First Roth IRA Portfolio

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obaxter2107
Posts: 6
Joined: Sun Jun 28, 2020 5:50 pm

First Roth IRA Portfolio

Post by obaxter2107 » Sun Jun 28, 2020 6:09 pm

Good Afternoon Everyone,

I am a noobie to investing but am trying to get my financial path going in the right direction. In short, I am 32, come from poverty, and want to break the cycle that has plagued my family for generations. Below I have detailed my investment history and wanted to know your opinion on my allocations. I plan on maxing out my contributions each year in my Fidelity Roth IRA.

1. Transferred 35,000 from old 401k's into Traditional IRA. Then transferred 10k to ROTH IRA and plan on moving another 10k over next year and remaining 5 the year after.

2. Maxed out contribution for 2020 and plan on getting another $5500 in by July for 2019 max contribution limit.

3. Portfolio is listed below. I currently have the money in a Fidelity GO Roth but feel I could get better returns if I allocate myself. I will be investing Aggressively for the next 10 years and will hopefully catch up on some lost ground.

DOMESTIC INDEX AND MUTUAL FUNDS 85%
FXAIX (500 Fund Index) 22.5% (.02% expense)
FSKAX (Total Market Index) 22.5% (.02% expense)
FSRPX ( Retail Mutual) 10% (.74% expense)
FSCSX (Software Mutual) 10% (.71% expense)
FSPHX (Healthcare Mutual) 10% (.7% expense)

BONDS 15%
FTBFX 5% (.45% expense)
FBNDX 5% (.45% expense)
FCBFX 5% (.45% expense)

Again, new to this but want to learn to take control of my own finances and hopefully do better than the robo advisor I am paying .35%. Any feedback is greatly appreciated. Thank you so much for your time.

02nz
Posts: 5385
Joined: Wed Feb 21, 2018 3:17 pm

Re: First Roth IRA Portfolio

Post by 02nz » Sun Jun 28, 2020 7:34 pm

Welcome to the forum. Great that you're trying to get your finances on the right track! I've put my questions in bold.
obaxter2107 wrote:
Sun Jun 28, 2020 6:09 pm
Then transferred 10k to ROTH IRA and plan on moving another 10k over next year and remaining 5 the year after.
So you did a Roth conversion and plan on doing some more. I assume you understand that the 10K is taxable in this year? Generally, Roth conversions are not recommended in your working years. Only if you have a low- or no-income year (e.g., unemployment, going back to school) would that make sense. People most often do Roth conversions in the early years of retirement, when they have little/no other income. What's your federal income tax bracket?
obaxter2107 wrote:
Sun Jun 28, 2020 6:09 pm
I will be investing Aggressively for the next 10 years and will hopefully catch up on some lost ground.
The way to catch up is to contribute more to tax-advantaged accounts, not to invest more aggressively. At 32 you should have a high allocation to stocks, and 85/15 seems reasonable to me. But people get into trouble when they think they can catch up by being more aggressive. How much are you contributing to your 401k?

I would get rid of the robo advisor and the active funds. Those are costing you about 1% together. That's high cost when you consider that the market gives you maybe 4-5% real (inflation-adjusted) over time, so you don't want to pay 20-25% of that if you don't have to. Nothing wrong with retail, software, or health care, but those sectors are all well-represented in the total market index fund. (And, while it's not really "wrong," there's no real reason to hold both the S&P 500 index fund and total market index fund. The two overlap by about 85%. Simplicity is one of the key Bogleheads tenets.

I'm not familiar with the bond funds you listed but I can tell you it's not worth paying 0.45% expense ratio for a bond fund (I'm guessing they're active). They are not yielding much right now and you're giving a lot of that away in expenses. Again, I'd use a total bond market index fund, like FXNAX, with a 0.02% ER.

Have you considered diversifying with international stocks? There are many debates on this, but I would consider a 20-40% allocation to international. Note that you don't need to hold all funds in all accounts; think of your portfolio as a whole.

An alternative to managing this yourself is to use a target date fund. At Fidelity, you'd use a fund like this: https://fundresearch.fidelity.com/mutua ... /315793828. But watch out: Fidelity has both a "Freedom" series of active target retirement date funds, and a "Freedom Index" series of index-based target target date funds. The latter are much lower cost and what I recommend (the linked fund is from that series).

The target date funds automatically rebalance for you and gradually increase the bond allocation as you approach retirement. It's a good set-it-and-forget it approach. No tweaking - but in many cases you're better off not tweaking. The expense ratio is very slightly higher than regular index funds, but it's a negligible difference and can more than pay for itself many times over if it saves you from behavioral errors like market-timing.

You should also read the Bogleheads Getting Started wiki if you haven't already: https://www.bogleheads.org/wiki/Getting_started
Last edited by 02nz on Sun Jun 28, 2020 7:42 pm, edited 2 times in total.

tashnewbie
Posts: 509
Joined: Thu Apr 23, 2020 12:44 pm

Re: First Roth IRA Portfolio

Post by tashnewbie » Sun Jun 28, 2020 7:40 pm

FYI, max contribution for 2019 is $6k (unless your MAGI is in the phase out range).

I’d stick the Roth contributions in the S&P 500 or TSM fund and be done with it. Let it ride!

02nz
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Re: First Roth IRA Portfolio

Post by 02nz » Sun Jun 28, 2020 7:43 pm

tashnewbie wrote:
Sun Jun 28, 2020 7:40 pm
FYI, max contribution for 2019 is $6k (unless your MAGI is in the phase out range).
And for 2020 as well; OP seems to have funded the Roth IRA with $5500 for 2020, so he/she can add another $500 for 2020.

whereskyle
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Re: First Roth IRA Portfolio

Post by whereskyle » Sun Jun 28, 2020 7:58 pm

02nz wrote:
Sun Jun 28, 2020 7:34 pm
Welcome to the forum. Great that you're trying to get your finances on the right track! I've put my questions in bold.
obaxter2107 wrote:
Sun Jun 28, 2020 6:09 pm
Then transferred 10k to ROTH IRA and plan on moving another 10k over next year and remaining 5 the year after.
So you did a Roth conversion and plan on doing some more. I assume you understand that the 10K is taxable in this year? Generally, Roth conversions are not recommended in your working years. Only if you have a low- or no-income year (e.g., unemployment, going back to school) would that make sense. People most often do Roth conversions in the early years of retirement, when they have little/no other income. What's your federal income tax bracket?
obaxter2107 wrote:
Sun Jun 28, 2020 6:09 pm
I will be investing Aggressively for the next 10 years and will hopefully catch up on some lost ground.
The way to catch up is to contribute more to tax-advantaged accounts, not to invest more aggressively. At 32 you should have a high allocation to stocks, and 85/15 seems reasonable to me. But people get into trouble when they think they can catch up by being more aggressive. How much are you contributing to your 401k?

I would get rid of the robo advisor and the active funds. Those are costing you about 1% together. That's high cost when you consider that the market gives you maybe 4-5% real (inflation-adjusted) over time, so you don't want to pay 20-25% of that if you don't have to. Nothing wrong with retail, software, or health care, but those sectors are all well-represented in the total market index fund. (And, while it's not really "wrong," there's no real reason to hold both the S&P 500 index fund and total market index fund. The two overlap by about 85%. Simplicity is one of the key Bogleheads tenets.

I'm not familiar with the bond funds you listed but I can tell you it's not worth paying 0.45% expense ratio for a bond fund (I'm guessing they're active). They are not yielding much right now and you're giving a lot of that away in expenses. Again, I'd use a total bond market index fund, like FXNAX, with a 0.02% ER.

