Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

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EldFen
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Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by EldFen » Sat Jun 09, 2018 3:57 pm

*personal info removed*
Last edited by EldFen on Fri Jun 22, 2018 4:57 pm, edited 1 time in total.

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FiveK
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by FiveK » Sat Jun 09, 2018 7:09 pm

EldFen, welcome to the forum.

Assuming no mention of a pension or traditional IRA means you have neither, switching your contributions from Roth IRA to traditional IRA will likely work best in the long run.

If you are self-employed, then establishing a solo 401(k) plan or similar could be worthwhile.

If you haven't already, see Getting started and Investment Order
.

keepingitsimple
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by keepingitsimple » Sat Jun 09, 2018 7:11 pm

EldFen wrote:
Sat Jun 09, 2018 3:57 pm
Hi Everyone,

I’m new to the board and have enjoyed the great information.

I’m seeking advice on what next steps I should take based on the following information:
  • Single, 34 years old, no dependents
  • Approximately $60,000 in annual income
  • No debt (besides small car payment)
  • Renting an apartment
  • No company sponsored retirement offerings
  • Existing Roth IRA (VASGX) that is being maxed annually
  • Approximately $50,000 in Wells Fargo Platinum Savings Account
Thank you in advance for the advice!
Welcome EldFen!
You might garner more responses if you include some information about your personal goals or more specifics about input you are wishing to receive. This will give some context, as your current question is rather broad. Just a suggestion, best of luck to you :happy

EldFen
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by EldFen » Sat Jun 09, 2018 7:26 pm

FiveK wrote:
Sat Jun 09, 2018 7:09 pm
EldFen, welcome to the forum.

Assuming no mention of a pension or traditional IRA means you have neither, switching your contributions from Roth IRA to traditional IRA will likely work best in the long run.

If you are self-employed, then establishing a solo 401(k) plan or similar could be worthwhile.

If you haven't already, see Getting started and Investment Order
.
Thank you. These are great resources.

I don’t have a pension or traditional Roth. I am also not self employed.

EldFen
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by EldFen » Sat Jun 09, 2018 7:30 pm

keepingitsimple wrote:
Sat Jun 09, 2018 7:11 pm
EldFen wrote:
Sat Jun 09, 2018 3:57 pm
Hi Everyone,

I’m new to the board and have enjoyed the great information.

I’m seeking advice on what next steps I should take based on the following information:
  • Single, 34 years old, no dependents
  • Approximately $60,000 in annual income
  • No debt (besides small car payment)
  • Renting an apartment
  • No company sponsored retirement offerings
  • Existing Roth IRA (VASGX) that is being maxed annually
  • Approximately $50,000 in Wells Fargo Platinum Savings Account
Thank you in advance for the advice!
Welcome EldFen!
You might garner more responses if you include some information about your personal goals or more specifics about input you are wishing to receive. This will give some context, as your current question is rather broad. Just a suggestion, best of luck to you :happy
Thanks for the feedback.

Since I don’t have access to company sponsored retirement resources, I want to be sure I am saving appropriately for retirement and financial freedom sooner than later.

I feel a bit behind where I should be and greatly appreciate your advice.

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FiveK
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by FiveK » Sat Jun 09, 2018 7:35 pm

EldFen wrote:
Sat Jun 09, 2018 3:57 pm
  • No company sponsored retirement offerings
Perhaps Setting up a 401(k) plan - Bogleheads might be of interest to you (and whoever in your company would need to approve such a thing).

EldFen
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Joined: Sat Jun 09, 2018 3:35 pm

Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by EldFen » Sat Jun 09, 2018 8:01 pm

FiveK wrote:
Sat Jun 09, 2018 7:35 pm
EldFen wrote:
Sat Jun 09, 2018 3:57 pm
  • No company sponsored retirement offerings
Perhaps Setting up a 401(k) plan - Bogleheads might be of interest to you (and whoever in your company would need to approve such a thing).
Thank you. I will definitely research this although it may be tough to convince the owner of the very small agency I work for to commit.

I’m in the process of searching for a new job so I hope to have retirement matching opportunities soon.

dharrythomas
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by dharrythomas » Sat Jun 09, 2018 8:14 pm

No one here can comment about whether you are behind or not unless you tell us how much is in the Roth. If you've been maxing it out since you were 22, you are likely OK. If you just started at 30, you lost some time and you are behind the curve for this site. Regardless, you are probably ahead of the general population in your age bracket. Keep saving, you've got enough time to to let compounding work for you and to retire well.

Jablean
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by Jablean » Sat Jun 09, 2018 8:15 pm

How much is in your Roth?

How are you doing Healthcare expenses - company or ACA?

EldFen
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by EldFen » Sat Jun 09, 2018 8:38 pm

Jablean wrote:
Sat Jun 09, 2018 8:15 pm
How much is in your Roth?

How are you doing Healthcare expenses - company or ACA?
Approximately $15,200 in my Roth IRA so far.

