IRA yes or no?

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7out
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IRA yes or no?

Postby 7out » Sun Mar 12, 2017 1:45 pm

Hey Guys,

I'm 61 and my wife is 52. After a few bad decisions, I started my life over in the mid 40's. 15 years ago I started a Vanguard traditional IRA. Not knowing where to put it, I choose the Vanguard Value Index. Every year I have contributed the maximum. 12 years ago I started one for my wife, she doesn't work because of health issues, but I have maxed her's out as well. I'm not sure why, but I choose the Vanguard Dividend Growth for her. I have a 401k at work, and it is split between 3 funds, Vanguard 500 Index Admiral, JPMorgan Large Cap Growth Select, and Vanguard Mid Cap Index Adm. I have delayed doing my taxes for 2016 because I'm not sure what to do with my contribution this year. Would it be wise to put the $6,500 X 2 in our current funds? I have 30k in my emergency fund. I will have to take 10k out of it to be able to contribute the $13,000 for both our IRA's.

I hope to retire in the next couple years. Would it be better for me to put that 6,500 x 2 in different funds? My home will be paid off in 8 months and other than that, I am debt free.

I don't know enough to make the right decision. I've been wondering if maybe I should start a Roth with this 2016 contribution. And put it in a safer spot because of our age. On the other hand, would it be wiser to leave the 10k in the emergency fund and just forget the IRA this year? Something tells me that no matter what, it's probably better to always choose IRA regardless of your age. Also, are the funds we are currently in good choices for people close to retirement?

Thank you very much for taking the time to read this, and I really appreciate any and all advice.

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David Jay
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Re: IRA yes or no?

Postby David Jay » Sun Mar 12, 2017 2:52 pm

Without knowing about your portfolio size, your retirement goal and your projected expenses in retirement it is difficult to provide good input.

I have been looking at my future RMDs and I have determined that I need to get funds out of tax deferred (401K, tIRA) and into non-taxable (Roth) (I am age 60). But without more data I would not recommend that for you. You should start a Roth for your spouse just to get the 5 year clock going.
"Prediction is very difficult, especially about the future" Niels Bohr

7out
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Re: IRA yes or no?

Postby 7out » Sun Mar 12, 2017 5:43 pm

Hi David, thank you so much for your reply!

My only investments are my IRA - Vanguard Value Index which is currently $153,000. A 401k with Transamerica that is $111,000 today. I have a small mutual fund in the Vanguard Mid-Cap Index which is around $35,000. My wife's IRA is in the Vanguard Dividend Growth and is $89,000 currently. I have $30,000 in my emergency fund. That is all I have investment wise. Once I pay off my home in 8 months, I will be debt free. If I was to retire at age 62, I would get a social security benefit of $1605.00 a month. With no bills aside from utilities and insurance, I'm wondering if I can retire. Maybe I work another year or two if necessary. I like your advice on the wife's Roth. So I would just leave her traditional alone, and start up a new fund and label it her Roth IRA?

aristotelian
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Re: IRA yes or no?

Postby aristotelian » Sun Mar 12, 2017 5:50 pm

You should absolutely contribute. Just get it done. You can decide later what to put it in. Any moves you make with IRA funds have no tax consequences so you can rebalance more or less at will.

The funds you have picked are fine. Most here would recommend a combination of Total Stock Market Index, Total International Stock Market Index, and Total Bond Market. You can also do a target date fund and set and forget.

From what you are saying, the lack of a bond fund is a red flag. With the stock market high, now is a great time to rebalance toward a more conservative allocation.

7out
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Re: IRA yes or no?

Postby 7out » Mon Mar 13, 2017 10:43 am

Thank you Aristotelian. When you say I can decide later what to put it in, do you mean I can do my taxes now and claim that I have maxed both IRA's with the IRS? Also, should I make this years $6,500 contribution for me into a bond fund to help to start my re balancing?

Thank You very much for the help!

aristotelian
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Re: IRA yes or no?

Postby aristotelian » Mon Mar 13, 2017 11:09 am

I mean that there is no tax consequence to moving your IRA money. You can invest in something now and then change tomorrow. In a regular account, any change would be a taxable transaction and you would have to pay taxes on the gains and report it to the IRS. With your IRA, you can freely move money around since you have already paid taxes (Roth) or will pay them in the future (Traditional).

Yes, I would recommend a bond fund if you do not have any in your portfolio.

Also, to decide between Traditional and Roth, the question is whether your tax bracket will be higher now or in retirement. If you are going to be in a lower tax bracket in retirement, go for Traditional.

retiredjg
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Re: IRA yes or no?