Have you considered diversifying with international stocks? There are many debates on this, but I would consider a 20-40% allocation to international. Note that you don't need to hold all funds in all accounts; think of your portfolio as a whole.

An alternative to managing this yourself is to use a target date fund. At Fidelity, you'd use a fund like this: https://fundresearch.fidelity.com/mutua ... /315793828. But watch out: Fidelity has both a "Freedom" series of active target retirement date funds, and a "Freedom Index" series of index-based target target date funds. The latter are much lower cost and what I recommend (the linked fund is from that series).

The target date funds automatically rebalance for you and gradually increase the bond allocation as you approach retirement. It's a good set-it-and-forget it approach. No tweaking - but in many cases you're better off not tweaking. The expense ratio is very slightly higher than regular index funds, but it's a negligible difference and can more than pay for itself many times over if it saves you from behavioral errors like market-timing.

You should also read the Bogleheads Getting Started wiki if you haven't already: https://www.bogleheads.org/wiki/Getting_started
I think there's a sensible argument for converting $10k at 32 when it may be worth more than $100k in retirement.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle

little_star
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Re: First Roth IRA Portfolio

Post by little_star » Sun Jun 28, 2020 8:15 pm

It sounds like you are making good progress and thinking carefully about your financial decisions.

I am a little concerned about your decision to fund 2020 IRA before the 2019 IRA. You only have until July 15 to find the funds for 2019, but you would have until April 15, 2021 to fund the 2020 IRA. In other words, filling the "IRA bucket" for the previous year would give you more time to find the funds for the current year. This decision is likely moot at this point, but something to consider if you are talking about your experience with your friends/colleagues. Often people do not realize that they can fund the previous year until late in the process of opening their first IRA.

On the positive side, I think that doing a Roth conversion of tIRA funds at your age is a good idea, almost regardless of tax bracket. You want to leave open the possibility of a backdoor Roth conversion in the future, when your earnings take you past the Roth IRA contribution limits (at which point your only option is a post-tax traditional IRA). Being able to backdoor those post-tax traditional IRA contributions into Roth is a very valuable option, and worth the up-front taxes that you will be paying now on the 401k-->traditional--> Roth conversions.

As others have stated, the maximum contribution limits for IRAs are $6k for 2019 and 2020. If you have the funds available, I recommend maxing both 2019 and 2020.
Last edited by little_star on Sun Jun 28, 2020 8:35 pm, edited 3 times in total.

02nz
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Re: First Roth IRA Portfolio

Post by 02nz » Sun Jun 28, 2020 8:26 pm

whereskyle wrote:
Sun Jun 28, 2020 7:58 pm
I think there's a sensible argument for converting $10k at 32 when it may be worth more than $100k in retirement.
https://www.bogleheads.org/wiki/Traditional_versus_Roth

How long OP has and how much that money grows is completely irrelevant. A traditional IRA has the same tax-advantaged growth.

The only thing that matters is the tax rate OP pays on that $10K of income, versus what OP would pay on that money (plus growth) if withdrawn in retirement. If OP has 0 income this year, by all means convert to fill up the standard deduction. If OP is in the 22% or higher bracket, though, with only a small tax-deferred balance paying the tax now is probably a mistake.

02nz
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Re: First Roth IRA Portfolio

Post by 02nz » Sun Jun 28, 2020 8:28 pm

little_star wrote:
Sun Jun 28, 2020 8:15 pm
(2) Decision to convert 401k funds to traditional IRA and then convert a portion to a Roth IRA for a few years. Unless the 401k had unusually high expenses and bad fund choices, staging your 401k coversion so that you only had as much as you could convert from traditional to Roth IRA would have saved you the additional complication of figuring out the pro-rata rules for Roth conversions. Of course, you may not have had a choice regarding partial or full (I do not know the 401k to tIRA conversion rules).
Not sure what you're getting at here. There's no pro-rata rule applicable for a "normal" Roth conversion - from tax-deferred traditional IRA to Roth IRA. The pro-rata rule comes into play for the "backdoor" Roth IRA; no indication OP is doing such a thing.

little_star
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Re: First Roth IRA Portfolio

Post by little_star » Sun Jun 28, 2020 8:33 pm

02nz wrote:
Sun Jun 28, 2020 8:28 pm
little_star wrote:
Sun Jun 28, 2020 8:15 pm
(2) Decision to convert 401k funds to traditional IRA and then convert a portion to a Roth IRA for a few years. Unless the 401k had unusually high expenses and bad fund choices, staging your 401k coversion so that you only had as much as you could convert from traditional to Roth IRA would have saved you the additional complication of figuring out the pro-rata rules for Roth conversions. Of course, you may not have had a choice regarding partial or full (I do not know the 401k to tIRA conversion rules).
Not sure what you're getting at here. There's no pro-rata rule applicable for a "normal" Roth conversion - from tax-deferred traditional IRA to Roth IRA. The pro-rata rule comes into play for the "backdoor" Roth IRA; no indication OP is doing such a thing.
Right. My apologies. I was getting confused with someone who had both pre-tax and post-tax tIRAs. I withdraw my comment.

JBTX
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Re: First Roth IRA Portfolio

Post by JBTX » Sun Jun 28, 2020 9:46 pm

If it were me at that age, I'd probably have a core, maybe between 50-75%, in a target date fund. The balance I'd probably swing for the fences with index funds in US small cap value, international small cap value and emerging markets.

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1789
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Re: First Roth IRA Portfolio

Post by 1789 » Sun Jun 28, 2020 10:32 pm

OP,

Some fidelity active funds you selected (eg: FSCSX) had outstanding returns in the past. The issue is if this would continue moving forward. It seems most investors don't think so (for eg: FSCSX assets <10 billion where as FXAIX is around 240 billion invested in it). If i were you i would set the investments on 85% FSKAX OR FXAIX and 15% FBNDX and call it a day.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)

lakpr
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Re: First Roth IRA Portfolio

Post by lakpr » Mon Jun 29, 2020 11:12 am

@obaxter2107,

1. I am surprised that there are excellent choices for stock market funds in the 401k plan (FXAIX, FSKAX with 0.02% ER) but mediocre ones for the bond market funds (all of them 0.45%). Surely FXNAX (Fidelity Total Bond Market Index fund) is also available in the plan, with only 0.02% ER? Please list all the choices available within the plan. If the list is way too long, perhaps restrict them to only those that have an ER of 0.2% or below PLUS those you have already invested in. Never mind, I see 02nz's clarification below.

2. When investing in the domestic equities, pick either FXAIX or FSKAX, not both. Both funds have had near-identical returns over the past 10 years. The expectation is that this will continue in the future. Of the two, my personal bias is to FSKAX, since it's an index for 3000+ stocks whereas FXAIX is an index of only 500 stocks. You get a bit more diversification.

Portfolio visualizer link: https://www.portfoliovisualizer.com/bac ... ion2_2=100

3. Have you consciously decided that you do not want to invest in international equities? Wondering if it's an inadvertent omission or a conscious choice. What are the funds available in the plan, that invest in international equities?

4. As pointed out by previous posters, you still have time to add another $500 to the Roth IRA for 2019 (only 15 days more though), and for 2020 (you have until April 15, 2021 for this). Don't lose the opportunity. No need to amend any tax returns if you do so, if that's the hold up or hesitation.

5. Pause the further Roth conversions, until you clarify what tax bracket you are in. Are you single or married? What's your exact income? Converting to Roth may be a mistake at this time, but we wouldn't know that unless you give us that information.

If you are in a 22% tax bracket now, conversion of $10k this year = $2200 additional tax you have to pay from somewhere else.
Let's say in 20 years, this $10k will become $100k (as someone above suggested).
By the same token, the extra $2200 you are paying in taxes, will also become $22k in the same 22 years.
Having a $100k Traditional IRA + $22k taxable account is a better position to be in than to have only $100k in Roth IRA.

