Want to max out 2013 IRA contra., but will change my AA

Have a question about your personal investments? No matter how simple or complex, you can ask it here.

Want to max out 2013 IRA contra., but will change my AA

Postby zup28w » Thu May 02, 2013 6:51 pm

Hi everyone,

I found this website April 2012 and have since followed the Jack Bogle investing methodology. I do have a question and was hoping someone could provide some insight. I'm 33 and for the last 2 years, I've been trying to max out my Roth IRA contributions along with my automatic 401K contributions at work.

In April 2012, I rebalanced my different accounts to have my preferred asset allocation using 3 total market funds (based on all my retirement accounts). I made sure my 401K contributions mimicked my desired AA as this was my only steady stream of input into my retirement savings. I now have enough saved up to max out my 2013 Roth contributions but I'm worried how it will effect my AA. My Roth IRA contains only my total stock and total bond funds (for tax reasons). My taxable accounts contain my total international funds along with additional total stock funds.

401K: VBMFX, VTSMX, VGTSX
Roth: VBMFX, VTSMX
Taxable: VGTSX, VTSMX

How should I max out my Roth? Invest the $5500 into the two existing Roth funds and then rebalance my 401K to bring my AA back to norm? I assume the 401K is the most tax advantageous place to rebalance.

Thanks for any input.

Greg
zup28w
 
Posts: 36
Joined: Wed Mar 28, 2012 10:17 am
Location: Boston, MA

Re: Want to max out 2013 IRA contra., but will change my AA

Postby telemark » Thu May 02, 2013 7:39 pm

The 401K and the Roth IRA are both tax sheltered, so there's no tax advantage to rebalancing in one over the other. If you're close to making Admiral in either of the funds in the Roth, it might make more sense to put the additional money in that fund and adjust the 401K accordingly.
User avatar
telemark
 
Posts: 832
Joined: Sat Aug 11, 2012 7:35 am

Re: Want to max out 2013 IRA contra., but will change my AA

Postby zup28w » Thu May 02, 2013 11:11 pm

Hi telemark,

Great idea about the Admiral funds. I'm not there yet but will look into that in the future.

- G
zup28w
 
Posts: 36
Joined: Wed Mar 28, 2012 10:17 am
Location: Boston, MA

Re: Want to max out 2013 IRA contra., but will change my AA

Postby englishgirl » Fri May 03, 2013 7:14 am

You don't have to have each fund in each account. For instance, you could do this:

401K: VBMFX
Roth: VTSMX
Taxable: VGTSX <-- note, I don't know what this is, but am too lazy to look it up. I'm assuming Total International?

or this:

401K: VBMFX, VGTSX
Roth: VTSMX
Taxable: VTSMX

or any combination, really. This may also help you reach Admiral shares quicker.

So, yes, whatever you put in the Roth, you can balance out in the 401k.
Sarah
User avatar
englishgirl
 
Posts: 2105
Joined: Thu Mar 01, 2007 6:34 pm
Location: FL

Re: Want to max out 2013 IRA contra., but will change my AA

Postby zup28w » Fri May 03, 2013 12:20 pm

Hi Sarah,

Thanks for the response. I prefer to have all 3 funds in my 401K since I automatically invest there.

I'm trying to remember how I ended up with the different allocations in the different areas. Either way, it's a good idea to re-evaluate (hopefully I'm a little smarter and more savvy than I was a year ago).

Greg
zup28w
 
Posts: 36
Joined: Wed Mar 28, 2012 10:17 am
Location: Boston, MA

Re: Want to max out 2013 IRA contra., but will change my AA

Postby Epsilon Delta » Fri May 03, 2013 1:04 pm

zup28w wrote:How should I max out my Roth? Invest the $5500 into the two existing Roth funds and then rebalance my 401K to bring my AA back to norm? I assume the 401K is the most tax advantageous place to rebalance.
Greg

You have a good plan. If there is a better plan (and there probably is) it is not much better. It's better to execute the good plan than wait for a perfect plan.

IMHO people worry too much about precision in asset allocation. 5% one way or another does not make that much difference. Once I had mid 5 figure portfolio I just threw the $2000 IRA contribution someplace convenient, when convenient, and took care of re-balancing on schedule at year end.
User avatar
Epsilon Delta
 
Posts: 3354
Joined: Thu Apr 28, 2011 8:00 pm

Re: Want to max out 2013 IRA contra., but will change my AA

Postby archbish99 » Fri May 03, 2013 4:18 pm

zup28w wrote:Thanks for the response. I prefer to have all 3 funds in my 401K since I automatically invest there.

It's certainly convenient to have one account with several asset classes for easy rebalancing. Since most 401ks don't have minimum balances per funds, it might be easiest to make the other accounts hold a single fund, and then tweak your 401k investment elections periodically to keep things balanced. (If stocks are high, new contributions go to bonds and vice versa.)
I'm not a financial advisor, I just play one on the Internet.
User avatar
archbish99
 
Posts: 1278
Joined: Fri Jun 10, 2011 7:02 pm


Return to Investing - Help with Personal Investments

Who is online

Users browsing this forum: 22twain, ArthurO, Bing [Bot], chickadee, Miakis, musbane, placeholder, tecmage and 89 guests