We do about the same percentage.
Here's a question from Twitter!
Hi Mr. Brown, if the employer offers a matching contribution, then the Roth 403b is probably the place to put the first funds, provided the plan's available investment choices are ok.
Roth 403bs or Roth 401Ks don't have income limits. Roth IRAs do. So depending on your income, a Roth IRA may not be possible. Additonally, you may be able to take loans from a ROTH in a 403b or 401K. Not advisable but often a reasonable option.
Could the advisers give us a quick lowdown of the difference between a Roth IRA and a Roth 403(b)?
Bobbie, in what situations would you be able to take a loan out of a Roth 403b/401k?
Good point on the Roth IRA contribution limit, though if you hit that limit you could look at making a contribution to a traditional IRA (perhaps nondeductible but no income limit for just making a contribution), then converting the amount contributed to a Roth IRA.
Your ability to fund a ROTH IRA starts to phase out for married couples with income of $178,000 or single fillers with income of $112K (these are the 2013 limits).
K - a Roth 403(b) is a defined contribution plan made available through an employer (in this case, in the non profit world; the for-profit version would be a Roth 401(k)). A Roth IRA is a self-managed account, opened by the account owner. They have different contribution rules; most notably, Roth IRA contributions are limited by income.
Thanks, Pat. Wanted to make sure everyone was up to speed.
James, we do this for clients who do not have a traditional IRA but are above the income limits. They make a non-deductible contribution to a traditional IRA and then roll it to a ROTH IRA. It is a significant nuisance to have to go through all the steps but, say the client is 35 and can fund it in full through 65. Our projections show some pretty good tax free money can result.
The ability to take a hardship loan from a company ROTH IRA plan depends on the plan documents and rules.
oops, I mean Roth 401K or 403b. You can NEVER borrow from an IRA, Traditional or ROTH.
James, we have even had clients with small traditional IRAs roll them up into their work retirement plan so that we can do this work around and do a totally tax free conversion to a ROTH.
Can you give us more info Amanda? Maybe an example?
Oh, credit cards. Often when you transfer a balance there can be a charge to do so....perhaps 3% of the balance transferred. But let's say you are going from a card with a 13% rate to one with a year at 0 followed by a 10% rate. That would certainly save you money even with the one time fee.
Actually cancelling a card can hurt your score as it reduces your overall available credit. That seems so silly. So I tell clients just to let them go dormant but not to cancel. What do they rest of you advise?
Amanda, you also have to weigh the balance transfer with the fact that it might max out the limit on the new credit card, which could hurt your credit score. As for cancelling cards, I think it depends on your overall credit standing. I've cancelled cards and not had any long term repercussions, but if it's one of the few cards you have and you don't have a lot of good credit history, it might cause a blip on your record. That's why I recommend a review of your credit reports and balances about 3 months before you go for a big loan.
Yep, read the fine print and watch out for those fees. And be aware that the balance transfer may be treated like a cash advance and thus subject to a higher interest rate. It is a good idea to do the math and think it through before taking action.
Not using the card won't hurt you. The credit report shows the history and will show the zero balance. But if you're just starting out with credit and it's one of the few cards on your credit report, you might want to use it and then pay it off right away, or put some regular payment on it and pay it off automatically out of your checking account to show an on-time payment history.
eip: I have a client who inherited an IRA from her mother, and she uses the RMDs to fund her own children's 529 plans as a "gift from grandma." It's a lovely way to dedicate the money. Otherwise, I always want to be sure you have sufficient cash on hand for emergencies and are adequately funding retirement before paying down the m
eip: paying extra on your mortgage does not reduce your current payment, and may not appreciably shorten it either (depending on the amount). I agree with the 529 suggestions from my colleagues.
And kudos on being debt free other than the mortgage!
Here's a question from Steve:
I would just do the after tax portion first as you can, regardless of your income, convert that all to a ROTH. You will pay no tax ASSUMING that you don't have any other IRAs. First you transfer it to a traditional IRA and then convert it to a ROTH. If you co-mingle pre-tax and after tax, you will have to prorate the amount transferred to the ROTH and pay tax on part of the conversion.