6. Stop the robo-advisor. 0.35% is money that you can keep in your pocket. By following simple Boglehead rules, you can be assured of "your fair share" of the market returns. Simply buy the entire market; which means buying only FSKAX (Total Stock Market), FXNAX (Total Bond Market), FTIHX (Total International Stock Market, if available in your plan). Just these three funds, and never sell until you *NEED* the money. Don't panic-sell induced by CNBC news. If you do not have a NEED to sell, DO NOT sell.
Last edited by lakpr on Mon Jun 29, 2020 11:39 am, edited 2 times in total.

02nz
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Re: First Roth IRA Portfolio

Post by 02nz » Mon Jun 29, 2020 11:17 am

lakpr wrote:
Mon Jun 29, 2020 11:12 am
I am surprised that there are excellent choices for stock market funds in the 401k plan (FXAIX, FSKAX with 0.02% ER) but mediocre ones for the bond market funds (all of them 0.45%). Surely FXNAX (Fidelity Total Bond Market Index fund) is also available in the plan, with only 0.02% ER? Please list all the choices available within the plan. If the list is way too long, perhaps restrict them to only those that have an ER of 0.2% or below PLUS those you have already invested in.
The OP listed funds in which he/she's invested in the Roth IRA (with robo advisor Fidelity Go), not 401k (and so I asked about the 401k above).

lakpr
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Re: First Roth IRA Portfolio

Post by lakpr » Mon Jun 29, 2020 11:37 am

02nz wrote:
Mon Jun 29, 2020 11:17 am
lakpr wrote:
Mon Jun 29, 2020 11:12 am
I am surprised that there are excellent choices for stock market funds in the 401k plan (FXAIX, FSKAX with 0.02% ER) but mediocre ones for the bond market funds (all of them 0.45%). Surely FXNAX (Fidelity Total Bond Market Index fund) is also available in the plan, with only 0.02% ER? Please list all the choices available within the plan. If the list is way too long, perhaps restrict them to only those that have an ER of 0.2% or below PLUS those you have already invested in.
The OP listed funds in which he/she's invested in the Roth IRA (with robo advisor Fidelity Go), not 401k (and so I asked about the 401k above).
Ah thanks for the clarification. Let me edit the previous post.

sixtoeight
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Location: Washington, DC

Re: First Roth IRA Portfolio

Post by sixtoeight » Mon Jun 29, 2020 1:21 pm

obaxter2107 wrote:
Sun Jun 28, 2020 6:09 pm
So you did a Roth conversion and plan on doing some more. I assume you understand that the 10K is taxable in this year? Generally, Roth conversions are not recommended in your working years. Only if you have a low- or no-income year (e.g., unemployment, going back to school) would that make sense. People most often do Roth conversions in the early years of retirement, when they have little/no other income. What's your federal income tax bracket?


I wouldn't say Roth conversions are not recommended in your working years. There are pre-tax and after-tax Roth conversation treatment. I'm a single guy, in my late 30s and in the 24% income tax bracket. Due to my high income, I do not qualify for Roth contribution. However, I want to have Roth money to hedge against my non-Roth money when I retire. Therefore, I max out my post-tax contribution to Traditional IRA annually and then do a seamless backdoor, tax free conversion to Roth.

The general advice is, if you your 401K is in traditional and you want to hedge with some Roth money when you retire, contribute to Roth annually as long as you are qualified. If you are not, like me, due to high income, then you can choose to do backdoor Roth conversion using post-tax contribution.

02nz
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Re: First Roth IRA Portfolio

Post by 02nz » Mon Jun 29, 2020 1:28 pm

sixtoeight wrote:
Mon Jun 29, 2020 1:21 pm
obaxter2107 wrote:
Sun Jun 28, 2020 6:09 pm
So you did a Roth conversion and plan on doing some more. I assume you understand that the 10K is taxable in this year? Generally, Roth conversions are not recommended in your working years. Only if you have a low- or no-income year (e.g., unemployment, going back to school) would that make sense. People most often do Roth conversions in the early years of retirement, when they have little/no other income. What's your federal income tax bracket?


I wouldn't say Roth conversions are not recommended in your working years. There are pre-tax and after-tax Roth conversation treatment. I'm a single guy, in my late 30s and in the 24% income tax bracket. Due to my high income, I do not qualify for Roth contribution. However, I want to have Roth money to hedge against my non-Roth money when I retire. Therefore, I max out my post-tax contribution to Traditional IRA annually and then do a seamless backdoor, tax free conversion to Roth.

The general advice is, if you your 401K is in traditional and you want to hedge with some Roth money when you retire, contribute to Roth annually as long as you are qualified. If you are not, like me, due to high income, then you can choose to do backdoor Roth conversion using post-tax contribution.


(The portion you quoted was actually from me, not OP.) "Roth conversions" generally refer to conversion of tax-deferred balance to Roth, which is taxable income for that year. Yes, the backdoor Roth does involve a "conversion" of a nondeductible traditional IRA contribution to Roth, but unless specified as such (OP talked only about converting tax-deferred and did not make any mention of backdoor), that's not what "Roth conversions" generally means; the two are totally separate things.

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ruralavalon
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Re: First Roth IRA Portfolio

Post by ruralavalon » Mon Jun 29, 2020 2:07 pm

Welcome to the forum :) .

obaxter2107 wrote:
Sun Jun 28, 2020 6:09 pm
Good Afternoon Everyone,

I am a noobie to investing but am trying to get my financial path going in the right direction. In short, I am 32, come from poverty, and want to break the cycle that has plagued my family for generations. Below I have detailed my investment history and wanted to know your opinion on my allocations. I plan on maxing out my contributions each year in my Fidelity Roth IRA.

1. Transferred 35,000 from old 401k's into Traditional IRA. Then transferred 10k to ROTH IRA and plan on moving another 10k over next year and remaining 5 the year after.
For most people traditional contributions will likely be better than Roth contributions. Will you be eligible for a significant pension in addition to Social Security? What is your tax bracket, both federal and state? What is your tax filing status? What is your profession or occupation?

Is there a plan offered at work like a 401k, 403b, 457, SEP IRA, SIMPLE IRA, TSP? Do you contribute to the plan? How much do you contribute? Is there an employer match? What is the employer match? What funds do you use in this account? What funds are offered in this plan? Please give fund names, tickers and expense ratios. When just starting the most important investing decision you can make is to establish high rate of contributions.

Please see this for information needed and format: "Asking Portfolio Questions". Please simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.

obaxter2107 wrote:
Sun Jun 28, 2020 6:09 pm
2. Maxed out contribution for 2020 and plan on getting another $5500 in by July for 2019 max contribution limit.
The maximum annual contribution limit if under age 50 is $6k.

obaxter2107 wrote:
Sun Jun 28, 2020 6:09 pm
3. Portfolio is listed below. I currently have the money in a Fidelity GO Roth but feel I could get better returns if I allocate myself. I will be investing Aggressively for the next 10 years and will hopefully catch up on some lost ground.
Age 32 is not a late start. When just starting the most important investing decision you can make is to establish high rate of contributions.

In my opinion at age 32 around 15% in bonds is within the range of what is reasonable.


obaxter2107 wrote:
Sun Jun 28, 2020 6:09 pm
DOMESTIC INDEX AND MUTUAL FUNDS 85%
FXAIX (500 Fund Index) 22.5% (.02% expense)
FSKAX (Total Market Index) 22.5% (.02% expense)
FSRPX ( Retail Mutual) 10% (.74% expense)
FSCSX (Software Mutual) 10% (.71% expense)
FSPHX (Healthcare Mutual) 10% (.7% expense)

BONDS 15%
FTBFX 5% (.45% expense)
FBNDX 5% (.45% expense)
FCBFX 5% (.45% expense)
In selecting funds to use strive for a combination of both broad diversification (to reduce your risk) and low expense ratios (to increase your net returns).

