Investing questions

[Ndaccountant]

I would look closely at your taxes, entirely possible you are losing some credits/deductions that traditional 401k vs Roth would save more than just the 25% marginal tax rate. If you are in the phase out range of child tax credits, that amounts to an additional 5% tax per child.

For my money, I would try to use 401ks to get into 15% tax bracket (which also gives you preferential capital gains treatment) and fund personal Roth IRAs. If making tradeoffs, 1) 401k to the match from employer, 2) max Individual Roth IRAs, 3) back to employer 401ks. Sounds like #1 going traditional and #3 going Roth may be the happy medium for you.

Don't be afraid of individual investment accounts either. If you are saving for early retirement these give you great flexibility. Building a blue chip stock portfolio gives you control of capital gains, allows you to gift appreciated stock for charity and dividends are taxed lower than income. Plus you can do municipal bonds or MLPs/REITs that are best owned outside IRAs too.

Balance between the two is key, you want to have options down the road. However, in 15% tax bracket Roth is a hard to argue against. We really don't know what taxes will look like in 30 years but I can assure you savers will be taxed to support those that did not.

Bingo.

I personally am able to save thru my employer a traditional and Roth 401K, funding both at the same time if desired. Simply hedging my bets.

The 529 proposal that was revoked spooked me a little bit and I am thinking about pushing even more into my traditional 401K. I don't think there is going to be anything sacred in the future when revenue is drastically needed. I think they will go after Roth's due to "fairness" of taxing those who could "afford" to save in a tax efficient manner.

Personally, I think the end game is lower individual tax rates with a VAT. That is where I think it will be when I retire 30+ years from now.

 

[BleedBlueGold]

I would look closely at your taxes, entirely possible you are losing some credits/deductions that traditional 401k vs Roth would save more than just the 25% marginal tax rate. If you are in the phase out range of child tax credits, that amounts to an additional 5% tax per child.

For my money, I would try to use 401ks to get into 15% tax bracket (which also gives you preferential capital gains treatment) and fund personal Roth IRAs. If making tradeoffs, 1) 401k to the match from employer, 2) max Individual Roth IRAs, 3) back to employer 401ks. Sounds like #1 going traditional and #3 going Roth may be the happy medium for you.

Don't be afraid of individual investment accounts either. If you are saving for early retirement these give you great flexibility. Building a blue chip stock portfolio gives you control of capital gains, allows you to gift appreciated stock for charity and dividends are taxed lower than income. Plus you can do municipal bonds or MLPs/REITs that are best owned outside IRAs too.

Balance between the two is key, you want to have options down the road. However, in 15% tax bracket Roth is a hard to argue against. We really don't know what taxes will look like in 30 years but I can assure you savers will be taxed to support those that did not.

This exactly what I'm thinking. Using traditional accounts to drive down the taxable income and get us into the 15% bracket where capital gains tax is 0% in order to save money in the Vanguard account, made up of index funds and tax-exempt muni's.

I like the idea of traditional 401k, but keeping the Roth IRA.

The websites I sourced are a bit extreme in that they keep their yearly expenses to insanely low levels in order to have a maximum savings rate and a close to a 0% tax rate.

 

[Wild Bill]

Bingo.

I personally am able to save thru my employer a traditional and Roth 401K, funding both at the same time if desired. Simply hedging my bets.

The 529 proposal that was revoked spooked me a little bit and I am thinking about pushing even more into my traditional 401K. I don't think there is going to be anything sacred in the future when revenue is drastically needed. I think they will go after Roth's due to "fairness" of taxing those who could "afford" to save in a tax efficient manner.

Personally, I think the end game is lower individual tax rates with a VAT. That is where I think it will be when I retire 30+ years from now.

Just a little too much reality for a Friday morning.

 

[BleedBlueGold]

Interesting example they gave:



Edit: Please ignore. Apparently, I typed this example wrong.

Here is a link to what I was trying to shorthand: The Go Curry Cracker 2014 Taxes - Go Curry Cracker!Go Curry Cracker!

 

[MJ12666]

Interesting example they gave:

- A married couple, filing jointly can make $20,000 a year and have that off-set by the standard deduction and two personal exemptions.

- Then they can make up to $74,900 in capital gains/qualified dividends income at a 0% tax rate.

That's $94,900 at 0%. Those with Roth accounts can take the RMD at 0% as well, boosting that number.

