John P - An important consideration in converting to a Roth is your current tax bracket and if you have the cash on hand to pay the additional taxes. Having money in a traditional account is ok. Maybe you can consider directing future contributions to the Roth 401k. The percentage of traditional vs Roth depends on you need the tax advantage .
Hi Jillanreading - I'm looking up some info - will take a minute
Here's a question about 529s from Harry...
Jillain, take rules of thumb with a grain of salt, but here goes. I generally recommend a number between 10 and 15 percentage assuming you have been saving for retirement your entire working career. If you are starting late, all bets off. Then it could be higher.
Harry, I think savingforcollege.com does a good job of highlighting the pros and cons of each state's 529 plan.
Laura has a question about what to do with a lump sum...
Jilliian - sorry - I can't find my table right now.
Planners, what do you think about this comment from Chris regarding age-based targets that Fidelity released?
Laura, sorry about the mistep. There are several things that would be wise to do. A few ideas would be to start an education plan such as a 529 plan for your child; open a ROTH IRA for your own retirement or pay off some high interest rate credit card debt. But, not knowing any more details about your financial situation, it would be difficult to advise you in this type of format. You may want to contact a NAPFA member in your area for some hourly consultation.
Another question for the group regarding mortgages...
Laura - you are young and have time to let this money grow into a sizable nest egg. I would suggest you look at low-cost fund families and put together a broad mix of both international and US stock index funds. Avoid loaded funds, there are plenty of no load funds or ETF (exchange traded funds) available. If these terms are unfamiliar, it may be worth sitting down with a fee-only planner.
Chris, this is a guide. THese type of general numbers are meant for average individuals with average retirement goals. I think that other factors need to be added into the equation such as travel plans, housing plans, health, etc.
Not knowing anymore than what you have posted, boosting your principle payments would be my recommendation. If you refinance, you may have a lower payment, but the length begins again and more of the payment goes to interest than what you currently pay.
Dan - My first question is always - why do you want to get rid of your mortgage? Are you maxing out your retirement savings? I am constantly seeing clients that are house rich and cash poor. They are struggling because all their equity is locked up in the walls of their house and have to end of selling because they can't afford upkeep, taxes, etc. Rates are historically low - in a few years after they go up, it will seem like almost 'free money'. It goes back to my original question - there may be a good reason.
Here's a question from ljeoma...
HI Ljeoma. If you are planning to go to grad school in a few years, definitely start socking away some money in a 529 college savings plan now. It will grow tax-free and can be used to pay those hefty grad school bills. As a grad student you may also qualify for subsidized Stafford loans, which can be a good way to borrow at a relatively low rate. And some law schools may even offer tuition reductions or loan forgiveness if you use your law degree in certain forms of public service.
ljeoma, be very careful. There are a lot of unemployed attorneys with enormous student loans. A formula for disaster. Sorry to say, I'm not a big fan of running up student debt. At a minimum I would build up a war chest via work before I took that risk. Sorry to be a downer, but I've seen the bad side of the scenario too often.
Here's a question from Nick...
ljeoma, another thought...Check with you local bar association to see if they have scholarships. Some do.
Nick - does your employer have any sort of match with the 401k? If so, then you should take advantage of the extra 'free money'. As I understand the rule, the match would be put into a traditional 401k fund, with your contributions into the roth side of the 401k.
Nick, both are great. The Roth 401(k) tends to be automatic (on auto pilot) which is valuable. The Roth IRA gives you more investment flexibility if that matters to you. It there is a match, the Roth 401(k) wins.
ljeoma - some universities offer some good packages and scholarships. But be careful, as some require they be paid back if you aren't successful in school.
Nick, there might be an advantage of the 401(K) if the company matches your contributions. Check to see if they do. It is free money. Either way, you will not get a tax deduction, but once you retire, the withdrawals will all be tax free. You also are able to contribute more to the ROH 401(k)
Nick - George's suggestion of 'auto pilot' is great.
Our time is almost up...here's our final question, from Robert.
Rpbert. Make sure that you are diversified into all categories and that you have not taken on too much risk (equities, foreign equities and emerging markets as well as long term bonds). Next we recommend that the first couple of years needed for living expenses be set aside in cash and short term bond funds, that way you won't be selling stocks into a potential bad market.
HI Robert, make sure your overall portfolio is designed to stay ahead of inflation. It's easy to be too conservative when making changes right before retirement. Like Deborah said, have the first couple of years of cash set aside, so the rest of your portfolio can be designed to grow.
Robert, you probably used good judgment to acquire the nest egg in the first place. Follow the basic principles: diversify your portfolio, don't take too much out each year, prepare for a down market. You should look at your annual cash flow needs (for perhaps five years) and make sure you don't take too much risk. That is a very generic answer. I think it would be valuable for you to do a formal financial plan.
And that does it for today's chat! Thanks for joining us, and a big thanks to Andy, Lea Ann, Deborah and George for their time and advice this afternoon. Be sure to check back next month, when NAPFA planners will be online again to take more of your questions.