What to fund in a simple IRA?

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AK59
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What to fund in a simple IRA?

Post by AK59 »

I am going to be starting a simple IRA through my business. It seems as if it is the most efficient option. I just hired my first employee (part-time) and our revenue/model will make it hard for anyone to contribute above $13.5k.

My plan is to fund this as much as I can after I exhaust my Roth IRA contributions ($6k/year) and utilize the 3% match I can give myself through my business. My goal is to invest about 1k/month as employee and employer.

Knowing this is a tax-deferred account and I am maximizing my Roth with blue chip growth stock funds, I am trying to figure out how to fund this IRA and/or what the principles are of it.

Being mid-30's, I want to create high growth and maximize tax efficiency. How should I go about funding this IRA?
bloom2708
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Re: What to fund in a simple IRA?

Post by bloom2708 »

Total US stock index 85%
Total US bond index 15%

Roth can be

Total US stock index
Total International stock index

Put bonds in pre-tax accounts.

Just an idea. Less funds = more.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead
Topic Author
AK59
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Re: What to fund in a simple IRA?

Post by AK59 »

Exactly what I was looking for, simple.

This allocation and changing over time to reduce risk is the best as well for tax efficiency.

I am planning to set up with Vanguard, so would choose Vanguard fund to keep all fees as low as possible. So something such as VTAX and VBTLX, although they both have $3k minimums.
bloom2708
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Re: What to fund in a simple IRA?

Post by bloom2708 »

AK59 wrote: Thu Jun 03, 2021 4:16 pm Exactly what I was looking for, simple.

This allocation and changing over time to reduce risk is the best as well for tax efficiency.

I am planning to set up with Vanguard, so would choose Vanguard fund to keep all fees as low as possible. So something such as VTSAX and VBTLX, although they both have $3k minimums.
Yes. You could just start with one of the 2 funds in each and add the others with new funds.

When starting the mix isn't quite as important.

You could also use the ETF versions of the funds which have a lower minimum. You can then potentially have remainders not invested at Vanguard as they don't do partial shares at this point. But again, pretty minor.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead
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David Jay
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Re: What to fund in a simple IRA?

Post by David Jay »

AK59 wrote: Thu Jun 03, 2021 4:16 pm Exactly what I was looking for, simple.

This allocation and changing over time to reduce risk is the best as well for tax efficiency.

I am planning to set up with Vanguard, so would choose Vanguard fund to keep all fees as low as possible. So something such as VTAX and VBTLX, although they both have $3k minimums.
That is for initial purchase, there is no minimum additional purchases.

So deposit your regular payroll deductions into the settlement account until it has $3,000, then put everything in VTSAX. When you have enough to achieve your AA, exchange that amount from VTSAX to VBTLX (again, $3000 initial exchange, then no limits).
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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Peter Foley
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Re: What to fund in a simple IRA?

Post by Peter Foley »

I agree with the choice of two funds.

Depending on your desired ratio to stocks and bonds over all your accounts (Roth, taxable, and SIMPLE), the SIMPLE account could have more bonds than initially suggested.
SADVG
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Re: What to fund in a simple IRA?

Post by SADVG »

My suggestion would be to open it with STAR, VGSTX, which has a 1k minimum and is a balanced fund (so stocks and bonds); since it's stock portion is only in the 60+%, at some point could begin to move to Total Stock and some bond fund, but I might choose Core bond fund.
Topic Author
AK59
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Re: What to fund in a simple IRA?

Post by AK59 »

David Jay wrote: Thu Jun 03, 2021 4:58 pm
AK59 wrote: Thu Jun 03, 2021 4:16 pm Exactly what I was looking for, simple.

This allocation and changing over time to reduce risk is the best as well for tax efficiency.

I am planning to set up with Vanguard, so would choose Vanguard fund to keep all fees as low as possible. So something such as VTAX and VBTLX, although they both have $3k minimums.
That is for initial purchase, there is no minimum additional purchases.

