General investing and Roth IRA questions

[soulcougher73]

So my wife and i had a first meeting with an advisor for Edward Jones, whom my wife got recommended to from a work friend. Anyways it got me thinking more about all this, and i know i've seen many threads over my years here on investing. I'd rather avoid advisor fees if i can and just do it myself. My wife got a decent chunk of money this past year from her mother passing. Currently my wife and I both have 401k's (Vanguard Targeted date funds) thru our work where we are putting in the minimum amount to max the employer contribution. But we'd both like to set up a Roth IRA as well and try and max that out per year.

I know Vanguard is a big one, but thru them could we both have a Roth IRA and invest additional monies (more for my wife with her inheritance).

I am 47 and she is 40 if that matters.

What might be a good approach to investing into a Roth IRA? Another targeted date fund, something else?

Thanks for reading

 

[s0me0nesmind1]

RUN. RUN FAST. Run Hard!

Read this - and never ever touch anything with the names "Edward Jones" on it:

It's a long read, but it's well worth it.

http://kronstantinople.blogspot.com/p/edward-jones-saga.html

 

[s0me0nesmind1]

So my wife and i had a first meeting with an advisor for Edward Jones, whom my wife got recommended to from a work friend. Anyways it got me thinking more about all this, and i know i've seen many threads over my years here on investing. I'd rather avoid advisor fees if i can and just do it myself. My wife got a decent chunk of money this past year from her mother passing. Currently my wife and I both have 401k's (Vanguard Targeted date funds) thru our work where we are putting in the minimum amount to max the employer contribution. But we'd both like to set up a Roth IRA as well and try and max that out per year.

I know Vanguard is a big one, but thru them could we both have a Roth IRA and invest additional monies (more for my wife with her inheritance).

I am 47 and she is 40 if that matters.

What might be a good approach to investing into a Roth IRA? Another targeted date fund, something else?

Thanks for reading

First question I'll ask, is why not max out your 401k first?

Compare the fees of the funds of your 401k to the fees of a Vanguard ROTH IRA fees. If the 401k is lower, I would max out your 401ks first.

I am also highly in-favor of pre-tax being > post-tax investments being a higher priority - but that is subject to one's personal opinion.

But yes, I would continue with the targeted date fund. If you want to get slightly more adventurous you can pick other index funds that might have slightly lower expense fees (e.g. S&P 500 Index, etc.)

Yes, with any brokerage you can have a ROTH IRA - as well as a simple brokerage account to invest further after-tax money if desired.


I would also consider (if possible) investing in a Health Savings Account (HSA) and maxing that out. It is the ONLY investment account that you can has a triple tax advantage - No tax going in, No tax on the investment gains, and no tax on withdraw for ANY qualified health related expenses (from any point in time)

 

[soulcougher73]

First question I'll ask, is why not max out your 401k first?

Compare the fees of the funds of your 401k to the fees of a Vanguard ROTH IRA fees. If the 401k is lower, I would max out your 401ks first.

I am also highly in-favor of pre-tax being > post-tax investments being a higher priority - but that is subject to one's personal opinion.

But yes, I would continue with the targeted date fund. If you want to get slightly more adventurous you can pick other index funds that might have slightly lower expense fees (e.g. S&P 500 Index, etc.)

Yes, with any brokerage you can have a ROTH IRA - as well as a simple brokerage account to invest further after-tax money if desired.


I would also consider (if possible) investing in a Health Savings Account (HSA) and maxing that out. It is the ONLY investment account that you can has a triple tax advantage - No tax going in, No tax on the investment gains, and no tax on withdraw for ANY qualified health related expenses (from any point in time)

When you mentioned 401k fees, is that the expense ratio? Mine is currently Vanguard 2040 retirement date fund, well and lots in company stock which i cant do anything with sadly.

We do both have an HSA. I am not sure who my wife's is thru, but mine is Discover Benefits which looks like they offer some nice options on the investment side. I am not maxing it, but that might not be a bad option. Currently my money is just in the savings portion and not invested side.

 

[Svnla]

I am no expert and this is my own personal journey of personal finance. I haven't pay a dime to any advisors.

First of all, you MUST pay off (or as much/as soon as possible) all of your high interest debts such as credit cards. Those double digit interest debts are killers to your financial well being.

