Author Topic: Total newbie here  (Read 4326 times)

sjrv

  • 5 O'Clock Shadow
  • *
  • Posts: 7
  • Age: 35
  • Location: Michigan
Total newbie here
« on: November 01, 2014, 11:29:33 AM »
Hey everyone,

I've been a lurker here for a while, but I thought I would pick your collective brains -- I have kind of a general question about investment, so I hope this is the appropriate forum for it. Last year I changed careers from a very brief stint in the education field to the private sector, and the company I work for now does not offer a retirement plan. For the past year, all my savings have been sitting in an account at my credit union earning 3%. I also have about $1800 in my old retirement plan through my state. I want to roll that into an IRA (Roth or traditional? How do I determine which is more advantageous?) and start contributing regularly to it for retirement. My husband (who has a 401(k) through his employer) , thinks we should enlist the services of a financial adviser since the world of investing is kind of bewildering to both of us. I'm leery of that, though, because 1) I'm a control freak; 2) I'm willing to learn how to manage my own funds if someone will point me in the right direction; and 3) I don't want to pay someone to do something if I have the time and capability to do it myself. However, I also don't want to make stupid (read: costly) mistakes due to my lack of knowledge. I am 30 years old, so I'm getting a late jump on this and want to take action ASAP. I would appreciate any tips on where we should start!

trailrated

  • Handlebar Stache
  • *****
  • Posts: 1136
  • Age: 32
  • Location: Bay Area Ca
  • a smooth sea never made a skilled sailor
Re: Total newbie here
« Reply #1 on: November 01, 2014, 11:43:38 AM »
First off 3% in a bank account is unheard of right now, are you sure that wasn't a type-o?

This should be an excellent straight forward resource to go through to get you started in the right direction!

http://www.bogleheads.org/wiki/Bogleheads%C2%AE_investing_start-up_kit

sjrv

  • 5 O'Clock Shadow
  • *
  • Posts: 7
  • Age: 35
  • Location: Michigan
Re: Total newbie here
« Reply #2 on: November 01, 2014, 11:46:47 AM »
First off 3% in a bank account is unheard of right now, are you sure that wasn't a type-o?


Not a typo! That account is the reason we switched banks. Thanks for the link!

forestbound

  • Stubble
  • **
  • Posts: 248
  • Location: midwest
Re: Total newbie here
« Reply #3 on: November 01, 2014, 02:19:23 PM »
Here's another link for you. I love the simplicity and straight talk of Jim Collins. I hope you find it as useful as I do!

http://jlcollinsnh.com/2011/06/08/how-i-failed-my-daughter-and-a-simple-path-to-wealth/

As for financial advisors.... word of caution, use a "FEE BASED" advisor if you decide to go that path. I had a financial advisor that was recommended to me, she sold me an annuity that I regret to this day. The advisor made more money off of that then I ever will!.

Best of luck!

sjrv

  • 5 O'Clock Shadow
  • *
  • Posts: 7
  • Age: 35
  • Location: Michigan
Re: Total newbie here
« Reply #4 on: November 01, 2014, 06:03:05 PM »
Here's another link for you. I love the simplicity and straight talk of Jim Collins. I hope you find it as useful as I do!

http://jlcollinsnh.com/2011/06/08/how-i-failed-my-daughter-and-a-simple-path-to-wealth/


Thank you! That looks like a great resource. (And YIKES. Now I really want to avoid financial advisors!)

Actually, reading through that link eventually led me to this one:
http://jlcollinsnh.com/2012/05/30/stocks-part-viii-the-401k-403b-ira-roth-buckets/
in which he discusses the various tax implications of different investments. Now I'm even more hung up on whether to establish a Roth or a traditional IRA. Right now, we are right in the middle of the 15% tax bracket; is there some mathematical way I can determine whether it would be better to pay the tax up front vs. when we start taking distributions? We've received conflicting advice about this. Also, my husband is generally aligned with Dave Ramsey's principles, and he tends to preach the Roth, but I'm a little skeptical and would like to see how the actual numbers might work in our particular situation.

not_a_trex

  • Stubble
  • **
  • Posts: 108
Re: Total newbie here
« Reply #5 on: November 01, 2014, 06:13:59 PM »
It's hard to guess what the tax laws will be like in 20 years. I think a lot of people think that the 0% tax bracket will disappear before an unbounded Roth though.