Steve, Bobbie touches on a good point; if you have other IRAs -- even if just this new one created by the rollover out of the 401k -- it could hurt you if in the future you'd like to make a "back-door" contribution to a Roth. That's where your AGI prevents you from contributing directly to a Roth, so you first make a non-deductible contribution to a traditional IRA, and then convert to a Roth. There's no income limits on who may convert, but the tax liability on the conversion is prorated over all your IRAs.
Example If you did the $50K and 20 was after tax/30 before tax, even if you only converted the 20 to a ROTH you would owe tax on a prorated amount of 12K (30 that was deductible before over 50 total in the IRA X 20K total conversion would = 12K taxable and 8K not taxable).
Here's a question from got2bz1:
Well, sometimes the fees can be worth it. For instance, often the best service I provide to my clients is not the actual allocation but the relationship we build. If they trust me, they will often to the right thing (invest when the skies are gray...for instance in early 2009) rather than what feels good (investing when things have already had a good run up). That said, 1-2% may be very high depending on your level of assets. I suggest that many NAPFA advisors would provide services in addition to asset management (financial planning, estate planning, college funding and even help with things like getting a mortgage or buying a car) for a lower fee. Or some even work on an hourly basis where they could just verify that you are on the right path (and this would cost much less but NOT provide you that ongoing support that many people need).
got2bz1: Bobbie makes a very good point; be sure you know what you're paying for. A fee-only advisor could do the same for you for the same or lower fee AND provide financial planning advice.
']And keep in mind that there are now many target date funds or balanced funds with objectives such as moderate allocation or conservative allocation that may accomplish the same thing with lower fees.
Even though all NAPFA members are fee only (the only one who pays us is the client...we receive no commissions or referral fees), we still charge in many different ways. Some do a percentage of assets, some do hourly, and some do ongoing flat fees. Find one that fits what you need.
got2biz1: Look at short-term bond funds.
And the Treasury will soon be issuing short-term floating rate Treasuries at the beginning of 2014.
got2bz1 at 54 you still have a long-term horizon so be sure to keep some of that money in equities. For your fixed income, you can still use bonds. Just stay away from long-term bonds as they will fluctuate more as interest rates rise. I am also concerned that high yield bonds have been overused because they are high yield...people are ignoring the risk for the yield. We use short and intermediate term currently. We are also using bank loans (BKLN...very short term), foreign debt (both developed and emerging mkts), and convertibles. These may or may not fit into your overall plan.
got2biz1: the other thing I do is include my bond allocation in a balanced fund, so I don't have to agonize over what a given bond fund is doing
Steve....nope. Silly isn't it.
Looks like we have time for one more:
Steve, it might be very beneficial for you to spend at least an hour with a fee only planner
before your proceed. It is my understanding that there is no way around the "work around." Advisors do you agree?
Dan, I really love credit unions because as a non-profit the only way they make money is from their members, so they often offer lower rates and other services that regular banks don't, and may be more likely to extend loans to their members than some banks. That said, you have to compare products, services and rates.
Credit unions often offer better rates on things like loans so having a relationship with them can be beneficial. Also, they often let you have sub accounts for no additional fees. So lets say I have a client who wants to save $500/mo: $150 for home and car repairs, $150 for vacations and holidays, and $200 for new living room furniture. They could easily have separate accounts for all of this at many credit unions.
Bobbie made a good point about those sub-accounts. They can really help people categorize their goals and savings.
It looks like that's all the time we have for today.
I have used my local credit union for 25 years-and it's been great!
We'd like to say a big "Thank You" to everyone on our expert panel today!
I want to thank all those who asked questions as well as Kiplinger and NAPFA for this opportunity. And of course, thanks to the other advisors. I often learn so much.
Thanks, for being here, Bobbie!
Thank you, also, to everyone who asked questions. See you next time!