To simply and easily achieve those two goals I suggest choosing funds to simulate the very well diversified, low expense ratio "three-fund portfolio". Please see:
1) Wiki article "Three-fund portfolio";
2) Forum discussion, "The Three-Fund Portfolio"; and
3) Taylor Larimore post, "Articles recommending the three-fund portfolio".

In an IRA at Fidelity you could consider:
1) Fidelity Total Market Index Fund (FSKAX) ER 0.015%
2) Fidelity Total International Index Fund (FTIHX) ER 0.06%; and
3) Fidelity US Bond Index Fund (FXNAX) ER 0.025%.
Wiki article "Fidelity".
obaxter2107 wrote:
Sun Jun 28, 2020 6:09 pm
Again, new to this but want to learn to take control of my own finances and hopefully do better than the robo advisor I am paying .35%. Any feedback is greatly appreciated. Thank you so much for your time.
.
A quick education for a beginning investor is Dr. Bernstein's free short on-line book, "If You Can". Also take a look at the Boglehead’s wiki, the "getting started" link I give below.

To go beyond the most basic I suggest that you also read one or two books on investing. Wiki article, "Books: recommendations and reviews". When I first stated managing my own investments, I found this tutorial very helpful in learning investing terminology/jargon and some of the investing basics. Morningstar, "Investing Classroom".
Last edited by ruralavalon on Mon Jun 29, 2020 2:16 pm, edited 3 times in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

retiredjg
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Re: First Roth IRA Portfolio

Post by retiredjg » Mon Jun 29, 2020 2:12 pm

Welcome to the forum. You've come to the right place. :happy
obaxter2107 wrote:
Sun Jun 28, 2020 6:09 pm
1. Transferred 35,000 from old 401k's into Traditional IRA. Then transferred 10k to ROTH IRA and plan on moving another 10k over next year and remaining 5 the year after.
It is not clear why you are doing these Roth conversions. It might be a good idea. It might not be a good idea. More information is needed.

FXAIX (500 Fund Index) 22.5% (.02% expense)
FSKAX (Total Market Index) 22.5% (.02% expense)
You do not need both of these as the 500 index is part of the total stock market.

FSRPX ( Retail Mutual) 10% (.74% expense)
FSCSX (Software Mutual) 10% (.71% expense)
FSPHX (Healthcare Mutual) 10% (.7% expense)
These are all too high cost for many here. And investing in "sectors" is not necessary. All of this is included in the total stock market.

FTBFX 5% (.45% expense)
FBNDX 5% (.45% expense)
FCBFX 5% (.45% expense)
You probably do not need 3 bond funds. And all of these are too high cost. I suggest using Fidelity US Bond Index fund instead.

Again, new to this but want to learn to take control of my own finances and hopefully do better than the robo advisor I am paying .35%. Any feedback is greatly appreciated. Thank you so much for your time.
I don't see any reason to pay the robo .35% either.

If you have not found it already, you can further your investing education in the wiki starting here.

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

You have not mentioned a plan at work - a 403b? 401k? SEP IRA? If you have one, this is often a good place to invest as well.

I suggest when you get ready that you post your information in the format we use to help people with their portfolio questions. See the link at the bottom of this message for how to do that. You will learn a great deal preparing that information.

whereskyle
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Re: First Roth IRA Portfolio

Post by whereskyle » Mon Jun 29, 2020 2:17 pm

lakpr wrote:
Mon Jun 29, 2020 11:12 am

If you are in a 22% tax bracket now, conversion of $10k this year = $2200 additional tax you have to pay from somewhere else.
Let's say in 20 years, this $10k will become $100k (as someone above suggested).
By the same token, the extra $2200 you are paying in taxes, will also become $22k in the same 22 years.
Having a $100k Traditional IRA + $22k taxable account is a better position to be in than to have only $100k in Roth IRA.
I may be an odd one, but to me, the certainty of the Roth provides me with a feeling of relief that I don't get when I'm staring at my tIRA balance wondering how much of that money will actually be mine. Plenty of interesting discussions on the forum these days on the roth v. trad topic, especially one on how the tIRA offers the most protection against worst case scenarios. I like certainty and simplicity perhaps too much, and I think it makes sense to act now on converting when the law of the land says that taxes will go up in five years. It is also just silly to me that a necessary part of the trad vs. roth decision is predicting future marginal tax rates. What a waste of time! We just don't know.

Also, I don't know if your math is correct. Assuming the $22,000 is taxed at 15% (current capital gains rate for those earning less than $400k+), that amount is worth $18,700 after taxes. Assuming the $100k is taxed as income and OP's rate is still 22% in the future (which may even be generous given that current tax rates are scheduled to go up), that $100k is worth $78,000. $78,000 plus $18,700 equals $96,700. So, the roth actually wins, no?
Last edited by whereskyle on Mon Jun 29, 2020 2:30 pm, edited 1 time in total.
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02nz
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Re: First Roth IRA Portfolio

Post by 02nz » Mon Jun 29, 2020 2:26 pm

whereskyle wrote:
Mon Jun 29, 2020 2:17 pm
lakpr wrote:
Mon Jun 29, 2020 11:12 am

If you are in a 22% tax bracket now, conversion of $10k this year = $2200 additional tax you have to pay from somewhere else.
Let's say in 20 years, this $10k will become $100k (as someone above suggested).
By the same token, the extra $2200 you are paying in taxes, will also become $22k in the same 22 years.
Having a $100k Traditional IRA + $22k taxable account is a better position to be in than to have only $100k in Roth IRA.
$122,000 minus $26,840 [22% of $122,000] equals $95,520. So, in that example, the Roth results in more $ to spend unless OP is in a lower bracket in 22 years. I would take the $100k in the Roth in this scenario, unless I had good reason to expect that my tax rate would be lower than 22% in 22 years. We can discuss future tax rates, and, just like interest rates, there's a chance they can always go lower, although I don't personally see how that possibility makes much sense. I may be an odd one, but to me, the certainty of the Roth provides me with a feeling of relief that I don't get when I'm staring at my tIRA balance wondering how much of that money will actually be mine.
The issue is based on the little info provided, OP has very little in tax-deferred and is planning to convert it all. That means, unless OP has a 401k at the current job (which I asked about above) OP will have absolutely nothing with which to fill the standard deduction, 10%, and 12% brackets in retirement. For MFJ that is over $100K every year of low-tax space (averaging <9% at today's rates). OP should probably aim to have enough to fill that space at least for the years between retirement and start of SS, or be on track to do so, before contributing to Roth. And this case is a good example where the "asymmetric risk" discussed in the other thread should be considered. But we need more info to give good advice.

lakpr
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Re: First Roth IRA Portfolio

Post by lakpr » Mon Jun 29, 2020 2:29 pm

whereskyle wrote:
Mon Jun 29, 2020 2:17 pm
lakpr wrote:
Mon Jun 29, 2020 11:12 am