Then a good size emergency fund, at least 3 months of expenses, prefer 6 months or so.

Get fully matched at your company retirement/401k fund, more money into it if possible.

Get your money into a well diversify stock fund, such as S+P 500 stock fund. Either from Vanguard or Fidelity or Schwab.

Even if you stop here, you are way ahead of about 80-90% of other Americans.

Then you could put money into a US bond fund, then an international stock fund, then an international bond fund for diversify. From Vanguard/Fidelity/Swchab. Some do a percentage = US stock fund - 50%, US bond fund - 10%, Oversea stock fund - 25%, oversea bond fund - 15%. It is up to you to determine how much and the percentage.

Then if you want to play around. Get some "play" money (money you can afford to lose it all) and invest in individual stocks, or gold, or even bit coin/etc.

 

[s0me0nesmind1]

When you mentioned 401k fees, is that the expense ratio? Mine is currently Vanguard 2040 retirement date fund, well and lots in company stock which i cant do anything with sadly.

We do both have an HSA. I am not sure who my wife's is thru, but mine is Discover Benefits which looks like they offer some nice options on the investment side. I am not maxing it, but that might not be a bad option. Currently my money is just in the savings portion and not invested side.

Yes - I'm referring to the expense ratio. For example, one of my employers 401ks has an expense ratio on their funds of like .... 0.02%. I refuse to roll it over because there isn't much point. It's a solid expense ratio and if I rolled it over to another 401k or an IRA it would be higher.

Yes, Max out the HSA - your limit is ~$7,100 for you as a family. Don't go over that amount either, by contributing to one for you and one for your wife so I would just have it all deducted from your wife's paychecks. Unlike 401ks/IRAs where the limit is PER PERSON, HSA is a limit for the family.

My order of operations of highest priorities

1) 401k Contribution of minimum amount for Employer-Match - it's essentially free money.
2) Max out HSA (~$7,100 for a family or couple right now)
3) 401k Max (~$19,500 per-person, so x2 for married)
4) ROTH IRA Max ($6,000 per-person, so x2 for married)
5) 529 Contributions for my kids college fund
6) Anything left goes to traditional brokerage and "fun money" of single-stock investments.


I also do 10% of my paycheck to our ESPP - because I get a 15% price advantage... so again, pretty much free money.

 

[soulcougher73]

I am no expert and this is my own personal journey of personal finance. I haven't pay a dime to any advisors.

First of all, you MUST pay off (or as much/as soon as possible) all of your high interest debts such as credit cards. Those double digit interest debts are killers to your financial well being.

Then a good size emergency fund, at least 3 months of expenses, prefer 6 months or so.

Get fully matched at your company retirement/401k fund, more money into it if possible.

Get your money into a well diversify stock fund, such as S+P 500 stock fund. Either from Vanguard or Fidelity or Schwab.

Even if you stop here, you are way ahead of about 80-90% of other Americans.

Then you could put money into a US bond fund, then an international stock fund, then an international bond fund for diversify. From Vanguard/Fidelity/Swchab. Some do a percentage = US stock fund - 50%, US bond fund - 10%, Oversea stock fund - 25%, oversea bond fund - 15%. It is up to you to determine how much and the percentage.

Thanks. We don't have any credit card debt. We do use 1 card for Amazon reward points and pay it off monthly. I should probably look into a airline reward card instead.

We have 20K in our emergency fund which is almost 4 months without changing any spending habits. Currently its just in our bank savings account which is a horrible interest rate. Might as well be zero. I thought about maybe Ally for about 1%, but are their any ways to invest it that we would still have access to it but earn a way better rate?

 

[Svnla]

Thanks. We don't have any credit card debt. We do use 1 card for Amazon reward points and pay it off monthly. I should probably look into a airline reward card instead.

We have 20K in our emergency fund which is almost 4 months without changing any spending habits. Currently its just in our bank savings account which is a horrible interest rate. Might as well be zero. I thought about maybe Ally for about 1%, but are their any ways to invest it that we would still have access to it but earn a way better rate?

Yes, you can but you have to do a bit of work.

You can put the $20K into a high paying reward checking account or two. You have to do a bit of work every month such as this (from my own credit union reward checking account. It is paying about 4% interest).

