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rdmayo21
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Post by rdmayo21 »

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Last edited by rdmayo21 on Sat Jul 11, 2015 3:37 pm, edited 3 times in total.
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Bogle101
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Re: 24 Year Old - New Job - Which Funds Should I Choose?

Post by Bogle101 »

Hello there, more experienced posters will be along shortly to give their views, but here is my $0.02

Saving for your retirement at a good clip now will give you a great chance of having a comfortable retirement, and give you financial flexibility in case down then road you have to pare back your retirement contributions in the future for some reason.

So first off make sure you contribute enough to your 401(k) to get at least your company match. On top of that I would reccomend contributing 10% - 15% of your salary to your 401(k). I believe the max you can put in is $17,500/yr, but that may not be realistic given your current salary. For your 401(k), I would invest mostly in the Vanguard 500 (why is the er so high?) and then put a small percentage in either the Explorer or International Growth fund for some overseas exposure. I am 29 and heavily tilt towards US mid/small caps, REITs and international equities - but that asset mix is very aggressive for most of the posters on here.

There is nothing wrong with the 2050 funds you currently have. I personally do not want much bond exposure and also like to slice and dice, so I do not use the these target funds. But there are ridiculously low maintenance and have a good asset allocation mix for most everyone.

Alot of people love Wellington, so if you want a balanced fund of large cap and IG bonds that is a great pick as well. And since it is in a tax advantaged account, the fact that it is tax inefficient is irrelevant. Steer away from the money market fund obviously as that is for people who want to conserve their capital, but you do not have any horrendous funds so you can't really screw up that badly to be honest no matter what you settle on.
25% S&P 500 | 25% Extended Market | 20% International | 10% REIT | 10% Sector Funds | 10% Cash
Default User BR
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Re: 24 Year Old - New Job - Which Funds Should I Choose?

Post by Default User BR »

Do you plan to keep the old 401(k)? Are you allowed to take partial rollovers from it? You might consider converting some of that. What options are available in it, assuming you can reallocate within it?

For now, you don't have that much in assets yet, so just pick the S&P or perhaps Wellington. When things get a built up a bit more in there I would look to getting rid of the TR funds and build a composite portfolio using the best couple of options in the new plan and working the other accounts to pick up the rest.


Brian
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rdmayo21
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Re: 24 Year Old - New Job - Which Funds Should I Choose?

Post by rdmayo21 »

I believe the max you can put in is $17,500/yr, but that may not be realistic given your current salary.
When I said my federal tax rate was 15%, I meant that it would be that after maxing out the 401k. Before doing so, it's 25%.
Do you plan to keep the old 401(k)? Are you allowed to take partial rollovers from it? You might consider converting some of that. What options are available in it, assuming you can reallocate within it?
I do plan to rollover the old 401k, but it might be to a traditional IRA instead of the Roth, since I believe a total rate of 21% is higher than what it will be when I'm retired. This is also why I'm going to stop contributing to the Roth IRA and start a Traditional IRA.

I think I'll just do the 500 fund in the new 401k and do the Extended Market, Total International Market Index, and Total Bond Market Index funds in the the new IRA and old Roth IRA.
mamarachel
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Re: 24 Year Old - New Job - Which Funds Should I Choose?

Post by mamarachel »

Before rolling to a T-IRA, consider the fact that you will likely phase out of ROTH eligibility (based upon your single income now at such a young age) and need to backdoor into a ROTH later to maximize your strategy. Having existing traditional IRA funds makes that very difficult, and if your tax is higher when you do want to start converting, more expensive to the point of being a disadvantage.

Check to see if your old 401K can stay where it is, and what options are there. See also if your new 401K will accept rollovers into the fund.
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rdmayo21
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Re: 24 Year Old - New Job - Which Funds Should I Choose?

Post by rdmayo21 »

I realize that I will be phased out of Roth eligibility, but what is the benefit of me contributing to a Roth now or doing a backdoor Roth later on when I have reason to believe my tax rate will be less when I'm retired than right now?

