Author Topic: type of Vanguard account?  (Read 9502 times)

KES

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type of Vanguard account?
« on: May 17, 2013, 06:37:52 AM »
We have almost 20k sitting in a savings account not working and I want to put 10k of that into a Vanguard account and leave the other almost 10 as an emergency fund.  I would like to add to this account every month with what's left over from our budget (100 here, 75 there, etc)

Early retirement probably won't happen, my husband is 37 and loves his job, and we only have about 38k in the 401k.

What type of Vanguard account should we put the money into?

 I thought about a Roth IRA, but we can only make annual contributions of 5500 (and so couldn't even put in the entire 10k).  However, won't a general savings account get hit hard by the FAFSA people when the time comes?

rugorak

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Re: type of Vanguard account?
« Reply #1 on: May 17, 2013, 07:57:22 AM »
From everything you have stated I would do the following:

1. Open an Roth IRA (assuming you are eligible). Yes you can only put $5500 per year but that money grows tax free and withdrawals are tax free. It just makes financial sense.
2. Max out your 401k contributions ($17,500 per year not counting employer contribution). If you are planning on a typical retirement this again makes sense. You lower your tax rate now but pay taxes on withdrawals later on. But typically you make less later on. I am younger than your husband, got a late start on my 401k and am not maxing out yet every year (I am saving for other things including FIRE) and I have more than 38k. So I am guessing you could up your contributions. Even if you guys decide to go for FIRE at some point in the future increasing your 401k makes some sense.
3. If there is still money left over and you have the cash you want in an emergency fund invest in a taxable account. On the taxable side it becomes harder to do the 100 or 75 a month if you like a good handle on your cost basis. But now the brokerages are required to keep track of that so if you don't care you can do that as well.

Ignoring the Roth IRA and 401k is only going to hurt an FAFSA application, not help. They do not want you to include retirement accounts. But they require you to disclose other assets such as taxable investments.

icefr

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Re: type of Vanguard account?
« Reply #2 on: May 17, 2013, 09:29:02 AM »
If you're married, you can contribute $5,500 to a Roth IRA for you and then $5,500 to a Roth IRA for your spouse. So long as you are under the income limits: http://www.irs.gov/Retirement-Plans/Amount-of-Roth-IRA-Contributions-That-You-Can-Make-For-2013

I would use that and increase your 401(k) contributions before adding to a taxable account, especially if you don't plan to retire early. Do you have a retirement account too?

Rural

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Re: type of Vanguard account?
« Reply #3 on: May 17, 2013, 09:36:19 AM »
Ew. No Roth IRA allowed for married filing separately.

KES

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Re: type of Vanguard account?
« Reply #4 on: May 17, 2013, 10:31:01 AM »
Thanks, I didn't know the 5,500 was per spouse.  No, I don't have an account: I'm a mom.

GrayGhost

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Re: type of Vanguard account?
« Reply #5 on: May 17, 2013, 12:47:29 PM »
I have a Vanguard Roth IRA and that's been treating me pretty well. I suggest putting $5500 in it immediately, in one or two mutuals, and as you put more money in it starting next fiscal year, go for diversification and all that.

If you want the rest in an emergency bank account, that's very understandable, and I suggest Bank of Internet Rewards Checking. Tis what I use, and they actually give up up to 1.25% APY on a checking account, which is unheard of!

I don't use a 401k myself as I'm in the military, but it's a pretty good vessel for normal retirement from what I've read. The problem with money being put into a 401k is that it doesn't leave much behind in more liquid/withdrawable cash, in case you want to go into real estate or start a business.

Leisured

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Re: type of Vanguard account?
« Reply #6 on: May 18, 2013, 08:30:43 AM »
I am Australian, and we have some differences in our tax regime. As I understand, the US tax regime, if money is put into an equity managed fund, indexed or not, and stays in that fund for the long term, over about six months, the dividends are classified as Qualifying, and tax on dividends is only 15%. So you can put some money into a 401K, which is tax advantaged, and also into a normal managed fund, where the money is available, but tax is not important.