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O/T IRA ADVICE NEEDED

Discussion in 'Uncategorized Threads' started by CommonMan, Mar 1, 2007.

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  1. CommonMan

    CommonMan TS Member

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    With retirement a mere 35+ years away, I'm looking into opening a Roth IRA to supplement my 401k. With so many different brokerage firms out there I'm at a loss as to who to go through. Since my 401k is already with Fidelity, I was thinking that might be the way to go. But is it a good idea to have all my retirement savings tied up with the same people? Any advice you guys can give me on where to put my money would be great.
     
  2. Jeff P

    Jeff P Well-Known Member

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    Max out your 401k before you put money in the ROTH...you'll save on your taxes. There is an income phasout on the IRAs too. I can't remember offhand what it is, but I cannot contribute to my ROTH anymore.

    I gather you're around 30. Kudos to you for starting early!!! My emails up top...feel free to email me. I can help.

    Jeff Pokorny
    CPA
     
  3. front242

    front242 Member

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    Vanguard is always a contender because they have some of the lowest mutual fund costs around. They are no load, which means no up front or sale fees. That coupled with their low costs make them a good choice.

    Dodge and Cox is a smallish investment firm in San Francisco that is highly respected in the investment community. No Load funds with low fees as well.

    Oakmark has some decent choices. There are others.

    I wouldn't be afraid to diversify your holdings to other fund shops. I hold fidelity funds, vanguard, and others. The idea is to get the investments you want without too much overlap in stock or bond holdings. With 35 years to go in a Roth, Keep in mind if returns in the funds you choose now begin to lag for whatever reason, it's easy to change the allocation. My point is that the funds we choose now might not be a good choice to keep and hold until retirement. Sometimes a shuffle is called for. Don't feel like you're married to a fund if it no longer does what you want for a reasonable period.

    Happy investing!

    F242
     
  4. Jeff P

    Jeff P Well-Known Member

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    Dardanelles is right...do both. The EARLIER you put the money away, the better off you will be!! Most people i know aren't maxing out their 401k - which is kind of dumb, really - lets pay the IRS for no reason whatsoever.

    Both the Roth and the 401 come out as taxable money - dardanelles hints at something that should be explained more fully with the comment 'do you expect to be making more money or less' when you retire.

    You'll have to start making mandatory withdrawals at age 70.5, unless they changed the rules (I don't do public practice anymore)...if you save as much as you can, it's likely that your account will be so big, the maximum withdrawal will be more money than your annual salary was when you were working!

    Save as much as you can...every 1000 dollars put away now will equate to about $16,000 in 36 years. So not saving $10k this year, that could cost you $160k when you're 65. Waiting 9 years to start (at $10k per year) will cost you $720k in lost savings. Rule of 72 - 72 divided by the rate you expect to earn is the number of years it will take for the money to double. I did that math at 8% - so your money doubles every 9 years. if you put $10k away each year, for 10 years, you'd have $90k, plus interest, in 9 years, right? But you'll only get 3 doubles on it - to 180, to $360k, to $720k - in the next 27 years. If you had $90k today, you'd get 4 doubles - another $720k

    jeff
     
  5. perga1

    perga1 Active Member

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    Anyone out there invested in Index Annuities? Good or bad? JRM
     
  6. Tripod

    Tripod Well-Known Member

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    If I were 35 years away, I would not hesitate to put all the $$$ I could in an aggressive growth mutual fund for a few years in a Roth IRA. If you use different funds to diversify you should clean up. That tax free situation is tough to beat over the long haul. I would guess the tax rate will do nothing but go up over the next 35 years.
     
  7. lumper

    lumper TS Member

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    You will get both praise and also horror stories depending on who your talking to but they are all good.

    I dont know who you work for or how large the corporation is but your employer picked Fidelity to handle the 401k program for a reason instead of someone else so I would probably start right there and look at Fidelity.

    For the smaller investor almost every large brokerage house will offer you about the same thing ... free trades, free advice and free online research. Certain funds traded with no transaction fee and certain funds with no loads but those funds depend on the fund companies agreements with the brokerage house. To be honest Fidelity is not a bad firm at all for the smaller/average investor. If I were you I wouldn't hesitate at all with calling Fidelity and having them send you an enrolment pack or even doing it online.

    It is never to early to start planning for your future and a ROTH is a good second choice to go along with our company 401k.
     
  8. David Knapp

    David Knapp TS Member

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    Jeff I am not sure about this statement, Can you explain further "Both the Roth and the 401 come out as taxable money" The advantage of a Roth IRA, is that there are no taxes due at withdrawal. This tax advantage is passed to all heirs as well. All contributions are after tax to a Roth IRA, so no deduction on your income tax return.
     
  9. Tripod

    Tripod Well-Known Member

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    Iowa man!!
    I missed that. You are right. All monies coming out of a Roth IRA are Tax free thus the no brainer as far as I am concerned
     
  10. Jeff P

    Jeff P Well-Known Member

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    my apologies...I type faster than I can think. Quite a feat, since I only type about 40 words per minute.

