Early30s.....with -0- taxable income there is no reason to go to a traditional IRA for tax deferral. I say go with the ROTH while you are in this situation.
Early 30s, do be sure you use a workplace retirement plan to capture any matching funds.
@SMD: I'd consolidate. Assuming that you are invested in a diversified portfolio of mutual funds, I'm not sure that the company risk at the mutual find company level is a terribly significant. Your assets are primarily invested in the underlying stocks, bonds, etc. with very little of their value has much to do with Fidelity or Vanguard. Others have mentioned SIPC insurance which in simple terms protects up to $500k against the possibility that Vanguard or Fidelity might inappropriately take your underlying stocks, bonds, etc. form your account.
@early30s - Zero taxes = Roth. At your age, I'd even argue that the Roth makes sense if you are hitting the 10% or 15% brackets.
You're actually up nest Beststrategy!
@Beststrategy - Lots of questions here... (A)/(B) Given your income levels I would not expect you will be able to make a deductible IRA contribution for yourself since you are participating in your 401(k). Your wife can make a deductible contribution though and that is probably the best plan given your current income level (vs a Roth).
@Beststrategy - (C) I really like (and use personally) 529s as college savings tools. Given the flexibility of the 529 plans, I would use them instead of a Roth. Your kids cannot have Roth IRAs until they have their own working income.
@wreckon95: The trust is sort of like an imaginary person who will own and (through a trustee) manage the $ for your daughter. You have created the trust, does it have any $? Are there any accounts or assets that are currently owned in the name of the trust? Or will it get all its assets upon your death from life insurance, from a beneficiary designations, or from your probate estate ( i.e. your Will -- BTW, the $ amount will generally be public info if it goes via this route)? Often these types of trusts are funding essentially at death one way or another. But if that is so, then a contested will or life insurance premiums someone forgot to pay can cause big problems. So I tend to encourage people to think about making those plans as bulletproof as they can (perhaps while still leaving an out if something changes). Does that help answer your question? I know that it's almost an abstraction of an abstraction, which gets confusing.
Best strategies, you have a lot of questions on this and the only way to get a comprehensive answer on what is best for you is to consult with an advisor. Several things. 1. It seems like you have all of your money equities and you might want to include a fixed income allocation to reduce the risk. 2. You have a lot in company stock. You might consider diversifying that as well. Now to your bullet points a. Know that you can contribute to an IRA for your wife to even things up. I hope you will be in a high tax bracket when you retire so you might choose to put half in an IRA and half in a taxable account. Having different buckets of money in retirement gives some valuable flexibility. b. ROTH, this might be good for the half I suggested under a. You can always go get the contributions back but you can't take any of the earnings before 59.5 without a penalty. c. I love 529 plans and your kids are still young enough to have some significant increases in their holdings before you need the cash for college. I like the low cost Utah plan but beware of broker sold plans. I wouldn't fund the 529 for more than half the needed amount...to include room and board... as one child may not go to college or may get a scholarship (you can use anything left over for you or grandchildren who go to school). d. Waiting for the market to drop? Well I have been waiting since Jan of 2014. Such thinking humbles me, which is a good thing:-) Why don't you dollar cost average into the market over the next 12 months?
@Beststrategy - (D) - Waiting until the market drops to make a lump sum investment is really tough. Is a 10% drop enough, 15%, more? I'd recommend averaging into the markets in a relatively systematic way. Perhaps you'll choose to invest $25k each month for the next 10/11 months. If the markets do correct (and you have the stomach), you can accelerate the investing. I'm a big fan of Vanguard's LifeStrategy funds. Have a look and pick the risk/reward level that you can stick with.
Julie C, do not cosign please as this usually ends up being problematic. Now as for the loan, if he can't afford the higher payment how is he going to be able to repay the loan? Go into this with eyes wide open and if you do a loan, make it official by writing it up.
Thanks for joining, Cash Flow!
@beststrategy: I will echo a lot of what's been said. The odds are very high that you will not be able to accurately predict the bottom of a market dip. And even if you could, you might not make enough back to make up for the time that you sat things out in cash. I would consider investing the $270,000 systematically along the lines of Mark's suggestion. I also like using 529's for sonly a portion of education expense in case things don't go as planned.
@Beststrategy - At that AGI level, you AND your wife can make deductible IRA contributions if you are looking to save the maximum. Running some numbers makes sense, but I'd probably stick with the traditional IRA.
@Julie: If you can afford to, I would loan or give the $ for the down payment. I do not recommend co-signing, but if you do decide to do so, be sure to get and maintain life insurance on your son. This would allow you to pay off the mortgage if he were to die prematurely. This would still do nothing to help you if he were to, for example, become disabled which may be a higher statistical likelihood.