Postby retiredjg » Mon Mar 13, 2017 11:42 am

There are too many unanswered questions to help much. However, one thing stands out - it appears you have no bonds or other fixed income assets in your portfolio. That means your portfolio is VERY risky and that needs to be remedied unless you have a specific reason for doing it this way. As you approach retirement, you need to think more about preserving what you have saved - this means more bonds.

Among the unanswered questions - your tax bracket, whether you can deduct contributions to tIRA, whether you can contribute directly to Roth IRA, etc.

It would be a good idea to give your entire portfolio a good look and renovation and people can help you with that. See the link at the bottom of this message for how to present your situation for the best help. It is some work, but people learn a lot by doing it.

pkcrafter
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Re: IRA yes or no?

Postby pkcrafter » Mon Mar 13, 2017 12:07 pm

Welcome to the forum,
Also, are the funds we are currently in good choices for people close to retirement?

One problem you may run into is a market downturn between now and just after you retire. At 100% stock you run the risk of seeing your portfolio fall by as much as 30-50%. That would probably scrap your idea of retirement in a few years. So, you have to get your equity allocation down to something less risky, perhaps 50-50 or 40/60.

Secondly, the considered "safe" withdrawal rate from retirement funds is about 4% of total assets. Can you get by on a 4% withdrawal plus social security?

Finally, you need to consider all accounts as one portfolio, so the bonds can go one place and equities another if it works out better that way.

What was suggested by aristotelian was to contribute to the Roths using cash or what ever else you want to use because you can always switch to other investments/funds once the Roths have been funded. I'll suggest you look at either Vanguard target retirement funds (pick by allocation, not by date), or Vanguard LifeStrategy funds. LS funds come in allocations of 20% stock, 40%, 60% and 80% and the allocations are fixed. The target funds have declining stock allocations and hit a low of 30% stock 7 years after the date.

Whats good about both of these types of funds is they are fully diversified with total stock market, total international and bonds, and you would choose based on the amount of bonds you want. They rebalance automatically, so they are hands-off.

https://investor.vanguard.com/mutual-fu ... trategy/#/

https://investor.vanguard.com/mutual-fu ... irement/#/

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

7out
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Re: IRA yes or no?

Postby 7out » Mon Mar 13, 2017 2:54 pm

Thank you so much for the feedback guys!

Emergency funds: 20,000 (2,500 x 6 months = $15,000)
Debt: Mortgage $8,100 @ 4.5%
Tax Filing Status: Married Filing Jointly (wife doesn’t work, $0 income)
Tax Rate: 15% Federal ($55,000 2016) 0% State
State of Residence: Nevada
Age: 61 (wife 52)
Desired Asset allocation: currently 100% stock – my age should dictate 40/60? I’m way off with 0 bonds at the moment.
Desired International allocation: ?
Current retirement assets
Taxable
Vanguard Mid-Cap Index $35,000
His 401k ($111,294.43) Company matches 2% on my first 4%
33.80% Vanguard 500 Index Admiral
28.06% JPMorgan Large Cap Growth Select
38.14% Vanguard Mid Cap Index Adm

His Traditional IRA at Vanguard
Vanguard Value Index ($153,000)

Her Traditional IRA at Vanguard
Vanguard Dividend Growth ($89,000)

I dropped my emergency fund number to $20,000. I'm going to immediately take out the other 10k. I have 3,000 in checking which I can combine with it to fund both 2016 IRA's ($6,500 X 2)

@aristotelian - I have to think my retirement tax bracket will be lower. I made 55k last year putting me in the 25% bracket. So I should stay with a traditional IRA at this point?

@retiredjg - I basically started over from scratch around age 45. I didn't know any better, so I just put everything I had in what I believed were aggressive growth funds to make up for lost time. I don't think I can deduct contributions to the tIRA because of my 401k, is that right? I believe I can contribute to a ROTH IRA. Thank you for the heads up on the portfolio questions link.

@Paul - I live a pretty simple life, I'm thinking I can probably get by on 4% withdrawal with my social security. If I only looked at my current IRA of $150,000 @ 4% that would be 6,000 a year. $1605 SS + 500 a month would probably be enough to live the way i do now. Thank you for the links to the Vanguard funds.

Starting from 0 savings 16 years ago to having something today, I feel like I have a reasonable shot to retire. It's been nice watching these numbers rise over the last several years. As much as I've enjoyed being in these growth funds, I need to remember that I'm 61 now and need to be smart with what I have.

Thanks again guys!

