In order to give your heirs flexibility for how they receive the IRA (Roth or traditional), it is VERY important that they are NAMED beneficiaries on the accounts. If the beneficiary is just your estate (which it defaults to if none are named), then your heirs must withdraw the account within 5 years. If they are named, then they can "stretch" the distributions over their lifetime (if inherited before your age 70.5). To my understanding, rules are the same for Roth vs. traditional - both must be withdrawn on an IRS-determined schedule once inherited. The key difference for your heirs is that taxes will be owed on the IRA distributions, but not on the Roth distributions.
Nate and Eric, you're next!
Kzlink- also non-spouse beneficiaries cannot roll over the funds into their own Roth IRA.
Hi Orthodoc - There are a few things to think about with your NY portfolio. Are the strong ratings the underlying issuer ratings or the rating of bond insurers? There has been some concern about the soundness of the bond insurers, particularly if we see default rates increase sizeably. If the insurance wasn't there would you still want to own these bonds? The NY economy is closely tied to the stock market so if the stock market gets hit hard, so might NY municipalities and muni bonds. Other states might provide some helpful diversification and give you more comfort, but probably not any more income as it seems you live in NYC with high local taxes.
You're welcome. And to clarify: as non-spouse beneficiaries, they cannot bring the inherited funds into their own accounts. They must have a separate account that maintains the inherited status in the account titling.
Orthodoc - at 38 yrs old you have a long time horizon to invest so be sure to have opportunity for growth through equity. Hopefully you've got your 401k tilted that way.
Hi Nate - to clarify, I believe you're talking about a direct rollover of 401k to traditional IRA. A conversion means you're "converting" the funds, from pre-tax to post-tax, i.e. 401k to Roth IRA. I think either Vanguard or T.Rowe Price would be a great choice: lots of fund selections, reasonable expense ratios, etc. You could always split it up between the two.
Nate- I am very familiar with Vanguard and they do a really good job of helping clients with the rollover process. I like Vanguard for the low fees and Vanguard ownership structure. I am not familiar with TRowe's rollover process- I would imagine they make it easy as well.
Orthodoc - do you have some of the equities allocated to foreign?
Orthodoc - thats only ~20% of your total portfolio, so unless you are really risk averse, you might consider increasing that exposure.
Hi Eric - Believe me, predicting anything is not easy, so at my firm we generally make investments for the long-term and don't actively move between short, long-term and other bonds. We might hold all of these categories and move portions around when we see opportunities, but actively trading (predicting) is hard to do consistently.
Nate- is the $17k needed for emergency funding? or is this excess liquidity?
Eric - I think bond funds are more likely to decline than increase in the next year.
Hi Nate - that's a great rate for a cash/liquid account. If the second account is smallish (
Italy sounds nice but if you want to avoid injury, I would suggest adding to your current diversified portfolio, if you have one. There is not one specific idea that I or our firm would recommend. However, consider the asset classed in you portfolio that might be lower and consider adding to them.
Some of the asset classes that are current down year to date are emerging markets, many bond asset classes, commodities, and depending on the day.. real estate funds.
Nate - I'll finish my post - if the second account is smallish (
kzlink - without knowing the dividend rate and expenses on the life insurance I can't really say. Some older policies do pay well, and if the policy is big enough expenses don't consume too much of the dividend.
Nate, one more try: if the second account is
If the second account is less than $5k you probably need this for emergency fund.
Orthodoc - Adding foreign equity to your 401k is a fine idea if you have a good vehicle in your 401k. You probably have more choices outside your 401k, so look for a well-managed growth-oriented low-turnover fund to minimize taxes.
Orthodoc- Yes. I would consider adding to foreign exposure. 401k accounts might limit your options but outside of your 401k account, I would consider index ETFs. ETFs will eliminate the need to pick stocks and are considered more tax-efficient than mutual funds.
Nate: Note to self: do not use less than sign, spell out the word. Emergency fund amount depends on expenses, salary, job stability, etc. However, you could still consider moving some to a Roth IRA if you're eligible (single filer income less than $112k). It could still be liquid in the Roth, e.g .money market, and Roth contributions can be withdrawn at any time without tax or penalty.
Nate, thanks for the additional information. I would fully fund the Roth ($5500 if you're under 50); in January you could make your 2014 contribution with another $5500. That takes care of $11k. Depending on your risk tolerance, age, and 401k investments, you could consider investing the $6k (stocks or a mix or stocks and bonds) in a brokerage account, e.g. E*Trade.
You can research VWO/EEM for emerging markets. EFA for Foreign Large Blend exposure or ACWX for All world county index - ex US. International small, SCZ, is worth researching
Hi Jmoe - I'd be inclined to build the emergency fund.
Jmoe: What is the rate on the mortgage, and how much is the PMI as percent of loan? Does PMI go away at 80% LTV? Has the house value increased - and can the PMI go away based on increased house appraisal?
Looks like Jmoe might have stepped away.
Jmoe: and what is the dollar amount of loan, how much more $ do you need to drop PMI?
Jmoe- I would build the emergency fund. The emergency fund will help with financial flexibility. If your rate increases on the variable, you can consider taking some of the $ in the emergency fund to pay down the higher rate.
That's actually all we have time for today. Thank you so much to our expert panel for taking time to answer questions. It was so great to have you!
OK, then I agree with others to augment emergency fund.
Thanks for joining, Lynda!
Now we're really going to wrap things up! We're so glad we were able to get to all of your questions today. Thank you for chatting with us, and thank you to our experts. We hope to see you all again next month on Thursday, October 17 for our next Jump-Start Your Financial Plan with NAPFA chat.