First time Roth

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stevekozak2
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Joined: Sun Dec 25, 2016 12:38 pm

First time Roth

Post by stevekozak2 » Sun Dec 24, 2017 6:20 pm

I am about to open a Roth, to get my hands-on retirement going. I have been a state government worker for most of my career (social worker) and the only retirement I have, at age 42, is what goes into my state retirement plan (which is basically a pension). I don't make a lot of money (around 36,000) so right now, the $5,500 a year that will be going into my Roth will be the bulk of my retirement investing. That said, what should I put the $5500 for 2017 into? I have been reading here, trying to figure it out. Should I go into a total stock fund to try to make up for starting so late, or look at a targeted retirement fund? I also have small retirement amount in another state's retirement plan (around $14,000) that I would like to roll into a traditional IRA (I would like to roll it into a Roth, but don't feel like I have the spare money to pay the taxes at present). Should that be in different funds than the Roth? Please advise.

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David Jay
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Location: Michigan

Re: First time Roth

Post by David Jay » Sun Dec 24, 2017 6:44 pm

I would put it into a Target Retirement fund.

Remember, you can always change funds with no penalty inside any IRA (Roth or otherwise) if you want to change your selection later as your fund balances grow and as your knowledge increases.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

livesoft
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Re: First time Roth

Post by livesoft » Sun Dec 24, 2017 7:00 pm

A Target Retirement fund is my advice as well.

One can always change things later, so you are not locked into such a fund, but I doubt you will want to change in the future anyways.
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stevekozak2
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Joined: Sun Dec 25, 2016 12:38 pm

Re: First time Roth

Post by stevekozak2 » Mon Dec 25, 2017 6:54 am

So, just a targeted retirement fund? For both sets of money? Suggestions? I am debt-free and committed to staying the course, once I determine what the course is. Am I only able to put a total of 5500 each year into a combination of Roth and TIRA, or 5500 in each (I realize my rollover of 14000 will not count.)? If I have extra, to put in a taxable, should it be in something different? Looking for as many opinions as possible here.

Daedalus
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Re: First time Roth

Post by Daedalus » Mon Dec 25, 2017 11:15 am

Retirement fund could work, personally I like having more control of how I can manage/change my asset allocation between equities and bonds. So I would opt for a total US stock market fund (many here like VTSMX/VTSAX), then consider if you would like bond funds to add in your Roth IRA. 2018 is right around the corner, so you could potential put a good amount of money in the Roth within the next couple weeks between 2017 contributions and 2018 contributions.

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arcticpineapplecorp.
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Re: First time Roth

Post by arcticpineapplecorp. » Mon Dec 25, 2017 12:12 pm

stevekozak2 wrote:
Mon Dec 25, 2017 6:54 am
So, just a targeted retirement fund? For both sets of money? Suggestions? I am debt-free and committed to staying the course, once I determine what the course is. Am I only able to put a total of 5500 each year into a combination of Roth and TIRA, or 5500 in each (I realize my rollover of 14000 will not count.)? If I have extra, to put in a taxable, should it be in something different? Looking for as many opinions as possible here.
welcome to the forum.

you can't put $5500 in both a trad ira and a roth PER YEAR. It's one or the other or combo but not to exceed $5500 total. As the previous poster said you can put $5500 in an IRA (roth or trad) for 2017 AND also once 2018 hits for 2018 as well. You have until tax day 2018 to contribute for 2017 contribution and until tax day 2019 to contribute for 2018 contribution. But the sooner you make the contributions the more potential for growth. But you can't contribute for 2018 until Jan 2nd 2018 (markets are closed Jan 1 2018). So a couple ways of doing this (if you have $11,000 sitting around) is you could put in $5500 before the end of 2017 (for 2017 contribution) and $5500 on Jan 2, 2018 (for 2018 contribution) or just put $11,000 in on Jan 2, 2018 (of which $5500 is the 2017 contribution and the other $5500 is for 2018 contribution). If you do it that way, make sure it's earmarked correctly as $5500 for each year, 2017 and 2018. You don't want to overcontribute for any one year erroneously.

Regarding which target date fund to choose, you have to figure out your asset allocation (percentage of stocks and bonds). Some have said (recently) that your asset allocation is the most important investment decision you'll make. Read more about that here:

viewtopic.php?f=10&t=235510&newpost=3679469

The further out the date on the target date retirement fund the higher allocation to stocks, the closer the date, the lower the allocation to stocks. A 2045 target date fund appears to be 90% stocks/ 10% bonds (source: posting.php?mode=edit&f=1&p=3682024)

A 2040 target date fund is 85% stocks and 15% bonds (source: https://personal.vanguard.com/us/funds/ ... irect=true).

See how the closer you get to the "target date" the amount in stocks starts to decrease? Risk decreases as you approach your target date or your "retirement date". But when you reduce risk, you reduce returns too generally speaking. So there's a tradeoff. You might need to grow your money, so you have to take risk. The amount of risk only you can decide. So only take as much risk as you have the need, ability and willingness to take, but no more. Whatever you choose, stick with it through thick and thin. Don't bounce from one thing to another in response to short term events. People who do that never get the returns they seek because they're too busy chasing returns.

If you gross $36,000 you probably don't qualify for a saver's credit. But if you make $36,000 and you contribute to a 401k or have contributions to a pension which reduces your adjusted gross income (line 38 of tax return 1040) to $30,500 pr below, then don't forget to take the saver's credit.

Read more here:

https://www.irs.gov/retirement-plans/pl ... ers-credit
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

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