Company does not provide health insurance so I have a health insurance plan via Blue Cross Blie Shield that I pay approximately $320 a month for.

Jablean
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by Jablean » Sun Jun 10, 2018 2:27 am

ok, so you've been saving for the last three or four years, you make too much for ACA subsidies, and you don't have a house mortgage to write off. The new tax law will be beneficial to you, you'll have a bit more to work with.

So continue maxing your Roth, keep it it one fund, your young enough to have it in stock. Treat your cash as bonds, maybe put some 10,000 in a three year CD or three year ladder, keep 30,000 (1/2 your income on hand for emergencies) and put the rest 20,000 into your vanguard account into a stock index. Now you've got a three fund portfolio that's 66/33. This year add to the Roth and Vangaurd, only raise cash if you also raise income until you turn 40 and then look at everything again.

Now with your low expenses you could keep less cash on hand and get closer to a 80/20 mix faster.

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FiveK
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by FiveK » Sun Jun 10, 2018 2:32 am

Jablean wrote:
Sun Jun 10, 2018 2:27 am
So continue maxing your Roth....
Why not traditional, thus saving on taxes now? Until the traditional balance gets very large, OP will likely pay a lower rate when withdrawing.

Jablean
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by Jablean » Sun Jun 10, 2018 11:09 am

FiveK wrote:
Sun Jun 10, 2018 2:32 am
Jablean wrote:
Sun Jun 10, 2018 2:27 am
So continue maxing your Roth....
Why not traditional, thus saving on taxes now? Until the traditional balance gets very large, OP will likely pay a lower rate when withdrawing.
He won't be withdrawing for another 25 years and the US debt is increasing since we aren't using the strategy of paying it down during good times. Taxes may very well be higher.

If he was close to another tax bracket or qualifying for Obamacare subsidies then yes do traditional to get down under the top limit. If he get's married soon he should look at that but I don't see any particular upside for tIRA over Roth.

hightower
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by hightower » Sun Jun 10, 2018 11:24 am

Just a small comment about your mention of "no debt other than a small car payment."

You have debt if you have a car loan. The reason I feel compelled to point this out is because too often in today's society people view car debt as acceptable. It is not. Don't get sucked into the trap of thinking that it is ok to buy cars on credit. It's a depreciating asset and is not worthy of going into debt for;) Wealthy people pay cash for cars because it's the most frugal thing to do and prevents you from over spending on a utility item. I'm just trying to prevent future mistakes from being too lax about consumer debt.

That's all for my rant:) My only other advice is to keep maxing your Roth every year. Consider opening an HSA if you can get yourself covered with a high deductible health insurance plan. HSAs are triple tax advantaged. If you can find a job with a 401k offering some day that would be very helpful as well. If you still have savings outside of the tax advantaged space, go ahead and open a taxable brokerage account and invest there.

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FiveK
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by FiveK » Sun Jun 10, 2018 11:43 am

Jablean wrote:
Sun Jun 10, 2018 11:09 am
Taxes may very well be higher.
Yup. And they might be lower.

At the very worst, there will almost certainly be a standard deduction, up to which one pays 0% on ordinary income. Using today's numbers, that means a $300K traditional account would pay $0 tax on a 4% withdrawal rate if that is the only income, thus having saved all the tax avoided by deducting traditional contributions.

If one uses 100% Roth, all the tax paid prior to making the Roth contribution is gone. In the absence of other (e.g., a pension) retirement income, 100% Roth is never correct for someone paying tax now.

EldFen
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by EldFen » Mon Jun 11, 2018 9:42 pm

hightower wrote:
Sun Jun 10, 2018 11:24 am
Just a small comment about your mention of "no debt other than a small car payment."

You have debt if you have a car loan. The reason I feel compelled to point this out is because too often in today's society people view car debt as acceptable. It is not. Don't get sucked into the trap of thinking that it is ok to buy cars on credit. It's a depreciating asset and is not worthy of going into debt for;) Wealthy people pay cash for cars because it's the most frugal thing to do and prevents you from over spending on a utility item. I'm just trying to prevent future mistakes from being too lax about consumer debt.

That's all for my rant:) My only other advice is to keep maxing your Roth every year. Consider opening an HSA if you can get yourself covered with a high deductible health insurance plan. HSAs are triple tax advantaged. If you can find a job with a 401k offering some day that would be very helpful as well. If you still have savings outside of the tax advantaged space, go ahead and open a taxable brokerage account and invest there.
Thank you for the advice. I will definitely look into an HSA.

Yodathebirder
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by Yodathebirder » Tue Jun 12, 2018 1:24 am

hightower wrote:
Sun Jun 10, 2018 11:24 am
Just a small comment about your mention of "no debt other than a small car payment."

