Author Topic: What account type to open after Roth IRA?  (Read 5302 times)

expectopatronum

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What account type to open after Roth IRA?
« on: September 11, 2014, 10:14:27 AM »
Hi everyone,

I've scoured the internet and forum, but want to make sure I'm not missing something. Please feel free to link me to helpful articles instead. Here's the situation:

- 24 y/o, would like to retire in early 40's, have 2 kids
- Salaried at $72K (bonus potential $10K, 50-90% bonus is standard here)
- Current savings rate ~40% (which will increase to ~50% once I move in with fiance)
- Company offers 401(k) with Mass Mutual, but no match is offered...not contributing to this, also not planning on staying at the company for 5+ years
- Roth IRA with Merrill Lynch, maxed in 2012
- Roth IRA with Vanguard, maxed for 2014

Obviously this leaves me with quite a bit of surplus saved money that is earmarked for retirement somehow. I think I want to just buy VTSMX (VTSAX once I hit $10K), but I'm not sure what kind of account I need once I go to buy. General savings? Brokerage?

I'm also planning on rolling over my Roth IRA at ML to Vanguard....I can do that this year, right? It doesn't count as a "contribution"?

Thanks!

Philociraptor

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Re: What account type to open after Roth IRA?
« Reply #1 on: September 11, 2014, 10:23:06 AM »
Contributing to your 401(k) would be a good idea, and it might get you in the range of traditional IRA, which, if you plan on getting married, would be preferred to Roth, since you're in the 25% bracket now and the 15% bracket for married filing jointly is up to 73800, much more than you'll need in retirement.

GGNoob

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Re: What account type to open after Roth IRA?
« Reply #2 on: September 11, 2014, 10:30:55 AM »
Are you eligible for an HSA account? If so, open and max that.

Even if you don't plan on staying with your employer, its probably best to max out your 401k if possible. When you leave your employer, you can roll it over to a Traditional IRA at Vanguard.

Yes, rollover the ML Roth IRA to your Vanguard Roth IRA. It does not count as a contribution and you can do one rollover per year.

Once you've maxed out 401k, IRA, and HSA contributions, then go ahead and open a taxable investment account with Vanguard.

GlassStash

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Re: What account type to open after Roth IRA?
« Reply #3 on: September 11, 2014, 10:36:27 AM »
Once you've maxed out 401k, IRA, and HSA contributions, then go ahead and open a taxable investment account with Vanguard.

This. Maxing your 401k (now and after you're married) will likely place you in the 15% marginal tax bracket, where it makes sense to contribute to a Roth IRA. If you're in the 25% tax bracket, I would contribute to a traditional IRA to skirt that tax rate. The Roth really only makes sense when you are trying to lock in a low tax rate that you don't anticipate getting in the future (there are also some liquidity considerations). In retirement, your marginal tax rate will undoubtedly be lower than 25%.

Scandium

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Re: What account type to open after Roth IRA?
« Reply #4 on: September 11, 2014, 10:39:30 AM »
what are the options with Mass Mutual? Unless it's truly awful you should contribute to the 401k before anything else. And maybe even if it is bad, if you're leaving in a few years that money will roll into Vanguard.

johnny847

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Re: What account type to open after Roth IRA?
« Reply #5 on: September 11, 2014, 10:39:41 AM »
- Company offers 401(k) with Mass Mutual, but no match is offered...not contributing to this, also not planning on staying at the company for 5+ years

The fact that you're not planning on staying at the company for 5+ years makes it even more compelling to contribute to your 401k. I'm guessing at least part of the reason that you didn't contribute to your 401k is they have high fee funds. But you're planning on leaving in 5 years or less, so that means at the end of your employment you can roll over the 401k balance to an IRA, where you can choose much lower fee funds.

Your 401k is the next logical place to put your money, unless you qualify for an HSA, and the HSA funds have comparable or better fees than your 401k. HSA contributions, when set up through payroll deduction, are not subject to FICA tax.

By the way, transferring your IRA to a different brokerage is not considered a rollover. A rollover is when you roll 401k funds into an IRA, or vice versa (but not all 401ks accept money from an IRA).

TomTX

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Re: What account type to open after Roth IRA?
« Reply #6 on: September 11, 2014, 08:32:18 PM »
I'm also planning on rolling over my Roth IRA at ML to Vanguard....I can do that this year, right? It doesn't count as a "contribution"?

