Passive investor seeking advice about which investments to keep or obtain.

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CuriousNimbus
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Joined: Fri May 07, 2021 9:54 pm

Passive investor seeking advice about which investments to keep or obtain.

Post by CuriousNimbus »

Hi everyone,

I hope you are doing well. I am currently unemployed and am I trying to organize my investments.

Apologies in advance for the lack of financial literacy. I need some guidance on the first steps. Brace yourselves, you might facepalm. I’m one of those people who didn’t spend a lot, but also didn’t learn much about investing. I did look into investing a while back but I've realized that I'm still the passive investor type that wants to "set it and forget it".

Here is the rundown of my financial situation:

Age: Almost 32
Employment: Unemployed and trying to make a career change.
Target retirement age: 65 (so in 2055).
Annual income: $0.00
Debt: None at all
Savings: Approximately $90,000
Properties: None. I don't own a house or condo.
State income taxes: none

TransAmerica 401K from a previous job: $33,993.17
• Consists of 401k elective ($4,654.12) and Roth 401K (22,493.70)
• About 95% stocks and 5% bonds

Fidelity Roth IRA: $2,054.18
Rollover IRA (from another previous job): $2,404.22

I have not added any investments to the IRAs so the money is just sitting there.

Charles Schwab 401k from most recent job: $362.63
• Consists of Vanguard Target Retirement Fund (VFFVX 2055 Fund)

I like that I have the VFFVX target date fund seems as it has a lower expense ratio than other ones I was looking including the Fidelity Flex Freedom Blend 2055 Fund.

I did consider getting index funds for my Roth IRA, but that’s still a bit more legwork than I’d like right now. Eventually I might become a more active investor once I’m more knowledgeable about investments. I read that many people are content with just target date funds even though the expense ratios are higher and returns are less.

I don’t see that there are any target date funds in my TransAmericas 401K but it does allow me to adjust my strategy based on when I want to retire and how aggressive or conservative I want to be.

I do know that my savings accounts are overfunded. At the very least, I need to put some of the savings in CDs.

I'm not sure what my next steps should be as a passive investor. I prefer a target date fund over index funds. As someone here once pointed out, the IRAs can’t be rolled over to my 401K and my understanding is that only employers can contribute to the TransAmerica 401K and the VFFVX target date fund. Is the only reasonable option to contribute approximately $6000 to index funds in my Roth IRA every year? Which accounts should be rolled over, and what should they be rolled into?

Thanks in advance!
Last edited by CuriousNimbus on Tue Aug 02, 2022 9:19 am, edited 1 time in total.
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AnnetteLouisan
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Re: Passive investor seeking advice about which investments to keep or obtain.

Post by AnnetteLouisan »

Welcome!

Ok, age 32 with a net worth of $154k and no debt, looking for a job in a new field in the best employer’s market in decades. Plus you’ve regularly contributed to 401ks at work and have a Fidelity IRA set up. Not bad!

I’d start with the “Getting Started” portion of the Bogleheads wiki and edit your post a little bit (add your state and tax rates, etc) to conform to the “Asking Portfolio Questions” format so that people can help. It’s great that you already know you have a preference for target date funds and you plan to work to a realistic 65.

I’d throw $10k in some series I bonds right away to get the benefit of the high interest rate, educate yourself on the wiki and above all focus on getting a new job, since you need earned income to contribute to a Roth IRA, and figure out what went wrong (if anything) in the last few jobs you held. I don’t know that streamlining your holdings and reducing your emergency cash cushion needs to be your priority right now, but others may differ.

Welcome again and best of luck in your job search.
Last edited by AnnetteLouisan on Sun Jul 31, 2022 10:36 am, edited 2 times in total.
the_wiki
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Joined: Thu Jul 28, 2022 11:14 am

Re: Passive investor seeking advice about which investments to keep or obtain.

Post by the_wiki »

You can't contribute to company 401k if you are no longer employed at that company, you are correct. If you want to make more investments, you would have to use a personal IRA or Roth IRA. But I would wait until you have an income again, even if you do have high savings. Never know what will happen, so don't mess with that money until you have a new job. I wouldn't even mess with CDs, but you might find a savings account paying higher interest. I know some are in the 1.5%+ range now.

I would probably move the schwab account to a rollover IRA with your other one at Fidelity since it is so small. They might be charging maintenance fees Better to manage them in one place. And you can buy that Vanguard Target date at Fidelity as well. Fidelity offers funds from a whole lot of investment brands, not just their own.