You have debt if you have a car loan. The reason I feel compelled to point this out is because too often in today's society people view car debt as acceptable. It is not. Don't get sucked into the trap of thinking that it is ok to buy cars on credit. It's a depreciating asset and is not worthy of going into debt for;) Wealthy people pay cash for cars because it's the most frugal thing to do and prevents you from over spending on a utility item. I'm just trying to prevent future mistakes from being too lax about consumer debt.
Great advice! Agree 100%. I work with so many people who are paycheck to paycheck yet are looking for a "sweeter" ride :oops: :confused :greedy
Just gave one advice to get out of credit card debt and maybe start a Roth. He paid off the debt, then bought a 13K jetski...on credit. I give up.

fujiters
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by fujiters » Tue Jun 12, 2018 1:41 am

FiveK wrote:
Sun Jun 10, 2018 11:43 am
Jablean wrote:
Sun Jun 10, 2018 11:09 am
Taxes may very well be higher.
Yup. And they might be lower.

At the very worst, there will almost certainly be a standard deduction, up to which one pays 0% on ordinary income. Using today's numbers, that means a $300K traditional account would pay $0 tax on a 4% withdrawal rate if that is the only income, thus having saved all the tax avoided by deducting traditional contributions.

If one uses 100% Roth, all the tax paid prior to making the Roth contribution is gone. In the absence of other (e.g., a pension) retirement income, 100% Roth is never correct for someone paying tax now.
I agree with this.

You should also throw any additional money into a taxable account. While it's a shame you don't have a 401k for any additional tax advantaged saving, a taxable account can be almost as tax advantaged if you realize capital gains at the 0% capital gains rate (which is likely in retirement).
“The purpose of the margin of safety is to render the forecast unnecessary.” -Benjamin Graham

jalbert
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by jalbert » Tue Jun 12, 2018 2:56 am

The traditional IRA is the safer option. If a Roth account wins it is unlikely to be by much and the trad is likely to win by a fair amount.

The OP might consider deciding how much of the savings account is needed as an emergency fund, and set up a taxable investment account to be considered part of the retirement portfolio.

The OP's employer might consider setting up a SIMPLE IRA for the benefit of both the owner(s) and the employee(s).
Risk is not a guarantor of return.

stevekozak2
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by stevekozak2 » Tue Jun 12, 2018 5:32 am

jalbert wrote:
Tue Jun 12, 2018 2:56 am
The traditional IRA is the safer option. If a Roth account wins it is unlikely to be by much and the trad is likely to win by a fair amount.

The OP might consider deciding how much of the savings account is needed as an emergency fund, and set up a taxable investment account to be considered part of the retirement portfolio.

The OP's employer might consider setting up a SIMPLE IRA for the benefit of both the owner(s) and the employee(s).
I think Roth is less of a risk. You can GUESS what the tax situation will be 31-36 years in the future, but you KNOW what the tax situation is right now. Unless you have a functional crystal ball, I see the Roth as less of a gamble.

mbasherp
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by mbasherp » Tue Jun 12, 2018 7:51 am

Based on a quick search, I'm guessing that your $50k in savings is earning 0.06%. First (and easy) step is to migrate that over to a high yield savings account of your choice. You can make 30x more interest and roughly keep up with inflation.

Determine what 6 months of expenses is for you and keep that in savings as an emergency fund. You didn't say anything about wanting to buy a home, so I'll assume the rest of the cash is superfluous. With no 401k option, the rest should be invested long term in a brokerage account in a way that makes sense as a total asset allocation when combined with your Roth IRA and other accounts. For me, that means it goes into Vanguard's Total Stock Market fund.

On $60k per year salary, maxing your Roth is just shy of a 10% gross savings rate. That's the very long and slow road to retirement. If you can amp it up by saving at least an additional 10% into your new brokerage account, you'll make much better progress. Go above a 25% savings rate, and you'll start seeing things happen more quickly.

My wife and I didn't make much financial progress in our 20s for various reasons. Now, we're roughly your age and we've had 4-5 years with a strong savings rate consistently north of 30%. It's as if the clouds have parted and I can see the beautiful green pastures of financial security laid out before us. You can absolutely do the same!

jalbert
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by jalbert » Tue Jun 12, 2018 2:32 pm

think Roth is less of a risk. You can GUESS what the tax situation will be 31-36 years in the future, but you KNOW what the tax situation is right now. Unless you have a functional crystal ball, I see the Roth as less of a gamble.
In retirement, unless your IRA account balance or other income sources are so large that mandatory distributions from an IRA exceed your spending needs, it is spending needs not account balance that drives withdrawals.

You are taxed on withdrawals based on your aggregate tax rate not marginal tax rate. If all of your retirement accounts were Roth funds, you would be withdrawing some money that would have been untaxed in the zero bracket but that you paid taxes on at your marginal rate at contribution time.
Risk is not a guarantor of return.