If you are in a 22% tax bracket now, conversion of $10k this year = $2200 additional tax you have to pay from somewhere else.
Let's say in 20 years, this $10k will become $100k (as someone above suggested).
By the same token, the extra $2200 you are paying in taxes, will also become $22k in the same 22 years.
Having a $100k Traditional IRA + $22k taxable account is a better position to be in than to have only $100k in Roth IRA.
I may be an odd one, but to me, the certainty of the Roth provides me with a feeling of relief that I don't get when I'm staring at my tIRA balance wondering how much of that money will actually be mine. Plenty of interesting discussions on the forum these days on the roth v. trad topic, especially one on how the tIRA offers the most protection against worst case scenarios. I like certainty and simplicity perhaps too much, and I think it makes sense to act now on converting when the law of the land says that taxes will go up in five years.
I wrote the below in another thread to support my viewpoint that Traditional 401k + Taxable Account is better than Roth alone. In that thread, the Roth IRA was assumed to be maxed out regardless, so the choice is either Roth 401k or Traditional 401k. But the broad theme I tried to illustrate below is also applicable here ...

viewtopic.php?f=1&t=304240&p=5031855#p5031855
Perhaps this can be answered with an illustration.
Edit: I am not sure whether the below is answering you are asking, may be I misunderstood you completely ... but I am trying to make my point that investing in Traditional 401k is better

Adam: contributed to a Roth 401k throughout his life, $20k per year (inflation-adjusted). At retirement, he has $2 million dollars in Roth 401k.
Brian: contributed to a Traditional 401k throughout his life, $20k per year (inflation-adjusted). At retirement, he has $2 million dollars in Traditional.
BUT, Brian is also smart enough to realize the savings on his Traditional 401k. For ease, let's assume the tax rate is 25%, so Brian dutifully deposited $5k in a taxable account. It would grow to $500k (if $20k became 2 million, $5k would become $500k right?). But because of the annual dividend tax drag over the years, let's say the taxable account has only $400k (purely dividend tax drag, remember nothing is sold, so capital gains does not enter the picture yet).

Year 1: Adam draws $80k from his portfolio, balance = $1.92 million. Taxes owed = 0.
Brian also draws $80k from his portfolio, balance = $1.92 million in Traditional 401k. But wait, taxes are owed. But Brian is in a 15% tax bracket in retirement, so he owes $12k in taxes to IRS. He withdraws the $12k from taxable account, his balance is now $388k. But wait again, Brian owes additional capital gains taxes to IRS because he sold some investments to pay the tax. So that's an additional 15% of $12k, = $1.8k. His portfolio in taxable is now approximately $386k.

Year 2: Adam draws $80k from his portfolio, balance = $1.84 million. Taxes owed = 0.
Brian also draws $80k from his portfolio, balance = $1.84 million in Traditional 401k. As before, taxes are owed. Similar to previous calculations, he sells $14k from investments to pay o IRS. His taxable balance now = $372k.

.....

You see where I am going with this ... after the end of each year, Brian has more money left than Adam, while having contributed equally as Adam throughout his professional life, starting from the same point and retiring at the same point. It will be another 29 years before both Brian and Adam end up at the same position again ($400k / $14k per year = 29 years). Those 29 years of time might as well exceed the life expectancy of either Adam or Brian.

..........

Note that I tried to skew the calculations a bit towards Roth intentionally, but the decision ends up in favor of Traditional 401k anyway. In reality, 15% capital gains tax rate is not applicable for someone in 12% bracket or to-be-15% bracket in retirement; capital gains taxes for such folks is $0. Additionally, the dividend tax drag may not amount to 20%; in a fund like VTSAX, it distributes 2% dividends annually, and a 15% tax rate is applicable on the dividends, so it's 0.3% less return per year than what one might get from a tax-advantaged account. But I doubt that would account for a massive $100k difference in principal in the taxable account for Brian.

An periodic investment of $5k inflation-adjusted contributions, growing at 6% inflation-adjusted rate = $395k at the end of 30 years
An periodic investment of $5k inflation-adjusted contributions, growing at 5.7% inflation-adjusted rate = $375k at the end of 30 years (not 20% less, only a bit more than 5% tax drag).

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ruralavalon
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Re: First Roth IRA Portfolio

Post by ruralavalon » Mon Jun 29, 2020 2:31 pm

I think it is a waste of time to debate (or try to calculate) the traditional vs Roth issues in the absence of necessary information like tax bracket, pension, occupation, and other accounts.
Last edited by ruralavalon on Mon Jun 29, 2020 2:34 pm, edited 1 time in total.
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02nz
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Re: First Roth IRA Portfolio

Post by 02nz » Mon Jun 29, 2020 2:33 pm

ruralavalon wrote:
Mon Jun 29, 2020 2:31 pm
I think it is a waste of time to debate traditional vs Roth issues in the absence of necessary information.
I agree, but advice that is clearly inappropriate to the circumstances (e.g., favoring Roth even though OP will have zero in tax-deferred) should be pointed as such. We do need a response from OP at this point.

whereskyle
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Re: First Roth IRA Portfolio

Post by whereskyle » Mon Jun 29, 2020 2:41 pm

02nz wrote:
Mon Jun 29, 2020 2:33 pm
ruralavalon wrote:
Mon Jun 29, 2020 2:31 pm
I think it is a waste of time to debate traditional vs Roth issues in the absence of necessary information.
I agree, but advice that is clearly inappropriate to the circumstances (e.g., favoring Roth even though OP will have zero in tax-deferred) should be pointed as such.
It is a very good point, and I am thankful for it, that one should have at least enough money to cover the standard deduction and the lowest brackets in the tIRA. I converted all of my tax-deferred funds because my new job starting in August will grow my tax-deferred balance very quickly, more quickly than my non-work plan will grow (unless ex-us stocks leave the us in the dust for the next 30 years). I'm grateful that I've incidentally stumbled on what seems clearly to be a desirable balance of having both. Although a consensus is emerging, I still am not a fan of relying on the tax code. We do not know what the standard deduction and the lowest tax brackets will be when we retire, so what good does it do us to consider the current standard deduction and current marginal tax rates, especially when they are currently scheduled to go up? Who wants to add political/legislative developments to the list of things to worry about? Does anyone else consider the certainty of the roth a serious benefit, because I think I do.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle

retiredjg
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Re: First Roth IRA Portfolio

Post by retiredjg » Mon Jun 29, 2020 3:16 pm

ruralavalon wrote:
Mon Jun 29, 2020 2:31 pm
I think it is a waste of time to debate (or try to calculate) the traditional vs Roth issues in the absence of necessary information like tax bracket, pension, occupation, and other accounts.
I agree. Discussing the merits of this and that is just confusing to everybody (especially newbies) when we know absolutely nothing about the original poster's situation.

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obaxter2107
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Re: First Roth IRA Portfolio

Post by obaxter2107 » Mon Jun 29, 2020 6:40 pm

Good Evening Everyone,

I want to thank all of you for your feedback. I have gained a wealth of knowledge in the few minutes I have been reading each of your posts. Here are a few answers for some of the questions being asked.

I am currently in between jobs but hope to start back up with my old company within the next few weeks. Long story short, I managed a logistics terminal for a large cement company but left last year to pursue a higher paying sales job that ended up not working out. My previous employer will be bringing me back on once they get the budget details worked out with corporate. They offer a 401k with 1 to 1 match up to 6% contribution. I plan on maxing that out once I get back to work.

I am currently married and file jointly and fall in the 22% tax bracket. I made roughly 85K last year and my wife made 48K. My income should remain about the same unless they surprise me with a higher salary then when I left.

I maxed out the contribution for 2020 because i was not informed that I could still make contributions to 2019. I spoke with a representative with Fidelity over the phone and it was not brought up or I would have went that route. I do have roughly 50k in a high yield saving account that I will be pulling from to max out both tax year contributions.

My wife's company does not offer a 401k so I plan on starting a ROTH for her as well.

I have not considered investing in international funds simply because I did not see any index funds through Fidelity that had returns compared to the U.S Market.

