Author Topic: Newbie questions on investing  (Read 2565 times)

iloveramen

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Newbie questions on investing
« on: June 19, 2016, 05:59:19 PM »
Long time lurker and first post.  Looking for some advice.  I make $74550 annually. 401k has $26, 789.42 and Roth has $11,000.10.  My asset allocation 90 stocks and 10 bonds.  I file single and live in WA.

Recently, I have terminated financial services at my employers for my 401K and for my Roth IRA.  I felt like it wasn't worth the fees.  I've been doing a lot of research on investing and now, I feel I am ready to start my investing journey.

The past month I have switched my 401K into low cost index funds.  Now, I am awaiting for my Roth IRA to transfer to Vanguard and do the 3 fund portfolio or Target Date Fund 2050.  I am contributing 8% of my income to the Roth portion of 401K with employer match at 6%.  My 401k has a mixture of both pretax and aftertax (Roth).  I plan to max out my Roth IRA once the transfer is complete but so far have contributing 600$ this year.

My questions:
  • Should I do pretax to my 401K or Roth?  I know I am in the 25% bracket but I feel I will retired in the same brack
  • Should I do a 3-fund portfoliio in my Roth IRA or Target Date fund?

Thanks in advance.

mrpercentage

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Re: Newbie questions on investing
« Reply #1 on: June 19, 2016, 06:20:00 PM »
I like having some Roth for a big purchase at retirement. That is me. It doesn't mean it is wise, but if you want the: fishing boat/sail/pontoon, RV, motorcycle, Cessna, or ultimate work shop loaded with tools--- then I think it's a good idea. That big withdrawal won't put you in a higher bracket.

DrF

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Re: Newbie questions on investing
« Reply #2 on: June 20, 2016, 08:27:10 AM »
Most people here would really advocate saving in tax deductible accounts (non-roth). Basically, you will be able to save money faster, like YEARS earlier than you would if you saved with post tax dollars. Enjoy the readings below!

Here's the best writeup on the subject: http://www.madfientist.com/retire-even-earlier/

Then read this: http://www.madfientist.com/category/guinea-pig/

Then read this: http://www.mrmoneymustache.com/2011/11/11/how-much-is-too-much-in-your-401k/

MrMoogle

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Re: Newbie questions on investing
« Reply #3 on: June 20, 2016, 11:49:54 AM »
Are you doing non-taxed advantaged investing too?

Typically for those of us who plan to FIRE, in the long run it's best to invest in tradition 401k and IRA accounts:
http://www.madfientist.com/retire-even-earlier/

That said, you also have to consider your first 5 years of retirement, while your Roth ladder is getting set up.  If you're saving in addition to your 401k and IRA, you can use that, otherwise it might be beneficial to put some into a Roth.  Also, to be able to contribute fully to a tIRA, your MAGI must be below $61k, which basically  means you will need to max out your traditional 401k.  From $61k-$71, you can partially contribute to a tIRA.  Otherwise your only option is Roth IRA.

The Target Date fund is really for normal retirees.  If you're going to FIRE, I would advise against it in the long run.  They do have lower minimum $$ requirements, so while you're saving up for other minimums, you can stash it in the Target Date, then move it later.

iloveramen

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Re: Newbie questions on investing
« Reply #4 on: June 20, 2016, 01:08:20 PM »
Are you doing non-taxed advantaged investing too?

Typically for those of us who plan to FIRE, in the long run it's best to invest in tradition 401k and IRA accounts:
http://www.madfientist.com/retire-even-earlier/

That said, you also have to consider your first 5 years of retirement, while your Roth ladder is getting set up.  If you're saving in addition to your 401k and IRA, you can use that, otherwise it might be beneficial to put some into a Roth.  Also, to be able to contribute fully to a tIRA, your MAGI must be below $61k, which basically  means you will need to max out your traditional 401k.  From $61k-$71, you can partially contribute to a tIRA.  Otherwise your only option is Roth IRA.

The Target Date fund is really for normal retirees.  If you're going to FIRE, I would advise against it in the long run.  They do have lower minimum $$ requirements, so while you're saving up for other minimums, you can stash it in the Target Date, then move it later.