    Of course, ROTHs come out tax free...the traditional IRA comes out taxable, as does the 401k. Dardanelles got me thinking about mandatory withdrawals, which got me thinking about the tax bite, which always gets me upset!! Many folks who have traditionals think they're sitting pretty with a chunk of cash, only to have the IRS take a bite out of their butt when they turn 70.

    ROTHS are tax free on withdrawal. Can I blane Dardanelles, or do I have to blame the IRS for making me mad??

    Sorry for confusion. less typing, more thinking.

    jeff
     
  11. dmarbell

    dmarbell Active Member

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    The main reason to choose a tax-deferred account (like 401k) over Roth is if you think you'll be in a lower bracket when you take the money out. No taxes are saved, contrary to popular belief, only deferred. The other reason is for company match. Above company match, it's a crap shoot on future rates.

    If you're in a low tax bracket now, you MIGHT be better off in the company 401k Roth if they have it and there's a match.

    Your main question was about investments, and I can't help you there. All the main fund companies are good choices. This isn't advice, but popular fund families are Fidelity, Vanguard and T. Rowe Price.

    Danny
     
  12. Jeff P

    Jeff P Well-Known Member

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    LOL, Dardanelles...that's very neighborly of you. Thanks. You're not an IRS agent, are you?

    Damn IRS, anyway. And the congress. Any money I don't spend on shooting, I save. And if I manage to save it, why should I have to pay taxes on it. I just did my taxes this past weekend. There must be some mistake....I'm only paying MY taxes right? No one slipped the tax bill for my whole block into my return, did they? I know I had a good year last year, but there's no reason to have to mail the IRS a new MX-2000 unsingle just to settle up, is there?
     
  13. bigclown

    bigclown TS Member

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    Think long and hard before signing on with the big name brokerage houses...they are great to visit with, will buy you lunch, ask about your kids, but charge you a bundle for your investments. Keep your expenses as low as possible - they are the one thing you can do to maximize your return - the rest is all risk, but many of the comments offered from the above are extremely worthwhile. Look hard at the Vanguard Funds. Ed
     
  14. dmarbell

    dmarbell Active Member

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    We all need to grasp the difference between tax deferred and tax free.

    The money you put into a 401k plan or deductible IRA is tax deferred. Whether you win the deferral game depends on changes in the tax rates. Time has nothing to do with it. If rates stay the same, there is no advantage to tax deferral over a Roth. This was not true before Roths were introduced in 1998, but it's obvious the thinking hasn't changed since then.

    When a company matches your 401k contributions, that is real gain. Above that match, it's a crap shoot on future tax rates.

    Suppose it's 30 years from now.

    30 years ago, you had an extra 2000 in the bank. You are in a 25% tax bracket. You owe 500 in tax. If you contribute to your deductible IRA, you will "save" 500 in tax. You have zero in the bank, 2000 in your IRA and you didn't have to pay the 500 in taxes.

    What you really have is 1500 of your money and 500 of IRS' money in the 2000 IRA account. (If you had contributed to a Roth, you'd have 1500 in the Roth.)

    Time makes no difference if tax rates don't change. Let's go out 30 years, and assume the account doubles every 10 years (rule of 72, doubles in 10 years at 7.2% - doubles 3 times in 30 years).

    The deductible IRA is worth 16000 total. Your money (1500) doubled 3 times to 12000 and the IRS' money doubled 3 times to 4000. 12000 + 4000 = 16000.

    The deferred taxes in the account compounded for the IRS and your money compounded for you.

    The 1500 Roth account would have doubled 3 times to 12000, the same as the IRA of 16000 less 25% in taxes.

    Taxes in a qualified account are deferred, not saved.

    The only way to win the deferral game is to be in a lower bracket when you take the money out.

    Time itself has nothing to do with tax rates. You can compound a deductible IRA until we have colonies on Mars, and if tax rates don't change the net money to you ratio doesn't change.

    The company match on a 401k plan is real gain.

    Think critically, not by rote.

    Danny
     
  15. goosecall

    goosecall TS Member

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    I have a traditional IRA, and thought about rolling it over to a ROTH IRA. Would this we a wise decision?
     
  16. dmarbell

    dmarbell Active Member

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    10Tenner,

    Get a copy of Ed Slott's book "The Retirement Savings Time Bomb..." and read the section on Roths. Read my post above. (You have to have Modified Adjusted Gross Income under $100k to qualify for conversion.) The answer depends on your current tax brackets and your future tax brackets (mainly), how soon you'll need to withdraw the money, and how much of it you need to live on. Age is somewhat of a factor, but whether you are over 59.5 is the biggest part.

    You also have to consider where you'll get the money to pay the income tax on the conversion.

    If you are over 59.5 I am convinced that, unless you are certain you'll be in a lower tax bracket when you start withdrawing the money, you are no worse off converting and paying the tax from the IRA. Your Roth grows at the same rate as the "net money" now in your IRA, and you are free from most of the onerous IRS rules about withdrawals.

    Most people still think there is some magic going on inside an IRA, where the tax money you don't pay today makes you more money for the future. Unless tax rates go down, it does not work that way. If tax rates stay the same, a Roth net of the taxes paid earns the same amount over time as a taxable IRA net of tax.

    Danny
     
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