I hope this information provides some clarification and again, thank you so much for sharing your wisdom.

Regards,

02nz
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Re: First Roth IRA Portfolio

Post by 02nz » Mon Jun 29, 2020 9:49 pm

OK, based on the new info provided you should absolutely not be doing any Roth conversions. You have a very small tax-deferred balance currently, and - assuming neither of you has a pension - you will have a very low tax rate in retirement, much lower than 22% (basically zero, based on your current portfolio). That makes Roth conversions at this time a costly mistake. What's done is done, but you should not do any more Roth conversions until at least one of you retires (or in another situation where you have much lower income, e.g., one of you stays at home with a child).

Particularly given that you're behind in retirement savings, you should plow as much as you can into the 401k (limit on your contribution is $19500 this year, that's not including the employer match), using traditional contributions to defer the taxes from now (22%) into retirement (much lower than 22%). And, at your income level and given that your wife is not covered by a 401k plan at work, you can deduct traditional IRA contributions for both of you. In your situation, I strongly recommend going with the traditional rather than Roth IRAs and recommend that you call Fidelity and re-characterize your 2020 contribution from Roth to traditional.

(There are many Roth vs traditional threads on this forum; for most people having some of both is good. Your circumstances though strongly argue for traditional, and probably 100% traditional for the foreseeable future.)

The 401k has a much higher contribution limit and is your most important retirement saving vehicle. I strongly recommend you post your 401k fund options and then we can go about helping you build a good retirement saving plan. I suggest editing your original post (use the pencil icon) and follow this format: https://www.bogleheads.org/wiki/Asking_ ... _questions
obaxter2107 wrote:
Mon Jun 29, 2020 6:40 pm
I have not considered investing in international funds simply because I did not see any index funds through Fidelity that had returns compared to the U.S Market.
If only investing were as easy as picking the funds with the best performance over the last X years! :happy Alas, it is not. International has lagged the U.S. for the past decade but has outperformed the U.S. at other times. This is another frequently debated topic here, but I would recommend at least 20% of your stock allocation to international for the diversification. But honestly in your situation this far less important than 1) the contribution rate and 2) getting traditional vs Roth right. You're paying way too much to Uncle Sam when you have very little saved for retirement, a mistake that will cost you tens of thousands of dollars or more if not corrected. (Sorry, I don't do sugarcoats.) :wink:

I'm sure you have more questions, so ask away!

whereskyle
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Re: First Roth IRA Portfolio

Post by whereskyle » Tue Jun 30, 2020 6:01 am

obaxter2107 wrote:
Mon Jun 29, 2020 6:40 pm
Good Evening Everyone,

I want to thank all of you for your feedback. I have gained a wealth of knowledge in the few minutes I have been reading each of your posts. Here are a few answers for some of the questions being asked.

I am currently in between jobs but hope to start back up with my old company within the next few weeks. Long story short, I managed a logistics terminal for a large cement company but left last year to pursue a higher paying sales job that ended up not working out. My previous employer will be bringing me back on once they get the budget details worked out with corporate. They offer a 401k with 1 to 1 match up to 6% contribution. I plan on maxing that out once I get back to work.

I am currently married and file jointly and fall in the 22% tax bracket. I made roughly 85K last year and my wife made 48K. My income should remain about the same unless they surprise me with a higher salary then when I left.

I maxed out the contribution for 2020 because i was not informed that I could still make contributions to 2019. I spoke with a representative with Fidelity over the phone and it was not brought up or I would have went that route. I do have roughly 50k in a high yield saving account that I will be pulling from to max out both tax year contributions.

My wife's company does not offer a 401k so I plan on starting a ROTH for her as well.

I have not considered investing in international funds simply because I did not see any index funds through Fidelity that had returns compared to the U.S Market.

I hope this information provides some clarification and again, thank you so much for sharing your wisdom.

Regards,
What will your income be for 2020? If you'll be in the 12% bracket due to time between jobs this year, the Roth conversions might not be so undesirable. 02nz is right that if you're in the 22% bracket, there is a good chance that you will have a year or two in retirement when a conversion would be cheaper than it is at 22%. Generally, I think it makes sense to aim for equal balances across trad and roth because no one knows what taxes will look like in retirement. We do know that they are slated to go up across the board after 2025. If you're only paying 12% this year and you expect to contribute substantially more to a trad balance going forward, I don't think you'd be crazy to convert (I did it this year to even out the balances and because wife has been home with baby so we should top out in the 12% bracket).

As for international, some posters here claim that they do not see any need to invest in ex-us stocks. Jack Bogle said there is no need to hold them and there's only an unreliable and unpredictable chance ex-us stocks will help a US investor's portfolio. I wanted to tow that line, especially because the recent US returns are better. But I couldn't sleep well at night. Keeping 20% in ex-us stocks helps me sleep better. And 20%, Jack said, is the maximum one should invest overseas. Some go much further than that and just buy the world (VTWAX/VT, Vanguard Total World Index Fund/ETF, ER .10/.08), which is currently about 60% US/40% exUS. You'll have to decide for yourself whether you would be willing to see ex-us beat us one or two years without straying from your course.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle

retiredjg
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Re: First Roth IRA Portfolio

Post by retiredjg » Tue Jun 30, 2020 8:04 am

Thank you for the update.

If you continue to be in the 22% tax bracket for 2020 and later, I don't suggest doing more Roth conversions either. This is because it is likely you will be able to use the money or convert it to Roth at a rate less than 22% when you retire.

If there is a chance to get into the 12% bracket this year because of changing jobs, put as much into Roth as you can this year while staying in the 12% bracket.

With a combined salary of about $155k, I suggest you contribute to traditional 401k and Roth IRA. If you cannot completely fill all 3 accounts, I'd put about 2/3rd into the 401k (be sure that is enough to get the entire match) and 1/3rd into the Roth IRAs. This is roughly the same ratio you would have if you can fill all the accounts.

Others will suggest you fill the 401k completely and put the leftovers into Roth IRA. Either choice is fine - the important thing is to save money. I just think that paying 22% to get money into Roth iRA is acceptable to achieve more "tax diversification", particularly since tax rates are scheduled to go back up in 2026.

Do not worry too much about starting "late". Many people do not start until about your age.

As for international, in spite of what it seems common sense tells you, comparing returns is not a good way to pick an investment. An asset class is either worth having or not worth having - it has nothing to do with recent returns.

International stocks will have their hay day at some point. If you wait till that starts and buy then, you will have already missed the most profitable time to be invested in that asset class.

I'm not saying you should or should not hold international. I'm saying make the decision based on whether you think it will be profitable at some point. If yes, buy now instead of then to get the best return.

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ruralavalon
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Re: First Roth IRA Portfolio

Post by ruralavalon » Tue Jun 30, 2020 8:50 am

Because you are in the 22% tax bracket, I don't believe you should do any more conversions of the traditional IRA to Roth IRA.

I agree that you should use some money from the savings account to make maximum IRA contributions for both 2019 and 2020. Contributions for tax year 2019 must be made before July 15, 2020, don't wait till the deadline to do that.

Have you filed your income tax return for 2019?

obaxter2107 wrote:
Mon Jun 29, 2020 6:40 pm
My previous employer will be bringing me back on once they get the budget details worked out with corporate. They offer a 401k with 1 to 1 match up to 6% contribution. I plan on maxing that out once I get back to work.

I am currently married and file jointly and fall in the 22% tax bracket. I made roughly 85K last year and my wife made 48K. My income should remain about the same unless they surprise me with a higher salary then when I left.
That is a nice employer match.

About how much (in dollars) do you believe that you might be able to contribute annually to investing (total, all accounts)? (Your rate of contributions is one of the most important investing decisions you will make.)