Update:
@ruralavalon
What are the expense ratios of the funds you are using in your 401k? In your 401k what are the bond funds offered which have the lowest expense ratios, and what are the international stock funds offered which have the lowest expense ratios? Please also give the ticker symbols for funds.

My 401k funds expense ratios-
Vanguard 500 Index Admiral - VFIAX - Gross Expense Ratio: 0.05% Net Expense Ratio: 0.05%
JPMorgan Large Cap Growth Select - SEEGX - Gross Expense Ratio: 0.94% Net Expense Ratio: 0.90%
Vanguard Mid Cap Index Adm - VIMAX - Gross Expense Ratio: 0.08% Net Expense Ratio: 0.08%

There are only 2 funds listed under the heading...Short Bonds/Stable/MMkt, neither has a ticker symbol
Federated Capital Preservation R6 - Gross Expense Ratio: 0.48% Net Expense Ratio: 0.46%
Principal Fixed income Guaranteed Option - this one appears to be an annuity

There is one entry under Interm./Long-Term Bonds
Metropolitan West Total Return BD Admin - MWTNX - Gross Expense Ratio: 0.79% Net Expense Ratio: 0.79%

There is only 1 entry under International Stocks
American Funds EuroPacific Gr R4 - REREX - Gross Expense Ratio:0.85% Net Expense Ratio: 0.85%


Are you eligible for a significant pension? (This is important for the traditional vs. Roth decision.)
No, I have no pension or any other type of company sponsored retirement plan. Only the 401k.
Last edited by 7out on Mon Mar 13, 2017 4:38 pm, edited 2 times in total.

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ruralavalon
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Re: IRA yes or no?

Postby ruralavalon » Mon Mar 13, 2017 3:08 pm

Welcome to the forum :) .

It's great to see that you are debt free other than the mortgage note. You have made very good progress in 16 years.

What are the expense ratios of the funds you are using in your 401k? In your 401k what are the bond funds offered which have the lowest expense ratios, and what are the international stock funds offered which have the lowest expense ratios? Please also give the ticker symbols for funds.

Are you eligible for a significant pension? (This is important for the traditional vs. Roth decision.)

You can simply add this to your last post so that all of your information is in one place.
Last edited by ruralavalon on Mon Mar 13, 2017 3:11 pm, edited 1 time in total.
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retiredjg
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Re: IRA yes or no?

Postby retiredjg » Mon Mar 13, 2017 3:10 pm

7out wrote:Desired Asset allocation: currently 100% stock – my age should dictate 40/60? I’m way off with 0 bonds at the moment.

You definitely need some bonds, but it does not have to be 60%. I'd suggest having at least 40% in bonds, more if you want.

I made 55k last year putting me in the 25% bracket. So I should stay with a traditional IRA at this point?

If you made $55k, you were in the 15% bracket, possibly even 10%. Compare your taxable income (line 43 of Form 1040) to this chart. Be sure to click on the button to change "single" to "married filing jointly".

http://www.moneychimp.com/features/tax_brackets.htm


I don't think I can deduct contributions to the tIRA because of my 401k, is that right?

No, at your income that is not correct.


I believe I can contribute to a ROTH IRA.

Yes.

What other funds are available in your 401k?

How much are you able to save each year?

7out
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Re: IRA yes or no?

Postby 7out » Mon Mar 13, 2017 4:38 pm

Hey retiredjg! Yes, I followed your link and I am in the 15% bracket. I listed the expense ratios for the funds I'm in with my 401k above. There was only one international and a couple bond funds available. Some of the other funds available are...

Delaware Value Inst - DDVIX - Gross Exp Ratio- 0.72% Net Exp Ratio - 0.72%
T.Rowe Price Small-Cap Stock Adv - PASSX - Gross Exp Ratio - 1.21% Net Exp Ratio - 1.21%
American Funds Income Fund of Amer R4 - RIDEX - Gross Exp Ratio - 0.62% Net Exp Ratio - 0.62%
American Century One Choice In Ret Inv - ARTOX - Gross Exp Ratio: - 0.79% Net Exp Ratio - 0.79%
American Century One Choice 2020 Inv - ARBVX - Gross Exp Ratio - 0.82% Net Exp Ratio - 0.82%
and that one goes up in years to 2025, 2030, 2035 etc. etc

I would say I am able to save $12,000 a year at the moment, typically around a thousand a month.

pkcrafter
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Re: IRA yes or no?