You didn't really mention investment options at your largest TransAmerica plan, so not sure how to help there. Do they offer a Target date with reasonable fees? If not, roll that over to Fidelity as well. Then just use your favorite fund for all your accounts.

You said you like Target date, and those are generally well constructed portfolios with reasonable fees. THey are a very good option for the set it and forget it investor.
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Taylor Larimore
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Re: Passive investor seeking advice about which investments to keep or obtain.

Post by Taylor Larimore »

CuriousNimbus wrote: Sat Jul 30, 2022 3:51 pm Hi everyone,

I am currently unemployed and I am trying to organize my investments.
CuriousNimbus:

Take a look at the many benefits of The Three-Fund Portfolio.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Never underrate either the majesty of simplicity or its proven effectiveness as a long-term strategy for productive investing."



"Simplicity is the master key to financial success." -- Jack Bogle
lakpr
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Re: Passive investor seeking advice about which investments to keep or obtain.

Post by lakpr »

If your income for 2022 is going to be below $12,950 for a single person (I am assuming you are single), then your total tax bill will be zero due to the income being negated by the standard deduction.

You have listed a pre-tax 401k amount from previous job of $4654, existing Rollover IRA of $2404 and Schwab 401k for $362. The total is just $7420. You have almost $5500 buffer before you will exceed the 0% tax bracket.

Given this, I suggest that you get rid of all these pre-tax amounts. Roll both the 401(k) amounts to the current Rollover IRA first, then immediately convert everything in that Rollover IRA to Roth IRA. You will avoid all future taxes on this amount. Low income years like now are the BEST times to do Roth conversion, and it wouldn't cost you a single penny.

The Roth IRA itself can be put into Vanguard Target Retirement Fund 2055, if you so wish.
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CyclingDuo
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Re: Passive investor seeking advice about which investments to keep or obtain.

Post by CyclingDuo »

lakpr wrote: Sat Jul 30, 2022 7:31 pmIf your income for 2022 is going to be below $12,950 for a single person (I am assuming you are single), then your total tax bill will be zero due to the income being negated by the standard deduction.

You have listed a pre-tax 401k amount from previous job of $4654, existing Rollover IRA of $2404 and Schwab 401k for $362. The total is just $7420. You have almost $5500 buffer before you will exceed the 0% tax bracket.

Given this, I suggest that you get rid of all these pre-tax amounts. Roll both the 401(k) amounts to the current Rollover IRA first, then immediately convert everything in that Rollover IRA to Roth IRA. You will avoid all future taxes on this amount. Low income years like now are the BEST times to do Roth conversion, and it wouldn't cost you a single penny.

The Roth IRA itself can be put into Vanguard Target Retirement Fund 2055, if you so wish.
^^This!

OP, how long will you be able to collect unemployment insurance? Are you able to meet your current expenses on unemployment alone, or are you also having to dip into your savings to cover your bills?

My best advice would be to retool, polish up your resume, get your recommendations all aligned and seek out the next opportunity to bring in income from your human capital so that you can get back to saving and investing without having to touch what you have already saved thus far.

Losing a job is stressful (I personally went through it in 2018 and had to retool), so wish you all the best over the next few months/years to move forward.

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel
exodusNH
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Re: Passive investor seeking advice about which investments to keep or obtain.

Post by exodusNH »

CuriousNimbus wrote: Sat Jul 30, 2022 3:51 pm Charles Schwab 401k from most recent job: $362.63
• Consists of Vanguard Target Retirement Fund (VFFVX 2055 Fund)
I would roll this out to an IRA as soon as you can. Your former employer isn't going to keep your account open with this amount in it. Better do take care of this before they do.
Topic Author
CuriousNimbus
Posts: 22
Joined: Fri May 07, 2021 9:54 pm

Re: Passive investor seeking advice about which investments to keep or obtain.

Post by CuriousNimbus »

AnnetteLouisan wrote: Sat Jul 30, 2022 6:42 pm Welcome!

Ok, age 32 with a net worth of $154k and no debt, looking for a job in a new field in the best employer’s market in decades. Plus you’ve regularly contributed to 401ks at work and have a Fidelity IRA set up. Not bad!

I’d start with the “Getting Started” portion of the Bogleheads wiki and edit your post a little bit (add your state and tax rates, etc) to conform to the “Asking Portfolio Questions” format so that people can help. It’s great that you already know you have a preference for target date funds and you plan to work to a realistic 65.

I’d throw $10k in some series I bonds right away to get the benefit of the high interest rate, educate yourself on the wiki and above all focus on getting a new job, since you need earned income to contribute to a Roth IRA, and figure out what went wrong (if anything) in the last few jobs you held. I don’t know that streamlining your holdings and reducing your emergency cash cushion needs to be your priority right now, but others may differ.

