What to do savings/roth ira/401k

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What to do savings/roth ira/401k

Postby fkampere » Thu Dec 06, 2012 11:39 am

Alright I'm 24 years old and new to investing I'm pretty good with saving my money but all I do is put it in my savings account so figured I need to change and start investing some of it.

I have $40,000 saved up in my bank account and no debt.

I just started a Roth IRA with Vanguard since I have my 401k with them also.

I only put $1000 in there so far might make the max contribution before the year is over with.

Right now I have it in the Vanguard STAR Fund (VGSTX) I plan on putting $400 a month into this account is this a good fund to go with?

As for my 401k I have $4000 and just have it all in the Vanguard Target Retirement 2055 VFFVX because I don't have to many other choices other than

Vanguard Target Retirement Income
Vanguard Target Retirement 2010/2060
Vanguard Retire Savings Trust V
Vanguard Total Bond Mkt Index Inv VBMFX
Vanguard Extended Mkt Index Inv VEXMX
Vanguard Growth Index Fund Inv VIGRX
Vanguard Inst Index Fund Inst VINIX
Vanguard Value Index Fund Inv VIVAX
Vanguard FTSE All-World ex-US Inv VFWIX
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Re: What to do savings/roth ira/401k

Postby Pennstateclj1 » Thu Dec 06, 2012 2:51 pm

Welcome to the forum,

The good news is you've come to the right place, and you already have an impressive amount saved for 24 years old with no debt.

I would, without hesitation put the full $5000 in to the ROTH for 2012, and in January, I would again without hesitation add another $5500 for 2013. That's $10,500 total you can now allow to grow tax free forever. That still leaves you with almost 30k. How much are you stuffing in the 401k? What are your tax rates? How much money do you have to invest monthly? Could you max out your 401k contribution at $17,500 for next year and still live a little? You are in a great position to do it all right from the get go.

The STAR fund is fine while you educate yourself. Amount saved and continued savings rate is much more important at the beginning than what it's in. I suggest you start with The Boglehead's Guide to Investing and All About Asset Allocation at a minimum. You'll be ahead of probably 98% of the population (I made that percentage up) but really, do it.
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Re: What to do savings/roth ira/401k

Postby BL » Thu Dec 06, 2012 4:08 pm

Nothing wrong with the Star fund or same TR fund as in 401k for your Roth IRA. Maybe check out the Life Strategy funds when you have 3000. You have until next April to complete your 2012 Roth IRA.

You have outstanding funds available in your 401k where I assume they are very low-cost funds. You have total bond, Institutional index (S&P Index?) + Extended Market, and FTSE international which covers the whole gamut if you eventually choose to break TR into parts.

Nothing wrong with what you have now with no need to rebalance or worry about it if the allocation of stocks to bonds is what you want (probably mostly stocks there now). You need to be mentally prepared to see a 40-50 % drop in value without panic selling. Many would suggest more bonds, but do some reading for now and see what Asset Allocation (AA) you want.

Decide how much you need to keep as emergency funds (EF) , or other short term needs such as saving for car or house, and use the rest to take care of Roth (which can be a secondary EF) and maybe to eat on while more of your income goes directly to 401k. Check into I-bonds for currently better interest rates than CDs for needs at least 1 year away.

Congratulations on doing a great job of savings!
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Re: What to do savings/roth ira/401k

Postby fkampere » Fri Dec 07, 2012 8:38 am

Pennstateclj1 wrote:How much are you stuffing in the 401k? What are your tax rates? How much money do you have to invest monthly? Could you max out your 401k contribution at $17,500 for next year and still live a little? You are in a great position to do it all right from the get go.


I only make $35k a year right now I started putting in 5% my employer matches 7% so 12% all together for my 401k. I've been putting about $1000 a month in savings account because I wanted to buy a house but I kind of changed my mind and I think renting might be what I end up doing still living at home with parents.

