for a friend TIRA question

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jafcorrea
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for a friend TIRA question

Post by jafcorrea » Tue Nov 22, 2016 8:26 pm

my friend want to open her first T IRA, she is 45y, she wants to start with 5500k for 2016, and put 5500k every year and forget about until 59 1/2 :mrgreen:

Question about mutual fund to pick:

Vanguard Target Retirement 2030 Fund (VTHRX)
or
Vanguard Balanced Index Fund Investor Shares (VBINX) .. after 10k she can go admiral shares
or
Vanguard Wellington Fund Investor Shares (VWELX)
Thanks JC

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Euclidian
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Re: for a friend TIRA question

Post by Euclidian » Tue Nov 22, 2016 9:57 pm

All three funds are fine choices.

I suggest the Vanguard Target Retirement Fund because it is created specifically for someone like her -- isn't sure what she needs and wants to forget about it until age 59 1/2

Stonebr
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Re: for a friend TIRA question

Post by Stonebr » Tue Nov 22, 2016 9:58 pm

Can we assume there are no other invested assets like 401k? Can we assume she's thought about her asset allocation and risk tolerance?

If so, these are all excellent choices. An IRA is the best place to own a balanced mutual fund. I don't have a strong preference among them. However...

I've found that explaining the concept of index funds to a complete novice is not all that easy. It's hard enough to understand what a mutual fund is, let alone a mutual fund that doesn't have a manager and why that's a good thing. Because of this, I've found it's best not to try. When I've suggested choices like this to my own friends, they've always picked Wellington for some reason (or ignored me completely). The beauty of Wellington is that it's easy to describe -- 65% big companies, mostly based in the US, mostly household names, about 35% in corporate bonds of companies that won't go out of business any time soon (knock on wood), performance history going back to 1929, and low expenses. The friends that went with Wellington are living happily ever after. They even thanked me during the 2008-2009 crash.
"have more than thou showest, | speak less than thou knowest" -- The Fool in King Lear

radiowave
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Re: for a friend TIRA question

Post by radiowave » Tue Nov 22, 2016 10:06 pm

+1 on the Vanguard Target Retirement Fund, pick an appropriate year for asset allocation, fire and forget.
Bogleheads Wiki: https://www.bogleheads.org/wiki/Main_Page

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jafcorrea
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Re: for a friend TIRA question

Post by jafcorrea » Wed Nov 23, 2016 11:29 am

looking at Vanguard website, i found out .. she can open a individual 401k (she is self employed and no employees)

:confused - can she open and contribute for both (t ira and i 401k)? ... (do not know much I have a simple ira/tira/roth)

anyone can explain hows both contribution works? (I know she can do 5.5k for now)

many thanks in advance
Thanks JC

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Duckie
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Re: for a friend TIRA question

Post by Duckie » Wed Nov 23, 2016 5:22 pm

jafcorrea wrote:looking at Vanguard website, i found out .. she can open a individual 401k (she is self employed and no employees)

:confused - can she open and contribute for both (t ira and i 401k)? ... (do not know much I have a simple ira/tira/roth)

anyone can explain hows both contribution works? (I know she can do 5.5k for now)
In her solo 401k she can contribute up to $18,000 as the employEE, plus up to ~20% of net income as the employER, with a total cap of $53,000.

She can also contribute up to $5,500 to a personal IRA, either Traditional or Roth. Depending on income the Traditional IRA may not be tax-deductible and/or the Roth IRA may not be allowed.

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jafcorrea
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Re: for a friend TIRA question

Post by jafcorrea » Wed Nov 23, 2016 5:58 pm

Thanks,
her & husband combine income is less 150k,
that is the part i do not understand!
why the need to have TIRA and solo 401k (after 59 1/2 you need to pay tax on both),
why not have a solo 401k and a Roth IRA (after 59 1/2 you do not pay tax on the Roth)
Thanks JC

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Duckie
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Re: for a friend TIRA question

Post by Duckie » Wed Nov 23, 2016 6:21 pm

jafcorrea wrote:why the need to have TIRA and solo 401k (after 59 1/2 you need to pay tax on both)
You don't need to pay taxes on pre-tax amounts until you withdraw them and you have until age 70.5 before withdrawals are required. Most people don't withdraw until after retirement when their tax brackets are usually lower.
why not have a solo 401k and a Roth IRA (after 59 1/2 you do not pay tax on the Roth)
I personally prefer pre-tax 401k and Roth IRA. If their combined income is around $150K then contributions to her TIRA won't be deductible anyway.

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jafcorrea
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Re: for a friend TIRA question

Post by jafcorrea » Wed Nov 23, 2016 6:26 pm

Duckie wrote:
jafcorrea wrote:why the need to have TIRA and solo 401k (after 59 1/2 you need to pay tax on both)
You don't need to pay taxes on pre-tax amounts until you withdraw them and you have until age 70.5 before withdrawals are required. Most people don't withdraw until after retirement when their tax brackets are usually lower.
why not have a solo 401k and a Roth IRA (after 59 1/2 you do not pay tax on the Roth)
I personally prefer pre-tax 401k and Roth IRA. If their combined income is around $150K then contributions to her TIRA won't be deductible anyway.

got it :sharebeer
Thanks JC

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