Author Topic: So Confused  (Read 4482 times)

WARD

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So Confused
« on: January 09, 2014, 01:55:03 PM »
Hello,

I am just starting out with investing.  I am seriously confused on where to invest for retirement.  My company offers a 401k but has a very poor match. 1000 for the year.  I take that match.  After that, should I continue to dump money into that 401k up to 17500 or should I be putting money in a roth IRA or IRA? Assuming I can, should I fully fund 401k, then roth or then IRA?  I plan to invest this money for at least 20 years without withdrawal.  My wife and I file Jointly and make a combined 136k.  Failed to mention that my wife had an excellent 401k plan at her old job and managed to save 100k which we are rolling over to Vanguard IRA VSTAX. 

I hope I provided enough info, please help!  I want to get started, but everywhere I read I change my mind!

dude

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Re: So Confused
« Reply #1 on: January 09, 2014, 02:08:54 PM »
How are the fees in your employer-sponsored plan?

Check out jlcollinsnh's Stock Series:

http://jlcollinsnh.com/stock-series/

Lots of good info.

matchewed

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Re: So Confused
« Reply #2 on: January 09, 2014, 03:15:54 PM »
Tax deferred investment vehicles (traditional 401k's and traditional IRA's) are very powerful tools. Depending on fees and expense ratios between your 401k options and other options I'd still lean towards a 401k so you can defer 17.5k in taxes.

matchewed

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Re: So Confused
« Reply #3 on: January 09, 2014, 03:19:13 PM »
A blog post I frequently cite when giving that advice - http://www.madfientist.com/retire-even-earlier/

The_Dude

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Re: So Confused
« Reply #4 on: January 09, 2014, 04:01:36 PM »
A couple of things to think about.

1) Some 401k's offer a Roth option if you wan to pay tax now in exchange for tax free later

2) 2013 Roth IRA income limits started at approx $173K.  You say your joint income is $136K.  If you think your income will rise faster than the roth income limits then you may want to think twice before rolling over the 401k plan into an IRA.  If you do you won't be able to do a "backdoor" roth IRA contribution later on.

3) You already exceed the income limits to deduct a traditional IRA contribution.

4) Another consideration with traditional 401k vs Roth or something else is the ability to lower your MAGI significantly with 401k contributions.  If you are close to phasing out a deduction or the above mentioned ability to contribute to a Roth IRA you might be better off doing the 401k contribution.

5) 401K's have legal protection against personal lawsuits and bankruptcy but IRA's don't

6) Believe it or not some 401K's have lower fee options.  My previous employer has plenty of high priced options but they also have a VG S&P 500 index fund with a 0.02% expense ratio.

WARD

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Re: So Confused
« Reply #5 on: January 09, 2014, 04:52:48 PM »
Thanks for the replies. Current we are with ing retirement plan as a company. I honestly don't know the fees. Like I said, I am pretty new but trying. I will check the fees. My wife and I are 30 and she has that 401k and I have about 32k in mine. I also opened up a Roth with vanguard and fully funded last year.  I am just concerned I am not using the tax advantages properly.

WARD

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Re: So Confused
« Reply #6 on: January 09, 2014, 05:06:57 PM »
Another really dumb question is I don't know where to check the expenses. I am in the following;

Fund Name    # of Units    Unit Price   Fund Balance   % of Balance
STABILITY OF PRINCIPAL   
4002 ING Fixed Account   -   -   $1,067.77   3.56%
BONDS   
1036 PIMCO Total Return Fund A   75.4632   $15.170801   $1,144.84   3.81%
LARGE CAP VALUE   
1826 RidgeWorth Lrg Cp Value Equity Fnd A   340.2677   $18.573853   $6,320.08   21.06%
LARGE CAP GROWTH   
0572 American Funds Growth Fnd R4   517.9395   $15.650352   $8,105.94   27.01%
SMALL/MID/SPECIALTY   
0778 ING FMR Diversified Md Cp Port Srv   164.7081   $20.122658   $3,314.36   11.04%
9234 Royce Total Return Fund K   101.7913   $30.754127   $3,130.50   10.43%
9236 Royce Value Fund K   51.7627   $28.119615   $1,455.55   4.86%
GLOBAL/INTERNATIONAL   
0573 American Funds EuroPacific R4   410.6839   $13.323209   $5,471.62   18.23%
Total           $30,010.66   100.00%