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FiveK
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by FiveK » Tue Jun 12, 2018 2:39 pm

jalbert wrote:
Tue Jun 12, 2018 2:32 pm
If all of your retirement accounts were Roth funds, you would be withdrawing money that would have been untaxed in the zero bracket but that you paid taxes on at your marginal rate at contribution time.
Yes.
You are taxed on withdrawals based on your aggregate tax rate not marginal tax rate.
Not as applicable to this and future years' traditional vs. Roth choice. Any previous years' traditional contributions can't be undone. Thus, withdrawals based on this and future years' traditional contributions will come on top of withdrawals based on previous years' traditional contributions and be taxed accordingly - in other words, taxed at the marginal rate for that withdrawal amount.

MotoTrojan
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by MotoTrojan » Tue Jun 12, 2018 2:45 pm

What are you expenses? $50K in a savings account is quite a hefty sum relative to your $15K in investments. Is this allocated for something? I'd maintain 6 months bare minimum (no saving) expenses in this or a similar account, and then invest the rest in a tax-efficient manner (see the wiki, but basically Total US or Total Int stock funds).

Also I am not familiar with that WF account, but I doubt the interest is as good as Ally or similar banks so consider switching for your cash savings.

wolf359
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by wolf359 » Tue Jun 12, 2018 3:05 pm

stevekozak2 wrote:
Tue Jun 12, 2018 5:32 am
jalbert wrote:
Tue Jun 12, 2018 2:56 am
The traditional IRA is the safer option. If a Roth account wins it is unlikely to be by much and the trad is likely to win by a fair amount.

The OP might consider deciding how much of the savings account is needed as an emergency fund, and set up a taxable investment account to be considered part of the retirement portfolio.

The OP's employer might consider setting up a SIMPLE IRA for the benefit of both the owner(s) and the employee(s).
I think Roth is less of a risk. You can GUESS what the tax situation will be 31-36 years in the future, but you KNOW what the tax situation is right now. Unless you have a functional crystal ball, I see the Roth as less of a gamble.
You are BOTH right, so this argument will go on and on. It really depends upon the OP's priorities and situation.

Personally, I lean towards the traditional 401-k if that is available, especially if there is a company match.

In the case of an IRA, I lean towards a Roth. The reason is that there is an income cap on the Roth contributions, so the tax savings on the traditional IRA aren't that great before I become ineligible. I have a personal bias towards the Roth IRA because they did not exist when I first got started investing, then I rapidly became ineligible due to income limits when they did. I'd max out the Roth IRA when I could, then work on changing jobs, increasing income, and saving any excess in taxable. Once the OP has a job with a 401-k, I'd contribute to a traditional 401-k up to company match, switch to filling up a Roth IRA, then switch back to maxing out the traditional 401-k.

This provides tax diversification in the future, so you have traditional, Roth, and taxable assets in the future.

If the OP is in a career that is topped out, and he's never going to realistically exceed the income limits for Roth eligibility, then a traditional IRA makes sense. But while relatively young, income could conceivably still grow.

Roth IRAs have several advantages over traditional IRAs:
1) The contributions can be withdrawn earlier than 59 1/2 without penalty. (It's not recommended to do this, but it provides a failsafe if the funds are needed in an emergency. This is important for a single who doesn't have another income to fall back on.)
2) A Roth IRA is not subject to RMDs after you turn 70.
3) A Roth IRA is not subject to tax upon withdrawal. It is therefore ideal for retirement expenses that are one-time, periodic expenses (like buying a car, replacing a roof, or other large expenses.) (It won't raise your income when you use it.)

tesuzuki2002
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by tesuzuki2002 » Tue Jun 12, 2018 3:29 pm

EldFen wrote:
Sat Jun 09, 2018 3:57 pm
Hi Everyone,

I’m new to the board and have enjoyed the great information.

I’m seeking advice on what next steps I should take based on the following information:
  • Single, 34 years old, no dependents
  • Approximately $60,000 in annual income
  • No debt (besides small car payment)
  • Renting an apartment
  • No company sponsored retirement offerings
  • Existing Roth IRA (VASGX) that is being maxed annually
  • Approximately $50,000 in Wells Fargo Platinum Savings Account
Thank you in advance for the advice!
What goals do you have??

want to buy a house?

Want to own rental property?

you are Maxing your roth.. got it!

Do you have side income to start an i401k??

Open a brokerage and just invest after tax and start winning!!!

jalbert
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by jalbert » Tue Jun 12, 2018 5:09 pm

FiveK wrote:
Tue Jun 12, 2018 2:39 pm
jalbert wrote:
Tue Jun 12, 2018 2:32 pm
If all of your retirement accounts were Roth funds, you would be withdrawing money that would have been untaxed in the zero bracket but that you paid taxes on at your marginal rate at contribution time.
Yes.
You are taxed on withdrawals based on your aggregate tax rate not marginal tax rate.
Not as applicable to this and future years' traditional vs. Roth choice. Any previous years' traditional contributions can't be undone. Thus, withdrawals based on this and future years' traditional contributions will come on top of withdrawals based on previous years' traditional contributions and be taxed accordingly - in other words, taxed at the marginal rate for that withdrawal amount.
It is circular to say that an additional dollar of withdrawal will be taxed at the marginal rate for that withdrawal amount. That’s the definition of marginal rate. The question is whether is it taxed at the marginal rate for the contribution that caused that dollar to be present in the account. Before RMDs kick in, that is certainly not guaranteed as the marginal rate is determined by a voluntary withdrawal amount.

