And Darlene and Kathy, here's one from Peter.
Peter asked a question earlier, but I don't think any of the advisors had the chance to get to it
Hello Peter If you don't need the life insurance, then this is not a good idea. Without more particulars I can't make specific recommendations, but putting money into a no load fund would be better than the life insurance idea.
Hello Peter -- I have to agree with Vivian.
Hi Peter - although I don't know your entire situation, it is highly unlikely I would recommend life insurance. I would likely recommend directing savings into a no-load, tax-efficient mutual fund. I would coordinate the allocation of this with your pre-tax (401k/IRA) funds, so you get the right mix of stocks and bonds as tax efficiently as possible.
Peter: Life insurance should not be considered an investment; it is meant to cover risks you do not want to or cannot cover out of pocket. Consider additional saving in a Roth IRA provided you meet income contribution limits and consider saving in a taxable account. Kathy
Kim and Vivian, you can take this next question from Gaz
Hi Gaz You can get some deductions for education expenses you paid out of pocket, as long as you are claiming yourself on your return. Most of the online tax software will guide you through this.
Thanks, all. Kathy and Katherine, here's one from cafLM2
Hi cafLM2 - since you indicate the investments can be aggressive, I assume you're considering this $11k long-term/retirement. Just be sure they don't want to use it shorter term, e.g. house down payment, business start-up. Assuming long-term, can be primarily in stocks. (I'm not sure if you're looking for inidividual stock recommendations.) Although you like technology, I would caution you to not overweight in that sector. I encourage broad diversification: across countries, sectors, capitalization, etc. Note PRGTX is about 17% foreign stocks.
A couple funds I like are
Vanguard Total Stock Market Index Fund, VTSMX (or VTSAX with $10k minimum), the ETF ticker is VTI. I also like Vanguard Total World, ETF ticker is VT.
Hi again cafLM2 - the funds I listed are 100% stocks - I also like and often recommend Vanguard Target Retirement Funds.
Thanks all. Ready for our next round of questions?
Hi Suzanne -- have you completed a risk profile with this advisor? That diagnostic plus a conversation around how you feel about risk as well as your time horizon impact the type of target portfolio you construct. 60-40 is quite common, although you may be able to tolerate a higher equity percent if you can stomach the volatility that's inherent with higher returns over the long term. You have the time horizon to be more aggressive, but the other factors I mentioned are important too. Discuss these with your advisor. As far as going it alone, I have another credentialed advisor looking over my financial plan and investments. I don't go it alone and I don't recommend others at your point in life go it alone either.
Hi Susanne - is the 401(k) with a former employer? If it's with your current employer it is unlikely you can roll it over to an IRA - which I assume is where this ETF portfolio is being recommended. The overall allocation of 60% stocks, 40% bonds seems reasonable, but depends on your risk tolerance, risk capacity, anticipated withdrawal rate, etc. If you're retiring in 15 years that is 2028. As a comparison, the Vanguard Target Retirement 2025 fund is approximately 50% US stocks, 22% foreign stocks, rest bonds/cash. I'm not sure if the management fee is at Fidelity or in the ETF portfolio (or both). Note that target retirement funds automatically rebalance *and* automatically adjust the allocation towards the target date.
in answer to our question about the 401K money, the allocation doesn't seem particularly conservative to me, it looks pretty good at first glance and without knowing specifics. As to the management, since you state you are all cash, I would assume you moved to this during a downturn. I'm not sure paying a management fee would keep you from panicking. I have found that more education on investing, and looking at the long term results helps.
Part 2 for Suzanne
You may want to take the advisors advice and check in with him/her quarterly to get more comfortable with the rhythm of the markets.
Suzanne: Did the advisor you consulted with discuss your risk tolerance? If you would be tempted selling the funds in market corrections, then perhaps your not comfortable/ don't want the risk with the 60 stocks/40 fixed income, especially since you're asking if this is too conservative. Paying someone to manage your funds will incur additional fees, but may also not stop you from questioning the allocation. Perhaps decide how much stock vs fixed income you are comfortable before you choose which path to take.
Susanne, another nice aspect of the "all in one" target retirement funds is that they may help manage the emotion, as the market volatility is less obvious. If you held a stock fund and a bond fund, you might be tempted to sell the stock fund upon market drop. However, if the stock fund is part of a target retirement fund, the drop in the fund value would likely be mitigated by the bond holdings.
And another one from Marty
Hello Marty If you start the distributions earlier it will serve to lower the RMD amount at 70 1/2, but you will still have to take the RMD. I use this strategy with clients who have very large IRA's to help with the tax bill later.
Hi Marty - If you withdraw from IRA before 59 1/2 there is a penalty. After that you can withdraw whatever you want. There is no maximum, but remember you will owe taxes on the withdrawal. The minimum only starts when you're 70 1/2, as you state. As far as a recommended amount - that depends on your situation: cash flow, tax bracket, etc.
Hello Marty - Only when you reach 70 1/2 are you REQUIRED to start taking distributions. If you take distribution prior to age 59 1/2, then you could be access an early distribution penalty. There are a few exceptions for the penalty. Remember you will be paying income tax on all distributions, so depending on your income bracket and your need for the money should be considered.
Thanks, all. Some great advice for Marty!
Wonderful. Here's our next batch of questions from Samean
Samean, I'm not sure what your question is. If you're wondering if the 401(k) contributions are worthwhile, my answer is absolutely, given the match. This is free money, or 100% return on your contribution. Whether you contribute beyond the matched amount is less clear, depending on the rest of your situation, your husband's employer plans, ability to contribute to IRAs/Roths, etc.
Yes, the 401k is taxed if you withdraw early. It's also taxed if you withdraw late. 401k contributions are tax deferred - so tax will always be due on withdrawals (unless it's a Roth 401k). If you withdraw early (generally before 59 1/2, 55 for some plans), you will owe penalty (10%) in addition to regular income tax.
That 's a great match at 7%! I don't think you can go wrong investing here, as for the tax , yes if you take it early in most cases it is taxes and a penalty of 10% applies. But remember , this is for retirement. Without knowing your cash flow or goals I can't adivise on whether you should be doing less that the 7%.
Hello Samean - It is true you are taxed when you withdraw from your 401k. If you withdraw early you will also pay a penalty. But if you do not contribute you are leaving 'free money' on the table. The money your employer contributes is actually free money to you.
Hi Alan -- with what you've described below I recommend you continue socking away money in your 401kwhere it grows tax deferred. Something I always remind clients of is that your kids can take a loan out for school. You cannot take a loan out for retirement.
Hello Alan -- Having your son take out a loan in his name, without you as a co-signer, is the great option. Your son has plenty of time to repay the loan and you only have less time to save for retirement. Once your son is out of school, you can decide how much of the loan you can afford to pay. Remember you can not borrow for your retirement!
Hi Alan - although I don't know your entire situation (living expenses, mortgage), it is unlikely I would recommend that you cease 401k contributions to help pay for your son's schooling. In my opinion, securing your future is, ultimately, securing your son's future.