Postby pkcrafter » Mon Mar 13, 2017 6:28 pm

Retiredjg wrote:
You definitely need some bonds, but it does not have to be 60%. I'd suggest having at least 40% in bonds, more if you want.

jg is correct, the amount you hold in stocks depends on how much of a hit you can tolerate, both financially and emotionally. I used 40% equity/60% bonds, but that is just a conservative example.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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FiveK
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Re: IRA yes or no?

Postby FiveK » Mon Mar 13, 2017 7:27 pm

7out wrote:I've been wondering if maybe I should start a Roth with this 2016 contribution.
As suggested earlier, starting a Roth for each of you to get the five year clock running is reasonable. Perhaps $1K each.

After setting up the Roths, given all your other information, putting as much into traditional accounts as possible looks best.

retiredjg
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Re: IRA yes or no?

Postby retiredjg » Tue Mar 14, 2017 8:49 am

It looks like this is what you have. Total retirement portfolio = $388,294 (nice job for starting over!). This does not include the $13k you are about to add.


Taxable 9%
Vanguard Mid-Cap Index $35,000


His 401k 28.7% ($111,294.43) Company matches 2% on my first 4%
9.7% Vanguard 500 Index Admiral
8% JPMorgan Large Cap Growth Select
10.9% Vanguard Mid Cap Index Adm


His Traditional IRA at Vanguard 39.4%
39.4% Vanguard Value Index ($153,000)


Her Traditional IRA at Vanguard 22.9%
22.9% Vanguard Dividend Growth ($89,000)


Can you check this over and see if it is right? Notice that all the percentages are based on the total number of $388k.

You said you save about $12k a year. How much of that goes to the 401k and how much to IRAs?

What is the taxable account going to be used for? Is it for retirement?


I think starting a Roth IRA for each of you is a good idea for your 2016 contributions. Getting the 5 year Roth IRA clock started is a good idea. It is not going to make a big difference - for you (7Out) the only difference will be when you can take the earnings that accrue in the Roth IRA without paying tax (on the earnings only). Your contributions will always be available any time with no penalty or tax.

I'm not sure when the 5 year clock will end for 7Out. The contribution will be for 2016 but made in 2017. This will have to be checked.

For Mrs. 7Out, if her Roth IRA is started now, the earnings in Her Roth IRA will be available with no tax when she reaches 59.5 (because her IRA will be 5 tax years old by then).


I don't think you need the expensive Large Cap Growth Select fund in His 401k. The ER is high. Are you OK with dropping it?

You can put the bonds in His and Her tIRAs - use Vanguard Total Bond Market. We'll talk more about how to invest the Roth IRAs. You can use money market for now.

7out
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Re: IRA yes or no?

Postby 7out » Tue Mar 14, 2017 10:13 am

Wow, thank you so much jg!

My portfolio makes so much more sense now. Yes, you are dead on with your breakdown. 80% of my earnings are from tips. Business is slower the last few years, but we have leveled off to around 50 to 55k a year. Realistically, I think I can average between 750 to 1,000 a month savings. My 401k is coming out of pretax earnings on my check so I don't need to budget for that. But the IRA's will be coming out of that savings. I see now that I will be short on 2017 IRA's with that projection, so I will have to find a way to come up with the additional cash.

When I started the taxable account, my job was in it's hay day. There were a couple years that we averaged 71k. (2003 and 2004) I threw a bunch of money at the principal on my mortgage, and started that fund with 10k. Several years ago (probably 4 or 5) I started an automatic $100 dollars a month going into that fund out of my checking. In hind site, I wish i would have chose that fund as my IRA as it seems to have done the best. So to answer your question, I really had no plan on what to to with it. Any suggestions would be great.

I am definitely ok with dropping that Large Cap Growth Select fund.

When you speak of the Vanguard Total Bond Market, is that a rebalance of a portion of the current tIRA's?

In a couple days I will have the 10k from my capital one 360 account in my checking. Just drop the 6,500 X 2 in a Vanguard Money Market for now?

Thank you again for your help!

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Epsilon Delta
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Re: IRA yes or no?

Postby Epsilon Delta » Tue Mar 14, 2017 12:53 pm

retiredjg wrote:I'm not sure when the 5 year clock will end for 7Out. The contribution will be for 2016 but made in 2017. This will have to be checked.

The clock starts on Jan 1 of the year the contributions were made for. So in this case Jan 1 2016, five years later is Jan 1 2021.

pub 590B wrote:A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements.

It is made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit, and

...
For example, if a calendar-year taxpayer makes a conversion contribution on February 25, 2016, and makes a regular contribution for 2015 on the same date, the 5-year period for the conversion begins January 1, 2016, while the 5-year period for the regular contribution begins on January 1, 2015.