Thanks in advance for all the help!

beltim

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Re: So Confused
« Reply #7 on: January 09, 2014, 05:17:18 PM »
3) You already exceed the income limits to deduct a traditional IRA contribution.
This isn't true for the OP's wife if the OP's wife does not have access to a retirement plan at work:
http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/2014-IRA-Contribution-and-Deduction-Limits---Effect-of-Modified-AGI-on-Deductible-Contributions-if-You-are-NOT-Covered-by-a-Retirement-Plan-at-Work

Quote
5) 401K's have legal protection against personal lawsuits and bankruptcy but IRA's don't
This is not true:
http://www.investopedia.com/financial-edge/1211/how-does-bankruptcy-affect-your-ira.aspx

matchewed

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Re: So Confused
« Reply #8 on: January 10, 2014, 04:59:28 AM »
Another really dumb question is I don't know where to check the expenses. I am in the following;

Fund Name    # of Units    Unit Price   Fund Balance   % of Balance
STABILITY OF PRINCIPAL   
4002 ING Fixed Account   -   -   $1,067.77   3.56%
BONDS   
1036 PIMCO Total Return Fund A   75.4632   $15.170801   $1,144.84   3.81%
LARGE CAP VALUE   
1826 RidgeWorth Lrg Cp Value Equity Fnd A   340.2677   $18.573853   $6,320.08   21.06%
LARGE CAP GROWTH   
0572 American Funds Growth Fnd R4   517.9395   $15.650352   $8,105.94   27.01%
SMALL/MID/SPECIALTY   
0778 ING FMR Diversified Md Cp Port Srv   164.7081   $20.122658   $3,314.36   11.04%
9234 Royce Total Return Fund K   101.7913   $30.754127   $3,130.50   10.43%
9236 Royce Value Fund K   51.7627   $28.119615   $1,455.55   4.86%
GLOBAL/INTERNATIONAL   
0573 American Funds EuroPacific R4   410.6839   $13.323209   $5,471.62   18.23%
Total           $30,010.66   100.00%


Thanks in advance for all the help!

It would probably be best just to google each fund you own. It will show up in yahoo.finance or google finance or morningstar. Any of those sites will list the expense ratio. For example the Royce Total Return Fund - http://quotes.morningstar.com/fund/RYTRX/f?t=RYTRX is listed at a 1.1% expense.

If I were in your shoes I'd figure out each funds expense that you own, then each available fund expense. Also figure out what asset class they belong in so that you can choose a portfolio which matches your risk tolerance. Also see http://www.bogleheads.org/wiki/Investment_policy_statement

Cheddar Stacker

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Re: So Confused
« Reply #9 on: January 10, 2014, 09:06:20 AM »
A blog post I frequently cite when giving that advice - http://www.madfientist.com/retire-even-earlier/

Yup. I second matchewed. Please read the above blog post if you haven't already. It's a very important part of getting to FI. It's the best way to save more money without giving up anything.

At your income level you are in a tough sweet spot in the tax law. You stated you make a combined $136K, so let's assume that's gross income. If you have enough deductions/exemptions to get under $110K taxable income you likely aren't missing out on much, but once taxable income exceeds $110K some of your potential deductions (student loan interest, child tax credit, etc.) begin to phase out so you don't get the benefit of them.

I mention all of this, because if you're losing any of these it becomes even more important to max the 401K. You should likely be doing it anyway based on the mad FIentist's scenarios, regardless of what your company matches. It's the usually the quickest, easiest, best way to reduce your tax burden which will really benefit you in the long run.

As far as the fees, your 401K website likely has data on this, and low cost index funds will perform just as well as the rest.