Author Topic: Where should the money be?  (Read 4423 times)

texaslady22

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Where should the money be?
« on: June 06, 2015, 02:58:16 PM »
Just turned 30. 3 Kids. No debt except 170K mortgage on 220K house.

I'm really not sure where our money is supposed to BE. We've got like 40K sitting in a bank account with zero interest. I know that's not right. Here's what we have:

40K in a bank account because we didn't know where to put it
67K in 403(b) plan
14K in Capital One 360 savings account (at .75% APY)
25K invested in  Sharebuilder

Should I take some of that 40K and put it in a Roth IRA for my husband (who is currently just a substitute teacher and in college)? We can do like $5k for him for what I've been reading, right? Or should we just put invest it ShareBuilder or at least move it to the CapitalOne 360?

Seriously, I'm realizing we have over $100k and I have absolutely no idea what to do with it to make sure it grows and doesn't just sit there.

NotJen

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Re: Where should the money be?
« Reply #1 on: June 06, 2015, 03:15:15 PM »
Just some things to think about:

How much is your desired emergency fund for your family? I would keep that in the Capital One savings account.  (FWIW, it's just me, one income, risk averse when it comes to EF, and I keep $30k in my "high-yield" savings account.)

Roth IRAs for you and your husband are a good choice in my opinion.

Are you maxing out your 403(b)?  If not, you could increase your contributions and live off your extra savings for a while, if you like the options provided to you there.

Or just add it to your taxable investments if your EF and 403(b) are all set.

MDM

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Re: Where should the money be?
« Reply #2 on: June 06, 2015, 03:21:50 PM »
40K in a bank account because we didn't know where to put it
67K in 403(b) plan
14K in Capital One 360 savings account (at .75% APY)
25K invested in  Sharebuilder

Should I take some of that 40K and put it in a Roth IRA for my husband (who is currently just a substitute teacher and in college)? We can do like $5k for him for what I've been reading, right? Or should we just put invest it ShareBuilder or at least move it to the CapitalOne 360?

Seriously, I'm realizing we have over $100k and I have absolutely no idea what to do with it to make sure it grows and doesn't just sit there.

Great question!  For fastest growth, you want to minimize (eliminate if possible) the tax bite.  One defensible (small changes are certainly arguable) ordering would be
  1. Contribute to 401k up to any company match
  2. Pay off any debts over 7%
  3. Max HSA, then Roth or Traditional IRA based on income level
  4. Max out 401k
  5. Pay off any debts over 5%
  6. Invest in taxable account with any extra.

Somewhere along the way you should have an emergency fund to cover 3 or 6 or 9 or (whatever your comfort level dictates) months of expenses.  Currently GE Capital pays 1.05%.  You may be able to get better promotional rates at local credit unions, but e-funds are not where you are looking for large investment returns anyway.

When you say "in 403(b) plan" and "in Sharebuilder" that isn't specific enough.  Those entities are the buckets that hold your investments - what investments are in those buckets?

Frankies Girl

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Re: Where should the money be?
« Reply #3 on: June 06, 2015, 03:51:44 PM »
Roth IRA limits are currently $5,500 per year, and you can have one as well as a spouse (as long as one of you earned income over that amount). So yes, opening Roth IRAs for you and your spouse for 2015 - $5,500 each for a total of 11,000 per year.

I would suggest opening them at someplace like Vanguard and investing the total amount in VTSMX (this is the investor class for VTSAX, but only requires a $3,000 minimum investment). Then as soon as January comes, invest another $5,500 for 2016 for you both and ask Vanguard to roll it into the admiral shares (VTSAX).

Who has the 403b right now? Is this still being contributed to?

What is your mortgage interest rate? If it is above 5%, I'd look into a refi, but if you are unable to do that, I'd probably start making extra payments to knock it down sooner.

If it was me, I'd do this with the 40k:

11k out now to fund Roths for you and your husband;

then add in $11K into the existing Cap One savings both as a buffer since you've got one spouse not working full time and also to fund your 2016 Roths in January if you are able to add over the next 6 months, (but might check out Ally Bank or similar online banks that have savings rates around .99%);

and then the remainder into a taxable brokerage account and invest it (tax efficiently) into VTSAX as well.


Probably might want to check into funding kids' college accounts like 529s, but I know nothing about those personally.

But definitely hope some of the more savvy forum members chime in with (probably) better advice. :)


SarahMD428

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Re: Where should the money be?
« Reply #4 on: June 07, 2015, 03:10:40 PM »
Great question!  For fastest growth, you want to minimize (eliminate if possible) the tax bite.  One defensible (small changes are certainly arguable) ordering would be
  1. Contribute to 401k up to any company match
  2. Pay off any debts over 7%
  3. Max HSA, then Roth or Traditional IRA based on income level
  4. Max out 401k
  5. Pay off any debts over 5%
  6. Invest in taxable account with any extra.