Please list the funds offered in the 401k when you have that information. Please give fund names tickers and expense ratios.

If the funds offered in your employer's 401k plan are good with low expense ratios then you might want to prioritize contributions to your 401k account over contributions to IRAs. Wiki article "Prioritizing Investments".

Do you have any retirement investments other than the $35k you mentioned in your first post? Will either of you be eligible for a significant pension in addition to Social Security? (This has a big impact whether future contributions should be traditional or Roth).
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

02nz
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Re: First Roth IRA Portfolio

Post by 02nz » Tue Jun 30, 2020 10:42 am

ruralavalon wrote:
Tue Jun 30, 2020 8:50 am
About how much (in dollars) do you believe that you might be able to contribute annually to investing (total, all accounts)? (Your rate of contributions is one of the most important investing decisions you will make.)
This is an important question, and it has implications for the traditional/Roth question as well. If OP is able to max 2 IRAs and a 401k (total of $31.5K/year), I can see the benefit of using Roth IRAs for tax diversification. But OP seems to have some difficulty fully funding IRAs alone (contributed for '20 but not yet for '19). The lower the contribution amount, the more traditional is advantageous.
whereskyle wrote:
Tue Jun 30, 2020 6:01 am
02nz is right that if you're in the 22% bracket, there is a good chance that you will have a year or two in retirement when a conversion would be cheaper than it is at 22%. Generally, I think it makes sense to aim for equal balances across trad and roth because no one knows what taxes will look like in retirement.
A lot more than 1 or 2 years. If OP retires at 65 and defers SS until 70, that's 5 years in which Roth conversions can be done at much lower rates than 22%. And right now OP has very little with which to fill that space, hence my recommendation for traditional. And while I generally like tax diversification, I don't think ratios of Roth/traditional lend themselves to any kind of "rule of thumb," and if I had to come up with a ratio for OP's situation it would not be 50/50.

Topic Author
obaxter2107
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Re: First Roth IRA Portfolio

Post by obaxter2107 » Wed Jul 01, 2020 11:12 am

Good afternoon everyone,


My goal is to max out 2019 and 2020 for my wife and i this week.

I do not have an ira account set up for her yet. Should i go with a traditional or roth for her?

Moving forward I will be maxing out my roth and her ira (roth or traditional) and making full contribution to 401k once i get back to work.

Fortunately we have no bills, only a $820 mortgage and other basic bills.

She makes $50k a year and i will be around $75 a year.


Do you suggest roth or traditional for her account? Both our IRAs will be set up as followed moving forward...

FSKAX - Total Market 75%
FSPSX - International 10%
FNBGX - Long Term Treasury Bond 15%

Fidelity offers total market and international on zero fee funds but there is no historical data. Any input on these two funds?

Once i get some direction on setting up my wifes fund I am going to get them both allocated appropriately and max out contributions before the 15th.

Thank you everyone for your guidance.

lakpr
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Re: First Roth IRA Portfolio

Post by lakpr » Wed Jul 01, 2020 11:19 am

With a combined income of $125k, it's possible that you find yourself in the 12% tax bracket.

The top of the 12% tax bracket is actually $105k, so it requires a reduction from your combined salary of $20k. That $20k could be a combination of your 401k plan deferral + any health care premiums deducted pre-tax from your paycheck + union dues deducted pre-tax from your paycheck, if any + any HSA contributions (not health care premiums!) + any FSA plans for child care deductions / commuting deductions etc.

If you DO find yourself in 12% tax bracket for 2019 (check your 2019 TAXABLE income, not gross income, from the tax return), it is also likely that you will be in the 12% bracket for 2020. In this case, Roth IRA for both you and your wife. The money that would be going into the Roth IRAs will have been taxed at 12%, and it's my belief that you will never see a lower tax rate than this in our lifetime again. So pay the 12% tax now, and have the entire growth tax-free in the future.

It's likely that you may also find yourself just a tad above the $105k threshold. In that case, try to defer that much extra into your 401k plan to drop back to 12% bracket. So where you may have deferred $10k in 2019 and found your taxable income is $108k, for example, see if you can defer $13k in 2020 instead. Then follow the instructions from the previous paragraph.

As a last resort, make use of your wife's IRA space to drop down to 12% bracket; that decision usually can be taken as late as July 15th for 2019 tax year, and April 15th for 2020 tax year. By that time the bulk of your tax return will have been set in stone, the only variable would be how much you contribute to her Traditional IRA to reduce your taxable income.

retiredjg
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Re: First Roth IRA Portfolio

Post by retiredjg » Wed Jul 01, 2020 11:42 am

obaxter2107 wrote:
Wed Jul 01, 2020 11:12 am
I do not have an ira account set up for her yet. Should i go with a traditional or roth for her?
A reasonable argument can be made for either.

Since she has no retirement plan of any kind (not just no 401k) at work and your AGI is less than $196k, she could make a fully deductible contribution to traditional IRA. This will lower your taxable income by $6k.

On the other side of the argument, since you already have some tax-deferred money and since both your elective deferrals and a nice company match will be going into traditional 401k, having a balance with some Roth IRA is an attractive option as well. This is the one I would choose because I like that balance between tax-deferred and Roth more than I like saving a small amount in taxes.

Either choice is a good one.
Fidelity offers total market and international on zero fee funds but there is no historical data. Any input on these two funds?
These funds are probably just fine. They do contain a lot fewer stocks than the "regular" non-zero index funds, but they do contain a reasonable number.

Once i get some direction on setting up my wifes fund I am going to get them both allocated appropriately and max out contributions before the 15th.
Remember you do not have to max your 2020 contributions by then, but you certainly can if you want to.

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1789
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Re: First Roth IRA Portfolio

Post by 1789 » Wed Jul 01, 2020 11:42 am

I would contribute Roth IRA. Also for the portfolio, long term treasuries will be volatile so don't get emotional and act when you seem them change a lot when interest rates changes.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)

02nz
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Re: First Roth IRA Portfolio

Post by 02nz » Wed Jul 01, 2020 6:19 pm

Going with either Roth or traditional IRA is ok; as others have pointed out, with the latter you do qualify for a tax deduction, so you save $1320 now in taxes. I would favor traditional IRA slightly in your situation because you have a low overall retirement balance and traditional helps you catch up (all else being the same, Roth is more advantageous when you already have or project a large tax-deferred balance).

When you say you want to make a "full contribution" to the 401k, do you mean just getting the full employer match or actually hitting the $19500/year employee contribution max? I would say if you're going to hit the $19.5K max with the 401k, then go ahead with the Roth IRA; otherwise go with traditional IRA and put the tax savings toward a larger 401k contribution.

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ruralavalon
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Re: First Roth IRA Portfolio

Post by ruralavalon » Wed Jul 01, 2020 7:08 pm

obaxter2107 wrote:
Wed Jul 01, 2020 11:12 am
Good afternoon everyone,


My goal is to max out 2019 and 2020 for my wife and i this week.

I do not have an ira account set up for her yet. Should i go with a traditional or roth for her?

Moving forward I will be maxing out my roth and her ira (roth or traditional) and making full contribution to 401k once i get back to work.

Fortunately we have no bills, only a $820 mortgage and other basic bills.

She makes $50k a year and i will be around $75 a year.


Do you suggest roth or traditional for her account? Both our IRAs will be set up as followed moving forward...

FSKAX - Total Market 75%
FSPSX - International 10%
FNBGX - Long Term Treasury Bond 15%

Fidelity offers total market and international on zero fee funds but there is no historical data. Any input on these two funds?

Once i get some direction on setting up my wifes fund I am going to get them both allocated appropriately and max out contributions before the 15th.