The point is that you can exert control over marginal rate in retirement with withdrawal strategies.

Consider someone who retires at 55 with assets split 50-50 between trad and Roth needs $12K/yr from these accounts to supplement SS to cover expenses. Suppose their account balance is large enough that RMDs will cause a larger withdrawal after 70.5. If they split their withdrawals from age 55-70.5 as 50-50 between Roth and trad or take 100% from trad, they pay zero tax either way. But the latter method spends down the trad account, reducing RMDs that will be in excess of spending needs, reducing taxes after age 70.5. Yes, marginal rate in retirement is what matters but account balance is not always the major driver of marginal rate.
Risk is not a guarantor of return.

3funder
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by 3funder » Tue Jun 12, 2018 5:44 pm

dharrythomas wrote:
Sat Jun 09, 2018 8:14 pm
No one here can comment about whether you are behind or not unless you tell us how much is in the Roth. If you've been maxing it out since you were 22, you are likely OK. If you just started at 30, you lost some time and you are behind the curve for this site. Regardless, you are probably ahead of the general population in your age bracket. Keep saving, you've got enough time to to let compounding work for you and to retire well.
I was just going to say the same thing. You might be a little "behind", but if all of your retirement savings are in a Roth IRA, all of that income will be tax-free later anyway. Assuming you continue to press on (and open other accounts to invest for the future), you'll be just fine.

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FiveK
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by FiveK » Tue Jun 12, 2018 5:53 pm

jalbert wrote:
Tue Jun 12, 2018 5:09 pm
The point is that you can exert control over marginal rate in retirement with withdrawal strategies.
Sure. In the extreme, not withdrawing anything from traditional accounts means that you never pay tax on that money at all. That leads to questions about what marginal rates your heirs will pay, and the complexity of the analysis explodes. Alternatively, one could assume "withdraw it all at once" (to purchase a SpaceX ticket to the moon, or whatever) with the corresponding very high tax rate.
Consider someone who retires at 55 with assets split 50-50 between trad and Roth needs $12K/yr from these accounts to supplement SS to cover expenses. Suppose their account balance is large enough that RMDs will cause a larger withdrawal after 70.5. If they split their withdrawals from age 55-70.5 as 50-50 between Roth and trad or take 100% from trad, they pay zero tax either way. But the latter method spends down the trad account, reducing RMDs that will be in excess of spending needs, reducing taxes after age 70.5.
And a fine strategy that is!
Yes, marginal rate in retirement is what matters but account balance is not always the major driver of marginal rate.
Agreed, not always, and if one wants to do a detailed study of one's specific situation then all those nuances may be considered. It's at least not unreasonable to assume withdrawals based on a fraction of the balance, for a first approximation.

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dratkinson
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by dratkinson » Tue Jun 12, 2018 9:01 pm

BH Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Without knowing your plans for the future, it's a little difficult to provide exact guidance. So I'll be general.


Assumptions.
--Your major goal is to save more for retirement.
--You are paying into SS.
--If you have sufficient savings, you can delay taking SS until age 70 to max you benefits.
--Your annual earnings will continue to increase.
--If you can find a new employer with a retirement plan, then you can set aside more tax-advantaged savings annually.
--You'll one day marry and have a home and family.
--You are currently in the 22% fed income tax bracket. (Income and investment brackets are slightly different.)
--State tax bracket is unknown because not revealed.
--You'll retire and be in a comparable tax bracket.



Saving bonds. You are at the age where buying I bonds is an options. They mature in 30yrs (assumes you start redeeming them at age 65and are retired), are tax-deferred until redeemed, exempt from state income tax when redeemed, and bought in a taxable account. Annual limit is $10K/per SS number.

Playing the annual “$5K paper I bonds back on federal tax return” makes doing taxes less onerous and increases your annual purchase to $15K.



Roth IRA vs Traditional IRA.

Roth IRA? Your retired self will appreciate the flexibility of not having to make the RMDs. You will not need the RMDs if you have saved sufficiently in a 401k and taxable investing and delay SS until age 70.

Traditional IRA? If you anticipate that you will need the RMDs during retirement to meet your annual living expenses, then would be better to get the tax deduction now for a tIRA (traditional IRA), and pay the tax on RMDs during retirement.



Retirement investing: background information.