Somewhere along the way you should have an emergency fund to cover 3 or 6 or 9 or (whatever your comfort level dictates) months of expenses
Thanks for the info MDM! What is the reasoning for maxing an IRA before 401k? I am a nube and trying to learn as much as possible since my husband and I just paid off all of our non-mortgage debt and our $ needs a job.

MDM

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Re: Where should the money be?
« Reply #5 on: June 07, 2015, 03:22:10 PM »
Thanks for the info MDM! What is the reasoning for maxing an IRA before 401k? I am a nube and trying to learn as much as possible since my husband and I just paid off all of our non-mortgage debt and our $ needs a job.
Usually one has better (i.e., lower fee) choices in an IRA than available in a 401k.  There are however some excellent 401k plans (e.g., government TSP) with even lower fees.  Evaluate your personal options and proceed accordingly!

tj

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Re: Where should the money be?
« Reply #6 on: June 07, 2015, 03:24:09 PM »
Great question!  For fastest growth, you want to minimize (eliminate if possible) the tax bite.  One defensible (small changes are certainly arguable) ordering would be
  1. Contribute to 401k up to any company match
  2. Pay off any debts over 7%
  3. Max HSA, then Roth or Traditional IRA based on income level
  4. Max out 401k
  5. Pay off any debts over 5%
  6. Invest in taxable account with any extra.

Somewhere along the way you should have an emergency fund to cover 3 or 6 or 9 or (whatever your comfort level dictates) months of expenses
Thanks for the info MDM! What is the reasoning for maxing an IRA before 401k? I am a nube and trying to learn as much as possible since my husband and I just paid off all of our non-mortgage debt and our $ needs a job.

Depends how good your 401k is. A lot of them have garbage investment options and high fees. For most people, IRA is better but just depends on your 401k plan.

texaslady22

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Re: Where should the money be?
« Reply #7 on: June 07, 2015, 05:22:04 PM »

Depends how good your 401k is. A lot of them have garbage investment options and high fees. For most people, IRA is better but just depends on your 401k plan.

So...how might I know if I have a good 401k (in my case, 403(b)) plan? It's through TIAA-CREF and I got to choose my investments. I opened a Roth IRA for my husband through ShareBuilder today. So we put in 5500. From what I understand, we can touch the 5500 whenever we want with no penalty or taxes. We just have a penalty if we remove any earnings, right? So the money is available to us, not any interest or earnings?

I'm thinking we'll want to pay off our house one day, but our mortgage rate is less than 5% so I'm not sure if that's the best idea. I'm new to this!

MDM

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Re: Where should the money be?
« Reply #8 on: June 07, 2015, 05:56:02 PM »
So...how might I know if I have a good 401k (in my case, 403(b)) plan?
Check the fees (aka expense ratios) you are paying for each fund, and compare with (for example) VTSAX.

Quote
I opened a Roth IRA for my husband through ShareBuilder today. So we put in 5500. From what I understand, we can touch the 5500 whenever we want with no penalty or taxes. We just have a penalty if we remove any earnings, right? So the money is available to us, not any interest or earnings?
Yes, assuming the investments increase in value.  If they decrease below $5500, all you get to withdraw is the current value.  Just curious: why ShareBuilder and not, e.g., Vanguard?

texaslady22

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Re: Where should the money be?
« Reply #9 on: June 07, 2015, 06:09:40 PM »
Yes, assuming the investments increase in value.  If they decrease below $5500, all you get to withdraw is the current value.  Just curious: why ShareBuilder and not, e.g., Vanguard?

We already had a ShareBuilder account so I just though I'd open a RothIRA there to have the same login. I though all Roth IRAs were identical. Are they not?

This is why I should not have 100K. Seriously! I know nothing.

MDM

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Re: Where should the money be?
« Reply #10 on: June 07, 2015, 06:15:20 PM »
We already had a ShareBuilder account so I just though I'd open a RothIRA there to have the same login. I though all Roth IRAs were identical. Are they not?
A Roth IRA describes how the money invested therein is taxed (or not, as the case may be).  A ShareBuilder/Vanguard/Fidelity/Schwab account describes the company through which you are investing.

The actual funds/bonds/individual stocks/etc. are your investments.

What investments do you have, and how much (e.g., annual percentage fee, any fund loads, etc.) are you paying for them?

arebelspy

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Re: Where should the money be?
« Reply #11 on: June 14, 2015, 12:22:37 AM »
Check out Jim Collins' Stock Series:
http://jlcollinsnh.com/stock-series

It's a great introduction to investing, and gives advice on what exactly you should do (IMO) in terms a beginner can understand, and why.  It's well worth the few hours it will take you to read.
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If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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gReed Smith

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Re: Where should the money be?
« Reply #12 on: June 14, 2015, 06:30:40 AM »
Not to steer people away from this forum, but the folks at bogleheads.org give excellent investing advice that is pretty much in line with MMM principals.  Use low cost mutual funds from a company like Vanguard or Fidelity.  I personally recommend the total stock market fund from Vanguard because it is super diverse and super cheap. You can put up to $11,000 in IRAs for you and your husband, and the rest in a taxable account.