Thanks!

Yes, a rollover is not a contribution. To the Feds, it is effectively a non-event. Get your ML statement in hand, sit at your computer and call up the nice folks at Vanguard Concierge Services. They will walk you through the rollover.

Oh and since nooooobdy has mentioned it... max out your 401(k) ;)

expectopatronum

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Re: What account type to open after Roth IRA?
« Reply #7 on: September 12, 2014, 10:18:53 AM »
Everyone- thanks a TON for the really helpful replies!

I was unsure about contributing to my 401(k) vs putting money with Vanguard in a taxable account...but I now see the advantage in that could put me in a lower bracket. I should have mentioned, though: I don't think I'll be able to max it this calendar year; I was putting some money towards other goals earlier in the year and now those are off the table. So...my retirement savings this calendar year are:

- $5500 Roth IRA
- $7000 post-tax income anticipated....$2500 has already been taxed and earned; I know I can save the addtl $4500 post-tax between now and December, but based on feedback, I should just up my 401k contributions. Not sure how much that would translate to pre-tax.

Are 401(k) contributions like IRA in that you have until April 2015 to make a 2014 contribution? In that case I should be able to *just* hit $17K based off some guesses concerning my bonus, potential raise, etc. What to do after those $17K is kind of a nonissue since I'll barely be hitting that. We have a FSA offered, but I can't enroll until November. I'm not sure about HSA.

Can you contribute to a 401(k) after you've been paid the money? How do they account for going "backwards"?

This won't actually put me in the 15% bracket, right? Because I will still be making more than $36K for the year...Should my strategy be the same though (pour it all into the 401(k)?




The fact that you're not planning on staying at the company for 5+ years makes it even more compelling to contribute to your 401k. I'm guessing at least part of the reason that you didn't contribute to your 401k is they have high fee funds. But you're planning on leaving in 5 years or less, so that means at the end of your employment you can roll over the 401k balance to an IRA, where you can choose much lower fee funds.

Your 401k is the next logical place to put your money, unless you qualify for an HSA, and the HSA funds have comparable or better fees than your 401k. HSA contributions, when set up through payroll deduction, are not subject to FICA tax.


There are a few reasons: 1) company is likely going to sell or fail within that timeframe, 2) we want to move, 3) they're shitty people to work for, 4) might go back to school as mentioned above. AND, I honestly don't understand what fees I'm charged. I chose a target retirement fund, but wondered if I'd even chosen the right one since I want to retire early. But, now I get that I can just roll it over when I leave anyway.

Other info: We're getting married next year, but I might be going back to school mid-2015. I have a larger-than-recommended stash put away for emergencies due to this possibility. He makes $80-90K, and we can live on his income alone while still saving some, putting I think 10% towards a 401(k) with a company match of 6%. I am paying for school with my 529. So, we should be OK shoveling my money into a 401(k) even if I go back to school...I think...

If I don't go back, however, I would maintain approximately a 50% savings rate with my income alone and we'd find some ways to increase his.

Joel

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Re: What account type to open after Roth IRA?
« Reply #8 on: September 12, 2014, 10:26:16 AM »
You can only make 401k contributions at the time of your paycheck. Increase your percentage as high as you can afford right now. Knowing that it will save you on tax withholdings so you can count on around an 80% deduction in take home pay for each dollar contributed.

expectopatronum

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Re: What account type to open after Roth IRA?
« Reply #9 on: September 12, 2014, 03:16:42 PM »
Got it...thanks!

AND:

Are 401(k) contributions like IRA in that you have until April 2015 to make a 2014 contribution?  ANS: No. (http://www.dailyfinance.com/on/deadline-2013-retirement-contributions-401k-ira-sep/)

johnny847

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Re: What account type to open after Roth IRA?
« Reply #10 on: September 12, 2014, 03:24:04 PM »
Can you contribute to a 401(k) after you've been paid the money?
No
This won't actually put me in the 15% bracket, right? Because I will still be making more than $36K for the year...Should my strategy be the same though (pour it all into the 401(k)?
You won't be in the 15% bracket, but the 15% bracket doesn't start at $36900. It starts at $36900 + 6200 + 3950 = $47050 (unless you itemize your deductions, in which case your 15% bracket would start higher. This is because the standard deduction and exemption create a de facto 0% bracket for the first 6200 + 3950 of income.