Is this accurate?

No

 

[BleedBlueGold]

No

Seemed odd to me too. Can you elaborate?



Edit: Apparently I typed the example wrong. See link for the actual example: The Go Curry Cracker 2014 Taxes - Go Curry Cracker!Go Curry Cracker!

 

[Irish Insanity]

What does anyone know about the Acorns app?

 

[tussin]

What does anyone know about the Acorns app?

I think it's a good business idea and I was pissed off I didn't think of it first. That being said, I would avoid it as an investor -- I believe it has extremely high fees.

 

[Irish Insanity]

I think it's a good business idea and I was pissed off I didn't think of it first. That being said, I would avoid it as an investor -- I believe it has extremely high fees.

It's advertising $1/mth if the account is less than $5k, .25% if above. I would like to strictly use it, at the beginning, for the round up feature. Just to get it started. A little helper for the kids college funds.

 

[tussin]

It's advertising $1/mth if the account is less than $5k, .25% if above. I would like to strictly use it, at the beginning, for the round up feature. Just to get it started. A little helper for the kids college funds.

It's usefulness depends on how much you invest a month. Regardless, I think it will work out to be pretty high fees. Check out this thread:
https://m.reddit.com/r/personalfinance/comments/2f9ca5/lets_talk_about_acorns_again/

 

[Irish Insanity]

It's usefulness depends on how much you invest a month. Regardless, I think it will work out to be pretty high fees. Check out this thread:
https://m.reddit.com/r/personalfinance/comments/2f9ca5/lets_talk_about_acorns_again/

I'll read thru that. Thanks for the response.

 

[wizards8507]

Is anyone else invested in Sequoia? I just took a look at my 401(k) and I'm taking a beating. There was some controversy over their stake in Valeant Pharmaceuticals that has the entire fund down something like 12% YTD.

 

[BleedBlueGold]

Thoughts on cashing out and closing a Roth IRA account that was set up and has very little money in it? I understand the early penalty and tax implications but I guess from the standpoint of "it's not the normal thing to do," I'm not sure if I actually should pull out the $1000 and shut it down. I have other retirement vehicles and don't focus on this Roth account.

 

[Ndaccountant]

Thoughts on cashing out and closing a Roth IRA account that was set up and has very little money in it? I understand the early penalty and tax implications but I guess from the standpoint of "it's not the normal thing to do," I'm not sure if I actually should pull out the $1000 and shut it down. I have other retirement vehicles and don't focus on this Roth account.

Is it an inconvenience? Do you have a need for the money? Are you bored with it? Just trying to understand the the thought process......

 

[koonja]

Thoughts on cashing out and closing a Roth IRA account that was set up and has very little money in it? I understand the early penalty and tax implications but I guess from the standpoint of "it's not the normal thing to do," I'm not sure if I actually should pull out the $1000 and shut it down. I have other retirement vehicles and don't focus on this Roth account.

guessing you started it one day then changed to something else. I did something similar going from a 401K, to now using a Roth exclusively, and not sure what to do with the little that's in 401k.

 

[Irish Insanity]

guessing you started it one day then changed to something else. I did something similar going from a 401K, to now using a Roth exclusively, and not sure what to do with the little that's in 401k.

Donate it to me

 

[koonja]

Donate it to me

Not sure it'd be worth the price of the stamp.

 

[BleedBlueGold]

Is it an inconvenience? Do you have a need for the money? Are you bored with it? Just trying to understand the the thought process......

All of the above.

I started it a long time ago but never contributed to it regularly. Now that I'm married, my wife and I have retirement accounts that trump my old Roth account as far as contributions.

I'm considering taking the money out, paying the 10% penalty (plus any taxes on the gains) and moving it into my Vanguard non-retirement where it will be used for future big purchases to help keep me debt-free (roof, HVAC, car, etc). As it is right now, it's just sitting there growing slowly but w/o further contributions.

 

[Ndaccountant]

guessing you started it one day then changed to something else. I did something similar going from a 401K, to now using a Roth exclusively, and not sure what to do with the little that's in 401k.

You can roll that over into the IRA.

 

[Ndaccountant]

All of the above.

I started it a long time ago but never contributed to it regularly. Now that I'm married, my wife and I have retirement accounts that trump my old Roth account as far as contributions.