7out
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Re: IRA yes or no?

Postby 7out » Sat Mar 18, 2017 9:25 am

Thank you Epsilon Delta for clearing up the 5 year clock.

Retiredjg, On monday I plan to start the roth's with the 2016 contribution. ($6,500 X 2) Should I just start 2 money markets? or maybe the Vanguard Total Bond?

retiredjg wrote: I don't think you need the expensive Large Cap Growth Select fund in His 401k. The ER is high. Are you OK with dropping it?

Sure, what do you think I should do with it?

A friend at work has suggested that I should move my Vanguard funds to ETF's, what do you think about that?

Thanks again for the help!

retiredjg
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Re: IRA yes or no?

Postby retiredjg » Sat Mar 18, 2017 3:05 pm

Adding in the Roth IRAs for 2016, the total retirement portfolio = $401,294 (more or less). That changes the ratios. Also, I can't find that you actually said what you want your stock to bond ratio to be. I'm going to make a suggestion that is about 60/40. It can be changed if that number is not right for you.


Taxable 8.7% . <--leaving this because there would be a tax cost to change it
8.7% Vanguard Mid-Cap Index $35,000


His 401k 27.7% ($111,294.43) Company matches 2% on my first 4%
~9.7% Vanguard 500 Index Admiral
~10.9% Vanguard Mid Cap Index Adm
1.9% Federated Capital Preservation R6 0.46%


His Traditional IRA at Vanguard 38.1%
38.1% Vanguard Total Bond Market Index


Her Traditional IRA at Vanguard 22.2%
22.2% Vanguard Dividend Growth ($89,000)


His Roth IRA 1.6% $6,500
1.6% not sure yet


Her Roth IRA 1.6% $6,500
1.6% not sure yet

I'm going to stop here because I realized you have not yet told us what (if anything) you want in international stocks. Also, not sure how you feel about giving up the Dividend Growth and the Value Index.

Our customary suggestions include international stocks unless a person has decided against using them. There are differing opinions on whether you "need" international stocks or not. If you decide to include them, this is a good time to start buying them because they have done poorly the last few years. That means you get to buy them cheaply. On the other hand, you have not been using them and it may be because you are satisfied just using US stocks. It does not matter what you pick but what you don't want to do is go back and forth. Make a decision and stick with it no matter what the market does - every asset class has its hey day.

About moving Vanguard funds to ETFs - there is no reason to do that unless you just like ETFs better. Did your friend give a reason?

7out
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Re: IRA yes or no?

Postby 7out » Sun Mar 19, 2017 2:54 pm

Hi jg!

Your suggestion of 60/40 sounds great to me. Coming from my current 100/0, I could even go 70/30, but at my age that's probably not a great idea. I guess I'm not really sweating the risk as 16 years ago, I had 0 saved. I'm not sure what to do about international stocks. If you think it's a good idea for me, I'm willing to diversify in that direction. The Value Index and Dividend Growth have been good to us, what do you think I should give them up for?

The friend at work that suggested ETF's is someone that has done well with her investments over the years. Although she is in a different situation as she invests all of her income since her husband takes care of her living expenses. She is from Thailand, and her accent is very thick, so I struggle to follow her conversations most of the time. The message I believe she was trying to convey to me was that the ETF versions of these funds were better. She didn't give me any other reason, just her personal opinion. After reading your response, I will disregard her suggestion.

I noticed you added the Federated Capital Preservation R6 to my 401k. I see that you added 1.9%. I have 8% in the JPMorgan Large Cap, should i put the balance into the Vanguard Funds that I currently own?

retiredjg
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Re: IRA yes or no?

Postby retiredjg » Sun Mar 19, 2017 5:37 pm

At the time I suggested it, I thought the Federated Capital Preservation fund was a bond fund. Then I looked it up and it is a stable value fund. I may re-think that.

Regarding international stock...standard portfolios include them. Vanguard thinks holding a good bit of international is important. Most "experts" suggest holding them. Jack Bogle says it is not important at all because US companies are globally positioned and invested themselves. This is a philosophical decision. There is no way to know which will do better.

The reason to give up Value Index or Dividend Growth is to make room for bonds and possibly international stocks. I cannot say for sure you will do better by doing that. You might. You might not.

What I can say for sure is that your portfolio growth is about to slow down noticeable if you move to 60/40. Your portfolio has been on a 9 year uphill tear because the stock market has been consistently rising for 9 years. Moving a significant portion into bonds will definitely slow that down. You need to expect that and realize that is the only way to protect what you have already gained from the next market crash. You can't wait to you retire to move some money into preservation mode.