Here's another common thread people look at:
http://www.madfientist.com/traditional-ira-vs-roth-ira/

RyeWhiskey

  • 5 O'Clock Shadow
  • *
  • Posts: 83
Re: Total newbie here
« Reply #6 on: November 01, 2014, 11:53:17 PM »
Hello, I assume your 3% checking account is a rewards checking account. If so it probably has a limit on the maximum amount of funds for the higher rate (usually 10k or so). This assumption, coupled with the 1.8k in the old account, leads me to believe that you probably don't need to worry about advisors and would be best off going with an 'all-in-one' fund from Vanguard (such as a Target Retirement fund or a LifeStrategy fund). Roll your old account into a Roth and start maximizing it each year. Keep things simple and low cost and focus on savings.

sjrv

  • 5 O'Clock Shadow
  • *
  • Posts: 7
  • Age: 35
  • Location: Michigan
Re: Total newbie here
« Reply #7 on: November 02, 2014, 07:21:41 AM »
Hello, I assume your 3% checking account is a rewards checking account. If so it probably has a limit on the maximum amount of funds for the higher rate (usually 10k or so). This assumption, coupled with the 1.8k in the old account, leads me to believe that you probably don't need to worry about advisors and would be best off going with an 'all-in-one' fund from Vanguard (such as a Target Retirement fund or a LifeStrategy fund). Roll your old account into a Roth and start maximizing it each year. Keep things simple and low cost and focus on savings.

Hi! Yes, the ceiling for the 3% rate is $15k, so my husband and I each opened a joint account in our own names to take advantage of the rate up to $30k. We haven't quite maxed them out yet (we have about $7k to go combined). Thanks for the advice; I've been researching those funds and I think that's the route we'll probably go  if the husband is on board.

It's hard to guess what the tax laws will be like in 20 years. I think a lot of people think that the 0% tax bracket will disappear before an unbounded Roth though.

Here's another common thread people look at:
http://www.madfientist.com/traditional-ira-vs-roth-ira/

Thank you! I'm really thankful so many smart people have figured this all out and disseminate their wisdom for free via the internet. :)

Spondulix

  • Pencil Stache
  • ****
  • Posts: 643
  • Age: 39
  • Location: Los Angeles, CA
Re: Total newbie here
« Reply #8 on: November 03, 2014, 09:46:16 PM »
Good for you for taking the step to learn this stuff! It's actually a lot of fun once you get a grasp on the basics - I wish I had done it years ago (I'm 34 and just moved from managed accounts to DIY earlier this year.)

1. Go get John Bogle's book "The Little Book of Common Sense Investing." It's a quick read, and easy to understand (I read it in a day or two).  It's full of facts and charts that show why it's actually more profitable in the long run to do yourself.

2. I would highly recommend moving your old account to Vanguard. The process is easy (you can start it online in like 15 mins). I used to have accounts with Fidelity, Franklin Templeton, and my husband with TIAA-CREF, and Vanguard is by far the best. They have an easy to use web interface, the app works great, they have extremely low fees, and a lot of educational stuff on the site. They are a not-for-profit company, and it's really ideal for learning. Customer service is great, too.

As for what type of account you will move your old retirement to, do you know what type your old account was? (401k, 403b, etc). There's two basic types of accounts - ones that took the money from your paycheck before taxes, and ones that take money after taxes. So you've got a couple options, depending on the type of account it is - here's some info from Vanguard about 401k rollovers:
https://investor.vanguard.com/401k-rollover/options

There's websites that help do the investment choices for you (like Betterment.com), but what I found is that I learned quickly, outgrew their service, and then had a bunch of money tied up in them. But if you really want to ease into it, look into something like that.


Spondulix

  • Pencil Stache
  • ****
  • Posts: 643
  • Age: 39
  • Location: Los Angeles, CA
Re: Total newbie here
« Reply #9 on: November 03, 2014, 09:51:50 PM »
Sorry I didn't read through to the end of the thread! I got a bit too basic there. :) One thing to consider is that you always have the option to "Back door" contribute to the Roth every year. So, if you're contributing to a traditional IRA and decide you can take the extra income tax, you can rollover up to $5500 a year from your traditional into your Roth. Personally, I max out the Roth every year regardless of the tax ramifications- I'd much rather pay tax on $5500 vs $55,000 down the road.

sjrv

  • 5 O'Clock Shadow
  • *
  • Posts: 7
  • Age: 35
  • Location: Michigan
Re: Total newbie here
« Reply #10 on: November 04, 2014, 07:27:58 PM »
Sorry I didn't read through to the end of the thread! I got a bit too basic there. :) One thing to consider is that you always have the option to "Back door" contribute to the Roth every year. So, if you're contributing to a traditional IRA and decide you can take the extra income tax, you can rollover up to $5500 a year from your traditional into your Roth. Personally, I max out the Roth every year regardless of the tax ramifications- I'd much rather pay tax on $5500 vs $55,000 down the road.

No worries! I did decide to set up an account through Vanguard, so I've got that ball rolling. I didn't know about the possibility of "back door" contributions; I'll have to look into that. It still seems like kind of a tossup to me as to whether we pay the taxes now or later, but I was thinking it might make sense for me to max out a Roth since my husband has a 401(k), so we're going to be paying taxes on his distributions eventually. The only snag is that my old account through the state is a 401(k)/457 combined plan, so I'll have to pay the taxes on that if I roll it into a Roth, correct?