• Be enrolled and receive FREE eStatements
• Be enrolled and log into online or mobile banking
• Have at least 15 debit card purchases post and settle
• Have at least 1 direct deposit, online bill payment, or automatic payment (ACH) post and settle

If you don't want to do any of that, then put the money into an online savings account but most of them pay only about 1% or so.

Here is a good site to check out - https://www.depositaccounts.com/ (click on the savings account or reward checking account for more information and requirements).

 

[s0me0nesmind1]

We have 20K in our emergency fund which is almost 4 months without changing any spending habits. Currently its just in our bank savings account which is a horrible interest rate. Might as well be zero. I thought about maybe Ally for about 1%, but are their any ways to invest it that we would still have access to it but earn a way better rate?

Personally I would get a bigger emergency fund as well.

I have to replace all my ACs and Ductwork, and it's likely going to cost $30k+ with all the work we need done. On top of that with kids were at a point where were struggling to go places without buying an SUV to hold all the shit that kids need so that's more on top of that. Just sayin' not all emergency funds are the type of "I lost my job and need to pay the bills for 6 months while unemployed"

We diversify out the emergency fund.... Some I put into 2% interest CDs. Some I keep in a high-yield savings account currently ~0.90% I think... Some I keep in a brokerage in Index funds.

 

[soulcougher73]

Yes - I'm referring to the expense ratio. For example, one of my employers 401ks has an expense ratio on their funds of like .... 0.02%. I refuse to roll it over because there isn't much point. It's a solid expense ratio and if I rolled it over to another 401k or an IRA it would be higher.

Yes, Max out the HSA - your limit is ~$7,100 for you as a family. Don't go over that amount either, by contributing to one for you and one for your wife so I would just have it all deducted from your wife's paychecks. Unlike 401ks/IRAs where the limit is PER PERSON, HSA is a limit for the family.

My order of operations of highest priorities

1) 401k Contribution of minimum amount for Employer-Match - it's essentially free money.
2) Max out HSA (~$7,100 for a family or couple right now)
3) 401k Max (~$19,500 per-person, so x2 for married)
4) ROTH IRA Max ($6,000 per-person, so x2 for married)
5) 529 Contributions for my kids college fund
6) Anything left goes to traditional brokerage and "fun money" of single-stock investments.


I also do 10% of my paycheck to our ESPP - because I get a 15% price advantage... so again, pretty much free money.

Another question that popped in my head regarding HSA's. What happens if you want to withdraw the money when retired but NOT for health related expenses? Just taxed as income for the year? Any penalties? Like what if you are retired but super healthy with plenty of money elsewhere and you just want to cash out haha

 

[Svnla]

Another question that popped in my head regarding HSA's. What happens if you want to withdraw the money when retired but NOT for health related expenses? Just taxed as income for the year? Any penalties? Like what if you are retired but super healthy with plenty of money elsewhere and you just want to cash out haha

No 20% penalty, just income tax on the year of distribution/withdraw.

It applies if you use the money you’ve saved in the account for non-medical expenses before age 65; once you turn 65, you can use HSA money for non-medical expenses without facing the 20% penalty, but you’ll still owe income taxes.

What If You Use Your Health Savings Debit Card For Take-Out?

You can use money from your health savings account for non-medical expenses, but you’ll pay for it.

www.forbes.com

 

[s0me0nesmind1]

Another question that popped in my head regarding HSA's. What happens if you want to withdraw the money when retired but NOT for health related expenses? Just taxed as income for the year? Any penalties? Like what if you are retired but super healthy with plenty of money elsewhere and you just want to cash out haha

That's absolutely correct.

If you don't have health-related expenses, then it's taxed just like a normal 401k (presuming you are past the retirement age). No penalties.

But between now and then - you will likely have a somewhat significant sum of health expenses. Just make sure to document them and keep all of your documents.

 

[Mermaidman]

Which HSA providers do you guys use?

 

[dullard]

But between now and then - you will likely have a somewhat significant sum of health expenses. Just make sure to document them and keep all of your documents.

That is the key. You get to withdraw from the HSA without any taxes or problems as long as you had at least that amount of medical expenses from the time you first opened an HSA to the time you withdraw the money.