There are ways that ETFs can be better than mutual funds. However, Vanguard ETFs are simply a different asset class from the Vanguard mutual funds (no other company does it that way) so there is no particular benefit to switching. Once you are past $10k (for most funds) the cost is the same and the tax-efficiency is the same.

I noticed you added the Federated Capital Preservation R6 to my 401k. I see that you added 1.9%. I have 8% in the JPMorgan Large Cap, should i put the balance into the Vanguard Funds that I currently own?

Yes. I left that part hanging. I'll come back with a more complete suggestion, probably tomorrow.

7out
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Re: IRA yes or no?

Postby 7out » Sun Mar 19, 2017 9:02 pm

Thank You jg!

Is this where I should put the 2016 Roth IRA's?

Vanguard Prime Money Market Fund (VMMXX)

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in_reality
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Re: IRA yes or no?

Postby in_reality » Mon Mar 20, 2017 3:21 am

What about delaying SS? If your wife could find work for 5 years to make up for the deferred SS, once you start claiming the amount will be higher.

I don't know the exact amount or how social security works well, but if you are able to defer and receive a higher payment, won't that help your spouse long run.

You might have to do the cooking and what not is she's busy and tired but if you are retired will have time ..

Just a thought ... a 4% withdrawal is geared for a 25-30 year retirement. At 52, she might make it past that...

I worry too much though...

Wow, I just saw your expenses and you think 4% off $150k + SS is ok. Very nice!!!
[60% US _ 26% DEV _ 14% EM] | (-16% LC _ +8% MC _ +8% SC) | [47% FND/VAL _ 40% MKT _ 7% MOM _ 6% REIT] | (+/- 5% or *25% rebalancing bands)

retiredjg
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Re: IRA yes or no?

Postby retiredjg » Mon Mar 20, 2017 7:44 am

7out wrote:Thank You jg!

Is this where I should put the 2016 Roth IRA's?

Vanguard Prime Money Market Fund (VMMXX)

If you want to do it this morning, yes. In the long run, it will be somewhere else.

7out
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Re: IRA yes or no?

Postby 7out » Mon Mar 20, 2017 9:13 am

Thanks for your reply in_reality
Unfortunately, my wife hasn't worked all these years because of health issues. My comeback would have been so much easier with help from her. The more I think about it, I probably will drag my feet when it comes to a retirement date. I hoped for age 62 (Dec 2017), but I will probably stick around for another year or two. I'm definitely going to need a better vehicle and would love to do a few home improvements once this mortgage is paid off (Aug 2017). I live a pretty simple life, hopefully that 4% will work.

Hey jg!, i will start those 2 roth's today in the VMMXX so I can knock out my 2016 taxes.

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in_reality
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Re: IRA yes or no?

Postby in_reality » Mon Mar 20, 2017 10:02 am

7out wrote:Thanks for your reply in_reality
Unfortunately, my wife hasn't worked all these years because of health issues.


It was just a thought.

7out wrote:My comeback would have been so much easier with help from her.


Hey look, companionship and health are more important than money. I just mentioned it because if it's doable, you want to do what you could. Don't let me sour your happiness.

7out wrote:I live a pretty simple life, hopefully that 4% will work.


retiredjg has some pretty good advice so hopefully you'll set yourself to do as well as you can!!! And a simple life makes everything all that much easier!!!
[60% US _ 26% DEV _ 14% EM] | (-16% LC _ +8% MC _ +8% SC) | [47% FND/VAL _ 40% MKT _ 7% MOM _ 6% REIT] | (+/- 5% or *25% rebalancing bands)

7out
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Re: IRA yes or no?

Postby 7out » Mon Mar 20, 2017 4:34 pm

I was about to invest in the 2 money market funds when I started thinking about my wife's new Roth IRA. Since she still has 7 and a half years before she could withdraw from it (59 1/2), should I stay aggressive with hers? Granted her fund is currently 100% stock, but with that much time left, what do you think of staying aggressive?

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ruralavalon
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Re: IRA yes or no?

Postby ruralavalon » Mon Mar 20, 2017 6:27 pm

7out wrote:I was about to invest in the 2 money market funds when I started thinking about my wife's new Roth IRA. Since she still has 7 and a half years before she could withdraw from it (59 1/2), should I stay aggressive with hers? Granted her fund is currently 100% stock, but with that much time left, what do you think of staying aggressive?

Wait until retiredjg gives you a suggestion.

