The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Katsumoto on September 10, 2013, 10:45:13 PM
-
I just recently started reading this blog & forum and there seems to be some knowledgeable people with great info. Hoping to get some recommendations on where to go from here.
Quick background - My wife and I managed to pay off a mountain of debt over the last year and a half and now just sold our other home which is allowing my wife to just stay home after maternity leave. She will be doing a little bit of part time work from home, but our income will be reduced drastically. We have no debt besides our home and we haven't yet got our whole emergency fund in place. We're working on saving up to about 6 months of expenses (around 12K) in a measly .2% savings account, unless I find something better.
Retirement options-
I currently work for a municipal government and am vested in a pension plan which will allow me to retire at 45 or 50 with medical benefits. (I'm currently 30). My pension contribution is 7.5%. I do plan to stay in this career and for what it's worth, my state actually has a large reserve fund and is doing well financially. (Granted this can change over the next decade or two) I also have a supplemental state run annuity that I contribute 6.13% to, plus a 6.13% employer match. That currently has $50,000 in it.
I'm trying to decide on another plan to start. One option is a state employee 457 deferred comp and the other is a Roth. I'm unsure which might be best and also if I should use a trusted friend who works for Edward Jones, or just open a Vanguard account and use a target retirement fund. I'm not sure if there are special considerations when it may be possible to retire fairly young with a "guaranteed" pension check for many years.
I'm also wondering about starting 529 plans for my boys (ages 3 and 2 months) I'm concerned about what happens if they don't need/want money for college. Do you only pay penalties on the growth if it is used for something other than education?
And a somewhat related question that is financial and ethical related. Residents here get a yearly dividend check which is basically from state oil revenue and it can range anywhere from $900 - $2000. Since my children also get this money each year, my wife and I were discussing how best to use & save it. We were thinking of using a portion of their money toward family vacations while leaving the rest in a saving account or the above 529 plan. Would you consider this right/wrong/indifferent?
Thanks for any advice.
-
I would comment on the Ed Jones option. While I have had trusted friends work for them and similar I would not invest with them. They are pressed to sell to their friends and family and then they told to push certain investments the have vested interest in or other products that earn them and the firm cash.
-
Congrats on paying off the debt, and working on your emergency fund! That will be great peace of mind. As for your .2% savings account, I'd look into an online bank account. Capital One 360's savings account is at .75%. Still not much, but still a bit better. Here's my refer a friend link (https://r.capitalone360.com/fvMaBF6sbX (https://r.capitalone360.com/fvMaBF6sbX)) , if you want, as I think we both will get $20. Though if I were you, I'd look for MMM's link on the blog, as he usually can give you a bigger bonus. Not trying to push you to my link at all.
I can't talk towards the special accounts you can get via working for the government, but I know that you should always max your employer contributions, as it's basically giving yourself a raise. However, the easiest is to open a vanguard account and set-up auto contributions to a target-date fund in a ROTH. You'll never have to worry about asset allocation. You can call them and use their concierge service, and they'll make sure you're setting everything up right. Great service! And then tax-free after retirement.
529's are always a gamble, because if you're saving enough you might not need it, or your kid may get a full scholarship, etc. Though I do believe that if you don't use it, it then turns into a retirement fund. but don't quote me on that, I'd do some more research on that.
After that, I'd open up a taxable account and invest any extra savings (and/or your yearly dividend check) in an index fund like the 500 or total stock market.
-
Welcome to the forums, and congrats on killing off that debt!
As far as what account to open up: Check out this article that MMM posted about methods of taking money out during early retirement. It might make things a little clearer. IMO, I'd go for the tax-deferred 457. http://www.mrmoneymustache.com/2011/11/11/how-much-is-too-much-in-your-401k/
Regarding 529's: Any funds that are not used for education are penalized at 10%. However, there are a few caveats. If you save up for your kid's college and they get a full scholarship (or any scholarship), you can withdraw from the 529 an amount equal to that scholarship without penalty. Also, 529's can be transferred to other family members (for instance, your future grandchildren). I have 1 child now, and 1 planned. Our plan is to save enough money in a 529 to cover 1 full admittance to college, and save the rest in a taxable account. Seems to be a good way to split the "risk" of one child not going to college.
-
I would comment on the Ed Jones option. While I have had trusted friends work for them and similar I would not invest with them. They are pressed to sell to their friends and family and then they told to push certain investments the have vested interest in or other products that earn them and the firm cash.
I understand and don't doubt it. I suspect this guy in particular would do better based on his character, but the fees make me wary. I'm not sure that I'd get much for it when I get find good advice online, and my situation isn't exactly complicated.
-
Congrats on paying off the debt, and working on your emergency fund! That will be great peace of mind. As for your .2% savings account, I'd look into an online bank account. Capital One 360's savings account is at .75%. Still not much, but still a bit better. Here's my refer a friend link (https://r.capitalone360.com/fvMaBF6sbX (https://r.capitalone360.com/fvMaBF6sbX)) , if you want, as I think we both will get $20. Though if I were you, I'd look for MMM's link on the blog, as he usually can give you a bigger bonus. Not trying to push you to my link at all.
Hmm, excuse the ignorance, but how does that work when you don't have a local branch? How do you add to or access the money easily?
I can't talk towards the special accounts you can get via working for the government, but I know that you should always max your employer contributions, as it's basically giving yourself a raise. However, the easiest is to open a vanguard account and set-up auto contributions to a target-date fund in a ROTH. You'll never have to worry about asset allocation. You can call them and use their concierge service, and they'll make sure you're setting everything up right. Great service! And then tax-free after retirement.
That's what I'm leaning toward at this point.
-
Regarding 529's: Any funds that are not used for education are penalized at 10%. However, there are a few caveats. If you save up for your kid's college and they get a full scholarship (or any scholarship), you can withdraw from the 529 an amount equal to that scholarship without penalty. Also, 529's can be transferred to other family members (for instance, your future grandchildren). I have 1 child now, and 1 planned. Our plan is to save enough money in a 529 to cover 1 full admittance to college, and save the rest in a taxable account. Seems to be a good way to split the "risk" of one child not going to college.
Hmm I think I like that.
-
I would look more into the 457 plan as you can shelter money; hopefully, they will have good choices with low expense ratios there. If you do a taxable or 529, I would recommend Vanguard. Local and brand brokerages are very costly and their advice is what their firm says to do, not necessarily what is best for you, i.e. no fiduciary obligation.
Definitely get the EF going; you will feel way more comfortable.
Congratulations on optimizing your real estate and paying off the debt.
Welcome to MMM!
-
Look at what the expense ratios for the 457b plan are. If they are some that are comparable to Vanguard's funds (see their website), that is the best option. The advantage over the Roth is that the contributions and earnings aren't taxed until withdrawn, plus there isn't an early-withdrawal penalty (as seen with regular IRAs and 401k).
Do not go with Edward Jones, you will most likely not get any benefit. There is a good chance you will lose money compared to an index fund over the long term due to the fees.
-
how does that work when you don't have a local branch? How do you add to or access the money easily?
You keep your existing account and transfer money between it and the online bank account online. I assume most of them work like mine -- you write 'em a small cheque from your existing account to get started.