No.  I am only investing in a 401K and Roth IRA.  I am going for FIRE. :)

iloveramen

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Re: Newbie questions on investing
« Reply #5 on: June 20, 2016, 01:13:04 PM »
Thanks for the suggestion so far and the readings.  I am going to move back to pre-tax in my 401k and max out my Roth IRA.  I am going to try to contribute more to my 401K.  Although, I read having a taxable account is not bad either instead of maxing the 401k.  Do you guys think its a good idea?  If I do, I plan to open up a Vanguard and invest maybe 10K to Total Stock Market.  I am only 30 so I have time on my side.

I am thinking once my Roth IRA is moved over to Vanguard and max it out for the year.  I would need to rebalance my portfolio as a whole instead of managing them as separate accounts from what I have been reading.  Any thoughts?

DrF

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Re: Newbie questions on investing
« Reply #6 on: June 20, 2016, 01:19:25 PM »
What is your tax bracket? It may make more sense to contribute to a traditional IRA. Then in retirement do a Roth conversion pipeline.

Can you max your 401k ($18k per year), and max out your IRA?

iloveramen

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Re: Newbie questions on investing
« Reply #7 on: June 20, 2016, 01:42:27 PM »
What is your tax bracket? It may make more sense to contribute to a traditional IRA. Then in retirement do a Roth conversion pipeline.

Can you max your 401k ($18k per year), and max out your IRA?

I am in the 25% bracket.  I make $74550 a year.  I can max out my Roth IRA.  I might be able to put more in my 401K pretax but I will have to do the math when I get home.  I contribute about $5964 annually at 8% and $4473 employer match annually at 6%in my 401K.  I debating on either AA at 80/20 or do 100 stocks.  56% US Stocks 24% International and 20% bonds.  I will look at my two accounts as a whole.

MrMoogle

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Re: Newbie questions on investing
« Reply #8 on: June 20, 2016, 01:48:30 PM »
Thanks for the suggestion so far and the readings.  I am going to move back to pre-tax in my 401k and max out my Roth IRA.  I am going to try to contribute more to my 401K.  Although, I read having a taxable account is not bad either instead of maxing the 401k.  Do you guys think its a good idea?  If I do, I plan to open up a Vanguard and invest maybe 10K to Total Stock Market.  I am only 30 so I have time on my side.

I am thinking once my Roth IRA is moved over to Vanguard and max it out for the year.  I would need to rebalance my portfolio as a whole instead of managing them as separate accounts from what I have been reading.  Any thoughts?
Putting more into a traditional 401k is almost always better than putting it into a taxable account. 

There is some debate whether Roth or taxable is better.  You'll have penalty free access of any interest in taxable, but you'll have to pay taxes on dividends while you're working.  Once you're retired though, if your income is low enough, you won't have to pay taxes on the interest (like a Roth).  For a Roth, to access the interest before 59.5, you'll have to pay a 10% penalty.

iloveramen

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Re: Newbie questions on investing
« Reply #9 on: June 20, 2016, 08:58:16 PM »
Thanks everyone.  I did my math and I can contribute about 16% (pretax) of my paycheck to my 401k and will be able to MAX my Roth IRA at this time.  Hopefully, I know what I am doing being financial independent from an financial adviser.  I am still trying to understand how to do the Roth Conversion.

johnny847

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Re: Newbie questions on investing
« Reply #10 on: June 20, 2016, 11:47:10 PM »
Thanks everyone.  I did my math and I can contribute about 16% (pretax) of my paycheck to my 401k and will be able to MAX my Roth IRA at this time.  Hopefully, I know what I am doing being financial independent from an financial adviser.  I am still trying to understand how to do the Roth Conversion.

Why not the traditional IRA? After maxing your traditional 401k you qualify for a full deduction of a traditional IRA contribution.

MrMoogle

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Re: Newbie questions on investing
« Reply #11 on: June 21, 2016, 06:24:26 AM »
Thanks everyone.  I did my math and I can contribute about 16% (pretax) of my paycheck to my 401k and will be able to MAX my Roth IRA at this time.  Hopefully, I know what I am doing being financial independent from an financial adviser.  I am still trying to understand how to do the Roth Conversion.
A Roth Conversion is really easy with Vanguard.  If you go to vanguard.com, search for Roth Conversion, there is a step by step process to do it.  That said, you don't want to do this until after you've retired, since you will get taxed at  your marginal (not effective) tax rate.

DrF

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Re: Newbie questions on investing
« Reply #12 on: June 21, 2016, 07:28:05 AM »
You should look at the articles I linked more closely. They indicate that by putting money in a traditional 401k and traditional IRA is the fastest way to save. Then once you retire you start the Roth conversion pipeline.