I don't want to put all of it in 401k because I kind of want the ability to access it if I need it for something. I like the idea of Roth IRA so that is why I opened one was I smart to go with the vanguard funds one or should I of went with the brokerage one so I could pick stocks?

Also I was looking at the Like Strategy Funds which one is the best though?
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Re: What to do savings/roth ira/401k

Postby jimkinny » Fri Dec 07, 2012 9:25 am

Reading the Wiki might be of some help. Here is a link to the main page, see "Getting Started". Also consider buying the "Boglehead Guide to Investing" book via Amazon (see the link to Amazon on the forum page, upper right).

http://www.bogleheads.org/wiki/Main_Page

Here is a link to a discussion of a 3 fund portfolio:

http://www.bogleheads.org/forum/viewtopic.php?f=10&t=88005

On the Wiki make sure that you read about tax efficient fund placement. Spend a lot of time thinking about portfolio risk level which is generally thought of as how much equity vs bonds is in your portfolio. Here is an approach taken by a frequent poster/author/financial advisor Rick Ferri. The Wiki has some information on risk also.

http://www.rickferri.com/blog/strategy/the-flight-path-approach-to-age-based-asset-allocation/

Read about the advantages of I Bonds on the Wiki. For me, the most important aspect is that I do not have to pay taxes on interest earned or on the inflation adjustment, until I sell them, therefore I can keep them in a taxable account.

Take a few weeks to learn a bit about investing. You have plenty of time and you are already executing the most important aspect of an investment plan and that is saving.

I wish I would have been as informed and motivated as you are at your age.

Jim
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Re: What to do savings/roth ira/401k

Postby fkampere » Fri Dec 07, 2012 10:15 am

jimkinny wrote:Reading the Wiki might be of some help. Here is a link to the main page, see "Getting Started". Also consider buying the "Boglehead Guide to Investing" book via Amazon (see the link to Amazon on the forum page, upper right).

http://www.bogleheads.org/wiki/Main_Page

Here is a link to a discussion of a 3 fund portfolio:

http://www.bogleheads.org/forum/viewtopic.php?f=10&t=88005

On the Wiki make sure that you read about tax efficient fund placement. Spend a lot of time thinking about portfolio risk level which is generally thought of as how much equity vs bonds is in your portfolio. Here is an approach taken by a frequent poster/author/financial advisor Rick Ferri. The Wiki has some information on risk also.

http://www.rickferri.com/blog/strategy/the-flight-path-approach-to-age-based-asset-allocation/

Read about the advantages of I Bonds on the Wiki. For me, the most important aspect is that I do not have to pay taxes on interest earned or on the inflation adjustment, until I sell them, therefore I can keep them in a taxable account.

Take a few weeks to learn a bit about investing. You have plenty of time and you are already executing the most important aspect of an investment plan and that is saving.

I wish I would have been as informed and motivated as you are at your age.

Jim


Alright going to start reading some of this stuff right now thanks for the help so far guys.

Glad I discovered this forum everyone seems so nice.
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Re: What to do savings/roth ira/401k

Postby JW Nearly Retired » Fri Dec 07, 2012 10:59 am

fkampere wrote: I only make $35k a year right now I started putting in 5% my employer matches 7% so 12% all together for my 401k.

Have you verified employer is putting in 7%? Usually a 7% "match" would mean they would match what you put in up to 7%. If you only put in 5% they would only match that 5%.

We always advise to put in at least the amount of the employer match maximum.
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Re: What to do savings/roth ira/401k

Postby fkampere » Fri Dec 07, 2012 11:27 am

JW Nearly Retired wrote:
fkampere wrote: I only make $35k a year right now I started putting in 5% my employer matches 7% so 12% all together for my 401k.

Have you verified employer is putting in 7%? Usually a 7% "match" would mean they would match what you put in up to 7%. If you only put in 5% they would only match that 5%.

