Just Maxed Roth, What Now?

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okta614
Posts: 2
Joined: Wed Feb 06, 2013 2:08 am

Just Maxed Roth, What Now?

Post by okta614 » Wed Feb 06, 2013 2:19 am

Updated Items in Bold

Hello everyone,

Let me preface this post by saying that I'm a complete investing newb. I read the wiki and Bogleheads Guide to Investing.


Current earnings: Around $30k (I currently make money in Japanese Yen, so at current exchange rates, I make about $33126.45 at today's exchange rate. However, with the current efforts to weaken the Yen, this value will drop)
Annual savings (After expenses): Around $20k
Emergency funds: 3 months worth of expenses ($2,700)
Short-term goal funds: $1,500
Debt: No debt
Tax Filing Status: Single
Tax Rate: 15% Federal, 4% State
State of Residence: Louisiana
Age: 27
Annual Savings: $20k
Desired Asset allocation: 75% stocks / 25% bonds
Desired International allocation: 25% of stocks

Current retirement assets
Taxable
$6,000 cash (sitting in savings account)
Roth IRA
100% Vanguard Target Retirement 2050 Fund (VFIFX) (ER: .18%)

New annual Contributions
$5,500 Roth IRA
$14,500 taxable

IPS
Goal Early retirement in a low cost-of-living country (e.g. Thailand, Indonesia). In order to reach this goal, I need about $12k annually (about $300,000 in portfolio at 4%).
- Time frame: 15 years
Goal Plans
- Type of Account: Roth IRA, taxable accounts
- Annual Savings: $20k
- Current Asset Allocation: VFIFX Fund (63.1% US Stocks, 27% Int’l Stocks, 9.9% Bonds)
- Ideal Asset Allocation: 50% US Stocks, 25% Int’l Stocks, 15% Bonds, 10% TIPS
- Plan B: Work an extra 5 – 10 years, work side jobs.
Short-term purchases
- I currently have no plans for any large, short-term purchases. However, I will set aside a bit of money in case the need for something arises (about $1,500 total).

Notes:
- I am a U.S. citizen, but I am currently living and working in Japan. I plan on being here until I reach my IPS goal. As such, tax-advantaged accounts such as 401k, HSA, etc. are not available to me. However, if you know of any that I can take advantage of, given my situation, I'm happy to hear.


So, I recently opened a Roth IRA and maxed it out for 2012 and 2013. I invested everything into Vanguard's VFIFX fund (Vanguard Target Retirement 2050 Fund). I'm feeling pretty good so far, but I'm still sitting on about $6,000 that I want to invest. I'm looking to save up another $4,000 and investing in VTSAX (Vanguard Total Stock Market Index Fund Admiral Shares) into a taxable account (I don't have the option of a 401k). After that, I want to diversify a bit with some bonds. So the questions:

1) Would it be better to invest in the bonds through the IRA?
2) Would you recommend the VTSAX over the VTSMX? For the most part, the only difference I see is the minimum (VTSAX: $10,000; VTSMX: $3000) and ER (VTSAX: 0.06; VTSMX: 0.18).
3) What other options do I have available to me outside of what I proposed?

Any help is greatly appreciated. Thanks!
Last edited by okta614 on Wed Feb 06, 2013 9:18 pm, edited 3 times in total.

nwffdiver
Posts: 56
Joined: Mon Oct 01, 2012 9:26 pm

Re: Just Maxed Roth, What Now?

Post by nwffdiver » Wed Feb 06, 2013 2:24 pm

Okta,

If you do buy in with $6000 in VTSMX when you carry a balance of over $10k Vanguard will change you to Admiral shares and the lower ER. One thing to think about is how much US equities is in your ISP. The 2050 fund will have a significant amount in it. That could make your overall amount higher than you want.

Somebody with more knowledge can jump in... Hopefully this will bump you up. :happy

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nyinvestor718
Posts: 69
Joined: Thu Mar 05, 2009 7:59 am
Location: New York City

Re: Just Maxed Roth, What Now?