@Rick - You are completely correct, income levels do not determine spending needs. Rules of thumb should be used as rules of thumb. My favorite way to determine a good number for retirement estimates is what you are recommending: have a look at where money is going before retirement and adjust for the things that change in retirement (ie. more golf might add to expenses, less auto related expenses would reduce expenses). For a shortcut, look at your net income (take home pay), subtract additional savings (if any) and that is what you are spending. For many, that number is pretty close.
@rick: Setting your retirement spending goal as percentage of your total pre-retirement income is a shortcut that gets used a lot. This is probably because it's easy and you don't need to figure out your expenses (which most people don't know or perhaps don't even want to know). That approach is better than nothing, but yes, estimating what your actual costs might be in retirement in today's dollars and then trying to inflate appropriately is often a better approach. Some things to think about. Your healthcare costs may be higher. You may spend less when you aren't working or you may spend more because you have more time. Most spending usually tapers off later in retirement although healthcare spending may increase.
Beststrategy: I suggest a diversified fixed income allocation. I usually use something like Vanguard Bond Fund or ETF as the core holding. Then I might include some TIPS (inflation protected but not exciting performance) if my clients are concerned with inflation. I also use a high dividend yield fund (Vanguard has a good one) or bank loans (we use BKLN)....for a small portion I also like the Vanguard GNMA fund. We also include foreign bonds. Vanguard has a lot of low cost options and I like some of the Metropolitan West offerings. I suggest that initially to keep it simple you could just go with a total bond fund. You may even want to look at what Vanguard uses for fixed income in their target date funds. REMEMBER THIS IS A GENERAL COMMENT AND IS NOT NECESSARILY WHAT IS RIGHT FOR YOU!
@ Rick, I tell clients there are 3 phases of retirement, go go, slow go, and no go. During that go go phase we often include extra funds for travel and other exciting things. But after about 10-15 years in retirement, those funds are usually not needed. So as others have said, I would take a look at my current spending an make allowances for what will change (if the mtg will be paid, reduce the needed income--but allow for taxes and insurance, if additional insurance or long term care premiums will be paid, increase the needed income). Of course, you can also reduce the needed amount for job related expenses like clothing, dry cleaning, commuting expenses. Be SURE to include money for "what if" expenses like car or home maintenance, a child's plea for financial assistance. I usually have clients fund a separate account on a monthly basis for this kind of thing.
Hi Bill. You've got it right that you have to wait until Soc Sec full retirement age to do this, but I don't know the timing of filing the actual paperwork. Anybody else?
Bill, no don't wait until your birthday. File several months before. For the file and suspend option you may need to go into your SS office since this is not standard.
Bill, consider filing 3 months in advance of when you'd like your first payment to arrive.
@Almost: You could look at reducing your expenses more radically. Brainstorm about what you might be willing to do to spend the time you want with those you love. Some have moved to other states or countries in retirement to reduce expenses. There has been an explosion of "Tiny Houses" (at least on the internet). Be radical, brainstorm how you could make $, spend less, how you could work less, what if you stopped working for a while & then went back later, etc. If it really matters, put every last possible idea on the table first. Then begin whittling down. Then have a planner help you spot potential pitfalls you may not see and help with the math.
Murph: An alternative to CDs would be short-term government or corporate bonds. I wouldn't tie up your money too far out with the low interest rate environment. The savings beyond the emergency fund should probably be invested for longer-term goals.
Murph, I feel your pain! There's very little return on funds that need to be very accessible. A CD ladder sounds like a fine plan; you may have regret should rates rise dramatically during the period, but who knows if they will or won't. A simpler solution is a widely diversified bond fund with a fairly short duration. You may see paper losses as rates rise, which could be tough for you. so proceed cautiously.
@SMD: I'd consolidate. Assuming that you are invested in a diversified portfolio of mutual funds, I'm not sure that the company risk at the mutual find company level is a terribly significant. Your assets are primarily invested in the underlying stocks, bonds, etc. with very little of their value has much to do with Fidelity or Vanguard. Others have mentioned SIPC insurance which in simple terms protects up to $500k against the possibility that Vanguard or Fidelity might inappropriately take your underlying stocks, bonds, etc. form your account.
@Beststrategy, here are 7 smart ways to pay for college. The story's a little old, but it can give you some good ideas and help you compare 529s and Roth IRAs.
Thanks all. I will take advice to call SSA. I should have mentioned I have tried ALL the calculators I could find on their website and none seemed to work. I am fairly savvy (IT and Acctg degrees) but calling is next option. If the hit will be too large, I might consider just taking a couple years off and then continue to consult again for a few years in my late 50's to keep the hit small.
Murph: An alternative to CDs would be short-term government or corporate bonds. I wouldn't tie up your money too far out with the low interest rate environment. The savings beyond the emergency fund should probably be invested for longer-term goals.
