Helping a friend get some investment/retirement accounts setup

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Nvielbig
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Helping a friend get some investment/retirement accounts setup

Post by Nvielbig »

Hello all,

One of my good friends works at a local business that doesn't offer a 401(k) plan. I am pretty sure that he doesn't have a portfolio really, I think he's mostly just storing his money in checking and living life off of that. I would like to help him get some automatic investing setup into accounts so that he's better prepared for later in life.

Considering that his company doesn't offer a 401(k) for him to contribute into, can you offer any guidance into what to focus on 1st, 2nd, 3rd in terms of opening accounts for him?

I personally use the following portfolio:
- 401(k): Vanguard 2055 TDF
- Roth IRA: VTI
- Taxable: VTI/VXUS

Does he have any options for a 401(k), or should he just open up a Roth IRA, focus on maxing the $6k there, then moving onto a taxable account after that?

Thanks all, just kind of came to mind that I should reach out and offer to help him get setup, but I also am not an expert on this, so looking for some input on how to do this best for him.
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retired@50
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Re: Helping a friend get some investment/retirement accounts setup

Post by retired@50 »

Because there isn't a 401k plan at work, he'll be able to skip some of the steps in "Prioritizing Investments" and focus on a Roth IRA or a Traditional tax-deferred IRA depending on the income tax situation.

See link for prioritizing investments. https://www.bogleheads.org/wiki/Priorit ... nvestments

Depending on the income level, the saver's credit could be a factor.
See link: https://www.bogleheads.org/wiki/Saver%27s_credit

Since the IRA is likely to be the only retirement savings account for a while, I'd recommend a Target Date Fund so he's got a globally diversified, age appropriate portfolio, all in a single fund.

Regards,
This is one person's opinion. Nothing more.
mhalley
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Re: Helping a friend get some investment/retirement accounts setup

Post by mhalley »

If he wants to invest more than the maximum allowed in an ira, a taxable brokerage account is also a fine way to invest for retirement. A target date fund is fine when first getting started in a retirement account, in a taxable account he would want to invest in the three fund portfolio. If he is interested in further tax advantage saving, if he has an hsa comparable health insurance plan an hsa is another great way to save.
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Nvielbig
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Re: Helping a friend get some investment/retirement accounts setup

Post by Nvielbig »

Thanks to you both. I'm not sure if he/his fiancé would qualify for the saver's credit reading into it -- is this something that automatically gets credited back to you or do you have to submit something for it to be given out to you?

As for his portfolio, does this setup seem good?
  • Roth IRA: 100% VFFVX (Vanguard 2055 TDF)
  • Taxable: 60% VTI, 40% VXUS
As for her portfolio (neither of them have investments setup really, she has a 401k but I think that's all. Not sure how much she contributes)
  • 401(k): not sure how she's invested here. Will probably just ensure she's not in some painfully high expense ratio fund(s))
  • Roth IRA: 100% VFFVX (Vanguard 2055 TDF)
  • Taxable: 60% VTI, 40% VXUS
Appreciate the help!
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retired@50
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Re: Helping a friend get some investment/retirement accounts setup

Post by retired@50 »

Nvielbig wrote: Wed Jun 22, 2022 3:36 pm Thanks to you both. I'm not sure if he/his fiancé would qualify for the saver's credit reading into it -- is this something that automatically gets credited back to you or do you have to submit something for it to be given out to you?

As for his portfolio, does this setup seem good?
  • Roth IRA: 100% VFFVX (Vanguard 2055 TDF)
  • Taxable: 60% VTI, 40% VXUS
As for her portfolio (neither of them have investments setup really, she has a 401k but I think that's all. Not sure how much she contributes)
  • 401(k): not sure how she's invested here. Will probably just ensure she's not in some painfully high expense ratio fund(s))
  • Roth IRA: 100% VFFVX (Vanguard 2055 TDF)
  • Taxable: 60% VTI, 40% VXUS
Appreciate the help!
About the saver's credit, I've never personally been eligible, but I suspect that if one's income is low enough, and they contribute to a retirement account, then Turbo Tax would most likely catch it. I don't think you just send in your return to the IRS and wait for them to flag it, my guess is the taxpayer has to be the proactive one to determine eligibility, and make the claim.

According to the IRS website, Form 8880 is involved.
See links: https://www.irs.gov/retirement-plans/pl ... ers-credit
https://www.irs.gov/pub/irs-pdf/f8880.pdf

You've added a person to the discussion. Now we have a fiance in the picture. Tax filing status will affect the saver's credit. MFJ or Single.

Your proposal above seems reasonable, but before embarking on a taxable investment account holding VTI & VXUS, make sure an adequate emergency fund exists.

Regards,
This is one person's opinion. Nothing more.
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Nvielbig
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Re: Helping a friend get some investment/retirement accounts setup

Post by Nvielbig »

Thanks a lot!

I’m going to make sure he has a good e-fund, I think that he does since he’s basically always put his money into checking/HYSA.

Other than that I’ll try to get the Roth setup and get him to deposit as much as he can into that annually. If he manages the $6k, then it can go to the taxable after that. That’s my plan for him
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BL
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Re: Helping a friend get some investment/retirement accounts setup

Post by BL »

Has your friend asked you for help? Most of us have learned that this is so very personal and that you will be blamed when, not if, the market does something painful.