Welcome again and best of luck in your job search.
Thank you Annette! That's a good question. I edited my post slightly. Since I live in Texas, I do not have to pay income taxes. I will start reading the Bogleheads wiki.
Topic Author
CuriousNimbus
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Joined: Fri May 07, 2021 9:54 pm

Re: Passive investor seeking advice about which investments to keep or obtain.

Post by CuriousNimbus »

the_wiki wrote: Sat Jul 30, 2022 6:59 pm You can't contribute to company 401k if you are no longer employed at that company, you are correct. If you want to make more investments, you would have to use a personal IRA or Roth IRA. But I would wait until you have an income again, even if you do have high savings. Never know what will happen, so don't mess with that money until you have a new job. I wouldn't even mess with CDs, but you might find a savings account paying higher interest. I know some are in the 1.5%+ range now.

I would probably move the schwab account to a rollover IRA with your other one at Fidelity since it is so small. They might be charging maintenance fees Better to manage them in one place. And you can buy that Vanguard Target date at Fidelity as well. Fidelity offers funds from a whole lot of investment brands, not just their own.

You didn't really mention investment options at your largest TransAmerica plan, so not sure how to help there. Do they offer a Target date with reasonable fees? If not, roll that over to Fidelity as well. Then just use your favorite fund for all your accounts.

You said you like Target date, and those are generally well constructed portfolios with reasonable fees. THey are a very good option for the set it and forget it investor.
Thank you! I'm trying to get at least a part time job in the mean time. Good question about TransAmerica's target date funds. The one they have (Transamerica ClearTrack 2055) seems to have higher expense ratio and a lower YTD return than the Vanguard one. There's probably more factors to consider but I probably will roll it over to Fidelity.
Topic Author
CuriousNimbus
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Joined: Fri May 07, 2021 9:54 pm

Re: Passive investor seeking advice about which investments to keep or obtain.

Post by CuriousNimbus »

lakpr wrote: Sat Jul 30, 2022 7:31 pm If your income for 2022 is going to be below $12,950 for a single person (I am assuming you are single), then your total tax bill will be zero due to the income being negated by the standard deduction.

You have listed a pre-tax 401k amount from previous job of $4654, existing Rollover IRA of $2404 and Schwab 401k for $362. The total is just $7420. You have almost $5500 buffer before you will exceed the 0% tax bracket.

Given this, I suggest that you get rid of all these pre-tax amounts. Roll both the 401(k) amounts to the current Rollover IRA first, then immediately convert everything in that Rollover IRA to Roth IRA. You will avoid all future taxes on this amount. Low income years like now are the BEST times to do Roth conversion, and it wouldn't cost you a single penny.

The Roth IRA itself can be put into Vanguard Target Retirement Fund 2055, if you so wish.
Thank you Lakpr!

Oof. I didn't know those accounts counted as income.

I actually made around $19,000 this year. I recently quit a job that I worked at for four months. I have started rolling over the Schwab 401K and will probably roll over the Trans America 401k (the one with ~$30,000) to the Fidelity roll over IRA as others have suggested.

When you say convert everything to Roth IRA, do you mean the entire rollover IRA can be transferred to the Roth IRA? My understanding is that the $6,000 contribution limit wouldn't apply to this roll over.
Last edited by CuriousNimbus on Tue Aug 02, 2022 9:43 am, edited 1 time in total.
Topic Author
CuriousNimbus
Posts: 22
Joined: Fri May 07, 2021 9:54 pm

Re: Passive investor seeking advice about which investments to keep or obtain.

Post by CuriousNimbus »

CyclingDuo wrote: Sun Jul 31, 2022 9:11 am
lakpr wrote: Sat Jul 30, 2022 7:31 pmIf your income for 2022 is going to be below $12,950 for a single person (I am assuming you are single), then your total tax bill will be zero due to the income being negated by the standard deduction.

You have listed a pre-tax 401k amount from previous job of $4654, existing Rollover IRA of $2404 and Schwab 401k for $362. The total is just $7420. You have almost $5500 buffer before you will exceed the 0% tax bracket.

Given this, I suggest that you get rid of all these pre-tax amounts. Roll both the 401(k) amounts to the current Rollover IRA first, then immediately convert everything in that Rollover IRA to Roth IRA. You will avoid all future taxes on this amount. Low income years like now are the BEST times to do Roth conversion, and it wouldn't cost you a single penny.