See seminal article by William Sharpe: https://web.stanford.edu/~wfsharpe/art/ ... active.htm

See Wiki topic: https://www.bogleheads.org/wiki/Three-fund_portfolio
See forum discussion: viewtopic.php?f=10&t=88005

See Wiki topic: https://www.bogleheads.org/wiki/Princip ... _placement



3-fund portfolio. The 3-fund portfolio is recommended for all account types (self-employed, employer, personal; tax-free, tax-deferred, and taxable). It can be replicated in each account, or spread across all guided by your investment options’ availability/costs. However you get to an age-appropriate 3-fund portfolio is fine: individual funds/ETFs, or an all-in-one fund.



Preferred retirement investing order, generic.
--Employer’s retirement plan to get the company match (it’s free money, but most restrictive choices)
--IRA (more and better choices)
--Spousal IRA (if spouse not working, qualifies based on your earned income)
--Employer’s retirement plan to annual contribution limit (maximize annual tax-advantaged space because more is better than less)
--Taxable investments (if you have more to invest after filling annual tax-advantaged space, no annual contribution limit). Round out your AA using the most tax-efficient options.

See Wiki topic: https://www.bogleheads.org/wiki/Priorit ... nvestments

Begin creating a 3-fund portfolio by investing in your employer’s retirement plan (probably the worst options) by choosing the best options (lowest-cost, broadest-index). Then invest in your IRA (unlimited good options) by buying whatever you need to fill out the missing pieces of your 3-fund portfolio not available from your employer’s plan. Finally, if you have more to invest after filling all of your annual tax-advantaged space, then begin taxable investing (choose only the most tax-efficient options).



Job search Try to find an employer that allows after-tax contributions to a 401k. Why?

After-tax 401k or 403b. If you have the option to contribute after-tax dollars, then consider this.
See: https://www.bogleheads.org/wiki/After_tax_401k
See: https://thefinancebuff.com/rollover-aft ... -roth.html

And the “mega backdoor Roth IRA” concept.
See: http://www.google.com/search?q=mega+bac ... rg%2Fforum


If you start a side business, then set up a solo 401k that allows after-tax contributions.

Mega backdoor Roth in solo 401k
See: https://thefinancebuff.com/executing-me ... -401k.html



Tax-advantaged accounts = tax-deferred accounts + tax-free accounts.

Tax-deferred accounts (solo 401k, SEP IRA, Simple IRA, defined benefits plan; 401a, 401k, 403b, 457B; tIRA,...). Many suggest skewing these toward bonds. Why? As you need bonds and they have less growth, so less tax will be owed upon withdrawal.

Tax-free accounts (r401k, rIRA,…). Many suggest skewing these toward equities. Why? Since they are tax-free upon withdrawal, so the greater expected growth of equities is an advantage.



Taxable investing. Use only the most tax-efficient options. As there is no annual contribution limit, it's easy, after populating your limited annual tax-advantaged space with your best options, to rebalance to your desired AA with new money in taxable. This is also the best place to hold emergency funds as it avoids the need to steal eggs from the golden goose sitting on your tax-advantaged retirement nest egg.

All-in-one funds. Do not use an all-in-one fund in your taxable space. Why? Most use taxable bonds that are inappropriate in a taxable account, and you can’t buy/sell only stocks/bonds (must buy both) so it’s more difficult to rebalance and harvest capital gains and tax losses. This is also true of tax-managed funds (using municipal bonds).



Municipal bonds. For taxable accounts and if in 25%+ fed tax bracket, a municipal (tax-exempt) bond fund can be used as part of our taxable retirement investment (substituted for TBM in 3-fund portfolio) and do double-duty as one tier of our savings/EFs*. The use of munis is not "all or nothing" as you can mix taxable bonds in your tax-advantaged accounts with munis in your taxable accounts.

See: https://www.bogleheads.org/wiki/Municipal_bonds

"Daily-accrual" muni fund. A daily-accrual muni fund (not ETF) is exempt from IRS 6mo holding period requirement to protect tax-exempt dividends. Meaning shares are easy to sell (only simple CG reporting required) so it can perform multiple duties:
--no contribution limit, so can skew tax-advantaged accounts to equities for more tax-sheltered growth,
--to save for short-term goals (home projects, vacation, new car,...) instead of taxable CDs/savings,
--as last/largest formal EF tier, less CG consequence and more immune to market noise than equities,
--as dry powder to use during market correction.

See "Loss on mutual fund shares held 6 months or less": https://www.bogleheads.org/wiki/Tax_los ... harvesting

An intermediate-term (taxable, or national muni) bond fund is reported to be the sweet sport for total return investing (= share price appreciation + distributions (dividends + capital gains)). Vanguard's IT national muni fund is VWITX.

Vanguard also has a municipal mmkt fund: VMSXX.



Suggested books. What I wish someone had told me when I was in my 30s.

The Only Investment Guide You’ll Every Need, Andrew Tobias. Or…
How to Make the Most of Your Money, Jane Bryant Quinn. Both cover personal finance topics.

The Boglehead’s Guide to Investing: structured overview of wise retirement investing.

