mmicha wrote:I've not put any money in my Roth IRA for 2013. I was looking for the taxable account to feed that yearly. Is that proper?
retiredjg wrote:mmicha wrote:I've not put any money in my Roth IRA for 2013. I was looking for the taxable account to feed that yearly. Is that proper?
Sometimes it is "proper", but it is not clear if that is a good choice in your case.
You have not shown any kind of plan at work such as a 401k, 403b, or SIMPLE IRA. If you have such a plan available, you should be putting some of your income there. Some of your income could also be going to Roth IRA as well. If you can't save enough to do both, it is fine to fill your work plan with income and transfer money from a taxable to Roth each year.
It would be helpful to have more information. Do you know your tax bracket? Are you married or single? Is there a plan at work? Etc.
As for what you have proposed, I'd probably put Total Stock Market in the Roth IRA instead of international. If your international is held in a taxable account, it is eligible for the foreign tax credit (see the Wiki).
retiredjg wrote:Is the 6% all you are able to save in a year? What is the 401k invested in?
retiredjg wrote:I know you think you answered the question, but is the 6% all you can afford to save each year (other than an occasional $25 or $50 going into savings when you get lucky)?
What is the savings for?
retiredjg wrote:So that leaves you with this for retirement:
Roth IRA $44,399.75
About how much money, in dollars, is your contribution and the employer match together?
retiredjg wrote:This would be the usual suggestion. However, I don't know what is available in your 401k, so it is just a guess.
Total of these 3 accounts = $141,974 (percentages below are derived from this number)
Taxable 63.1% ($89,575.99)
42.1% Vanguard Total Stock Market
21% Vanguard Total International
401k 5.6% ($8,000)
0% 500 Index
Roth IRA 31.3% ($44,399.75)
6.9% Total Stock Market
24.4% Total Bond Market
Each year you would contribute about $1,080 to bonds and $2,520 to 500 Index in your 401k. Each year, you would sell $5,500 in TSM in taxable and buy the same in your Roth IRA. In the years when the sale in taxable would be a gain, you'd pay taxes on the gain at tax time.
In years when the sale in taxable would be at a loss (which you can take off your taxes), you could not buy the exact same fund in the Roth IRA without creating a wash sale, so you'd have to buy something else for the 30 day wait time or wait out 30 days in money market.
An option using a target fund (which you seem to like) in the 401k would work as well, but you'd just do the math without including that account.
Vanguard TR 2025 <--this is the fund that is allocated at 70/30
Total $133,974 for these 2 accounts (percentages below are derived from this number):
Taxable 66.9% ($89,575.99)
45.9% Vanguard Total Stock Market
21% Vanguard Total International
Roth 33.1% ($44,399)
3.1% Vanguard Total Stock Market
30% Vanguard Total Bond Market
This last idea is essentially the same as your current idea but the Target Fund in the 401k is changed so that it is consistent with the stock to bond allocation you said you want. Again, you'd have to watch for wash sales if you sell Total Stock Market at a loss to put money into Roth IRA.
Do you like either of these ideas?
mmicha wrote:I like the second option... Though right now I'm not against the risk of the Target 2050 since it isn't a lot of money.
I've got to think more about what you are saying with the wash concept... I'm trying to make this as simple as possible for myself. I just got out of a "managed portfolio" and so much of it is new.
retiredjg wrote:mmicha wrote:I like the second option... Though right now I'm not against the risk of the Target 2050 since it isn't a lot of money.
That's fine too. It puts your overall portfolio a little more aggressive than 70/30, but you've got room to be more aggressive if you want.I've got to think more about what you are saying with the wash concept... I'm trying to make this as simple as possible for myself. I just got out of a "managed portfolio" and so much of it is new.
See if this helps. Wiki article link: Wash sale
One thing I didn't think of earlier but you might want to consider is to use some of the money in your taxable account for living expenses while you contribute the max ($17.5k) to your 401k each years. This effectively transfers money from the taxable account into the 401k and will lower your taxable income each year by about $13.9k (17,500 minus 3,600). Since you are in the 25% bracket, this would lower your federal taxes about $3,475 each year. That money could be saved and invested in Roth IRA (reducing the transfer to Roth each year) or your savings.
It would take you several years to completely deplete the taxable account and in the end, your 401k would be larger. When you reach retirement, if you do not have a pension, there is a good possibility you will fall into a lower tax bracket - you might pay 15% on the money coming out of the 401k. Since you saved 25% putting the money into the 401k, you would end up with more money in the long run.
Does this interest you?
mmicha wrote:It is certainly something to think about... Though there is something comforting knowing that money is accessible. If I move it to a 401k and such I feel like it is gone till I'm in my 60's. It doesn't seem so bad to take out 5,500 a year and move it as the rest grows and is accessible.
I also forgot to mention I've got around 8-9k in IBM stock. I'd really like to get rid of my student loans and wonder if you think this might be a good place to sell and pay down the loan? It's 2.5% and around 14-15k...
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