The Roth IRA itself can be put into Vanguard Target Retirement Fund 2055, if you so wish.
^^This!

OP, how long will you be able to collect unemployment insurance? Are you able to meet your current expenses on unemployment alone, or are you also having to dip into your savings to cover your bills?

My best advice would be to retool, polish up your resume, get your recommendations all aligned and seek out the next opportunity to bring in income from your human capital so that you can get back to saving and investing without having to touch what you have already saved thus far.

Losing a job is stressful (I personally went through it in 2018 and had to retool), so wish you all the best over the next few months/years to move forward.

CyclingDuo
Hi CyclingDuo!

Thanks! I quit my job and my state mostly doesn't provide unemployment insurance for those who quit. While I am able to last a while on savings, it is generally uncomfortable because I don't like to use up my savings. I am job searching and upskilling every day. Not sure I want to do, I just want a job or career that is not prone to burning out staff from all the overtime nights and weekends. Even a part time job would suffice while I figure out what I want to do.

I hope you're doing okay now!
rgs92
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Re: Passive investor seeking advice about which investments to keep or obtain.

Post by rgs92 »

Would you consider trying to get your old job back (even if it was unpleasant)?
These days employers seem pretty desperate for people, and they may still like you as a known quantity especially if you are somewhat humble.
You did not mention anything about your employer being unhappy with you or your performance.

At least this job is the devil you know. The next job may be worse in ways you can not imagine.
lakpr
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Re: Passive investor seeking advice about which investments to keep or obtain.

Post by lakpr »

CuriousNimbus wrote: Tue Aug 02, 2022 9:35 am
lakpr wrote: Sat Jul 30, 2022 7:31 pm If your income for 2022 is going to be below $12,950 for a single person (I am assuming you are single), then your total tax bill will be zero due to the income being negated by the standard deduction.

You have listed a pre-tax 401k amount from previous job of $4654, existing Rollover IRA of $2404 and Schwab 401k for $362. The total is just $7420. You have almost $5500 buffer before you will exceed the 0% tax bracket.

Given this, I suggest that you get rid of all these pre-tax amounts. Roll both the 401(k) amounts to the current Rollover IRA first, then immediately convert everything in that Rollover IRA to Roth IRA. You will avoid all future taxes on this amount. Low income years like now are the BEST times to do Roth conversion, and it wouldn't cost you a single penny.

The Roth IRA itself can be put into Vanguard Target Retirement Fund 2055, if you so wish.
Thank you Lakpr!

Oof. I didn't know those accounts counted as income.

I actually made around $19,000 this year. I recently quit a job that I worked at for four months. I have started rolling over the Schwab 401K and will probably roll over the Trans America 401k (the one with ~$30,000) to the Fidelity roll over IRA as others have suggested.

When you say convert everything to Roth IRA, do you mean the entire rollover IRA can be transferred to the Roth IRA? My understanding is that the $6,000 contribution limit wouldn't apply to this roll over.
Three things:
1. Rollovers are *NOT* contributions. You can rollover from 401(k) to IRA anytime, and you can convert from Traditional IRA to Roth IRA any time. Therefore the $6000 limit does not apply.

2. If you actually made $19k per year, and there will be zero income for the next few months in 2022, after deducting $12k odd for standard deduction you will have around $7k of taxable income. If you will convert another $7.5k approximately (the pre-tax amounts in your existing IRA and both 401(k) plans), it wil be a taxable income of $14.5k.

This places you in the 12% tax bracket.

I will have to take back the assertion that "it will not cost you a penny", based on this new information. But then again, 12% of $7.5k is about $850. If you can pay additional taxes of $850, all future growth on these amounts would still be tax-free. I would think it is STILL worth to do, but I will leave that decision up to you.

3. Since you already earned $19k this year, you can contribute the full $6k amount to the Roth IRA for 2022. Since you have a healthy $90k taxable account, I suggest you do that ... (simply add $6k to the Fidelity Roth IRA that you already have).

Edited to add: In your reply to CyclingDuo, I see that you are concerned about losing access to the money if you contribute/convert to Roth IRA. While the *conversion* amount has a 5-year clock before you can withdraw without penalties (then again, you have the same 10% penalty if you withdraw from current pre-tax IRA or pre-tax 401(k)), the existing contribution amounts can be withdrawn at any time for any reason (although strongly discouraged because you will lose out on all future tax-free growth) without penalties. So point-3 above, you can do it without any loss of flexibility or access to the money, just make it the absolute last pot of money you will touch and only under extreme duress.
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CyclingDuo
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Re: Passive investor seeking advice about which investments to keep or obtain.