Post by nyinvestor718 » Wed Feb 06, 2013 2:49 pm

Okta,

Do you buy any chance carry a HDHP (high deductible health insurance plan)?
If so, your next best option is an HSA (health savings account).

I believe the max is ~2000 per year. Contributions lower your AGI, and distributions are also tax free if used for qualified health expenses.
Many bogelheads simply pay out of pocket and hold their receipts until the day comes in which they absolutely need to take a distribution. The out of pocket medical expenses accumulate over time, and always counts toward future withdrawals.
When you turn 59.5, the account works like any other IRA.

http://www.bogleheads.org/wiki/HSA
All mankind is divided into three classes: those that are immovable, those that are movable, and those that move. -Benjamin Franklin

phish_indexer
Posts: 86
Joined: Sun Aug 15, 2010 9:08 pm

Re: Just Maxed Roth, What Now?

Post by phish_indexer » Wed Feb 06, 2013 3:25 pm

Check out how to ask portfolio questions at the top of this forum. Then edit your post. Do you have a 401k plan or equivalent through work? Do you have an IPS with a stated asset allocation? If not, you need one because your idea leaves you overweight US stocks. How about debt? Short-term purchases?

HSA contribution limits are $3250 for 2013 and $3100 for 2012 for single filers. You can contribute for both years if you haven't filed 2012 taxes yet and if you have a HDHP. The non-qualified withdrawals without penalty start at age 65 rather than 59.5 for HSAs.

Anyways, we need more info about your situation.

vtanzi
Posts: 40
Joined: Sun Jan 13, 2008 10:58 am

Re: Just Maxed Roth, What Now?

Post by vtanzi » Wed Feb 06, 2013 3:26 pm

nwffdiver wrote:Okta,

If you do buy in with $6000 in VTSMX when you carry a balance of over $10k Vanguard will change you to Admiral shares and the lower ER. One thing to think about is how much US equities is in your ISP. The 2050 fund will have a significant amount in it. That could make your overall amount higher than you want.

Somebody with more knowledge can jump in... Hopefully this will bump you up. :happy


From my experience when your account gets over 10K in 1 Fund you actually need to go into your account and convert it to Admiral Shares--its not automatic.

okta614
Posts: 2
Joined: Wed Feb 06, 2013 2:08 am

Re: Just Maxed Roth, What Now?

Post by okta614 » Wed Feb 06, 2013 9:10 pm

Hello everyone,

Sorry for the lack of details on my situation. I've updated the original post with as much information as possible. Please let me know if you need more!

@nyinvestor718: Unfortunately, I don't have an HDHP. I'm currently working and living in Japan, so I don't think I qualify. But I do receive healthcare due to my job. I don't believe they offer anything like a health savings account).

phish_indexer
Posts: 86
Joined: Sun Aug 15, 2010 9:08 pm

Re: Just Maxed Roth, What Now?

Post by phish_indexer » Wed Feb 06, 2013 9:52 pm

Thanks for the updated info. First of all, yours is a pretty unique situation. It seems that you plan to be an ex-pat for life. This will affect your AA in that you won't be consuming in American dollars. So you'll probably want a more globally-weighted portfolio. (I'm not a CPA and don't know how taxation would affect you, but you'll want to find out.) Since you'll have to invest in taxable, I'd keep Total World Stock there (or your mix of Total Domestic and Total International) and all of your fixed income in the IRAs with additional IRA money in stocks. That keeps things simple and efficient. The real questions in your scenario are taxes (and maybe currency-hedging) which hopefully others can answer.

On a side note, I'm also 27 and sometimes play around with the idea of moving abroad. I'm fluent in Spanish and have done short-term work in South America, so culturally I think I could handle a move. But I would be removed from friends and family (less so these days with Skype and whatnot) and couldn't make enough to fund a US-based retirement. Health care is a worry, too. So kudos for pulling the trigger and doing something so unique.

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