Ladyb, I hate to be boring but I wouldn't invest any money I was going to need in the short term. And it sounds like short term (next 2-4 years) is what we are talking about. In such cases I just recommend accounts that pay a bit more like those at Ally Bank. I had a client in 2008 that bought furniture on a "12 months same as cash" basis. She had the cash available at the time of purchase but wanted to invest until the bill came do. I discouraged it and the market went down, down, down. Don't take the risk.
Hi Hassan, Regarding should you, as a retiree, have a small amount in long term bond index--
Hello JosephGal007 - I'm not a big fan of permanent insurance to generate income as there are costs for the insurance and sales commissions. You may or may not need the insurance and could get income from dividends and interest in a taxable brokerage or mutual fund account.
Yes, as part of a diversified portfolio, some long term bonds do add value.
Hi PG, Couple of advantages to moving that old 401k to an IRA - distribution options are likely better with the IRA (stretching out a payout to an heir is still available) and you have the universe of investment options where you can control the fund and the cost better. As for penalties, they are expensive in either case so only long term money should be in either of these plans. There will tax due on a conversion from your 401k to a Roth IRA and frankly the calculation we do most of the time isn't great for the client plus you must have the funds to pay the tax.
Thanks for being here, Lisa!
Juan, do you anticipate moving out at some point? Or perhaps start picking up some of your current expenses in the future? If so, I would keep the cash in cash (Ally bank offers pretty good rates....I've said that so many times today that I'm beginning to sound like a commercial). If you do want to invest some of the money, go to Vanguard and use a target date fund. You are so young that I would consider the Vanguard Target Retirement 2060 fund which is about 10% in cash and bonds and 90% in stocks. Know that you could loose money in the short term but over the long term, this could be a fine choice.
Lisa, our pleasure. Tell you friends about this wonderful opportunity as we are here about 4
times a year.
PG: If your income limits permit, you can contribute to a Roth IRA. While you don't have the potential to get a tax deduction, your contributions grow tax-free, withdrawals are tax-free and you are not subject to Required Minimum distributions. It may be good to have a mix of Roth, IRA/401(k), and taxable assets in retirement to help diversify the tax burden.
PG: 401k contributions happen from salary deferrals so you'll want to
speak to your HR department.
PG, does your company plan allow you to make deposits separate from your salary? Normally, you would see HR to ramp up a one-time contribution - not sure they'd be able to process it that quickly but might be worth the conversation. Can you go online to the plan and up your 2015 401k contributions?
Hi DK - I think that is a good suggestion, especially if it is just for your future contributions. The younger you are the better it should work for you as the funds you save will not be subject to income tax when you withdraw (under current law that could change). You also don't have to take Required Minimum Distributions when you reach 70 1/2 so you could continue to grow this money, all tax free. If you earned 7.2% annually you would double your money every ten years!
Currently, many are weighted very heavily on short term bonds because it's believed that interest rates will rise in the next few years. One issue is that no one knows for sure what will happen with interest rates, so a small amount in Long Term Bonds can hedge your bet. In addition, Long Term Bonds can offer a higher return, although they offer a higher risk, which can help your portfolio's overall return. One idea is to check out the Vanguard Managed Payout Fund VPGDX, used by retirees, and look at their bond holdings and the % of those holdings that are in Long Term Bonds. Currently, I see about 11% of the total bonds in Long Term Bonds.
Sam - I'm not familiar with AFLAC. If you are healthy, stay healthy and evaluate what AFLAC would offer beyond what you currently have in place given an incremental cost.
Sam, I love the high deductible health plan with the HSA. This is perfect for someone your age and in good health. Now, I'm not sure what kind of AFLAC policy you have. I possible, you should get both short term and long term disability though your employer as it is usually the least expensive way to go (but the benefits will be taxable). Otherwise, you might price an independent disability policy (if you pay the premiums, the benefits are NOT taxable). Insurance policies with narrow coverage like cancer policies are usually overpriced for the potential benefit. Disability insurance with broad coverage IS important as there is a much greater change you will become disabled at a young age than die at a young age.
Marc - I think the assumptions pass the sanity check. Just remember this assumes the 70% equity will be held through age 95.
Hi DaveC - You are probably correct that you will get a NET check. You could still deposit it into a new IRA within 60 days, along with the taxes (and penalties?) that were withheld and avoid a taxable event. Even better, act before 12/31. Easiest to rollover into an IRA, but you could research the Roth idea and it depends on your taxable income and age. Kiplinger may have some tools on this or you could consult a tax advisor.
Hi Alice, Congratulations on graduating from college!
Sarahbb, congratulations on saving $10k - try a low-cost diversified group of ETFs or mutual funds - at any low cost shop - or even try one of the robo-advisors now available for little or no cost. They are going to slot you into one of a few model portfolios. Another option would be to pick a target date fund that is skewed towards stocks given your young age.
PG, no effect for 2014 on the 2015 contributions - just a suggestion to plan now so this doesn't come up for you again next year
Greg, you are correct that without a match, company 401Ks are not that compelling. If you use a traditional IRA, you will get a current tax deduction but will have to pay ordinary income tax on all withdrawals (and a penalty for withdrawals before age 59.5). If you use a ROTH you won't get a current tax deduction but all of the growth will be tax free AND you can you can go get the contributions back in cash of an emergency without paying a penalty. With a taxable account you have a separate bucket of money that you can access at anytime for anything and, if you use this account to invest long term in equities, you will get the lower capital gains rates. So what to do? With current tax rates so low (yes, you are likely to see higher rates in the future and as you make more money), I suggest you forego the traditional IRA and the current tax savings. With the remainder, I would probably put 65% in the ROTH and 35% in a taxable account. Several things to note: 1. Most mutual funds have minimums. The Vanguard Target Retirement Funds only have a $1000 minimum. That with their low costs might be a good reason to choose them. 2. make SURE you have a liquid emergency fund before you invest any money. If you are single, I suggest at least 6 months. Boring, boring, boring.....until you need it.
Sam: In addition, as a self employed you may want to consider opening a solo 401(k) also know as an individual 401(k) which has an employee contribution portion and an employer portion. Many self-employed will open the SEP however a solo 401k should be considered.
IrrationalConstant, I am certain that type of growth looks appealing and I will write this as many times today as I need to. When buying an annuity, remember you buy the contract (which you should read, ask questions and have a pro explain anything you don't understand), not the sales pitch. Ask more questions. Expect better answers - that should be your mantra on annuities. They serve a useful purpose for a small number of folks in some instances. They are very oversold in my opinion - tread carefully.