Elizabeth - Traditional IRA or Roth IRA depends on whether you want your tax break now or later. With rates going up, most say later. f you are under the income limits, by all means a Roth would be great.
Elizabeth - The 1099 Capital Gains were likely end of year distributions by the funds. you would owe capital gains on any profit from when you bought them which can be found on their site unless you transferred the funds there.
And Bonnie, here's one from Mandy
Hi Mandy, Depends. What's the other 30% in? If it's company stock for example, we usually like to hold that to 10%. The goal of a target date fund is to move you through a timeline based allocation between stocks and bonds. At 23, I'd be more inclined to have 60% in stock funds and 40% in bond funds if you have the time and inclination to review it at least once a year. If you have no interest at this time (I suspect you do though since you posed a good question), you could let the target date fund do its work but then I'd say put the whole thing in there on autopilot targeted for your age. I'd prefer you to stay interested however and learn as you earn and get a solid allocation that you can follow. I hope this helps and congratulations on saving in a 401k at 23!!
Thanks for the follow-up Mandy. Some other things to think/learn about in your 401k. Today the fees should be transparent and those matter to your ultimate returns so make sure to note what they are for the funds you're interested in. It can also be tempting to go to 70 or even 80% equities to get that 'extra' return. Unfortunately, research does not bear out that most investors get paid for taking that extra risk, hence the somewhat generic 60/40 split. Another fundamental that is often missed is a personal savings rate - investment returns matter and savings rates matter even more. Investment returns can almost never overcome inadequate savings so consider investing in a taxable account too if your spending plan allows it.
One more thing Mandy - most folks live with a figure of 10% for savings and we know from research (look up Dr. Pfau's research) that it is closer to 20% if started early and grows from there if started later . . .
Rich, how about you take this one from Vtran
Vtran, we have always liked vanguard and their funds. Their funds are low cost and a lot have high ratings from Morningstar. I would switch to Vanguard assuming through a non-taxed 1035 exchange. I think their funds are better, even though they have less options than fidelity.
Debbie and Wendy, here's one from Evelyn (an eager shopper!)
Evelyn, I too am an eager shopper. My friends and I always have a budget, and to help us stick to it, we only bring cash to our shopping trips. Also, be sure to plan for the little expenses (that can add up) such as wrapping paper, stocking stuffers, etc.
Wendy, I like the idea of only bringing cash on shopping trips!
Evelyn, have a plan on shopping, bring only the cash you want to spend, when it is gone, have some coffee and go home. The bargains aren't always real and it is almost impossible to get the ones that are. Friday shopping is more of an event so enjoy
Randy, if you're ready, here's one from SaverPlannerWanderer
Saver - Trying to guess what Congress will do is frustrating for everyone. My understanding is dividends will once again be treated at the ordinary tax rates. Without knowing your income taxes, I would consider munis as an option. You could possible check into a bucketized portfolio where you trim the growth each year, but it has to be put together to generate some growth, or you have enough money to last another year when the portfolio goes up.
Saver - Consider doing all three...dividends, tax free, bucketized portfolio. If you're working with an advisor, they can put it together for you. If not, go to napfa.org to find a good CFP.
Thanks, Randy. Some great options there.
Alright Bonnie, how about you take this one from Nate
Bonnie/Planners, any advice for Nate about the $10,000 he has to invest?
Nate, what's your age? If you know you have it to invest (vs. needing it in less than 5 years), certainly Vanguard is an excellent, low cost way to go. If you are unsure of where to invest it, they're phone folks are some of the best in the industry. They can guide you - good luck.
Nate - Sounds good. Consider looking at a "moderate allocation" fund for the long-term. Vanguard is a great place for lower fees that can have a real negative iimpact.
Nate, I like Vanguard and their funds. They are low cost and offer a variety of options. As long as you are willing to stay in the market for 3+ years, then I would invest there. Also, spread it out over a few different funds for diversity.
Nate, vanguard is a terrific choice and depending on your age and time horizon, they have a great educational section on the site. Maybe a balanced fund or their old tried and true Wellington fund, depending on your age. Good luck.
Alright planners, I'm going to post the last two questions from Ronald and Terry. Feel free to weigh in on either/both!
Terry, I understand why this is such a tough decision. With so much on the line, I agree with Bonnie, this is not a one answer question and almost impossible to answer in a forum such as this. Hire a CPA or a financial adviser and good luck. You are smart to be so cautious on this move.
Terry, a Roth conversion can be a nice gift to your heirs, especially in your financial situation where you can afford to pay the tax outside of the conversion. About 10% of the amount that you convert will not be taxed, since you have non-deductible contributions. You may want to consider talking to a CFP® professional or your tax advisor for more specific calculations.
Ronald - Did anyone get you your question?
I don't believe so, Randy.
Ronald, real estate is an investment in your financial assets. It is different though because it has costs associated with it as well as upkeep and taxes upon sale. So, it can be a part of your retirement plan, just be cautious on the values you assign to them.
Ron, real estate can provide income but not liquidity. It can be helpful to determine if the rentals are cash flow positive, and if not, you may want to talk to your tax professional or a CFP® professional to determine the tax consequence of selling the real estate.
Ronald - Retirement is all about income. If you have assets that produce the income from varied sources, then your properties should work well. I've found real estate is not so much a question of to have it or not. It's a question more of whether you enjoy it or not. If you do, and it produces good income, it's a good choice.
Ah. I see Ronald's question now - yes, you can certainly bank on these - do you want to keep the rental income or sell and invest the proceeds? You have successfully used a traditional way to amass wealth. Real estate, used well, will likely always be a solid path to wealth.
And there's often a tipping point with real estate that Wendy alluded to - when the expenses and hassle outweigh the receipts, it's often time to sell
Thanks, all. Some great advice for Ronald. Randy, great point about whether you enjoy it or not.
I have to leave now, enjoyed the time with you all
Me too, thank you for all of your questions. And thanks for hosting!!
A HUGE thank you to Rich, Deborah, Bonnie, Wendy and Randy for helping out today. I’m always so impressed by your advice!
Thanks, Kiplinger. Always an interesting chat.
Thanks for invitation to participate.
Had fun. Thanks for the invite.
And thank you, readers, for all of the great questions.
We'll be hosting one more live chat with NAPFA planners this year on Thursday, December 13, 1pm to 3pm ET (same time, same place!).
Elizabeth - Re your first question:
Elizabeth, it sounds like you are pretty knowledgeable about tax forms. If you don’t use a tax planning software, you might try the tax estimator on Bank Rate www.bankrate.com
Hi Mandy, Depends. What's the other 30% in? If it's company stock for example, we usually like to hold that to 10%. The goal of a target date fund is to move you through a timeline based allocation between stocks and bonds. At 23, I'd be more inclined to have 60% in stock funds and 40% in bond funds if you have the time and inclination to review it at least once a year. If you have no interest at this time (I suspect you do though since you posed a good question), you could let the target date fund do its work but then I'd say put the whole thing in there on autopilot targeted for your age. I'd prefer you to stay interested however and learn as you earn and get a solid allocation that you can follow. I hope this helps and congratulations on saving in a 401k at 23!!
Vtran, we have always liked vanguard and their funds. Their funds are low cost and a lot have high ratings from Morningstar. I would switch to Vanguard assuming through a non-taxed 1035 exchange. I think their funds are better, even though they have less options than fidelity.
Evelyn, have a plan on shopping, bring only the cash you want to spend, when it is gone, have some coffee and go home. The bargains aren't always real and it is almost impossible to get the ones that are. Friday shopping is more of an event so enjoy