We always advise to put in at least the amount of the employer match maximum.
JW


Yeah they're doing 7% with me putting 5% and that is the maximum they will contribute. So I figure the rest of the money I'll use for the Roth IRA so I have more choices on where my money is going and if I need it I can get to it.
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Re: What to do savings/roth ira/401k

Postby nimo956 » Fri Dec 07, 2012 11:53 am

Is the $40k in your bank account for anything specific like a house downpayment? If not, you can "convert" this taxable money to tax-deferred by doing the following:

1. Change your paycheck deductions so that you contribute $17,500 to your 401k for 2013. This will make your paycheck really low. Also contribute $5,500 to a Roth IRA.
2. Use the $40k in your bank account to pay for everyday living expenses.
25% S&P 500/ 25% 30 year US Treasury Bond/ 25% Gold/ 25% Cash
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Re: What to do savings/roth ira/401k

Postby fkampere » Fri Dec 07, 2012 12:15 pm

nimo956 wrote:Is the $40k in your bank account for anything specific like a house downpayment? If not, you can "convert" this taxable money to tax-deferred by doing the following:

1. Change your paycheck deductions so that you contribute $17,500 to your 401k for 2013. This will make your paycheck really low. Also contribute $5,500 to a Roth IRA.
2. Use the $40k in your bank account to pay for everyday living expenses.


Initially it was for a house down payment but I'm not sure if I want to buy a house anymore but I'd like to keep most of it available to me just in case I change my mind.
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Re: What to do savings/roth ira/401k

Postby BL » Fri Dec 07, 2012 12:18 pm

fkampere wrote:
Pennstateclj1 wrote:How much are you stuffing in the 401k? What are your tax rates? How much money do you have to invest monthly? Could you max out your 401k contribution at $17,500 for next year and still live a little? You are in a great position to do it all right from the get go.


I only make $35k a year right now I started putting in 5% my employer matches 7% so 12% all together for my 401k. I've been putting about $1000 a month in savings account because I wanted to buy a house but I kind of changed my mind and I think renting might be what I end up doing still living at home with parents. I suggest you go to 10% (or at least 7+% ) in your 401k. This is the time when you have the best opportunity to get something into retirement savings which will have lots of time to hopefully increase a lot.

I don't want to put all of it in 401k because I kind of want the ability to access it if I need it for something. I like the idea of Roth IRA so that is why I opened one was I smart to go with the vanguard funds one or should I of went with the brokerage one so I could pick stocks?
Fill the Roth (5k for 2012, 5.5k for 2013, you have until April to finish 2012, but the sooner, the better). The amount you put in can be withdrawn in an emergency but of course you would prefer not to do that if possible.

Also I was looking at the Like Strategy Funds which one is the best though?

Life Strategy Moderate has 60% equities as does Star. Since you are young, you might consider Aggressive (80%) which has greater potential for more gain but with much more extreme variations.

You really need to do some reading in recommended books or at least the Wiki here so you are not just taking the recommendations of some anonymous internet people! (Having said that, we are not gaining anything from selling you funds, so I believe you are getting much better unbiased advice here , especially when several longer-time members agree with the advice.)
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Re: What to do savings/roth ira/401k

Postby fkampere » Thu Feb 14, 2013 11:45 am

Alright I just wanted to give you guys a update. So I downloaded Bogleheads Guide to Investing read it on my computer and liked it so much that I ended up ordering a copy off amazon so I could re-read it.

I ended up fully funding my Roth IRA for both 2012 & 2013 and putting 45% into my 401k right now. :D

How do I go about maxing my 401k for this year? I know it's $17,500 but which ones does it include just my employee pre-tax and bonus? or does it include the auto co contribution and employer match to?

So far it looks like this.

AUTOMATIC CO CONTRIBUTION $153.83
EMPLOYEE PRE-TAX $2,343.77
EMPLOYEE BONUS DEFERRALS $215.51
EMPLOYER MATCH $205.12
Total $2,918.23
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Re: What to do savings/roth ira/401k

Postby fkampere » Sat Feb 16, 2013 11:55 am

Bump!
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