Post by CyclingDuo »

CuriousNimbus wrote: Tue Aug 02, 2022 9:41 am Thanks! I quit my job and my state mostly doesn't provide unemployment insurance for those who quit. While I am able to last a while on savings, it is generally uncomfortable because I don't like to use up my savings. I am job searching and upskilling every day. Not sure I want to do, I just want a job or career that is not prone to burning out staff from all the overtime nights and weekends. Even a part time job would suffice while I figure out what I want to do.

I hope you're doing okay now!
Yes, I'm doing okay now. In retrospect, it was quite the transition as I had to pivot, retool, and move into areas I had no idea I would be involved in compared to my former career. I had to claw my way through the transition which all told was about a 4 year grind that came in fits and starts to get to a good place. Three years of working 7 days a week due to piecing together multiple jobs was part of the grind I had to go through to get to the other side of finally landing just one job that I love, 5 days a week and only 40 hours. Life is quite a journey and there's nothing like a challenge to make the journey a bit more interesting along the way.

That being said, you are young and have the power of time in front of you. I would certainly encourage, as you state, to take advantage of your human capital in some shape or form by snagging a job while you wait for a more ideal job/career to unfold. It gets you going, gets you moving forward as well as brings in money so you don't have to dip into the savings in the meantime.

This graphic is a pretty powerful one that I like to use in various threads:

Image

My household is already beyond the intersect of the blue line rising above the descending green line, however you are still in the early first segment over on the left. You want to keep that blue line rising by shoveling money earned from the green. Since you are not eligible for unemployment, all the best at landing a new job to earn income again.

:sharebeer

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel
chris319
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Re: Passive investor seeking advice about which investments to keep or obtain.

Post by chris319 »

OP: When the dust settles and you are working again and have a steady income, allocate a dollar amount to be set aside each and every month after you have paid the bills. Deposit this money into one of your brokerage accounts and buy more shares of whatever fund you choose. Every month through thick and thin, buy more shares on a regular schedule. This works wonders for any portfolio. Strictly speaking this will not be a hands-off, set-and-forget arrangement because you will regularly be buying new shares.

Portfolio Visualizer is a very handy tool:

https://www.portfoliovisualizer.com/backtest-portfolio

Whatever you do, do not ever sell into a market downturn like we're having now. This goes against the rule of "buy low, sell high". Just ride it out and pick up more shares at the lower, discount prices.
The only person you have to please in life is yourself.
chris319
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Re: Passive investor seeking advice about which investments to keep or obtain.

Post by chris319 »

OP: I am a big fan of leveraged index ETF's. they are considerably more volatile than unleveraged funds. It's up to you if you can tolerate the upside and downside volatility. Remember that volatility cuts both ways. At your age, time is on your side. Being in a leveraged fund is not an all-or-nothing proposition. You could devote a percentage of your total portfolio to a leveraged fund depending on your risk tolerance. As you will not be borrowing funds, i.e. investing on margin, you will not be at risk of a margin call.

The numbers speak for themselves:

https://www.portfoliovisualizer.com/bac ... ion3_3=100

You should also read some of the writings of J.L. Collins, especially Part II:

https://jlcollinsnh.com/stock-series/
The only person you have to please in life is yourself.
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Beensabu
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Re: Passive investor seeking advice about which investments to keep or obtain.

Post by Beensabu »

You don't say how your Roth IRA and rollover IRA are invested. Are those funds just sitting as cash in a settlement or money market fund?

You can (and probably should) roll over both of your 401ks into your existing rollover IRA, which I assume is a traditional IRA and not a Roth IRA. There are no tax consequences as long as it's not a Roth IRA.

If the rollover IRA is with Fidelity, pick one of the Fidelity Freedom® Index funds and put the balance in that. Whichever target date year you want. Just pick one. If you want 2055, then pick the Fidelity Freedom® Index 2055 Fund Investor Class one. Make sure it is a Fidelity Freedom® Index fund (not a regular Freedom® fund, which is more expensive) -- make sure it has "index" in the fund name. As long as you do that, the expense ratio will be 0.12% (totally reasonable).

You can pick the same fund for your Roth IRA too.

Put the max allowable contribution into your Roth IRA (into the target date index fund you pick, so it's actually invested) for this year. Do it every year that you can.

It's not a bad thing to have a ton of savings while unemployed. Find stable employment. Max your 401k contributions once you have that stable employment, and draw down on some of your savings then if needed for expenses. Once your cash savings are nearing (not at or past) your comfort limit, reduce your 401k contributions to the point that you don't need to draw on savings for expenses anymore.