Date… or Soul Mate, Warren: priceless if it helps avoid bad marriage/divorce.

The Only Guide to a Winning Bond Strategy You'll Ever Need, Larry Swedroe: so you avoid bad bonds.

Get the books from your local library.

You can also being reading in the Wiki (link provided above).



Disclosure. Keep your financial life simple.

My retirement plans are based on an emergency fund, small rIRA (to turn off RMDs), large taxable investments, defined benefits pension plan, and SS. I’ve never had access to a 401k.

My EF is 12mos of living expenses in checking/savings/TE mmkt. I use the ABP by CC technique to earn 2%/yr tax-free on that money in low-interest accounts. This helps me avoid the urge to chase bank teaser rates so keeps my financial life simple.
See ABP by CC technique: viewtopic.php?p=3794477#p3794477

My total investments are age-appropriate (stock/bond ratio).

My small rIRA is all equities for the greater growth potential.

My taxable investing is based on the 3-fund portfolio. It contains an additional 3yrs of living expense in VWITX masquerading as part of my taxable-account bond allocation. It’s easy to sell during an emergency.

Many prefer shorter-duration muni funds to minimize interest rate risk by increased price stability (52wk price spread: VWSTX ~10-cents, VWITX ~50 cents, VWLTX <$1). But I prefer Vanguard's long-term muni funds. Why? When considering total return investing (= share price appreciate + distributions (dividends + capital gains)), the majority of a bond fund's total return comes from dividends. So, within reason and since I'm not selling (so don’t worry too much about share price stability), I prefer more dividends to less.

I select muni funds based on TBM. I generally only consider a muni fund to be an appropriate replacement if it produces more after-tax income than TBM. A second look must consider whether I can tolerate the muni’s additional risk.

VWITX is an exception. I use it as a portion of my bond allocation, last/largest tier of my formal EFs, home project/new car, and dry powder fund. Why? Thought it's after-tax return is not always as good as TBM in the 25% fed tax bracket, it is better than bank CDs. So in that EF role, it serves well enough for me.

My major muni holdings are in VWLTX and a single-state muni. These do return more after-tax than TBM, but are more risky than TBM.



Suggestion
--Maximize your Roth annually.
--Set aside 1yr of living expense as an EF. Use the additional money to begin taxable investing.
--Begin investing in an age-appropriate 3-fund portfolio in a taxable account. (Maybe first skew toward bonds---safer than equities---to build-up an extended EF tier, future home purchase?)
--Find a new job with an employer with a 401k. (Preferable one that allows after-tax 401k contributions.)
--Find the Wiki list of recommended “books” (search term) and read several over the coming years to increase your investor education.



Above is general advice and what I’ve done based on the same advice. The advice may or may not be appropriate for you. For better advice, you’ll need to tell us more about your situation and plans.

Welcome.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

jalbert
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by jalbert » Tue Jun 12, 2018 10:42 pm

Sure. In the extreme, not withdrawing anything from traditional accounts means that you never pay tax on that money at all. That leads to questions about what marginal rates your heirs will pay, and the complexity of the analysis explodes. Alternatively, one could assume "withdraw it all at once" (to purchase a SpaceX ticket to the moon, or whatever) with the corresponding very high tax rate.
When making the trad vs Roth decision, you don’t know when you will retire until fairly close to retirement and you don’t know what your spending needs will be. If you will withdraw it all to buy a spaceX ticket you want Roth funds. But if you live modestly, you don’t want to pay tax on a dollar contributed that will grow into whatever number of dollars that you never withdraw.

It is not just heirs tax rate that matters either. If you have more retirement funds than you need the excess might be an emergency fund for unpredictable long-term care, which is tax-deductible, so you want the excess in trad funds.
Risk is not a guarantor of return.

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FiveK
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by FiveK » Tue Jun 12, 2018 11:05 pm

jalbert wrote:
Tue Jun 12, 2018 10:42 pm
When making the trad vs Roth decision, you don’t know when you will retire until fairly close to retirement and you don’t know what your spending needs will be. If you will withdraw it all to buy a spaceX ticket you want Roth funds. But if you live modestly, you don’t want to pay tax on a dollar contributed that will grow into whatever number of dollars that you never withdraw.
Agreed. One can takes one's best guesses, then act accordingly.
It is not just heirs tax rate that matters either. If you have more retirement funds than you need the excess might be an emergency fund for unpredictable long-term care, which is tax-deductible, so you want the excess in trad funds.
Agreed. You pays your money - or not ;) - and you takes your chances.

EldFen
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by EldFen » Wed Jun 13, 2018 1:35 pm

Wow. Thank you all for this insightful information.

