Author Topic: Roth IRA questions  (Read 2981 times)

lschrader

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Roth IRA questions
« on: May 19, 2017, 07:58:17 AM »
Hello everyone,

I plan to open Roth IRAs for my husband and I within the next few months (after we finish building our emergency fund up). My 403b is with TIAA and my husband's 401k is with Prudential. I don't know if we should use one of these places or look into Vanguard or Betterment. I'm feeling kind of overwhelmed and unsure how to best make this decision. We are pretty new to investing and don't have a lot of extra money to get started but I figure that something is better than nothing and everyone has to start somewhere. Any advice/articles/recommendations would be appreciated and I'm happy to provide any other details that might be helpful. Thank you!

SeattleCPA

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Re: Roth IRA questions
« Reply #1 on: May 19, 2017, 08:02:20 AM »
Are you sure a Roth makes sense? Often, they don't if you've got tax-deferred space you can fill up and get a tax deferral benefit while doing so.

Regarding "who" to "Roth" with... I think you shop on price and go with someone like Vanguard.

lschrader

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Re: Roth IRA questions
« Reply #2 on: May 19, 2017, 08:11:31 AM »
Are you sure a Roth makes sense? Often, they don't if you've got tax-deferred space you can fill up and get a tax deferral benefit while doing so.

Regarding "who" to "Roth" with... I think you shop on price and go with someone like Vanguard.

Thank you for responding! I'm guessing the fact that Roth would make the most sense. My husband makes $35k and I make $37k. What's the best way to determine if Roth/Traditional would be best?

Cwadda

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Re: Roth IRA questions
« Reply #3 on: May 19, 2017, 08:14:47 AM »
Go with Vanguard. The account only takes a few minutes to open!

VTSMX is the total stock market fund you want (investor class shares)
Then once you hit $10k, these shares become VTSAX (admiral class shares)

MDM

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Re: Roth IRA questions
« Reply #4 on: May 19, 2017, 08:35:57 AM »
My husband makes $35k and I make $37k. What's the best way to determine if Roth/Traditional would be best?
The generic answer is
1) Compare your current marginal saving rate for a traditional contribution vs. your expected marginal rate on traditional withdrawals.
2) Pick the option that has the lower marginal rate: Roth if "now" < "later"; traditional if "later" < "now".
See Traditional versus Roth - Bogleheads for more.

Based on the reputation of the firms mentioned in the OP, I'd guess your best course is
1) Get the maximum match on both the 401k and 403b plans using the traditional options.
2) Put as much as you can into Roth IRAs at Vanguard, Fidelity, or Schwab.  See Three-fund portfolio - Bogleheads.
3) Put as much as you can into the TIAA 403b (your call on t vs. R)
4) Put as much as you can into the Prudential 401k (your call on t vs. R)

See Investment Order for more details.  Good luck!


lschrader

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Re: Roth IRA questions
« Reply #5 on: May 19, 2017, 08:43:41 AM »
My husband makes $35k and I make $37k. What's the best way to determine if Roth/Traditional would be best?
The generic answer is
1) Compare your current marginal saving rate for a traditional contribution vs. your expected marginal rate on traditional withdrawals.
2) Pick the option that has the lower marginal rate: Roth if "now" < "later"; traditional if "later" < "now".
See Traditional versus Roth - Bogleheads for more.

Based on the reputation of the firms mentioned in the OP, I'd guess your best course is
1) Get the maximum match on both the 401k and 403b plans using the traditional options.
2) Put as much as you can into Roth IRAs at Vanguard, Fidelity, or Schwab.  See Three-fund portfolio - Bogleheads.
3) Put as much as you can into the TIAA 403b (your call on t vs. R)
4) Put as much as you can into the Prudential 401k (your call on t vs. R)

See Investment Order for more details.  Good luck!



Thank you MDM! I guess I should ask about my 403b. My job contributes 11% even if I contribute 0% (I'm currently contributing 3%). Should I increase this to match their 11% before opening an IRA?

MDM

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Re: Roth IRA questions
« Reply #6 on: May 19, 2017, 08:59:45 AM »
Thank you MDM! I guess I should ask about my 403b. My job contributes 11% even if I contribute 0% (I'm currently contributing 3%). Should I increase this to match their 11% before opening an IRA?
If the 403b employer contribution does not depend on your contribution, then $0 is what you probably should contribute to the 403b in step 1.

For steps 2-4, I'm assuming your cost to invest is, from lowest to highest:
- an IRA at Fidelity, Schwab, or Vanguard
- the 403b with TIAA
- the 401k with Prudential
...but you should verify this by finding the "expense ratio" and any other fee you are charged at TIAA and Prudential.  Compare those to ~0.1% it will cost in those IRAs.

lschrader

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Re: Roth IRA questions
« Reply #7 on: May 19, 2017, 09:14:17 AM »
Thank you MDM! I guess I should ask about my 403b. My job contributes 11% even if I contribute 0% (I'm currently contributing 3%). Should I increase this to match their 11% before opening an IRA?
If the 403b employer contribution does not depend on your contribution, then $0 is what you probably should contribute to the 403b in step 1.

For steps 2-4, I'm assuming your cost to invest is, from lowest to highest:
- an IRA at Fidelity, Schwab, or Vanguard
- the 403b with TIAA
- the 401k with Prudential
...but you should verify this by finding the "expense ratio" and any other fee you are charged at TIAA and Prudential.  Compare those to ~0.1% it will cost in those IRAs.

