Help with options for smart savings/investments?

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lucyve
Posts: 1
Joined: Tue Oct 09, 2018 11:11 pm

Help with options for smart savings/investments?

Post by lucyve » Tue Oct 09, 2018 11:40 pm

Hi All.
Am 43, married and just starting to figure out a plan for retirement savings. I know I left it late but better late than never.

I am an expat from Europe (here 3 yrs now) so all the accounts and tax deferral packages available in the USA are confusing to me (trad ira, roth ira, 401k etc). Also I am and have always been a freelancer so I've never had any kind of employer plan for my retirement. I'll probably always be a lone freelancer and I doubt my income (around 30k) will change much going forward.

From my research so far, I like the Roth IRA with Vanguard, and the 3 fund portfolio idea sounds sensible. With limits to contributions of 5.5k a year, I can probably save at least another 5k per year. What to do with that? I probably won't need the money until I'm 60, and I assume some kind of national tax avantaged scheme is where I should keep it.. and likely as an index fund too.

I tried to read the page about the solo 401k https://www.bogleheads.org/wiki/Solo_401%28k%29_plan but my mind started spinning. The "employer profit sharing contribution"? It's just me so I don't understand how that works.

Any help / tips gratefully received. I might be missing a lot as I'm new to Bogle and the USA!
Thx
Lucy

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Duckie
Posts: 5954
Joined: Thu Mar 08, 2007 2:55 pm

Re: Help with options for smart savings/investments?

Post by Duckie » Wed Oct 10, 2018 5:31 pm

lucyve, welcome to the forum.
lucyve wrote:From my research so far, I like the Roth IRA with Vanguard, and the 3 fund portfolio idea sounds sensible. With limits to contributions of 5.5k a year, I can probably save at least another 5k per year. What to do with that? I probably won't need the money until I'm 60, and I assume some kind of national tax avantaged scheme is where I should keep it.. and likely as an index fund too.
Anything can go in a Roth IRA but the best options are a total US stock fund and/or a total international stock fund. But what you put in the Roth IRA needs to work around what you and your spouse have in your other accounts earmarked for retirement. You consider your entire joint portfolio when choosing options. Many employer plans have limited choices so you pick the best/cheapest in those plans. Taxable accounts have tax issues so you avoid bonds there. Roth IRAs can take anything.

You also need to keep income limits in mind when contributing to Roth IRAs. (Although there is a Backdoor Roth IRA method.)
I tried to read the page about the solo 401k https://www.bogleheads.org/wiki/Solo_401%28k%29_plan but my mind started spinning. The "employer profit sharing contribution"? It's just me so I don't understand how that works.
When you are self-employed you are both the employEE and the employER. For 2018 as the employEE you can contribute up to $18.5K of net income to either a pre-tax or Roth (if specifically set up) solo 401k account. This is called the employee elective deferral. As the employER you can contribute up to ~20% of net income to a pre-tax account. This is called the employer profit sharing contribution. The total limit for both is $55K or net income, whichever is less. Take a good look at IRS Publication 560, especially the worksheets in Chapter 5. (A solo 401k is a Qualified Plan.)

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