Author Topic: Question about opening traditional IRA's?  (Read 387 times)

Bootlip

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Question about opening traditional IRA's?
« on: August 07, 2017, 08:45:20 AM »
My wife and I are currently maxing out our 401K's and we'd like to open up traditional IRA accounts at Vanguard for each of us. The ultimate goal is for us both just to hold VTSAX in both our accounts. Before that we'd just hold VTSMX until we reach the 10,000ea to convert to VTSAX.

Here's the issue, we have been putting off opening these accounts because we don't have the $6000 to meet the minimum it takes to open two accounts holding VTSMX. So in an attempt to get the ball rolling could we open two traditional IRA's and just buy whatever we can afford of the ETF VTI. Then when we reach balances of $3000+ sell it and buy VTSMX? Is there any negatives with this approach I'm missing?

Thanks!

bender

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Re: Question about opening traditional IRA's?
« Reply #1 on: August 07, 2017, 11:17:19 AM »
VTI has lower expenses than VTSMX.  Maybe wait until you hit 10K and can get VTSAX.  Nothing wrong with just staying with VTI either - the only drawback is you can't auto-invest into it like a mutual fund.

kenaces

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Re: Question about opening traditional IRA's?
« Reply #2 on: August 07, 2017, 12:02:04 PM »
Any low ER fund/ETF is fine i.e. I own SCHB which has lower ER than both vanguard funds.

Bootlip

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Re: Question about opening traditional IRA's?
« Reply #3 on: August 07, 2017, 09:01:11 PM »
So if I do VTI (ETF) in a traditional IRA I have to buy whole shares not fractional shares. But in a traditional I'd have to set up automatic deposits being its pre tax money, right? How would that work being its unlikely that the amount I assign to be deposited wouldn't buy an exact even number of shares??

MDM

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Re: Question about opening traditional IRA's?
« Reply #4 on: August 07, 2017, 10:57:13 PM »
Alternatively, buy $1K each of VTTSX (target date 2060 fund; 90/10 stock/bond) or similar.  It's a different asset allocation than VTSMX, but a defensible one nonetheless.

bender

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Re: Question about opening traditional IRA's?
« Reply #5 on: August 09, 2017, 01:54:40 PM »
So if I do VTI (ETF) in a traditional IRA I have to buy whole shares not fractional shares. But in a traditional I'd have to set up automatic deposits being its pre tax money, right? How would that work being its unlikely that the amount I assign to be deposited wouldn't buy an exact even number of shares??

If you buy a ETF like VTI you'll have to buy fractional shares.  There are two steps. 
1.  Transfer money to your IRA
2.  Purchase shares

Some remainder amount would sit in your IRA invested in a money market account.  So if you transfer the maximum $5500 and buy VTI at say $127, you'll get 43 shares of VTI and about $39 in a money market account.

EDIT:  I see you're not doing the maximum amount.  You can still do VTI, but I'd recommend selling it and move to VTSMX as soon as you have the minimum investment.


« Last Edit: August 09, 2017, 01:57:11 PM by bender »