Perhaps offer some reading material, such as mentioned in the Wiki here. I got my start with the Bogleheads Guide to Investing after following this website and an earlier version. There is also a book on the 3-fund portfolio (also in the reading list in the Wiki.)

A favorite, which I like to suggest to new investors, is
https://www.etf.com/docs/IfYouCan.pdf
a 16-page free etf (or cheap book on Amazon.com): If you can: How Millennials can get rich slowly, by William Bernstein, which is written for new investors. Perhaps read it together.
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Nvielbig
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Re: Helping a friend get some investment/retirement accounts setup

Post by Nvielbig »

BL wrote: Thu Jun 23, 2022 1:04 am Has your friend asked you for help? Most of us have learned that this is so very personal and that you will be blamed when, not if, the market does something painful.

Perhaps offer some reading material, such as mentioned in the Wiki here. I got my start with the Bogleheads Guide to Investing after following this website and an earlier version. There is also a book on the 3-fund portfolio (also in the reading list in the Wiki.)

A favorite, which I like to suggest to new investors, is
https://www.etf.com/docs/IfYouCan.pdf
a 16-page free etf (or cheap book on Amazon.com): If you can: How Millennials can get rich slowly, by William Bernstein, which is written for new investors. Perhaps read it together.
Well, he didn't come forward and explicitly ask me for help with this, but I did send him a message letting him know if he wanted any help getting some accounts that will grow better than a HYSA over his lifetime, I'm here to try to help him out, and he replied saying he'd love for me to help him out. I appreciate :beer your advice/concern about how the helper can turn into the villain in a situation like this over time, but that's a risk I'm willing to take for his own good. I've known him since I was like 12 so I am pretty comfortable with this. At this point we're 31, have to get going on this at some point. Doesn't come from a very financially literate family, so he's never had anyone providing good advice with how to manage your money and grow for retirement, etc.
Pops1860
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Re: Helping a friend get some investment/retirement accounts setup

Post by Pops1860 »

Suggest you specifically advise him about the ability to use the Roth IRA as an 'emergency fund' if really necessary, i.e., contributions (but not any earnings) can be withdrawn at any time, for any reason, without any tax or penalty. Of course, I am not suggesting he/they plan to use this Roth IRA feature, but knowing it's there if needed helps with the 'sleeping well at night' objective.
The power of accurate observation is often called cynicism by those who do not have it. ~George Bernard Shaw
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Nvielbig
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Re: Helping a friend get some investment/retirement accounts setup

Post by Nvielbig »

Pops1860 wrote: Thu Jun 23, 2022 8:07 am Suggest you specifically advise him about the ability to use the Roth IRA as an 'emergency fund' if really necessary, i.e., contributions (but not any earnings) can be withdrawn at any time, for any reason, without any tax or penalty. Of course, I am not suggesting he/they plan to use this Roth IRA feature, but knowing it's there if needed helps with the 'sleeping well at night' objective.
Absolutely. I'd let him know that if we were to open a Roth/Taxable, he should do his best to view that money (Roth contributions after 5 year lockup) as off-limits, unless something drastic happened to his situation and he had no choice but to touch that :dollar
dbr
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Re: Helping a friend get some investment/retirement accounts setup

Post by dbr »

Typically the most difficult concept for new or inexperienced or less knowledgeable investors to grasp is how variable the results from investing are in any period of time. If you are setting up portfolios for people it would be good to start on some education regarding what to expect. Especially you don't want to be blamed for their accounts losing a lot of money right off.

My favorite tool for visualizing this and setting up statistical thinking about what happens is this one: https://engaging-data.com/visualizing-4-rule/

Note the tool can be converted to accumulation by entering negative numbers for spending.
pkcrafter
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Re: Helping a friend get some investment/retirement accounts setup

Post by pkcrafter »

Nvielbig , one of the best things you can do is connect your friend with the Bogleheads' site. There is a lot of basic information here on getting started. In the long run it's far better that he learn good investing techniques instead of just getting investing help.

https://www.bogleheads.org/wiki/Getting_started


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
dbr
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Re: Helping a friend get some investment/retirement accounts setup

Post by dbr »

pkcrafter wrote: Thu Jun 23, 2022 9:09 am Nvielbig , one of the best things you can do is connect your friend with the Bogleheads' site. There is a lot of basic information here on getting started. In the long run it's far better that he learn good investing techniques instead of just getting investing help.

https://www.bogleheads.org/wiki/Getting_started


Paul
Yes, the explicit follow on to my suggestion that your friends educate themselves.
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Nvielbig
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Re: Helping a friend get some investment/retirement accounts setup

Post by Nvielbig »

pkcrafter wrote: Thu Jun 23, 2022 9:09 am Nvielbig , one of the best things you can do is connect your friend with the Bogleheads' site. There is a lot of basic information here on getting started. In the long run it's far better that he learn good investing techniques instead of just getting investing help.

https://www.bogleheads.org/wiki/Getting_started


Paul
The Boglehead community will absolutely be passed onto him both in terms of reddit, this forum and also books.
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