Usually it's better to coordinate investments across all accounts, viewing all accounts together as a single unified portfolio, rather than considering each account by itself.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | | Wiki article link:Getting Started

7out
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Re: IRA yes or no?

Postby 7out » Mon Mar 20, 2017 7:45 pm

Thanks ruralavalon!

I'll park it in the money market retiredjg suggested for now, and wait for his advice for it's future location.

retiredjg
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Re: IRA yes or no?

Postby retiredjg » Tue Mar 21, 2017 9:21 am

Well, I've been going back and forth on this and not making any progress. :annoyed

Here's the simplest thing you can do. You would change what you currently have and replace it with what is below. Then try to maintain it with your contributions.


Taxable 8.7% . <--leaving this because there would be a tax cost to change it
8.7% Vanguard Mid-Cap Index $35,000


His 401k 27.7% ($111,294.43) Company matches 2% on my first 4%
15% Vanguard 500 Index Admiral
10.8% Vanguard Mid Cap Index Adm
1.9% Federated Capital Preservation R6 0.46%


His Traditional IRA at Vanguard 38.1%
38.1% Vanguard Total Bond Market Index


Her Traditional IRA at Vanguard 22.2%
22.2% Vanguard Dividend Growth ($89,000)


His Roth IRA 1.6% $6,500
1.6% Vanguard Value Index or Vanguard Total International Index


Her Roth IRA 1.6% $6,500
1.6% Vanguard Value Index or Vanguard Total International Index

I think it is worthwhile to have an international allocation, but this is a philosophical change and it is unclear to me what you really want. Even if you decide to have international, it may not be a large enough slice of your portfolio to be meaningful. Since you have been happy with Value Index in the past, that is a reasonable choice if you decide not to use international stocks.

Contributions:

Taxable $0?
How much goes into your 401k each year (including the match)?
His Roth IRA $6,500
Her Roth IRA $6,500

7out
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Re: IRA yes or no?

Postby 7out » Tue Mar 21, 2017 10:41 pm

retiredjg, I can't thank you enough for the effort you have put into helping me. I have learned a lot from you in this short time. I really like what you have put together, and it makes so much more sense now that I have a better understanding. My IRA conversion will take care of the 40% in bonds pretty easily, although it will be tough to swallow after this tremendous growth over the last 9 years. But I understand it is the right thing to do. I wish I had more options in the 401k, but I like the increase in the two vanguard funds with the 1.9% in the Federated Capital.

Since you think my international slice probably won't make enough of a difference to be meaningful, I will just stay with the Value Index for the new Roth's.

The question about Contributions... I currently have the auto deposit of $100.00 a month in that taxable account. Should I stop that and just put that towards one of the Roth's instead? Keeping that taxable account at a 0 contribution?

Last year I contributed 4% to my 401k which is the minimum I need to contribute to get the maximum match of 2% from the company. My contribution was $2,431. The total including match was 3,669.

MotoTrojan
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Re: IRA yes or no?

Postby MotoTrojan » Wed Mar 22, 2017 4:13 am

7out wrote:retiredjg, I can't thank you enough for the effort you have put into helping me. I have learned a lot from you in this short time. I really like what you have put together, and it makes so much more sense now that I have a better understanding. My IRA conversion will take care of the 40% in bonds pretty easily, although it will be tough to swallow after this tremendous growth over the last 9 years. But I understand it is the right thing to do. I wish I had more options in the 401k, but I like the increase in the two vanguard funds with the 1.9% in the Federated Capital.

Since you think my international slice probably won't make enough of a difference to be meaningful, I will just stay with the Value Index for the new Roth's.

The question about Contributions... I currently have the auto deposit of $100.00 a month in that taxable account. Should I stop that and just put that towards one of the Roth's instead? Keeping that taxable account at a 0 contribution?

Last year I contributed 4% to my 401k which is the minimum I need to contribute to get the maximum match of 2% from the company. My contribution was $2,431. The total including match was 3,669.


I wouldn't contribute to taxable until you have filled your 401K and Roth/Traditional IRA. And don't sweat the bonds too much, you'll feel like a genius if/when the next dip happens!

retiredjg
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Re: IRA yes or no?

Postby retiredjg » Wed Mar 22, 2017 7:38 am

If you want to keep putting the $100 a month into taxable and later on put one lump sum into a Roth IRA, that's fine.

However, it appears you mean you will only save $1,200 + $3,669 a year? I think I misunderstood what you said earlier because I thought you were saving enough for 2 IRAs each year plus your contribution to the 401k.