This is what I would do if I were you in the situation and with the current investing knowledge level you have stated.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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CuriousNimbus
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Re: Passive investor seeking advice about which investments to keep or obtain.

Post by CuriousNimbus »

rgs92 wrote: Tue Aug 02, 2022 9:54 am Would you consider trying to get your old job back (even if it was unpleasant)?
These days employers seem pretty desperate for people, and they may still like you as a known quantity especially if you are somewhat humble.
You did not mention anything about your employer being unhappy with you or your performance.

At least this job is the devil you know. The next job may be worse in ways you can not imagine.
Thanks!

I would consider the one that I was at for four years. Like you said, they are having trouble hiring people and this place still has a high turnover. They have actually been reaching out to me periodically and I formally turned them down last week. I explained to them that I might come back someday, but not now. I'm using them as a Plan B and I'm not expecting them to take me back when if I do crawl back to them but I have seen employees go back to this job.

You are correct. I know how bad this job is for mental health so I won't be caught off guard by them if I go back. They didn't talk about how they would improve the work environment when they reached out to me, they just asked me to come back.

I hope you're doing okay since you noticed that there is a pervasive hiring problem!
Last edited by CuriousNimbus on Wed Aug 03, 2022 9:57 am, edited 1 time in total.
Topic Author
CuriousNimbus
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Re: Passive investor seeking advice about which investments to keep or obtain.

Post by CuriousNimbus »

lakpr wrote: Tue Aug 02, 2022 10:44 am
CuriousNimbus wrote: Tue Aug 02, 2022 9:35 am
lakpr wrote: Sat Jul 30, 2022 7:31 pm If your income for 2022 is going to be below $12,950 for a single person (I am assuming you are single), then your total tax bill will be zero due to the income being negated by the standard deduction.

You have listed a pre-tax 401k amount from previous job of $4654, existing Rollover IRA of $2404 and Schwab 401k for $362. The total is just $7420. You have almost $5500 buffer before you will exceed the 0% tax bracket.

Given this, I suggest that you get rid of all these pre-tax amounts. Roll both the 401(k) amounts to the current Rollover IRA first, then immediately convert everything in that Rollover IRA to Roth IRA. You will avoid all future taxes on this amount. Low income years like now are the BEST times to do Roth conversion, and it wouldn't cost you a single penny.

The Roth IRA itself can be put into Vanguard Target Retirement Fund 2055, if you so wish.
Thank you Lakpr!

Oof. I didn't know those accounts counted as income.

I actually made around $19,000 this year. I recently quit a job that I worked at for four months. I have started rolling over the Schwab 401K and will probably roll over the Trans America 401k (the one with ~$30,000) to the Fidelity roll over IRA as others have suggested.

When you say convert everything to Roth IRA, do you mean the entire rollover IRA can be transferred to the Roth IRA? My understanding is that the $6,000 contribution limit wouldn't apply to this roll over.
Three things:
1. Rollovers are *NOT* contributions. You can rollover from 401(k) to IRA anytime, and you can convert from Traditional IRA to Roth IRA any time. Therefore the $6000 limit does not apply.

2. If you actually made $19k per year, and there will be zero income for the next few months in 2022, after deducting $12k odd for standard deduction you will have around $7k of taxable income. If you will convert another $7.5k approximately (the pre-tax amounts in your existing IRA and both 401(k) plans), it wil be a taxable income of $14.5k.

This places you in the 12% tax bracket.

I will have to take back the assertion that "it will not cost you a penny", based on this new information. But then again, 12% of $7.5k is about $850. If you can pay additional taxes of $850, all future growth on these amounts would still be tax-free. I would think it is STILL worth to do, but I will leave that decision up to you.

3. Since you already earned $19k this year, you can contribute the full $6k amount to the Roth IRA for 2022. Since you have a healthy $90k taxable account, I suggest you do that ... (simply add $6k to the Fidelity Roth IRA that you already have).

Edited to add: In your reply to CyclingDuo, I see that you are concerned about losing access to the money if you contribute/convert to Roth IRA. While the *conversion* amount has a 5-year clock before you can withdraw without penalties (then again, you have the same 10% penalty if you withdraw from current pre-tax IRA or pre-tax 401(k)), the existing contribution amounts can be withdrawn at any time for any reason (although strongly discouraged because you will lose out on all future tax-free growth) without penalties. So point-3 above, you can do it without any loss of flexibility or access to the money, just make it the absolute last pot of money you will touch and only under extreme duress.
Thank you for clarifying! I'll rollover the 401K to the rollover IRA, convert it to the Roth IRA and buy a target date fund for the Roth IRA. Does that mean I will have two Roth IRAs after converting the rollover IRA? Or is the rollover IRA being transferred to the Roth IRA that I already have? Sorry for the silly question.
Last edited by CuriousNimbus on Wed Aug 03, 2022 10:26 am, edited 1 time in total.
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CuriousNimbus
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Re: Passive investor seeking advice about which investments to keep or obtain.