I'm considering taking the money out, paying the 10% penalty (plus any taxes on the gains) and moving it into my Vanguard non-retirement where it will be used for future big purchases to help keep me debt-free (roof, HVAC, car, etc). As it is right now, it's just sitting there growing slowly but w/o further contributions.

Personally, I don't see the point. I understand the overhang of debt, but let's think through the implications....
1) Avoid interest on future debt - Paying 10% for a penalty is akin to paying 10% interest. For the type of expenses you listed, I find it improbable that you would actually save money by avoiding the debt.
2) If you have other Roth IRA's, you could simply roll it over to that account
3) If you do not have another Roth IRA, is your existing account able to trade individual securities? If not, roll it over into one that does so that you can avoid boredom with it.

Those are my thoughts, nothing earth shattering. The good news for you is that the $ amount is rather nominal, so if you do close it, it's not that big of a deal.

 

[BleedBlueGold]

Personally, I don't see the point. I understand the overhang of debt, but let's think through the implications....
1) Avoid interest on future debt - Paying 10% for a penalty is akin to paying 10% interest. For the type of expenses you listed, I find it improbable that you would actually save money by avoiding the debt.
2) If you have other Roth IRA's, you could simply roll it over to that account
3) If you do not have another Roth IRA, is your existing account able to trade individual securities? If not, roll it over into one that does so that you can avoid boredom with it.

Those are my thoughts, nothing earth shattering. The good news for you is that the $ amount is rather nominal, so if you do close it, it's not that big of a deal.

1) Makes sense. Didn't think of it that way.
2) We do have a second Roth IRA. I guess I could combine them. Although the idea at first was two IRAs meant two maximum yearly contributions (which at one point we were doing).
3) It's a single Vanguard retirement fund

And yeah, the nominal amount is the entire reason I brought it up. Sort of like "Meh, I'd rather spend that $1000 on something I need versus letting it sit there."

Thanks for the response.

 

[connor_in]

Put everything you have into underpants...NOW!!!

Between the 2016 presidential election and some of the forecasts for the economy, people will have to purchase a bunch as they will all soil themselves (probably multiple times) or you always have the South Park gnomes and their philosophy of how to turn them into profit.

 

[Veritate Duce Progredi]

Personally, I don't see the point. I understand the overhang of debt, but let's think through the implications....
1) Avoid interest on future debt - Paying 10% for a penalty is akin to paying 10% interest. For the type of expenses you listed, I find it improbable that you would actually save money by avoiding the debt.
2) If you have other Roth IRA's, you could simply roll it over to that account
3) If you do not have another Roth IRA, is your existing account able to trade individual securities? If not, roll it over into one that does so that you can avoid boredom with it.

Those are my thoughts, nothing earth shattering. The good news for you is that the $ amount is rather nominal, so if you do close it, it's not that big of a deal.

NDA, do you work in retirement planning?

 

[Ndaccountant]

NDA, do you work in retirement planning?

No I do not.

When I got my MBA, I essentially had 3 or 4 extra electives since I already had my Masters in Accounting (to get the 150 hours for CPA exam) and didn't need to take certain classes. I used 3 of the electives for courses that would help me if I wanted to take the CFA/CFP exams. By no means an expert, but I would consider myself to have more than a rudimentary understanding.

 

[pumpdog20]

Without knowing when the assets were bought, is it safe to say the earnings portion is relatively de minimis and the tax and penalty on that portion isn't that big of a deal? If the answer is yes, and you can use it to be/stay debt free, I'd go with that route.

I'm a CPA-less accountant, so maybe don't take advice from me.

 

[TheRealLynch51]

1) Makes sense. Didn't think of it that way.
2) We do have a second Roth IRA. I guess I could combine them. Although the idea at first was two IRAs meant two maximum yearly contributions (which at one point we were doing).
3) It's a single Vanguard retirement fund

And yeah, the nominal amount is the entire reason I brought it up. Sort of like "Meh, I'd rather spend that $1000 on something I need versus letting it sit there."

Thanks for the response.

Is the second IRA you're talking about your spouses', or do you have another separate Roth? If its your spouses', you can't combine the two. My advice (I'm a registered investment adviser) would be to turn the Roth into your "all or nothing play account" account so to speak. If you have other larger assets and the reduction of the $1000 wouldn't be a huge deal, go ahead and invest it in riskier positions. You already have the benefit of tax free growth, so try and grow that thing from where its at. The market will correct itself in the next year or so, but after that, ride the wide of growth that comes after a downturn. While it may not seem like a lot of money now, aggressive investing (assuming since you're under 59 1/2) will turn out a lot better if you have a time horizon of 15+ years towards retirement in an account that doesn't mean much to you.