So deposit your regular payroll deductions into the settlement account until it has $3,000, then put everything in VTSAX. When you have enough to achieve your AA, exchange that amount from VTSAX to VBTLX (again, $3000 initial exchange, then no limits).
Never thought of it like that and makes sense. With SIMPLE IRA's in Vanguard do I still have to purchase full shares or can I go fractional? I might just go to Fidelity if that is the case or use a comparable ETF within Vanguard.
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David Jay
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Re: What to fund in a simple IRA?

Post by David Jay »

AK59 wrote: Thu Jun 03, 2021 5:24 pm
David Jay wrote: Thu Jun 03, 2021 4:58 pm
AK59 wrote: Thu Jun 03, 2021 4:16 pm Exactly what I was looking for, simple.

This allocation and changing over time to reduce risk is the best as well for tax efficiency.

I am planning to set up with Vanguard, so would choose Vanguard fund to keep all fees as low as possible. So something such as VTAX and VBTLX, although they both have $3k minimums.
That is for initial purchase, there is no minimum additional purchases.

So deposit your regular payroll deductions into the settlement account until it has $3,000, then put everything in VTSAX. When you have enough to achieve your AA, exchange that amount from VTSAX to VBTLX (again, $3000 initial exchange, then no limits).
Never thought of it like that and makes sense. With SIMPLE IRA's in Vanguard do I still have to purchase full shares or can I go fractional? I might just go to Fidelity if that is the case or use a comparable ETF within Vanguard.
Mutual Funds are purchased by the dollar (actually, down to the penny), so after the initial $3000 purchase you can put $37.19 (or whatever) per pay period into either of the two funds.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
Topic Author
AK59
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Re: What to fund in a simple IRA?

Post by AK59 »

Peter Foley wrote: Thu Jun 03, 2021 5:05 pm I agree with the choice of two funds.

Depending on your desired ratio to stocks and bonds over all your accounts (Roth, taxable, and SIMPLE), the SIMPLE account could have more bonds than initially suggested.
I am going with a 90/10 split right now.
Topic Author
AK59
Posts: 76
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Re: What to fund in a simple IRA?

Post by AK59 »

David Jay wrote: Thu Jun 03, 2021 5:37 pm
AK59 wrote: Thu Jun 03, 2021 5:24 pm
David Jay wrote: Thu Jun 03, 2021 4:58 pm
AK59 wrote: Thu Jun 03, 2021 4:16 pm Exactly what I was looking for, simple.

This allocation and changing over time to reduce risk is the best as well for tax efficiency.

I am planning to set up with Vanguard, so would choose Vanguard fund to keep all fees as low as possible. So something such as VTAX and VBTLX, although they both have $3k minimums.
That is for initial purchase, there is no minimum additional purchases.

So deposit your regular payroll deductions into the settlement account until it has $3,000, then put everything in VTSAX. When you have enough to achieve your AA, exchange that amount from VTSAX to VBTLX (again, $3000 initial exchange, then no limits).
Never thought of it like that and makes sense. With SIMPLE IRA's in Vanguard do I still have to purchase full shares or can I go fractional? I might just go to Fidelity if that is the case or use a comparable ETF within Vanguard.
Mutual Funds are purchased by the dollar (actually, down to the penny), so after the initial $3000 purchase you can put $37.19 (or whatever) per pay period into either of the two funds.
Unless I am doing something wrong in my purchases with Vanguard I have never been able to purchase by the dollar amount, only full shares.

But looking deeper it seems Vanguard waves the 3k minimum investment when you open your account as long as you purchase one full share.
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David Jay
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Re: What to fund in a simple IRA?

Post by David Jay »

AK59 wrote: Thu Jun 10, 2021 12:27 pmUnless I am doing something wrong in my purchases with Vanguard I have never been able to purchase by the dollar amount, only full shares.

But looking deeper it seems Vanguard waves the 3k minimum investment when you open your account as long as you purchase one full share.
You must be purchasing stocks or ETFs.

In a Vanguard Brokerage Account, traditional Mutual Funds (typically a 5 character “ticker” like VTIAX or VBIRX) are purchased in dollar amounts, individual stocks and ETFs are purchased in “shares”.

If you are comfortable with ETFs, you can use VTI instead of VTSAX and BND in place of VBTLX. Minimum purchase size would be one share.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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