Author Topic: What Stocks to Buy For Traditional IRA- New to Investing  (Read 2079 times)

frugalFIRE

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What Stocks to Buy For Traditional IRA- New to Investing
« on: March 14, 2016, 12:20:06 PM »
Hi all!

I'm a year into my journey to FIRE. I'm 28 and want to retire by 43. I make $35,000 annually, but I'm working on increasing that. I'm debt free, own a small car and live well below my means.

Last year was the first year I funded my Vanguard Traditional IRA. I maxed it out, and put all the money into a 2028 Target Retirement account.

I'm looking for advice on what kind of stocks I should be buying moving forward. I plan to convert this account to a Roth down the road. Should I just buy a ton of Vanguard's Total Stock Market Index? Should I continue to buy a target retirement fund? And if so, it should be the year I will actually access the money right, not the year I reach FIRE? I'm worried I already made a mistake with my account!

I'm just a total beginner and have no idea what direction to move in. I have $3,000 at the ready to invest. I don't want to make a dumb move. What stocks are good for IRA's?

I'm going to max my IRA again this year, and then plan to save and invest another $5,500. Any recommendations for that money?

Thanks!

Tjat

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Re: What Stocks to Buy For Traditional IRA- New to Investing
« Reply #1 on: March 14, 2016, 12:23:55 PM »
http://jlcollinsnh.com/stock-series/


Read that link first. To specifically answer your question of IRAs, you should first determine your target asset allocation (stocks, bonds, REITs, International) etc and put the tax inefficient investments into IRAs. I have my rIRA money in REITs and VTSAX.

At your income, I would solely contribute to Roths as they are post-tax.

While you figure everything out, keeping everything in a target fund is fine.  The most important thing is your savings rate, the rest is just optimization. I would recommend opening a Vanguard account as they have the lowest fees

Jack

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Re: What Stocks to Buy For Traditional IRA- New to Investing
« Reply #2 on: March 14, 2016, 01:07:29 PM »
If you want to keep your money in a target-date fund (which is fine), you should pick one where the target date is farther into the future. Remember, your real time horizon is your entire lifetime, which doesn't change just because you retired early. For that reason, I'd suggest going for something more like the 2060 target date fund.

Otherwise, a total stock market fund is good. Once you've got enough in the account to meet the minimum balance requirements and whatnot, you should also diversify to an international total stock index and eventually a bond fund. (For example, if you decided you wanted 30% of your holdings in VGTSX, you'd buy into it when your total account value hit [$3000 fund minimum] / 30% = [$10000 account value]. Or you'd just go for the ETF version, where fund minimums don't matter.)



As far as Roth vs. traditional goes, you should be careful to capture the Saver's Credit if you can. Even if Roth is normally better because you expect to be taxed at a higher rate in the future, it can be wise to contribute just enough as traditional to get your AGI down below either the $18,250, $19,750, or $30,500 cut-off (assuming you're single). See Form 8880 for details.

Eric

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Re: What Stocks to Buy For Traditional IRA- New to Investing
« Reply #3 on: March 14, 2016, 05:26:37 PM »
If you want to keep your money in a target-date fund (which is fine), you should pick one where the target date is farther into the future. Remember, your real time horizon is your entire lifetime, which doesn't change just because you retired early. For that reason, I'd suggest going for something more like the 2060 target date fund.

Agree with Jack here.  Your Target Date Fund should be chosen to be the year you turn 65 or 70.  You know, "regular" retirement age.  Otherwise you're going to end up really heavy in bonds when you'll actually want the growth of stocks since you (hopefully) have 50+ years to live.
« Last Edit: March 16, 2016, 06:46:59 PM by Eric »

MDM

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Re: What Stocks to Buy For Traditional IRA- New to Investing
« Reply #4 on: March 14, 2016, 07:18:32 PM »
By contributing the maximum to your tIRA you were able to get a saver's credit of $200 on your federal taxes for 2015, correct?

Although "rules of thumb" would tend to suggest a Roth (or coin flip) when you are in the 15% bracket, contributing just enough to get that first jump in the saver's credit returns a little over 19% for your situation.  You could put the rest into a Roth.  Unless...

...you can survive on ~$15K/yr take home.  In that case, contributing $5500 to a tIRA and $11,250 to a traditional 401k (do you have access?) would take your total federal income tax to $0, again giving an overall tax saving of ~19.4%.  There would still be FICA and whatever state/local taxes.

Numbers above are based on 2015 rates and exactly $35K gross income.  You should do your own due diligence to ensure you reach your desired saver's credit "cliff" if you use this strategy.
« Last Edit: March 14, 2016, 07:22:40 PM by MDM »

frugalFIRE

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Re: What Stocks to Buy For Traditional IRA- New to Investing
« Reply #5 on: March 16, 2016, 03:18:08 PM »
Thanks for all replies!

I can and plan on surviving on 15K this year. My expenses are low, and I work to keep them there. I do not have access to a 401K. Is there another place I should put money since I don't have a 401k option? I plan to continue freelancing for the next several years as well, so no 401k forthcoming.  Most of my income is freelance. I make about $6,000 in regularly taxed income from a side gig, and I have no benefits there.

It sounds like a target retirement fund and total stock market fund is a good idea. I guess I should sell my 2028 retirement fund and buy a much later target fund.

I don't know if I got the Saver's Credit, I hired an accountant to do my taxes. I'll check with him.

MDM

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Re: What Stocks to Buy For Traditional IRA- New to Investing
« Reply #6 on: March 16, 2016, 03:41:58 PM »
I can and plan on surviving on 15K this year. My expenses are low, and I work to keep them there. I do not have access to a 401K. Is there another place I should put money since I don't have a 401k option? I plan to continue freelancing for the next several years as well, so no 401k forthcoming.  Most of my income is freelance. I make about $6,000 in regularly taxed income from a side gig, and I have no benefits there.
You might check into the various options for the self-employed.  See https://www.bogleheads.org/forum/viewtopic.php?t=151097 and links therein.

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I don't know if I got the Saver's Credit, I hired an accountant to do my taxes. I'll check with him.
You should have a copy of your Form 1040.  Check line 51.  If it is $200, all is well. 

If not, see Form 8880.  You can do that one by hand - just put 0 for line 2 and line 4 and the rest is straightforward.  Then discuss with accountant.