Can you get me straight on exactly how much you expect to save in a year?

7out
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Re: IRA yes or no?

Postby 7out » Wed Mar 22, 2017 8:50 am

As far as savings go...

All these years I have been able to save both max contributions to our IRA's and the 401k along with the $100 a month auto deposit.

Roughly $13,000 + $3,669 + $1,200 = $17,869 a year

But I am about to take a dip in my earnings. A side job that I do at work that has paid me $120 a week for the last 8 years is about to run it's course and I won't have access to that $480 a month any more.

So, I have been able to save a little over $1,000 a month in the past, that will soon drop to around $600 a month. But the good news is, in 8 months my home will be paid off. My Mortgage is $980, I will be able to add that to savings as well.

harvestbook
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Re: IRA yes or no?

Postby harvestbook » Wed Mar 22, 2017 10:47 am

I don't think you've mentioned your health insurance situation. For many of us in this approximate age range, getting to Medicare is a critical and risky (and expensive) window, especially in these uncertain times.

Instead of contributing more to the taxable account after maximizing your Roth, you might consider an HSA--great tax benefits. The advice you've received here is very sound. Good luck.

7out
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Re: IRA yes or no?

Postby 7out » Wed Mar 22, 2017 11:39 am

I have an HMO plan at work that covers my wife and I. It's not great but it helps us to see a doctor when we need to. I am concerned with how I'm going to get to 65 and medicare if I was to retire in the next few years. It is a bit scary thinking about the 13 years until my wife makes it to medicare. I don't know anything about an HSA, I will have to do some research on it. Thanks harvestbook!

retiredjg
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Re: IRA yes or no?

Postby retiredjg » Wed Mar 22, 2017 12:05 pm

Your savings rate will fluctuate for a bit so it is hard to say exactly how much money to put where. If you try to get about 40% into bonds and the other 60% into stocks, your portfolio should stay near target. Once every year or so, check to be sure you are somewhere near 60/40 (say within 5% either way). If not, sell what you have too much of and buy what you have too little of. This is called "rebalancing".

It appears that most (maybe all) of your 401k money should be going into the stable value fund (Federated Capital Preservation R6). An alternative would be to put some of the Roth IRA money into bonds.

Do you know what Federated Capital Preservation R6 is paying? It might change every year, so you need to get current information.

You have been using deductible contributions to tIRA in the past. This has reduced your taxable income. The Roth IRA won't do that so you might find you own more taxes than you expected.

7out
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Re: IRA yes or no?

Postby 7out » Wed Mar 22, 2017 9:42 pm

This is a copy and paste of the Federated Capital Preservation R6 from my 401k website...

Annualized Returns (%)
as of 12/31/2016
Gross Expense Ratio: 0.48%
Net Expense Ratio: 0.46%
4Q 0.32
YTD 1.18
1 Yr 1.18
3 Yrs 1.01
5 Yrs 1.18
10 Yrs 2.36

retiredjg
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Re: IRA yes or no?

Postby retiredjg » Thu Mar 23, 2017 6:21 am

Thanks. As you can see, it did not pay out a lot last year - 1.18% (this is profit after the expense ratio). This fund is usable but not great, just Ok. With interest rates rising, it may pay more in 2017. I would probably use this instead of the other bond funds available with much higher ERs.

However, I would not want this fund to be a large part of the portfolio. That's why I put most of the "bonds" into the IRA where you can get a real bond fund, like Total Bond Index, for a low cost.

harvestbook
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Re: IRA yes or no?

Postby harvestbook » Thu Mar 23, 2017 8:01 am

When you are ready to dig into HSAs, there's a 2017 topic here with comparisons and info: viewtopic.php?t=207051

I am a huge fan of them--as far as I can tell, it's the only place in America where your dollar is never taxed, before, during, or after.

retiredjg
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Re: IRA yes or no?

Postby retiredjg » Thu Mar 23, 2017 8:27 am

HSA's are a wonderful thing for people who have them available and for whom a High Deductible Health Coverage plan is appropriate (you cannot have the HSA without the HDHC plan).

When I looked into this many years ago, the HDHC plans worked well for people with low medical costs - generally younger people without chronic conditions. They were not the best plan for people with higher health care costs. I'm not sure if that has changed or not.

7out
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Re: IRA yes or no?

Postby 7out » Thu Mar 23, 2017 9:50 am

I like what you did with the bonds retiredjg. It makes a lot of sense considering the options they give me in the 401k.

My wife and I do have our share of health issues, and unfortunately the High Deductible is not available to us. Thanks for the info on it though harvestbook.


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