For example, you could open up an HSA in the year 2006 with say $2000. Then in year 2018 have $2500 in medical expenses. Then in year 2024 you can withdraw all that $2000 plus whatever it earned in interest/stock market gains. All you have to do is prove that at some time between the year 2006 and 2024 you had medical expenses that were at least $2000 (plus any gains you withdraw).

 

[dullard]

Personally, if I were you, I'd
1) Max out the HSA (best possibly tax savings allowed by law, also if you get over a minimum amount, most HSAs no longer charge monthly fees). The HSA is your emergency savings if you can prove that at some point after you opened it you had some medical expenses.

2) Put extra into your 401k (since you seem to have a good, low cost option).

3) Open a Roth IRA. I perfer an IRA right now over a IRA for most people because taxes are quite low now (pay taxes when low). With all the debt we've been creating this year, it is inevitable that at some point taxes will have to go up (so you don't want to pay taxes later when high).

4) Open a taxable investment account if you have extra left over.

Swap #2 and #3 if you wish.

 

[dullard]

Which HSA providers do you guys use?

Optum Bank bought my HSA a couple years ago. I haven't bothered to move it yet. They have low cost investment options with a good variety of investments and no fees if you have at least $5k in it. Their website royally sucks though.

 

[s0me0nesmind1]

Which HSA providers do you guys use?

Fidelity is hands down the clear winner. No question.

No fees. AMAZING good investment choices. Interest on the money in there... It is hands down the best right now. Most have bullshit where they charge you a fee if your balance is less than a certain amount - or minimum balances for investment, investment fees, etc...

[Fidelity Health Savings Account Mega-Thread] - Bogleheads.org

ONE caveat I have for this though - The best HSA is actually going to be the one from your employer.

Why? Because ONLY through direct-deposit based contributions do you avoid FICA (Social Security + Medicare) taxes. When you contribute money directly yourself with after-tax funds, you only save on the federal income tax - NOT the FICA taxes.

 

[shortylickens]

When I was 15 or so my parents got me a consultation with a supposedly very expensive investment counselor. He recommended I put money in a particular conservative mutual fund.
It tanked in a few years later and I lost about 99 percent of my money.
Something to consider: If those guys ACTUALLY knew how to make money, they wouldn't tell you. The reason they charge ridiculous fees to tell you how to invest is they dont actually know how to make money investing.
Or if they did, they would lie to you, take your money, and invest in things that actually pay out for themselves. Either way, they don't serve a function to middle class families who don't already know how the game works.

 

[s0me0nesmind1]

That is the key. You get to withdraw from the HSA without any taxes or problems as long as you had at least that amount of medical expenses from the time you first opened an HSA to the time you withdraw the money.

For example, you could open up an HSA in the year 2006 with say $2000. Then in year 2018 have $2500 in medical expenses. Then in year 2024 you can withdraw all that $2000 plus whatever it earned in interest/stock market gains. All you have to do is prove that at some time between the year 2006 and 2024 you had medical expenses that were at least $2000 (plus any gains you withdraw).

Yeah I dream of the day 30 years from now when I want to start taking money out that an auditor comes after me.

Here you go bitches - 30 years of multiple ways of proving healthcare expenses... 30 years of credit card statements (showing the bill paid there), 30 years of scans of the actual bills/receipts, and 30 years of explanation of benefits. Enjoy combing through it all - since some will apply, and some wont (e.g. Explanation of benefits after I reached the max out of pocket and thus I paid nothing).

 

[zinfamous]

First question I'll ask, is why not max out your 401k first?

Compare the fees of the funds of your 401k to the fees of a Vanguard ROTH IRA fees. If the 401k is lower, I would max out your 401ks first.

I am also highly in-favor of pre-tax being > post-tax investments being a higher priority - but that is subject to one's personal opinion.

But yes, I would continue with the targeted date fund. If you want to get slightly more adventurous you can pick other index funds that might have slightly lower expense fees (e.g. S&P 500 Index, etc.)

Yes, with any brokerage you can have a ROTH IRA - as well as a simple brokerage account to invest further after-tax money if desired.


I would also consider (if possible) investing in a Health Savings Account (HSA) and maxing that out. It is the ONLY investment account that you can has a triple tax advantage - No tax going in, No tax on the investment gains, and no tax on withdraw for ANY qualified health related expenses (from any point in time)

Agree with all of this. I'm also one of those that prefers pre-tax (trIRAs) to post-tax (ROTH) investment accounts. The logic behind this follows two points:

--with tr IRA, as your are able to reduce your tax burden for that year's contributions, the value you put in to the account is actually greater, because you essentially have more money (lower tax burden). So, for every $1k you put into a trIRA, that $1k will be worth about $800 in a ROTH, for example (Assuming 20% Tax liability).

