Best way to invest roth IRAs

[little_brown_dog]

Sorry if this post seems really basic. We are pretty naive when it comes to investing and could use some advice. We currently max my husband's 401k and receive a generous match on top. The 401k is a target date fund made up of Fidelity indexes.

Now that we are out of student loan debt, we want to open 2 roth IRAs (one for him, and a spousal one for me since I'm a sahm). We make too much to qualify for the tax deduction for traditional IRAs. We would be maxing both starting this year. We would open his IRA using some money currently sitting in a Bank of Americal/Merrill Edge money market IRA (for some reason my husband opened one before we got married and the funds have just been sitting in it until now). I'm trying to remedy the situation by moving the funds to investments that will actually make money.

The financial adviser at Bank of America/Merrill Edge thinks that because we already have a moderately balanced, 401k lifecycle fund with about 40% bonds, it would be best to move the stagnant money market funds into 100% equities like a passive S&P 500 index to generate more returns. We are 28, have moderate risk tolerance, and plan on retiring around age 50 so this advice doesn't necessarily sound wrong (or right) to me.

So a few questions:

1. Is putting everything into a S&P index a good plan for us currently? I keep getting mixed messages about whether the S&P indexes are the best idea, or if there is a better way to go. I don't mind general volatility, and I'm not trying to get the max amount of return. I just want something with a good average return over an extended period.

2. The expense ratio quoted to us by the adviser on the Merrill Edge S&P index is .20. I know I've seen vanguard lower, but .20 doesn't seem terrible. Does anyone else here work with funds via Merrill Edge?

3. Regarding the spousal IRA - should we invest in the same funds for both IRAs or is there a benefit to mixing it up and picking different indexes?

Thanks!

[MickeyMoustache]

1. it's not bad, but if you need the money in say 3-6 months, just realize you might not always be up.

2. The .2 ER is 4x VTSAX's 0.05 (if you have $10k for the admiral shares, otherwise it's .1 at Vanguard).  That's kind of up to you, but just remember that ER is money off the top for what may very well be the same performing fund.

3. This really just depends on your target mix.  I happen to like to use my roth IRAs for REITs vs. the normal investment funds.  Once you know what your targeted break up is, it is most advantageous to put your least tax-advantaged investments into the most tax advantaged vehicles.  Check out this link for more info on that: https://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement

Good luck!

[GrowingTheGreen]

1) as you know, stocks are more volatile than bonds. That being said, an index fund like the S&P helps even things out compared to investing in individual companies. There is a reason why the S&P 500 is a common bench mark.

2) too high! If you're doing something simple like a 500 index fund, go with ETFs instead. 0.05% and no commissions if you go through Vanguard. Check out VOO or VTI.

3) no big benefit unless you're wanting to do something other than 100% stocks and decide to split up the asset classes, using a different account for each asset class.

[MDM]

...we want to open 2 roth IRAs (one for him, and a spousal one for me since I'm a sahm). We make too much to qualify for the tax deduction for traditional IRAs.

Just checking: your husband makes more that $202K/yr gross?  Because $202K gross, minus $18K 401k, gets you to $184K and at that amount you could put $5500 into your tIRA.  See https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/2016-IRA-Contribution-and-Deduction-Limits-Effect-of-Modified-AGI-on-Deductible-Contributions-if-You-are-NOT-Covered-by-a-Retirement-Plan-at-Work.

Of course, if you have the "problem" of not being eligible, it's not the worst thing in the world. ;)

[teen persuasion]

Now that we are out of student loan debt, we want to open 2 roth IRAs (one for him, and a spousal one for me since I'm a sahm). We make too much to qualify for the tax deduction for traditional IRAs. We would be maxing both starting this year. We would open his IRA using some money currently sitting in a Bank of Americal/Merrill Edge money market IRA (for some reason my husband opened one before we got married and the funds have just been sitting in it until now). I'm trying to remedy the situation by moving the funds to investments that will actually make money.

Just to clarify, you are planning to move an existing IRA AND add new funds for the current year, right?

If you fund it before April 15, you can contribute for 2015, and then do 2016 as well, to get a jumpstart.