Post by CuriousNimbus »

CyclingDuo wrote: Tue Aug 02, 2022 12:23 pm
CuriousNimbus wrote: Tue Aug 02, 2022 9:41 am Thanks! I quit my job and my state mostly doesn't provide unemployment insurance for those who quit. While I am able to last a while on savings, it is generally uncomfortable because I don't like to use up my savings. I am job searching and upskilling every day. Not sure I want to do, I just want a job or career that is not prone to burning out staff from all the overtime nights and weekends. Even a part time job would suffice while I figure out what I want to do.

I hope you're doing okay now!
Yes, I'm doing okay now. In retrospect, it was quite the transition as I had to pivot, retool, and move into areas I had no idea I would be involved in compared to my former career. I had to claw my way through the transition which all told was about a 4 year grind that came in fits and starts to get to a good place. Three years of working 7 days a week due to piecing together multiple jobs was part of the grind I had to go through to get to the other side of finally landing just one job that I love, 5 days a week and only 40 hours. Life is quite a journey and there's nothing like a challenge to make the journey a bit more interesting along the way.

That being said, you are young and have the power of time in front of you. I would certainly encourage, as you state, to take advantage of your human capital in some shape or form by snagging a job while you wait for a more ideal job/career to unfold. It gets you going, gets you moving forward as well as brings in money so you don't have to dip into the savings in the meantime.

This graphic is a pretty powerful one that I like to use in various threads:

Image

My household is already beyond the intersect of the blue line rising above the descending green line, however you are still in the early first segment over on the left. You want to keep that blue line rising by shoveling money earned from the green. Since you are not eligible for unemployment, all the best at landing a new job to earn income again.

:sharebeer

CyclingDuo
Thank you for the kind words and advice! Glad everything worked out for you! You deserve it.
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CuriousNimbus
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Re: Passive investor seeking advice about which investments to keep or obtain.

Post by CuriousNimbus »

chris319 wrote: Tue Aug 02, 2022 9:58 pm OP: When the dust settles and you are working again and have a steady income, allocate a dollar amount to be set aside each and every month after you have paid the bills. Deposit this money into one of your brokerage accounts and buy more shares of whatever fund you choose. Every month through thick and thin, buy more shares on a regular schedule. This works wonders for any portfolio. Strictly speaking this will not be a hands-off, set-and-forget arrangement because you will regularly be buying new shares.

Portfolio Visualizer is a very handy tool:

https://www.portfoliovisualizer.com/backtest-portfolio

Whatever you do, do not ever sell into a market downturn like we're having now. This goes against the rule of "buy low, sell high". Just ride it out and pick up more shares at the lower, discount prices.
Thank you Chris! Eeesh. Buying is shares and portfolio management in general is daunting. But I might eventually do it the more I learn about investing. I wrote that suggested website down!
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CuriousNimbus
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Re: Passive investor seeking advice about which investments to keep or obtain.

Post by CuriousNimbus »

Beensabu wrote: Tue Aug 02, 2022 11:12 pm You don't say how your Roth IRA and rollover IRA are invested. Are those funds just sitting as cash in a settlement or money market fund?

You can (and probably should) roll over both of your 401ks into your existing rollover IRA, which I assume is a traditional IRA and not a Roth IRA. There are no tax consequences as long as it's not a Roth IRA.

If the rollover IRA is with Fidelity, pick one of the Fidelity Freedom® Index funds and put the balance in that. Whichever target date year you want. Just pick one. If you want 2055, then pick the Fidelity Freedom® Index 2055 Fund Investor Class one. Make sure it is a Fidelity Freedom® Index fund (not a regular Freedom® fund, which is more expensive) -- make sure it has "index" in the fund name. As long as you do that, the expense ratio will be 0.12% (totally reasonable).

You can pick the same fund for your Roth IRA too.

Put the max allowable contribution into your Roth IRA (into the target date index fund you pick, so it's actually invested) for this year. Do it every year that you can.