--when you are pulling out money, assuming retirement age, while it's nice to not be paying taxes on ROTH money, bear in mind that your tax burden is generally much lower at that age: retired, capital gains. So, you really aren't saving that much if you compare to the higher taxes you are eliminating today, and the technically more money you were able to invest each year, up until that time, if contributing to tr IRA instead.

Roths are great, but like someones1mind, I think of them as the spillover for extra investment after exhausting in, order: 401 company match % > HSA > top off rest of 401k/403b > tr IRA > ROTH. ...or for 5-10 year+ big planned purchases: say you have a long-term plan to save for a downpayment on a house, outside of 5 years. a ROTH strikes me as a great place to save money for that....of course if you only stick to much safer index funds.

If your 401 is managed by Vanguard, you are already in good shape with no manager fees and likely have access to their institutional class shares which have even lower fund fees than their individual consumer packages. e.e: I think Institutional VTSAX is like 0.01% and Admiral VTSAX is 0.04%?


Hey, @s0me0nesmind1, you can probably answer this: I have temporary access to and HSA (unemployed for like, 4 months--have job going in October, but laid off this past July. picked a shitty Kaiser plan because it has HSA access....I need to check with them about this though because i have received NO information about the HSA, how to access, who to contact, what company runs it....and they are giving me the run around about it. very frustrating). anyway--my main question about HSA is this:

I can currently access one, apparently, because this health plan I intentionally selected is pure shit: 6500 deductible/$300 premium/$90 copay/just me. lol I did this because I am hoping that once I have access to and can open the HSA, that I will have lifetime access to it/ability to contribute? I will have actual healthcare starting in October, so I will no longer qualify for an HSA, so I was hoping that I could establish this temporary window in time to open one, and keep it/contribute for life (I have no plans to withdraw from it until I'm old and dying of ...probably anal cancer or something horrible). No one I have talked to will answer this question for me. I can not find it anywhere.

 

[zinfamous]

Thanks. We don't have any credit card debt. We do use 1 card for Amazon reward points and pay it off monthly. I should probably look into a airline reward card instead.

We have 20K in our emergency fund which is almost 4 months without changing any spending habits. Currently its just in our bank savings account which is a horrible interest rate. Might as well be zero. I thought about maybe Ally for about 1%, but are their any ways to invest it that we would still have access to it but earn a way better rate?

You definitely need another good credit card (that Amazon one--VISA right? is good). I'm not sure if it gives Ultimate Rewards points or not, but if it does, it's better than I thought.

I'd suggest the Chase Sapphire Preferred. One usually, historically, would recommend the Reserved (hell, there's a very long thread here, pretty much specifically about that one, lol), but the fee has become absurd and the offer bonuses aren't as great as it used to be (hence: history). Used to be 100k points. 50k is a downer....BUT, the annual fee for the Preferred is very tolerable considering that the Ultimate Points accrual is very similar. Now, if you do travel constantly, and actually use Lyft and Doordash all the time, then the Reserve might still be worth it to you (they added the Doordash/Lyft stuff when they bumped up the annual fee to $550). ...you still get $300 annual credits for "travel expenses" (this includes things like parking costs, on top of you know, rentals, airline tickets, etc), so the fee is actually $250 if you are good with that every year. ...still, I'd probably go with the Preferred because the current sign-on point bonus is greater? That's weird....

 

[soulcougher73]

Which HSA providers do you guys use?

Mine is Discovery Benefits. I am unsure who her's is at the moment.

