Author Topic: Should my wife start an AF simple IRA?  (Read 2566 times)

RecoveringGearhead

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Should my wife start an AF simple IRA?
« on: December 23, 2014, 04:44:14 PM »
Hi guys.  I'm not too savy with this and hoping I may be able to get some quick advice.  My wife's employer has decided to offer a 3% match on a simple IRA with american funds.  My default answer was sure, at least we will do the match until we get more debt paid down.  But after some searching around I'm not feeling so sure.  I'm new to looking at this, but it looks like she's offered class A and C funds.  And it sounds like the C is the lesser of the 2 evils for the short term if we can roll it over to something else asap. 

I contribute my employers 4% match into a 401k with prudential, all into vfiax.  Also plan to kick it up once the burning hair dies down.

It sounds like her 3% match is going to get eaten up by fees and I feel like wed be better off by upping my contribution with what I think are smarter options.

We are 34 and 30.  My 401k is right around 38k at the moment.

Any advice would be appreciated.  Again, I am new to looking at this although I've been blindly contributing to my plan for 8 or so years, just recently was looking at it and decided to move it all to vfiax.

Thanks in advance!


RecoveringGearhead

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Re: Should my wife start an AF simple IRA?
« Reply #1 on: December 23, 2014, 05:05:26 PM »
Here are a few of the growth and growth/income options.  Now that Im looking at this further, Im not sure why I was reading that the Class C were better if you plan to move it to a more efficient plan as it appears that all of the Class A stuff has outperformed and has a lower exp ratio.

fund, ytd, exp ratio

Class A
Growth
AMCPX, 12.82, 0.7
AGTHX, 9.76, 0.66
ANEFX, 4.79, 0.83

Growth/Income
AMRMX, 13.67, 0.61
AIVSX, 13.08, 0.61
ANCFX, 10.09, 0.63
CWGIX, 4.8, 0.8

Class C
Growth
AMPCX, 11.97, 1.51
GFACX, 8.91, 1.45
ANFCX, 3.96, 1.63

Growth/Income
AMFCX, 12.81, 1.42
AICCX, 12.23, 1.41
WSHCX, 11.65, 1.39
AFICX, 9.22, 1.43



seattlecyclone

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Re: Should my wife start an AF simple IRA?
« Reply #2 on: December 23, 2014, 05:19:53 PM »
See this page for more explanation of the difference between the fund classes.

With Class A shares, you're paying a 5.25% load up front. Ick! The Class C shares do not have an initial sales charge, but they do have higher expense ratios. I think the Class C is the lesser of two evils unless you're planning to stick with American Funds for a decade or more.

RecoveringGearhead

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Re: Should my wife start an AF simple IRA?
« Reply #3 on: December 23, 2014, 05:26:14 PM »
thank you.  I found that site to be a little hard to navigate. 

So basically, the match (plus some) is gone up front for Class A shares and then she's invested in high cost funds that aren't doing any better than what I have with .05 exp ratios. 

Am I right in thinking that we are better off upping my % to match what her 3% would be if do intend to invest more right now while putting our fire out? 

edited in italics
« Last Edit: December 23, 2014, 05:30:27 PM by RecoveringGearhead »

RecoveringGearhead

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Re: Should my wife start an AF simple IRA?
« Reply #4 on: December 23, 2014, 05:31:31 PM »
And Class C is free, with higher fees and lower performance. 

Now I guess I need to figure out whether its worth the expense ratios to get the match...

seattlecyclone

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Re: Should my wife start an AF simple IRA?
« Reply #5 on: December 23, 2014, 05:34:04 PM »
So basically, the match (plus some) is gone up front and then she's invested in high cost funds that aren't doing any better than what I have with .05 exp ratios. 

Not quite. The match is 3% of your wife's salary. The load is 5.25% of the amount invested. The two percentages are not directly comparable. If you go with the A shares the load will eat 5.25% of your contribution and 5.25% of the match, which is almost certainly less than the match amount.

Yes, it's worth it to pay high expense ratios to get the match unless you plan to be with that employer for a very long time (probably a decade or more). You can always roll your money over to better funds when you leave the company. Again, I would prefer the C shares over the A shares. The decrease in performance between A and C is a direct result of C's higher expense ratios. But with A shares, you have to make up for the 5.25% sales load before you start to do better than the C shares, which will take years.

Your investing priority order should be:
1) Your 401(k) up to the maximum match
2) Her IRA up to the maximum match
3) Your 401(k) up to the annual limit
4) Maybe her IRA, maybe taxable, it depends

Debt repayment should go in there somewhere, I would say between (2) and (3) for most debt.

RecoveringGearhead

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Re: Should my wife start an AF simple IRA?
« Reply #6 on: December 23, 2014, 05:48:56 PM »
Awesome!  Thank you. 

Got my bonus last week, it all went to the CC debt.  And just got a "windfall" from a family member as a gift.  Now we are looking at paying down 100% of our CC debt by Jan 1.  1.5k @ 14%.  2.5k in promo period ending in Feb, then @ 24%.  And another 3k on a zero interest card that I just want gone.  Then putting the rest towards the highest interest car payment and snowballing what Ive been paying on the credit cards until the car loans (face punches are welcome) are gone next year.  Got my toy car up for sale as well and if that happens, all of it is all gone in one swipe.  Then I plan to up my contribution and keep doing so until I hit the yearly max.  Then do the same with hers.

Im looking forward to 2015 like I never have before.