Author Topic: More Money after 401k & Roth IRA  (Read 9327 times)

cbr shadow

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More Money after 401k & Roth IRA
« on: May 14, 2013, 10:47:08 AM »
This year my wife and I are both maxing our 401k's ($17,500 each) and Roth IRA's ($5500 each).  These are things we didn't do in the past but still couldn't save any money, but using some MMM principals we are now saving money even after maxing both of our accounts!  That's exciting because we used to sit there saying "where is all of our money going?".  It helps that we've seen significant salary increases, but the bigger difference is our spending.

Anyways on to the question..  Where should we put the rest of our savings beyond the emergency fund?  Should I open a vanguard taxable account (I think they call it a money market account?) and put it all into VTSAX, or is there a smarter option for us?  Real Estate doesn't interest us at the moment as it feels like too big of a commitment, plus we already have a single family home that we have a mortgage on (that I dont want to pay ahead on since it's 3.1%).

Thanks,
Ryan

Mazzinator

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Re: More Money after 401k & Roth IRA
« Reply #1 on: May 14, 2013, 10:48:59 AM »
Here's an easy read on taxable accounts. Hope it helps!!

http://whitecoatinvestor.com/retirement-accounts/the-taxable-investment-account-2/

matchewed

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Re: More Money after 401k & Roth IRA
« Reply #2 on: May 14, 2013, 11:11:42 AM »
This option depends more on what you want to manage. Just as you placed your opinions on real estate you will need to consider your opinions on several different options.

Some of these options are, buying/starting a business, real estate, and investing. You've already said you're not interested in one. Think about your future and what you want your life to be like and see if one of these matches up with it. Then start considering how in depth you want to be. Will you be the person that likes to manage things heavily? Do you like to pick up new skills? Do you like to have things just run in the background while you get on with whatever you happen to enjoy doing? Answering these will help you decide that depth.

An example I like to think of is if you're a person that loves managing things, likes research and learning, and are a risk taker then maybe investing in individual stocks are for you. If you want things running in the background with minimal management then index funds are great.

The smarter option won't come from the boards, only ideas. In fact that's not a bad idea either, which sections of the boards do you gravitate towards? That might help in sorting your direction.

Just my take on it.

Joet

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Re: More Money after 401k & Roth IRA
« Reply #3 on: May 14, 2013, 11:19:33 AM »
I like the idea of $5K per year in paper Ibonds [CPI inflation adjusted] per year with every tax return. I just got mine. State tax free weeee. Nice and safe for a floor. If your emergency fund is presently in 'cash', swapping it to Ibonds is a nice strategy, IMO.

For what to invest in a taxable account? Normally large foreign index funds are recommended for the foreign tax credit/tax efficiency. It's what I do also.

tylerherman

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Re: More Money after 401k & Roth IRA
« Reply #4 on: May 14, 2013, 11:41:03 AM »
Some options:

Health Savings Account - http://www.madfientist.com/ultimate-retirement-account/
Foreign indexed funds not VTSAX
Peer-to-peer lending - Prosper.com Lendingclub.com

Fite4Rite2Party

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Re: More Money after 401k & Roth IRA
« Reply #5 on: May 15, 2013, 12:53:19 AM »
I definitely second tylerherman's recommendation on the HSA. Good call by the MadFientist on that one.

You might also want to look into "voluntary after-tax personal contributions" to your employer-sponsored 401(k) plan. One interesting point of the Taxpayer Relief Act (H.R. 8) is that it contains a provision that would allow you to convert these voluntary after-tax contributions into Roth amounts within the plan. You do have to pay tax on the investment return when you do the conversion; however, if you do the conversion as soon as possible after the contribution, this tax would be negligible. The result is that your 401(k) ceiling is pushed above the $17.5k limit in the form of additional Roth contributions (it will actually show up as "Roth conversion" in your account). The maximum allowable voluntary after tax personal contribution is set by your retirement plan provider (mine is $30k). PM me if you want the details and I can send you what I received from my HR department.

Other than that, I would recommend opening a separate investment, either with your retirement plan provider or with a service that offers low commissions per trade. As for what to put in the account, I would suggest a diversified holding of ETFs or index funds that generally track the market and that meet your risk profile. I have a collection of Vanguard low fee ETFs that reflect the following allocation. I re-balance every quarter, which forces me to sell high and buy low, and maintain the risk profile.

US Stocks   
-Large Cap Growth   15.0%
-Large Cap Value    20.0%
-Mid Cap   5.0%
-Small Cap Growth   5.0%
-Small Cap Value   10.0%
-REITs    5.0%
   
Foreign Stocks   
-Foreign Large Cap    10.0%
-Foreign Small Cap   10.0%
-Emerging Markets   5.0%
   
Fixed Income   
-Mortgage Backed Securities   5.0%
-Short Term Bonds    5.0%
-Intermediate Bonds    5.0%
   100.0%


cbr shadow

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Re: More Money after 401k & Roth IRA
« Reply #6 on: May 15, 2013, 08:58:36 AM »
Wow great info here.  I'm reading the links now and looking into what everyone explained above.  Thanks!

Iron Mike Sharpe

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Re: More Money after 401k & Roth IRA
« Reply #7 on: May 15, 2013, 09:55:50 AM »
If you invest in taxable accounts, be sure to use tax efficient investments.

Towards the bottom of this link is a list of efficiency:

http://www.bogleheads.org/forum/viewtopic.php?f=1&t=6211&sid=7e710521734c8f7b4738f6e9fe147929

oldtoyota

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Re: More Money after 401k & Roth IRA
« Reply #8 on: May 26, 2013, 07:14:36 AM »
I have a similar question. Thank you for all of this info.

To the OP: You mentioned you don't want to invest in real estate. Do remember that you can invest in real estate--if you want--via REITs without having to deal with property management. I read about them in a book recommended to me here. The book is A Random Walk Down Wall Street. Read more about them and see if they might be for you in order to diversify your portfolio.


aj_yooper

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Re: More Money after 401k & Roth IRA
« Reply #9 on: May 26, 2013, 10:40:51 AM »
Good job on maxing 401k's and Roths!  The posts on HSAs and Southern Dude's ideas are definitely worth exploring regarding tax strategies.  It is crucial to have low cost investment vehicles for your money.  This link from Long-Term Returns the reasons for choosing efficient investment options:

http://www.longtermreturns.com/2010/12/how-much-investment-expenses-really.html

And, guidance on what to put in 401k and Roth vehicles:

http://www.longtermreturns.com/2011/10/tax-planning-for-investments.html

In investment accounts that are not tax free, I avoid any holding that increases my taxes such as interest or dividends; put those investments (bonds, dividend stocks) in your 401k or Roth.  Long term capital gains are usually taxed at 15% which is way better than a typical marginal tax rate.  If you do any foreign investments, use funds that throw off a foreign investment tax credit.  It is also important in a taxable account, that you buy and hold forever so consider buying a total market index, S&P500, etc.  If you buy an index that has frequent changes in composition, you will have more tax hits than is optimal.