Author Topic: To IRA or not to IRA? That is the question.  (Read 2683 times)

Anti-ComplainyPants

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To IRA or not to IRA? That is the question.
« on: December 30, 2013, 08:25:09 AM »
I'm set in a routine for the moment, but I'd like to gather some professional advice from the professional Mustacians out here on the interwebs. The common consensus of where to put your saved cashflow tends to looks something like:

1) 401(k)/403(b)
2) Roth or traditional IRA
3) Any other tax-advantaged retirement buckets
4) Vanguard shares.

I'm in the lower-income 15% tax bracket, so I simply don't have enough savings per month to make it down that whole list. Instead, I've been following the generalized advice seen here: (Great read, by the way)
http://jlcollinsnh.com/2011/06/08/how-i-failed-my-daughter-and-a-simple-path-to-wealth/

So first here's my current allocation of savings, then I'll ask my question. Each paycheck my savings runs through the gambit of:

1) 403(b) contribution up to 5% employer match
2) Auto-deposit to a Betterment account designed to become a 20% House downpayment in approximately 5 years
      - Note: If the market is tanking and these funds aren't available when I would otherwise be ready to buy, there should be no rush in waiting for it to bounce back and I am therefore comfortable with this risk.
3) Buying VTSAX (actually only Investor shares for now, but will become Admiral shares when I hit $10k).

So here's my question: I should be investing in VTSAX instead of making contributions to a Roth IRA, right? If all my savings went into funds that I cannot access penalty-free until I'm about 60, then I can't use those funds to retire early. So my logic is to swell my VTSAX in pursuit of FI through its "4% rule" dividends someday, and my 403(b) will be "old man money" to supplement my wealth once I qualify to withdraw it.
I consider my House Downpayment deposits a temporary allocation until the day comes when I can actually buy a House without PMI, then the money I had been contributing every month will free up for additional deposits elsewhere.

What do you guys think: stay the course, or should I consider an alternative? Thanks for your insight, as always!

Will

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Re: To IRA or not to IRA? That is the question.
« Reply #1 on: December 30, 2013, 09:35:04 AM »

Eric

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Re: To IRA or not to IRA? That is the question.
« Reply #2 on: December 30, 2013, 02:21:29 PM »
If all my savings went into funds that I cannot access penalty-free until I'm about 60, then I can't use those funds to retire early.

Is there a difference between a 401k and a 403b when it comes to rolling it over to a Roth IRA?  I'm not familiar with the exact rules for a 403b.  However, with 401k money there's no reason why you shouldn't be able to access your retirement money prior to retirement age penalty free.

http://jlcollinsnh.com/2013/12/05/stocks-part-xx-early-retirement-withdrawal-strategies-and-roth-conversion-ladders-from-a-mad-fientist/



Cyrano

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Re: To IRA or not to IRA? That is the question.
« Reply #3 on: December 30, 2013, 07:25:03 PM »
Your contributions to a Roth IRA are accessible anytime. The gains are locked away until 59 unless you pay a penalty tax.

Unless you plan to have a longer retirement before 59 than after, the Roth probably gives you adequate liquidity, and is a better tax treatment than taxable.

If you think you'll be in the 0% bracket in retirement, additional 403b contributions or a traditional IRA give you a better tax treatment than the Roth, but here you might decode differently on liquidity grounds.

wtjbatman

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Re: To IRA or not to IRA? That is the question.
« Reply #4 on: December 30, 2013, 10:03:14 PM »
I'm like you, "lower" income and in the 15% tax bracket, however unlike you I think Roth IRAs are perfect for investors like you and me. I don't contribute to my 401k since my employer doesn't do a match. So my #1 is my Roth IRA, then I contribute to a taxable account after that. I just wrote something about Roth IRA's in my blog, in fact. Although my blog is directed more towards brand new and "lower" income investors, so it might be stuff you already know.

Frankies Girl

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Re: To IRA or not to IRA? That is the question.
« Reply #5 on: December 30, 2013, 10:40:46 PM »

So here's my question: I should be investing in VTSAX instead of making contributions to a Roth IRA, right? If all my savings went into funds that I cannot access penalty-free until I'm about 60, then I can't use those funds to retire early. So my logic is to swell my VTSAX in pursuit of FI through its "4% rule" dividends someday, and my 403(b) will be "old man money" to supplement my wealth once I qualify to withdraw it.
I consider my House Downpayment deposits a temporary allocation until the day comes when I can actually buy a House without PMI, then the money I had been contributing every month will free up for additional deposits elsewhere.

What do you guys think: stay the course, or should I consider an alternative? Thanks for your insight, as always!

bolding mine... you can invest in VTSAX inside a Roth IRA. I would continue with the 403(b) contribution, get a Roth open and funded and into the VTSAX, and keep going with the house downpayment saving.