Thank you MDM, you've been a really big help. Any recommendations on how to pick between Fidelity, Schwab, or Vanguard? Or is this one of those personal preference things? 

MDM

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Re: Roth IRA questions
« Reply #8 on: May 19, 2017, 09:37:49 AM »
Any recommendations on how to pick between Fidelity, Schwab, or Vanguard? Or is this one of those personal preference things?
There are differences that one can measure, but they are small enough that "personal taste" is as good a reason to choose as any.

A common take is
- Vanguard has the lowest costs averaged over all available funds, the worst customer interface, and the least likelihood to raise costs.
- Fidelity and Schwab have some low cost (some even lower than Vanguard) funds, many high costs funds (so caveat emptor - see Other than Vanguard, Boglehead-style), and better customer interfaces.
YMMV on any of the above.

Car Jack

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Re: Roth IRA questions
« Reply #9 on: May 19, 2017, 09:46:23 AM »
Vanguard has a lot of low cost index funds.  They work during what I call "extended bank hours" so you might not be able to get your question answered late at night or on a weekend.

Fidelity has less low cost funds but some are lower than Vanguard and they have all the basics for a traditional 3 fund portfolio.  Stay away from their financial advisers as they typically want to move you to paid services and high cost funds.  You likely can get bonus money from them for opening an account.  24/7 support online chat, and phone.  They have offices if you want to walk in.

Schwab has the lowest cost funds and has been lowest in ETFs for a long time.  I have not found them to push to high cost or pay for service.  24/7 support and physical locations.  I like their website a lot.  They also have bonuses to open an account.

TDAmeritrade:  Don't leave them out if you want Vanguard but hate hour long hold on phone calls and banker hours.  TDA sells a bunch of Vanguard ETFs and if you sign up for free ETFs, there's no extra cost over being at Vanguard.  They also have stores and bonuses for opening an account.  The website is extremely busy with the front page showing you every piece of info that exists in the world, but once you get used to it, it works well.  They also have 24/7 support.

I have accounts at all 4 of these.  If I were starting from scratch right now, I'd consider all but Vanguard.  While they have a bazillion low cost index funds, I only need 3 and everyone has them including TDA where I currently hold VTI.

lschrader

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Re: Roth IRA questions
« Reply #10 on: May 19, 2017, 01:55:45 PM »
Any recommendations on how to pick between Fidelity, Schwab, or Vanguard? Or is this one of those personal preference things?
There are differences that one can measure, but they are small enough that "personal taste" is as good a reason to choose as any.

A common take is
- Vanguard has the lowest costs averaged over all available funds, the worst customer interface, and the least likelihood to raise costs.
- Fidelity and Schwab have some low cost (some even lower than Vanguard) funds, many high costs funds (so caveat emptor - see Other than Vanguard, Boglehead-style), and better customer interfaces.
YMMV on any of the above.


Thanks MDM. This is probably a silly question but how would you recommend I figure out what percentage of each I would want for the three fund portfolio? I know because I'm "younger" I should choose to be more aggressive now right?

Vanguard has a lot of low cost index funds.  They work during what I call "extended bank hours" so you might not be able to get your question answered late at night or on a weekend.

Fidelity has less low cost funds but some are lower than Vanguard and they have all the basics for a traditional 3 fund portfolio.  Stay away from their financial advisers as they typically want to move you to paid services and high cost funds.  You likely can get bonus money from them for opening an account.  24/7 support online chat, and phone.  They have offices if you want to walk in.

Schwab has the lowest cost funds and has been lowest in ETFs for a long time.  I have not found them to push to high cost or pay for service.  24/7 support and physical locations.  I like their website a lot.  They also have bonuses to open an account.

TDAmeritrade:  Don't leave them out if you want Vanguard but hate hour long hold on phone calls and banker hours.  TDA sells a bunch of Vanguard ETFs and if you sign up for free ETFs, there's no extra cost over being at Vanguard.  They also have stores and bonuses for opening an account.  The website is extremely busy with the front page showing you every piece of info that exists in the world, but once you get used to it, it works well.  They also have 24/7 support.

I have accounts at all 4 of these.  If I were starting from scratch right now, I'd consider all but Vanguard.  While they have a bazillion low cost index funds, I only need 3 and everyone has them including TDA where I currently hold VTI.

Thanks Car Jack! Any specific one that you think has more merit over the other? Or do you think it's better to have accounts with each? I'm glad I didn't just listen to my co workers...it looks like the fees tend to be higher with TIAA than any of the others recommended.

MDM

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Re: Roth IRA questions
« Reply #11 on: May 19, 2017, 03:20:18 PM »
Thanks MDM. This is probably a silly question but how would you recommend I figure out what percentage of each I would want for the three fund portfolio? I know because I'm "younger" I should choose to be more aggressive now right?
Rather than a specific answer, here's some reading. ;)
These may not give identical advice, but if you follow any of it you will likely do well:
www.etf.com/docs/IfYouCan.pdf
http://jlcollinsnh.com/stock-series/
http://www.bogleheads.org/wiki/Category:Getting_started

lschrader

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Re: Roth IRA questions
« Reply #12 on: May 19, 2017, 05:54:40 PM »
You rock MDM!! I will read all three! I appreciate the help :)