A few additional notes to answer some previous questions:
  • I’m actively seeking a new job that will both provide more income and matching 401K opportunities
  • It’s very likely that future job opportunities will provide increasingly more income
  • My major goal is to save more for retirement
  • I plan to get married in a few years and have a child at some point
  • Purchasing a home or rental property isn’t a priority at this time (significant other already owns a home)
  • I am paying into Social Security
Based on the great responses, it appears my plan should be to:
  • Continue maxing Roth IRA (Vanguard LifeStrategy Growth Fund Investor Shares)
  • Keep approximately $25,000 of my savings as an Emergency Fund
  • Move the remaining $25,000 to a taxable brokerage account
  • Contribute monthly to new taxable brokerage account
I have two questions:
  • I’ve seen various recommendations regarding the brokerage account. For someone who’s still learning the ropes, is it advisable to start with Vanguard’s Total Stock Market Index Fund Admiral Shares?
  • Where would you all recommend I keep the Emergency Fund?
Thank you!

jalbert
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Joined: Fri Apr 10, 2015 12:29 am

Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by jalbert » Wed Jun 13, 2018 7:46 pm

I’ve seen various recommendations regarding the brokerage account. For someone who’s still learning the ropes, is it advisable to start with Vanguard’s Total Stock Market Index Fund Admiral Shares?
Where would you all recommend I keep the Emergency Fund?
VTI or ITOT for starters for US exposure in a brokerage account. You could add IJS if you want to do a small-cap value tilt.

IXUS is the best total int’l index fund option for a taxable account. Holding int’l in the taxable account preserves eligibility for the federal foreign tax credit for taxes paid to another country.

A high yield FDIC-insured savings account or the Vanguard Federal Money Market fund are good choices for a $25K emergency fund.

You want to consider your overall allocation across all accounts. VASGX is 80% stock and 20% bonds. If that is your preferred allocation, then it should hold in aggregate across all accounts.

As far as the traditional vs Roth decision, it is much more important that you continue to do the contribution than which account type you choose. While I think you are better off with a traditional (deductible) contribution, you can be successful using the Roth instead.
Risk is not a guarantor of return.

EldFen
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by EldFen » Mon Jun 18, 2018 9:42 am

jalbert wrote:
Wed Jun 13, 2018 7:46 pm
I’ve seen various recommendations regarding the brokerage account. For someone who’s still learning the ropes, is it advisable to start with Vanguard’s Total Stock Market Index Fund Admiral Shares?
Where would you all recommend I keep the Emergency Fund?
VTI or ITOT for starters for US exposure in a brokerage account. You could add IJS if you want to do a small-cap value tilt.
Would VTSAX also be advisable?

I would like a more set it and forget it option that allows for automatic, monthly investments.

retiredjg
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by retiredjg » Mon Jun 18, 2018 10:03 am

With no plan at work, I'd suggest that you consider using a combination of traditional IRA (which would decrease your taxable income) and a taxable account (which would be after-tax money) for your retirement savings.

Fill the traditional IRA with $5,500 and put everything else into taxable. Keep some of the savings for an emergency fund.

What funds you put in which accounts could be discussed with more information. It is helpful to refer to funds by name, not ticker. Or both if you like.

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FiveK
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by FiveK » Mon Jun 18, 2018 10:14 am

EldFen wrote:
Mon Jun 18, 2018 9:42 am
jalbert wrote:
Wed Jun 13, 2018 7:46 pm
VTI or ITOT for starters for US exposure in a brokerage account. You could add IJS if you want to do a small-cap value tilt.
Would VTSAX also be advisable?

I would like a more set it and forget it option that allows for automatic, monthly investments.
VTSAX and VTI are, in effect, the same thing. See ETFs vs mutual funds - Bogleheads for why one might choose one over the other.

profet
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Re: Next Steps for Single 34 Year Old with Savings and Roth IRA (VASGX)

Post by profet » Mon Jun 18, 2018 12:00 pm

hightower wrote:
Sun Jun 10, 2018 11:24 am
Just a small comment about your mention of "no debt other than a small car payment."

You have debt if you have a car loan. The reason I feel compelled to point this out is because too often in today's society people view car debt as acceptable. It is not. Don't get sucked into the trap of thinking that it is ok to buy cars on credit. It's a depreciating asset and is not worthy of going into debt for;) Wealthy people pay cash for cars because it's the most frugal thing to do and prevents you from over spending on a utility item. I'm just trying to prevent future mistakes from being too lax about consumer debt.

That's all for my rant:) My only other advice is to keep maxing your Roth every year. Consider opening an HSA if you can get yourself covered with a high deductible health insurance plan. HSAs are triple tax advantaged. If you can find a job with a 401k offering some day that would be very helpful as well. If you still have savings outside of the tax advantaged space, go ahead and open a taxable brokerage account and invest there.
I'd argue that while debt is debt, secured debt is less bad than unsecured debt. The reasoning being is that secured debt is traditionally had at much lower interest rates.

In my opinion, car debt is acceptable... why? With good credit, loans are available between 0-2%. Paying cash upfront for a car has an opportunity cost. Where else are you going to get loans at such low rates?

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