Author Topic: IRA or regular investment account  (Read 5213 times)

FrugalZony

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IRA or regular investment account
« on: July 15, 2013, 02:58:29 PM »
I have read quite a bit over the last few weeks, to educate myself about investments and spent a considerable amount of time
cleaning up investments and fixing bad choices from the past.
But each time I think I kind of have a grip and *think* I know what I need to do next, I read something else and doubt everything I am doing.

I'd be real grateful if someone could enlighten me what is better in my situation, as I fear I might have made a suboptimal choice again.

Here it goes:
I have
401 k with employer match maxed out
Roth IRA (started couple years back but was idle for a couple years), revived a few weeks ago and maxed out for this tax year
Investment account with some previous investment, started putting any new money going in towards VTI

Now my little investment account is still small and the modest gains are offset with some significant losses from bad
previous choices (all new investments are in VTI only, planning to get some Bond fund too, but need a minimum of 3000$ to do that)
This means I could still dissolve everything and go for a better option at this point in time, if it turns out my decision was not good.

I realise what the difference between a ROTH IRA and an IRA is. For this reason I did open a ROTH when I took the decision a few years back.
But with what I know now, that my have not been the right choice.

Now what I am not sure about is wether I should have opened an IRA instead of a regular investment account for my FIRE money.

I thought I had sorted it out and kinda knew what I was doing, but I have doubts now.

Could I please get some opinions on weather an IRA instead of the regular investment account would make sense in my case or not.

Another question I have in the long run (not relevant today, as funds are still low) is at what point do you open a second account
to make sure your money is FDIC insured?
Also in case you are holding Vanguard products in Account #1 with a third party bank (TD Ameritrade in my case). Does it make
sense to open a second Account after a certain Threshold is met, say at Vanguard? Or will it all be lost anyways in case something happens
to Vanguard?
I know this is hypothetical, but the incidents of the last few year make me think of things like these.

Any guidance is welcome.



Another Reader

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Re: IRA or regular investment account
« Reply #1 on: July 15, 2013, 03:51:28 PM »
Brokerage accounts are not insured by the FDIC.  You can lose money.  SIPC insures brokerage accounts for loss due to broker malfeasance.  IIRC, the limit is $500k per account.

Whether you open a traditional or Roth IRA or some combination, the total contribution limit is $5,500 if you are under 50.  Roth IRA's are more useful for ER, because the money is after tax and the contributions can be withdrawn at any time without penalty.  Earnings cannot be withdrawn without penalty until age 59 1/2.  Tax deferred traditional IRA's have income limits.  You can also "back door" a non-deductible traditional IRA into a Roth.  There has been discussion of this in other threads.

Taxable accounts mean you pay income tax on dividends and capital gains.  If you hold index funds, there is not a lot of buying and selling by fund management, so capital gains are below actively managed funds. 

Most folks looking to FIRE hold taxable and tax-deferred accounts.  If you buy rental real estate, there may be tax benefits as well, and of course there are no age limits on taking the income.


kyleaaa

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Re: IRA or regular investment account
« Reply #2 on: July 15, 2013, 03:53:10 PM »
As noted above, FDIC insurance is only for bank deposits. If you hold any CD's in your IRA, those would probably qualify, but mutual funds never do.

As for the "holding all assets at one company" question, check out this page on the Bogleheads wiki. It specifically discusses Vanguard but the principles apply anywhere.

http://www.bogleheads.org/wiki/Vanguard_safety

FrugalZony

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Re: IRA or regular investment account
« Reply #3 on: July 16, 2013, 11:30:57 AM »
Thank you both for your comments.

So once I maxed out my Roth IRA I cannot add into an IRA for this year, correct?
But from what I know now, a traditional IRA would make more sense for me than a Roth.

Also putting my extra savings into a regular investment account was a good choice, then.

Now would it make sense to open another account, once the first one hits 500 K (not that I am anywhere near this)

kyleaaa

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Re: IRA or regular investment account
« Reply #4 on: July 16, 2013, 11:43:29 AM »
Thank you both for your comments.

So once I maxed out my Roth IRA I cannot add into an IRA for this year, correct?
But from what I know now, a traditional IRA would make more sense for me than a Roth.

Also putting my extra savings into a regular investment account was a good choice, then.

Now would it make sense to open another account, once the first one hits 500 K (not that I am anywhere near this)

I don't think so, but that's just me. If Vanguard or Fidelity went bankrupt, for example, your funds would still be owned by you. The fund company has no claim to the money nor do its creditors. Mutual funds are legally separate entities from the fund companies that manage them.

FrugalZony

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Re: IRA or regular investment account
« Reply #5 on: July 16, 2013, 12:33:55 PM »
Thank you!!
Still, the thought to have everything in one place, once the stash is big enough to live on, just scares me, LOL!

matchewed

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Re: IRA or regular investment account
« Reply #6 on: July 16, 2013, 12:44:18 PM »
You don't have to have it all in one place. That's your call if you want it that way. It is a form of risk management to spread it out to other companies. But on the other hand I'd put the risk of a Vanguard or Fidelity tanking and taking your money with them at pretty damn low.

kyleaaa

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Re: IRA or regular investment account
« Reply #7 on: July 16, 2013, 03:54:28 PM »
You don't have to have it all in one place. That's your call if you want it that way. It is a form of risk management to spread it out to other companies. But on the other hand I'd put the risk of a Vanguard or Fidelity tanking and taking your money with them at pretty damn low.

The risk at them tanking is very low. The risk of them taking your money with them if they do is 0%.