 

[s0me0nesmind1]

Hey, @s0me0nesmind1, you can probably answer this: I have temporary access to and HSA (unemployed for like, 4 months--have job going in October, but laid off this past July. picked a shitty Kaiser plan because it has HSA access....I need to check with them about this though because i have received NO information about the HSA, how to access, who to contact, what company runs it....and they are giving me the run around about it. very frustrating). anyway--my main question about HSA is this:

I can currently access one, apparently, because this health plan I intentionally selected is pure shit: 6500 deductible/$300 premium/$90 copay/just me. lol I did this because I am hoping that once I have access to and can open the HSA, that I will have lifetime access to it/ability to contribute? I will have actual healthcare starting in October, so I will no longer qualify for an HSA, so I was hoping that I could establish this temporary window in time to open one, and keep it/contribute for life (I have no plans to withdraw from it until I'm old and dying of ...probably anal cancer or something horrible). No one I have talked to will answer this question for me. I can not find it anywhere.

If I'm understanding correctly:
-Unemployed in July. Subsequently picked up a Kaiser plan (via ACA marketplace?) since you likely lost your employer plan
-Will become employed in October - and presumably drop your current Kaiser plan and get a new one from the employer.

You sure they even have an HSA to offer? While a high-deductible plan is required in order to be eligible for an HSA, an employer (or health care provider) is under no obligation to actually provide an HSA (to my knowledge at least). Hence why you can freely open an HSA with any provider at anytime as long as you have a qualified high deductible plan.

But yes, if you have a qualified high-deductible plan - you should have no problem opening one and contributing to it on a basis of how long you have had the high-deductible plan. That is, if you sign-up for a high-deductible plan mid-year instead of at the beginning of the year, then I believe you are supposed to limit your contributions based on how many months you have had the qualifying plan. (e.g. If you obtain a high-deductible plan in April and keep it through the year, you had a HD plan for 9 out of 12 months. Make sure that you don't contribute more than (9/12) = 75% * Maximum HSA contribution.

While you are able to withdraw your money for healthcare expenses at ANYTIME after the account is created - you are only eligible to make contributions when you have a qualified high-deductible plan. Hope that makes sense.

But when you say "I will have actual healthcare starting in October" - what do you mean by that? As in, you will get new health insurance through your new employer? In all likelihood, your employer should have a high-deductible plan as well if you want to continue with HSA contributions. Personally, I find with how much cheaper high-deductible plans are, I'm better off with high-deductible plans.

 

[soulcougher73]

You definitely need another good credit card (that Amazon one--VISA right? is good). I'm not sure if it gives Ultimate Rewards points or not, but if it does, it's better than I thought.

I'd suggest the Chase Sapphire Preferred. One usually, historically, would recommend the Reserved (hell, there's a very long thread here, pretty much specifically about that one, lol), but the fee has become absurd and the offer bonuses aren't as great as it used to be (hence: history). Used to be 100k points. 50k is a downer....BUT, the annual fee for the Preferred is very tolerable considering that the Ultimate Points accrual is very similar. Now, if you do travel constantly, and actually use Lyft and Doordash all the time, then the Reserve might still be worth it to you (they added the Doordash/Lyft stuff when they bumped up the annual fee to $550). ...you still get $300 annual credits for "travel expenses" (this includes things like parking costs, on top of you know, rentals, airline tickets, etc), so the fee is actually $250 if you are good with that every year. ...still, I'd probably go with the Preferred because the current sign-on point bonus is greater? That's weird....

Yeah its currently the Amazon Visa. We usually get on average about $60/m. But we have started travelling more in the last 3 years. We try for one international trip and then a week somewhere in the States. We just got back from 2 week road trip a month ago to Grand Tetons, Glacial National and Yellowstone since we couldn't fly international. We don't Lyft or Doordash since we live in a small town outside KC with not a ton of food options.

I'll look into that preferred card. Thanks

 

[s0me0nesmind1]

Yeah its currently the Amazon Visa. We usually get on average about $60/m. But we have started travelling more in the last 3 years. We try for one international trip and then a week somewhere in the States. We just got back from 2 week road trip a month ago to Grand Tetons, Glacial National and Yellowstone since we couldn't fly international. We don't Lyft or Doordash since we live in a small town outside KC with not a ton of food options.

I'll look into that preferred card. Thanks

It's a bit of a hobby thing if you're up for managing credit cards. I constantly apply for and use credit cards.

Sign-up -> Obtain $500 sign-up bonus -> Stop using it, eventually maybe close it if it isn't useful for other normal transactions.

Term is "Churning" credit cards.


There's other credit cards I keep open - for example, I'm working on getting lifetime status with Marriott, so I have their cards - and every year they give me a free night at a hotel, which easily pays for the annual fee.