First time poster - newbie question about bond funds

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First time poster - newbie question about bond funds

Postby spocksynder » Fri Dec 28, 2012 7:43 am

Hello,
I just turned 31. I intend to max out my retirement contribution this year. This is also the first year that I am contributing towards my retirement savings. I am not sure about how to split up the max allowable IRA contributions($11k, married filing jointly) between Roth IRA, and traditional IRA. I am leaning on putting the entire amount into a traditional IRA, but given that the wiki recommends adding bonds to a tax deferred account (http://www.bogleheads.org/wiki/Principles_of_Tax-Efficient_Fund_Placement), I am worried that I will lose out on tax efficiency by using this money for stock investing instead of bond investments.

Would you recommend saving in a traditional IRA(to save on tax immediately) or in a Roth IRA? To clarify, I am starting out with investments and have none so far(although I have cash savings much in excess of my emergency needs). I suppose it depends on each individual's situation, but I was wondering if anyone would have a recommendation based on where I am with my savings/investments at present.
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Re: First time poster - newbie question about bond funds

Postby livesoft » Fri Dec 28, 2012 8:04 am

You will not lose out on tax efficiency. The wiki does not say to put only bonds in an iRA. Plus you can change your investment in an IRA at just about any time. Typically you are not locked into a specific mutual fund, but can exchange into other funds or CDs or something else when you want.

As for Roth IRA versus traditional IRA, you didn't give enough information for anyone to help you decide. Perhaps it is time to step back and read some books. I will take the liberty and go out on a limb though: You should probably be investing in a employer-sponsored 401(k) or 403(b), too. A suitable investment might be a so-called target-retirement fund for your investments at this time, but it would depend on your goals.
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Re: First time poster - newbie question about bond funds

Postby Johm221122 » Fri Dec 28, 2012 10:00 am

Here is wiki for Roth vs traditional
http://www.bogleheads.org/wiki/Traditional_versus_Roth
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Re: First time poster - newbie question about bond funds

Postby midareff » Fri Dec 28, 2012 10:26 am

IMHO deducts from income tax on salary or earnings will always be better than not, especially when it also avoids income tax on distributions (IRA 401, 457, etc.). If there is a match involved it is even better and this is he place for your least tax efficient assets. Second best is beating income tax on distributions by using a (Roth). oth is also good for assets that are not tax efficient. Third is a taxable account in which the most tax efficient ssets are kept .. such as Total US Index Fund.

Just my 2 cents.
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Re: First time poster - newbie question about bond funds

Postby spocksynder » Fri Dec 28, 2012 2:30 pm

Thank you for the answers. Its very obvious to me that I need to do more research.

Also, I missed out on reading the newbie guide on the format of questions to post to the forum. I will do better next time.
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