Author Topic: Investing Hierachy/Where to Put our Funds  (Read 1498 times)

hoyahoyasaxa

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Investing Hierachy/Where to Put our Funds
« on: August 15, 2016, 10:56:50 AM »
In his stock series, JL Collins suggests the following hierarchy for investing:


    Fund 401(k)-type plans to the full employer match, if any.
    Fully fund a Roth if your income is low enough that you are paying little or no income tax.
    Once your income tax rate rises, fully fund a deductible IRA rather than the Roth.
    Keep the Roth you started and just let it grow.
    Finish funding the 401(k)-type plan to the max.
    Consider funding a non-deductible IRA if your income is such that you cannot contribute to a deductible IRA or Roth IRA.
    Fund your taxable account with any money left.

1) Right now, my wife and I contribute to our 401a plan up to the employer match (this is 4.5% for her, 5.75% for me, based on our incomes, and the employer matches us each at 8%).

Here are my questions from here:

1) My wife and I have a combined income of $140k.  Based on step #2 above, I would take this to mean that we shouldn't contribute to a Roth?
2) Our income is at the level where I think at best we would get a partial deduction on a traditional IRA if anything.  Would it even make sense to contribute to a traditional IRA if we can't get the tax benefits?
3) We have probably another $30k+ that we can contribute to retirement each year (unfortunately a good chunk of our funds goes to childcare).  We have 403b's that we can contribute to at work through TIAA.  The total stock market/total bond market funds are comparable in returns, and in fees to Vanguard.  To what accounts and in what order should we be contributing the rest of our retirement funds?

I'm happy to answer any additional questions that might make this easier to answer.

mskyle

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Re: Investing Hierachy/Where to Put our Funds
« Reply #1 on: August 15, 2016, 01:07:01 PM »
In his stock series, JL Collins suggests the following hierarchy for investing:


    Fund 401(k)-type plans to the full employer match, if any.
    Fully fund a Roth if your income is low enough that you are paying little or no income tax.
    Once your income tax rate rises, fully fund a deductible IRA rather than the Roth.
    Keep the Roth you started and just let it grow.
    Finish funding the 401(k)-type plan to the max.
    Consider funding a non-deductible IRA if your income is such that you cannot contribute to a deductible IRA or Roth IRA.
    Fund your taxable account with any money left.

1) Right now, my wife and I contribute to our 401a plan up to the employer match (this is 4.5% for her, 5.75% for me, based on our incomes, and the employer matches us each at 8%).

Here are my questions from here:

1) My wife and I have a combined income of $140k.  Based on step #2 above, I would take this to mean that we shouldn't contribute to a Roth?
2) Our income is at the level where I think at best we would get a partial deduction on a traditional IRA if anything.  Would it even make sense to contribute to a traditional IRA if we can't get the tax benefits?
3) We have probably another $30k+ that we can contribute to retirement each year (unfortunately a good chunk of our funds goes to childcare).  We have 403b's that we can contribute to at work through TIAA.  The total stock market/total bond market funds are comparable in returns, and in fees to Vanguard.  To what accounts and in what order should we be contributing the rest of our retirement funds?

I'm happy to answer any additional questions that might make this easier to answer.

Is your $140K gross or MAGI? If it's gross you're probably well able to take advantage of the traditional IRA, especially with kid(s). If not, start by maxing our your 403(b)s - I think that will soak up most of your extra $30K.

Different TIAA 403(b)s have different fund options, but a low-fee target date or lifecycle plan is usually one of the options and generally a pretty good one. My advice is don't invest in TIAA-Traditional, because it's a pain in the ass to ever get your money back out.

MDM

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Re: Investing Hierachy/Where to Put our Funds
« Reply #2 on: August 15, 2016, 06:55:18 PM »
See the 'Investment Order' tab in the case study spreadsheet for a similar ordering, along with reasons for when a different order might be appropriate.

kenaces

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Re: Investing Hierachy/Where to Put our Funds
« Reply #3 on: August 15, 2016, 08:10:31 PM »
Like others have said a big part of the decision of where to put money now depends on your likely future tax situation and  age at which you expect to retire.  There are some good articles on http://www.madfientist.com/articles/ .  He explains IRA v roth, IRA conversion ladders as simply as possible.

I think 403(b) also allow for withdraws earlier than IRA/401ks

Since future tax law is also unknown I feel like there may be some benefit to having funds in different accounts as it may allow for a bit more control in how you choose to be taxed or not in your retirement.