Funded Fidelity IRA in April then nothing

[HotPotato]

Obviously by the title, I fully funded a Traditional IRA in April of '16 for the '15 tax year. My 401k was there so I thought it'd be best to keep everything at once. So I put the money in and... forgot about it. Please no face punches! Right now I have a balance of  $5,500.19 (woohoo interest). I'm thinking now's a better time than never to get this money invested into something. I know most people here are Vangaurd fans and have index recommendations for their funds, but anyone with Fidelity accounts? I was looking at the iShares ETFs which are commission free, with an .07% (S&P 500 Core) expense ratio. They're trading ~$220/share so should I look for something cheaper that I can get more shares of?

I love the simplicity of my 401k because I can choose the target year mutual funds, and it's auto distributed every year, where as this seems like I'd have to manually buy the %'s of stocks/bonds/int'l I want. Am I missing something?

Thoughts, advice?

[mrpercentage]

We are at a coin toss moment man. I suppose it couldn't hurt but Friday could swing hard either way. As long as you won't get upset if it drops  go ahead. Or maybe buy $1000 a week since there is no commission.

[Phenix]

I love the simplicity of my 401k because I can choose the target year mutual funds, and it's auto distributed every year, where as this seems like I'd have to manually buy the %'s of stocks/bonds/int'l I want. Am I missing something?

Sounds like you're looking for the Fidelity Freedom Funds: https://www.fidelity.com/mutual-funds/fidelity-fund-portfolios/freedom-funds
Expenses are pretty high at 0.77% though. 
Edit: Looks like the Fidelity Freedom Index Funds have expense ratios closer to 0.15%.  For example: Fidelity Freedom Index 2050 Fund - Investor Class (FIPFX)

With your balance only being $5,500 I don't think you can go wrong with putting it all in the Fidelity Total Market Index Fund - Investor Class (FSTMX) for now.  Expense ratio is 0.09%

[NoStacheOhio]

Either FSTMX or ITOT and forget it.

[jjandjab]

If you are able to fund your IRA for 2016 now, I would put that in your account to bring it up to 11k and then you can buy FSTVX - Fidelity Total Stock Market Premium class with an ER 0.045%. I personally believe in the lump sum, i.e. take the plunge, rather than dollar-cost average, but that's just me.

I like to get the money to work as soon as possible then forget about it, as in I will fund my IRAs within the first week of January to get an extra 16 months of returns/dividends over waiting until tax time - for instance if you had the funds, the money you placed in April 2016 could have been deposited Jan 2015...

[Tyler]

If you're looking for a simple 401k-style target date fund, I second the Fidelity Freedom Fund suggestion.  Just note that they have different fee structures for the same target date, and find a low-cost one that works for you.

If you're trying to find a comparable low-cost index fund for a certain iShares option, browse the different assets here.  Also check out the portfolios for ideas for simple ways to build your own asset allocation.  Just starting out, buying a TSM fund is a great option.  It's a core component for many of the more diverse portfolios, so you can either stick with it (a perfectly fine option for many people) or add complementary funds to it as you accumulate more money and figure out what works for you.

[HotPotato]

If you are able to fund your IRA for 2016 now, I would put that in your account to bring it up to 11k and then you can buy FSTVX - Fidelity Total Stock Market Premium class with an ER 0.045%. I personally believe in the lump sum, i.e. take the plunge, rather than dollar-cost average, but that's just me.

I like to get the money to work as soon as possible then forget about it, as in I will fund my IRAs within the first week of January to get an extra 16 months of returns/dividends over waiting until tax time.

I'm not sure how much I'll be putting in the IRA this year. In 2015 I didn't have the option to put anything into an employer sponsored 401k so I got a tax credit for putting into an IRA, but this year I can put into the 401k so I don't think I'll get the same benefit. DH had an employer 401k in 2015 so he put in 2.2k, anything over that didn't give us a tax credit/ tax break at all. Not really sure how that worked because I thought the traditional IRA was pretax.

[jjandjab]

You really should research your situation a bit further regarding IRAs.