It's not a bad thing to have a ton of savings while unemployed. Find stable employment. Max your 401k contributions once you have that stable employment, and draw down on some of your savings then if needed for expenses. Once your cash savings are nearing (not at or past) your comfort limit, reduce your 401k contributions to the point that you don't need to draw on savings for expenses anymore.

This is what I would do if I were you in the situation and with the current investing knowledge level you have stated.
Thanks! Both IRAs are with Fidelity. The funds in the IRAs seem to just be small government bonds, nothing else is in the IRAs. I think I might buy the Vanguard 2055 fund for my Fidelity Roth IRA instead because of the lower expense ratio. I will max out my 401K at my next job.
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Re: Passive investor seeking advice about which investments to keep or obtain.

Post by Beensabu »

CuriousNimbus wrote: Wed Aug 03, 2022 10:30 am Thanks! Both IRAs are with Fidelity. The funds in the IRAs seem to just be small government bonds, nothing else is in the IRAs. I think I might buy the Vanguard 2055 fund for my Fidelity Roth IRA instead because of the lower expense ratio. I will max out my 401K at my next job.
Fidelity charges a $75 transaction fee to buy/sell Vanguard mutual funds. That means each time you buy and each time you sell any shares. The 0.04% difference in expense ratio is minimal in comparison.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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Re: Passive investor seeking advice about which investments to keep or obtain.

Post by lakpr »

CuriousNimbus wrote: Wed Aug 03, 2022 9:54 am Thank you for clarifying! I'll rollover the 401K to the rollover IRA, convert it to the Roth IRA and buy a target date fund for the Roth IRA. Does that mean I will have two Roth IRAs after converting the rollover IRA? Or is the rollover IRA being transferred to the Roth IRA that I already have? Sorry for the silly question.
You will have two Roth IRAs, and I recommend them you keep them separate. One will be a contributory Roth IRA (you contribute to it based on your earned income every year), the other will be a conversion Roth IRA.

This way, you will know that what is in the second Roth IRA consists of only the rollover amounts from 401(k) plans, and had been converted, and therefore the 5-year clock will be readily apparent for this amount (available on Jan-1-2027 for penalty-free withdrawals).

Nothing prevents you from combining both Roth IRAs into a single one, but then it is upon you to keep track of the contribution amounts and conversion amounts within this single account.
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Re: Passive investor seeking advice about which investments to keep or obtain.

Post by chris319 »

Eeesh. Buying is shares and portfolio management in general is daunting.
On the contrary, these tasks have never been easier. We are in a sort of golden age now.

At most brokerages you can buy and sell ETF's and pay zero commission. Everything is done on the Internet and you don't even have to get up out of your comfy chair. You can link your bank account to your brokerage account (highly recommended); this makes transferring money between the two accounts much easier. Once a month you transfer X dollars into your brokerage account and place a buy order. No need to lick a postage stamp or to call a broker on the phone.

Considering that it's vital to your financial future and is potentially very profitable, it is well worth the small amount of effort it will take. Once you get the hang of it it's quite easy to do.

The mechanism for linking your accounts and transferring funds between them is called ACH for Automated Clearing House.
The only person you have to please in life is yourself.
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Re: Passive investor seeking advice about which investments to keep or obtain.

Post by CyclingDuo »

chris319 wrote: Wed Aug 03, 2022 1:34 pm
Eeesh. Buying is shares and portfolio management in general is daunting.
On the contrary, these tasks have never been easier. We are in a sort of golden age now.

At most brokerages you can buy and sell ETF's and pay zero commission. Everything is done on the Internet and you don't even have to get up out of your comfy chair. You can link your bank account to your brokerage account (highly recommended); this makes transferring money between the two accounts much easier. Once a month you transfer X dollars into your brokerage account and place a buy order. No need to lick a postage stamp or to call a broker on the phone.

Considering that it's vital to your financial future and is potentially very profitable, it is well worth the small amount of effort it will take. Once you get the hang of it it's quite easy to do.

The mechanism for linking your accounts and transferring funds between them is called ACH for Automated Clearing House.
Agree that it couldn't be easier these days.

OP expressed concern about Blackrock's iShares ETFs. The wiki page, at least regarding the Three Fund Portfolio lists all of the ETF's from the big brokerages (Fidelity, Vanguard, Schwab, Blackrock, and State Street) that form that portfolio. I would say to the OP, the best ETF's to use at Fidelity would be Vanguard and or iShares. Doing so would keep it simple (three fund portfolio) and easy to managed if concerned about it all being too daunting.

https://www.bogleheads.org/wiki/Three-fund_portfolio
"Save like a pessimist, invest like an optimist." - Morgan Housel
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