Also, my old 401k has noticeably more Vanguard funds than the new 401k. Would I still want to rollover into the new one?
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Frengo
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Re: 24 Year Old - New Job - Which Funds Should I Choose?

Post by Frengo »

First of all, unless it is a typo $1500 as an emergency fund seems way too little.

Secondly, in your tax bracket the cost of contributing to a Roth is quite low. Even if your tax bracket at retirement will be even lower (how do you know?) Roths don't have RMD's and that's a big advantage too.
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rdmayo21
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Re: 24 Year Old - New Job - Which Funds Should I Choose?

Post by rdmayo21 »

Frengo wrote:First of all, unless it is a typo $1500 as an emergency fund seems way too little.

Secondly, in your tax bracket the cost of contributing to a Roth is quite low. Even if your tax bracket at retirement will be even lower (how do you know?) Roths don't have RMD's and that's a big advantage too.
The emergency fund is the $1500 in I-bonds plus Roth contributions, so it's sufficient.

Although I get what you're saying about the Roth, I don't believe there's any clear-cut right answer. It's true that no one knows what the tax code will be like in a few decades, but I do know that I will most likely not be living in a state with state income tax.
mamarachel
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Re: 24 Year Old - New Job - Which Funds Should I Choose?

Post by mamarachel »

rdmayo21 wrote:I realize that I will be phased out of Roth eligibility, but what is the benefit of me contributing to a Roth now or doing a backdoor Roth later on when I have reason to believe my tax rate will be less when I'm retired than right now?

Also, my old 401k has noticeably more Vanguard funds than the new 401k. Would I still want to rollover into the new one?
At the age of 24, it's very interesting that you think tax rates will not go up substantially before you reach retirement age. I think that is a big risk. And the fact that you have already built a decent portfolio and are "on your way" means that you may have less tax advantaged space than you think due to RMDs from other investments. Having the future option to buy into a ROTH should not be discounted.

Do you think tax rates will stay this low into the future with the implementation of ACA and the tremendous federal deficit? I don't.
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tainted-meat
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Re: 24 Year Old - New Job - Which Funds Should I Choose?

Post by tainted-meat »

rdmayo21 wrote:
Frengo wrote:First of all, unless it is a typo $1500 as an emergency fund seems way too little.

Secondly, in your tax bracket the cost of contributing to a Roth is quite low. Even if your tax bracket at retirement will be even lower (how do you know?) Roths don't have RMD's and that's a big advantage too.
The emergency fund is the $1500 in I-bonds plus Roth contributions, so it's sufficient.

Although I get what you're saying about the Roth, I don't believe there's any clear-cut right answer. It's true that no one knows what the tax code will be like in a few decades, but I do know that I will most likely not be living in a state with state income tax.
I've never understood the argument of RMDs knocking someone into a much higher tax bracket. Why not just retire and start drawing on the money sooner if there is too much money in the Traditional IRA or Traditional 401k? That seems like a great way to lower the impact of RMDs.
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Frengo
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Re: 24 Year Old - New Job - Which Funds Should I Choose?

Post by Frengo »

rdmayo21 wrote: The emergency fund is the $1500 in I-bonds plus Roth contributions, so it's sufficient.
$1500 is about nothing. What you are saying means that in case of emergency you will deplete your Roth. Not a wise strategy, since you can only put 5.5k/year in it.
Although I get what you're saying about the Roth, I don't believe there's any clear-cut right answer. It's true that no one knows what the tax code will be like in a few decades, but I do know that I will most likely not be living in a state with state income tax.
California is a great place to retire. Sad that some people have to go to FL or NV just out of tax considerations... It's a matter of personal taste anyway.
Federal rates will follow you even overseas.

As retiring earlier to avoid RMD's, maybe some prefer to continue working a little longer, accumulate even more, and retire in absolute luxury...
And there are also some estate planning considerations which favour a Roth.
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