 

[BleedBlueGold]

Is the second IRA you're talking about your spouses', or do you have another separate Roth? If its your spouses', you can't combine the two. My advice (I'm a registered investment adviser) would be to turn the Roth into your "all or nothing play account" account so to speak. If you have other larger assets and the reduction of the $1000 wouldn't be a huge deal, go ahead and invest it in riskier positions. You already have the benefit of tax free growth, so try and grow that thing from where its at. The market will correct itself in the next year or so, but after that, ride the wide of growth that comes after a downturn. While it may not seem like a lot of money now, aggressive investing (assuming since you're under 59 1/2) will turn out a lot better if you have a time horizon of 15+ years towards retirement in an account that doesn't mean much to you.

Second IRA is the wife's, so thanks for the clarification.

I think this whole thing comes down to a personal choice: Leave it alone and let it grow tax-free until I retire. Or pay the few-hundred-dollar penalty and re-invest it in my non-retirement account which will be used for my future cars, boat, major home repair fund. The latter obviously "costs" me money in that I have to pay a penalty and retain less of my money. But said cost is nominal. Also, the opportunity cost of keeping it invested in my Roth is that I can't touch it for 30 years. I'm a "bird in hand" kind of guy. I like the idea of having access to that money now (since I don't need it for retirement).

Thanks for the post. This isn't a crisis so it's something I can sleep on. Either way, I don't believe it's going to make or break my future financial plans.

 

[RDU Irish]

I would reconsider making Roth a part of your retirement plan. Having tax flexibility for major expenses in retirement is pretty valuable, plus no RMDs is something people do not appreciate until they are hit with them - think of it as another form of diversification.

If you think you will earn more later in your career and save enough to retire into a high tax bracket it is especially important to look at Roth before your a) make too much to contribute or b) too far down the road to build it up to a meaningful amount.

Also educate on the qualified early withdrawal options, you might be able to liquidate in conjunction with something that qualifies so you can avoid the penalty.

I disagree on the risk approach stated above. You can't take a tax loss if you lose it all so why bother? I think it is better to speculate with taxable money where you can hold winners to long term treatment and get tax relief on losers. More likely than not, you will be speculating it into oblivion before easy street.

Also if you are charitable, you can gift winners you do not want to own forever and reinvest with cash you would have given to your charities.

MBA CFA oversimplified advice that has minimal perspective on your total profile- take it for exactly how much you paid for it.

 

[wizards8507]

I would reconsider making Roth a part of your retirement plan. Having tax flexibility for major expenses in retirement is pretty valuable, plus no RMDs is something people do not appreciate until they are hit with them - think of it as another form of diversification.

If you think you will earn more later in your career and save enough to retire into a high tax bracket it is especially important to look at Roth before your a) make too much to contribute or b) too far down the road to build it up to a meaningful amount.

Also educate on the qualified early withdrawal options, you might be able to liquidate in conjunction with something that qualifies so you can avoid the penalty.

I disagree on the risk approach stated above. You can't take a tax loss if you lose it all so why bother? I think it is better to speculate with taxable money where you can hold winners to long term treatment and get tax relief on losers. More likely than not, you will be speculating it into oblivion before easy street.

Also if you are charitable, you can gift winners you do not want to own forever and reinvest with cash you would have given to your charities.

MBA CFA oversimplified advice that has minimal perspective on your total profile- take it for exactly how much you paid for it.

I'd recommend anyone getting their investing from us on the internet take an even more conservative approach. Park everything in an index fund and get your 10%.

 

[BleedBlueGold]

I'd recommend anyone getting their investing from us on the internet take an even more conservative approach. Park everything in an index fund and get your 10%.

I take the advice here as a building block for conversation when I meet with my adviser (who obviously has more insight into my portfolio than IE members). I appreciate the advice on this board though, because there are plenty of respectable and well-qualified posters.

For the record, my non-retirement fund is Vanguard Admiral Stock Index and Vanguard Admiral Bond Index, 80/20 respectively. I put a "car payment" in there every month and let it ride until I'm ready to buy a new one.