use the extra cash. The move is not the smart mustachian thing but it is sort of the what the family needs thing.

You probably already know this, but it's not just 10%.  It's your current tax rate plus 10%.  (I.e., you've never paid tax on it, so pulling it out triggers a tax event.)

Fidelity has some good low cost index funds.  If it were me, I'd just move it to a decent fund.
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ChaseMcD

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Re: I am Rollover IRA Ignorant
« Reply #9 on: March 17, 2017, 09:34:28 PM »
So invest it or pull it and take a 10% tax penalty.

The only reason I would consider pulling it is because we should be moving in the near future and could use the extra cash. The move is not the smart mustachian thing but it is sort of the what the family needs thing.

There's no way anyone here would give you the green light to cash it out without knowing this was really your last option. 

I admit I'm worried for you if you feel this $1500 (that's roughly what you'll have after taxes and penalties) is going to make or break your family.  If that's true why not just take a short-term, part-time job?  I don't expect an answer; I just want to get you thinking.

You might consider writing up a case study.  https://forum.mrmoneymustache.com/case-studies/how-to-write-a-'case-study'-topic/

Fair warning, if you're willing to listen, this crowd will be your biggest cheerleaders.  But if you keep coming back with excuses as to why you can't pursue ANY of the multiple ideas offered to you, they can turn on you fast.

Best of luck to you.

Hi Dezrah, thanks for the advice. It seems you may be reading some things into what I wrote that just aren't there. I never said this money would make or break my family. And I never gave any excuses or stated anything about not pursuing any of the options that people listed.

As it stands right now, a few people have listed various investment options and I am sure those all have their merits but as I stated in the topic title, I am pretty ignorant of this stuff so I need to figure out what those different options might actually mean for not just this bit of money but future moneys I may want to invest with. Right now all I have to go on is a few names or titles but zero background on fee comparisons, performance history, how long the money might be locked up for. I just need to research them myself. No excuses here.

Dezrah

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Re: I am Rollover IRA Ignorant
« Reply #10 on: March 20, 2017, 05:11:34 PM »
My apologies, ChaseMcD.  I didnít mean to imply you were making excuses.  I only meant that in the past there have been other people who make excuses when they put out a case study.  They ask for help and then get offended when people give them some hard truths.  It can be tough to take.  Heck, Iíve never put out a case study just for that reason.  There can be a lot to gain, but you have to be willing to be vulnerable.  I just wanted to give you a warning in case you havenít seen it happen yet.   

Let me take a step back.  Please forgive me if I take it too far and you already understand some of these points.

Every year, the government allows a person to shelter a limited amount of resources in tax-efficient accounts.  These would be your 401ks, 403bs, HSAs, IRAs, etc.  The accounts available to you will vary based on individual circumstances.  These are just buckets for saving your money.  You can always fill up this yearís bucket, but you canít fill up buckets from previous years*.  Additionally, once you take money out of the bucket, it is often impossible to put it back in. 

So if your goal is to have as much money in tax efficient accounts as possible by the time you retire, it makes sense to fill these buckets as full as possible every year and leave it as long as possible.  This is the strategy most people here try to pursue.

Sometimes life is shitty and there are only have bad choices to work with.  Taking money out of oneís retirement account with a penalty is a bad choice, but itís a better choice than sleeping in gutter or something.  However, it would be better to exhaust all other options first.  Could this person get a second job?  Cut back on their lifestyle?  Get a low-interest loan?  Get a high interest loan?  Take advantage of public assistance?  Get scholarships?  Get help from a friend or relative?  Etc.

So when you say you say ďThe move is not the smart mustachian thing but it is sort of the what the family needs thing,Ē it sounds like youíre desperate.  Iím glad to know I was mistaken in that assumption. 

Still, you should not cash out that IRA unless itís your last option.  Donít use it just because itís there.


*There are exceptions to this.  Some accounts give you until April 15th to add to the previous yearís account.