Everyone, billionaires too, can contribute $5500 per year to a traditional IRA completely separate from 401k's and all other retirement plans. (My wife stays at home, and I can contribute 11k per year for the both of us). True, there are restrictions regarding the tax deductions on traditional IRAs, but not the contributions.

Roth IRAs are slightly different in that they have contribution limits based on your income, but even if you make a lot of money there are ways around it ("backdoor Roth IRA") and these are pretty sweet in that the money grows tax free and will be tax free on withdrawal as well...

If you are worried about "tying up" money in them, know that you can withdraw the principal for a home purchase, etc

Good info here: https://www.bogleheads.org/wiki/Traditional_IRA

If you have the money, you really should be maximizing these every year...

[HotPotato]

From what I understood the tax credit gets phased out after a certain income and that's why the 2.2k was most beneficial for us. I might be wrong on the tax liability though. When we did our taxes it was ~1 week before a big vacation so I might be remembering it wrong, terrible excuse I know.

[jjandjab]

Yes, the tax credit is important, and it does get phased out at certain income levels, but I would suggest not getting hung up on that. 

If you a have enough income to reach that phase-out level, you really should consider contributing the 11k per year anyway. The tax-free growth in the IRAs over time is far more valuable than the small tax credit you are "missing".

And if you put the "leftover" money that didn't go into the IRA into a bank account, not only are you simply getting the low bank-rate interest, you have to pay taxes on it as well. If you put the money over an above into an IRA and just have it sit there in a money market account or CD, at least you don't pay taxes on the earnings. And can still get at the contributions in a pinch...

[HotPotato]

Yes, the tax credit is important, and it does get phased out at certain income levels, but I would suggest not getting hung up on that. 

If you a have enough income to reach that phase-out level, you really should consider contributing the 11k per year anyway. The tax-free growth in the IRAs over time is far more valuable than the small tax credit you are "missing".

Okay so I have a little extra time today and I'm looking into this a little more. According to the IRS website there is no deduction past $118k MAGI for married filing jointly, which we will be very close to in 2016 (it's hard to tell right now because of a job switch). So if we're past that and contribute to a traditional IRA we will end up paying taxes going in and taxes coming out? Then our best option would be Roth as our income is under 184k.

Am I understanding that correctly?

[Proud Foot]

Yes, the tax credit is important, and it does get phased out at certain income levels, but I would suggest not getting hung up on that. 

If you a have enough income to reach that phase-out level, you really should consider contributing the 11k per year anyway. The tax-free growth in the IRAs over time is far more valuable than the small tax credit you are "missing".

Okay so I have a little extra time today and I'm looking into this a little more. According to the IRS website there is no deduction past $118k MAGI for married filing jointly, which we will be very close to in 2016 (it's hard to tell right now because of a job switch). So if we're past that and contribute to a traditional IRA we will end up paying taxes going in and taxes coming out? Then our best option would be Roth as our income is under 184k.

Am I understanding that correctly?

If either of you have an employer 401k putting more into there would be a better option than the ROTH at your income.

DH had an employer 401k in 2015 so he put in 2.2k, anything over that didn't give us a tax credit/ tax break at all.

Anything you put into an employer 401k will be a tax break as the contributions are pre-tax (unless you have the option and chose ROTH 401k).  Your "tax break" for those will be from reducing your taxable income.

[HotPotato]

Ah yes, I meant 2.2k into his traditional IRA. His investment options through his work plan are ridiculous. Think 5.5% front load + 1% expense ratio. Still trying to figure out what to do there.

edit for quoting issues

[NoStacheOhio]

Ah yes, I meant 2.2k into his traditional IRA. His investment options through his work plan are ridiculous. Think 5.5% front load + 1% expense ratio. Still trying to figure out what to do there.

edit for quoting issues

On an EMPLOYER plan?!?!?! That's malfeasance.

[HotPotato]

Yes, I agree! That's why he wasn't contributing but I think our strategy for next year will be to invest in the (one and only) money market fund for 2 years then transfer it over to his Fidelity account. That's a guaranteed 5.5% return! I should post a separate topic to ask for opinions haha