Thank you everyone for your guidance.
In my opinion either a traditional IRA or a Roth IRA for her would be okay. My suggestion is traditional IRA for a her. Traditional is likely better for most people, and you currently have only a small amount in tax-deferred accounts. In case of a tie on the traditional vs Roth issue, I feel it's probably best to take the tax break now rather than later.

The Fidelity ZERO funds are new, use unique indexes no one else uses, and are a little less diversified, but I think its okay to try them in tax-advantaged accounts
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Topic Author
obaxter2107
Posts: 6
Joined: Sun Jun 28, 2020 5:50 pm

Re: First Roth IRA Portfolio

Post by obaxter2107 » Thu Jul 02, 2020 12:07 pm

Thank you for all the input.

Just to confirm, an 75/10/15 split between total market, international, and bonds is still good all things considering in today's economy? Between an upcoming election and Covid-19, I can't help but feel a little worrisome about putting that much money in the market right now.

Thoughts or words of encouragement?

Thank you!

lakpr
Posts: 5733
Joined: Fri Mar 18, 2011 9:59 am

Re: First Roth IRA Portfolio

Post by lakpr » Thu Jul 02, 2020 12:19 pm

obaxter2107 wrote:
Thu Jul 02, 2020 12:07 pm
Thank you for all the input.

Just to confirm, an 75/10/15 split between total market, international, and bonds is still good all things considering in today's economy? Between an upcoming election and Covid-19, I can't help but feel a little worrisome about putting that much money in the market right now.

Thoughts or words of encouragement?

Thank you!
Your plan looks great, but if I may suggest a slight change around the edges....

I would up the international stock allocation slightly, to 70:15:15 between total US market, total international and total bonds. That would boost the international stocks allocation just a tad lower than 20% of stocks allocation, but works as a round number.

Note that this is something I am doing personally; my allocation is 70:30, with 20% allocation to international equities that's more like 55:15:30. I am investing in international equities purely due to the FOMO factor; what if international equities suddenly take off? A 20% allocation will capture a slice of it.

I am also holding all my international equities in my 401k (NOT Roth IRA or taxable), as my outlook for this asset class is pessimistic (at least, more pessimistic than compared to US equities). If my fears are realized, then Uncle Sam will have shared my misery. If I am proven wrong and international equities take off like a rocket, well I don't mind sharing the good fortune with Uncle Sam.

Make Uncle Sam a partner ... hold your international equities in your Traditional IRA.

Regarding your nervousness to put all the money in the market all at once, a Dollar-cost-averaging would work just fine, but stick to it once you have drawn up a plan. Perhaps you can resolve to put 1/26th of the money you have, every week, on a Wednesday (this is just an example, there's nothing magical about Wednesday, I just picked the middle of the week) without fail ... (26 weeks more to go in the year, so by December 31st you will have been invested fully).

retiredjg
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Joined: Thu Jan 10, 2008 12:56 pm

Re: First Roth IRA Portfolio

Post by retiredjg » Thu Jul 02, 2020 12:41 pm

obaxter2107 wrote:
Thu Jul 02, 2020 12:07 pm
Thank you for all the input.

Just to confirm, an 75/10/15 split between total market, international, and bonds is still good all things considering in today's economy? Between an upcoming election and Covid-19, I can't help but feel a little worrisome about putting that much money in the market right now.

Thoughts or words of encouragement?

Thank you!
It's good although the international allocation is low compared to the usual recommendations.

Any time you put money in the market, it is possible the market will go down. That was true last year (in the booming bull market) and it is true now (in a very unstable market). And you can be certain there will be several periods of turmoil during your investing career. There will be times when your money disappears.

In the long run so far, the market goes up over the long term. If you believe that will continue in your lifetime, invest in the market. If you do not believe that, you should only invest in things that cannot lose money....which means you will lose buying power to inflation....and it means you have to save a lot more and/or a lot longer.

Investing in a plunging market is actually a good thing because you get more shares for your money. :D

02nz
Posts: 5385
Joined: Wed Feb 21, 2018 3:17 pm

Re: First Roth IRA Portfolio

Post by 02nz » Thu Jul 02, 2020 1:48 pm

Good advice above. You could also just go with a target retirement date fund, to take away the temptation to tweak your allocation.

Topic Author
obaxter2107
Posts: 6
Joined: Sun Jun 28, 2020 5:50 pm

Re: First Roth IRA Portfolio

Post by obaxter2107 » Thu Jul 02, 2020 1:59 pm

Thank you for the input.

Another question. This is for my wifes account. Would it be a good idea to open both a traditional and roth ira amd put $4k towards traditional and $2k towards roth for the year or should i pick one or the other?

02nz
Posts: 5385
Joined: Wed Feb 21, 2018 3:17 pm

Re: First Roth IRA Portfolio

Post by 02nz » Thu Jul 02, 2020 2:01 pm

obaxter2107 wrote:
Thu Jul 02, 2020 1:59 pm
Thank you for the input.

Another question. This is for my wifes account. Would it be a good idea to open both a traditional and roth ira amd put $4k towards traditional and $2k towards roth for the year or should i pick one or the other?
You could, but why? Keep it simple and go for one or the other. I stand by my earlier suggestion: if you're already maxing the traditional 401k, then do Roth IRA; otherwise fund traditional IRA and put tax savings toward more 401k contributions. Reevaluate in future years. The $6K in any year is small enough that I wouldn't overthink it or split it up (unless there were a good reason, like you only qualify for a partial tax deduction for the tIRA contribution, but that's not your situation based on the data provided).

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ruralavalon
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Location: Illinois

Re: First Roth IRA Portfolio

Post by ruralavalon » Thu Jul 02, 2020 2:36 pm

obaxter2107 wrote:
Thu Jul 02, 2020 1:59 pm
Thank you for the input.

Another question. This is for my wifes account. Would it be a good idea to open both a traditional and roth ira amd put $4k towards traditional and $2k towards roth for the year or should i pick one or the other?
Just to keep it simple, pick one or the other.

Don't overthink this.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

retiredjg
Posts: 41097
Joined: Thu Jan 10, 2008 12:56 pm

Re: First Roth IRA Portfolio

Post by retiredjg » Thu Jul 02, 2020 2:52 pm

obaxter2107 wrote:
Thu Jul 02, 2020 1:59 pm
Thank you for the input.

Another question. This is for my wifes account. Would it be a good idea to open both a traditional and roth ira amd put $4k towards traditional and $2k towards roth for the year or should i pick one or the other?
You can do this. I think what you are trying to do is use the $4k in traditional to get into the 12% bracket, meaning that all the Roth contribution would be going in at only 12%. Maybe?

if she already has a traditional IRA and is going to eventually have both a traditional IRA and a Roth IRA anyway, doing it this way won't make anything more complicated.

While I agree with the others that this just complicates matters....if it suits you and meets your needs better, it is certainly not a fatal flaw in your portfolio.

On the other hand, if it never gets another contribution, you are going to have this little tiny orphan IRA sitting around with about $4k in it....a nuisance.

4nickt
Posts: 19
Joined: Thu Dec 28, 2017 5:25 pm
Location: Chicago

Re: First Roth IRA Portfolio

Post by 4nickt » Thu Jul 02, 2020 3:51 pm

You will absolutely "break" the poverty or poor background you mentioned. We were poor trailer trash at the ripe age of 19 and now live comfortably with 5ml + net worth. Invest wisely, don't use a broker or friend to manage your money. The Roth account should be the "last" nickel" you ever spend. Thus, be aggressive and try to "beat" the market. YOur pretax accounts should be SP500 or Index funds. We are in our 60s through hard work work, good education, sound investing. Good Luck.

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