NEW TO INVESTING NEED HELP: VANGAURD

[hulsty008]

Hi everyone I just recently joined the forum.

I'm 29 and currently have a retirement/pension through PERA.  I also have a tax deferred 403b account with American Funds that is currently using Target Date 2050 AALTX.  I contribute $4160/year to that.

I recently opened a Vangaurd Roth IRA with $1000.  I'm thinking of initially putting that into their Target Date 2050 fund VFIFX.

My plan is to contribute $2750 to the AF and $2750 to the Roth.  So basically just 50 pre tax and 50 Tax.  Does this make sense or should I be doing something different?

Also is there a different fund that would make more sense for me than just using the target date fund from vanguard?  I plan to hold and contribute to fund for many years.

Thank you very much :)

[DrF]

For the most efficient way to save money for early retirement read this post.

https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153

[hulsty008]

Thanks for the information!

I'm still looking for advice for the specific situation I originally posted.

[msheldon]

You are asking for advice on whether pre-tax or Roth IRA is better, or split 50/50?

From the link above, "why" point 4:

4. Rule of thumb: traditional if current federal marginal rate is 25%; Roth if 10% or lower, or if MAGI is too high to deduct a traditional IRA; flip a coin otherwise.

You are basically trying to pay less in taxes by predicting now whether this year's marginal rate will be higher or lower than your marginal rate when you access your retirement funds. You have a good sense of this year's marginal rate. Your future rate is a bit murky... A lot can change over the next 40 years: tax rates could go up, or down. You might become a minimalist and spend little, staying in the 0% tax bracket, or buy a new boat every year and be in the top bracket.

If the answer isn't clear, then splitting 50/50 is a fine choice.

One point that may tilt your pre-tax/Roth ratios towards pre-tax: if you will eventually do the Mega Backdoor Roth as part of your savings, then you will get a lot of Roth funds from that. If your goal is to split your overall tax risk 50/50, then more pre-tax now makes sense.

Cheers!

[SwordGuy]

Why are you putting your money in a "target date fund" instead of just putting your money into regular funds (and rebalancing to your desired asset allocation)?

You'll find the fees you pay are generally lower with regular funds.

For example, VTSMX has a .15% fee instead of the .16% fee your suggested fund does.  It's also all equities because you've got many years to go before you retire, so growth is what you need.   Once you get $10,000 in that fund the fees drop to .04%.  That's way better than .16%!

[hulsty008]

Thanks for the information. I wasn’t sure if a target date fund was an a good way to go or not since I’m not savvy at this.

[MDM]

Thanks for the information. I wasn’t sure if a target date fund was an a good way to go or not since I’m not savvy at this.

A target date fund is a fine choice, particularly when one is just starting.  It's even reasonable when one is more experienced, especially for someone who want to "set and forget" an asset allocation.

E.g., a 0.1% expense ratio difference on $10K is only $10/yr.  Barely worth any time at all on your part to rebalance, etc.

[JumpInTheFIRE]

If you have other options in your 403b please use them and drop AALTX, the expense ratio (0.80) is pretty high and American Funds often have front-loads (you pay a percentage of each dollar you put in, as well as ongoing expenses).  Contrast that with your Vanguard fund at 0.16 and no load.  If you have any low cost Vanguard or Fidelity index funds available in your plan you should switch to one of those.

"When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients. Both large and small investors should stick with low-cost index funds."
- Warren Buffett

[hulsty008]

Sadly we don’t. When I checked the box to sign up for our 403b at work and even while meeting the FA at American Funds they didn’t explain the fees, front load etc. I blame myself for not being more caught up on this information but I’m only 3 years into this. 

Would a better course of action be to rollover those funds at AF into a different account? If so I would like to just move them to Vangaurd.