Various Financial Questions - Page 2 - TigerDroppings.com

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polizei11
LSU Fan
Lafayette
Member since May 2009
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re: Various Financial Questions


You can avoid the tax hit of rolling your 401k over by moving it to a traditional IRA. The Traditional vs Roth IRA debate in this sense matter with your age. For example, the traditional IRA will be fully taxed when you withdraw and you need to compare to initial tax to put the 401k into a Roth vs. the tax of the traditional plus earnings. I'm fairly sure the Roth IRA will beat the traditional but if you don't have the cash to pay the initial tax the traditional may win.

You can leave the 401k as is but lose the fund management since you are no longer an employee of the company. IRAs also have greater flexibility than 401ks.






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Lsut81
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Member since Jun 2005
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re: Various Financial Questions


quote:

The Traditional vs Roth IRA debate in this sense matter with your age


We briefly discussed it earlier... So if I was going to be taxed and have to put up the money out of pocket for rolling to a Roth, why couldn't I just pull my cash out of my 401k as if I was just using it... Hold back the $$$ I'd pay in taxes and then invest the rest into a new Roth. I wouldn't be taxed on that 401k withdrawal until year end, correct?

Also, feelings on IRAs being with the likes of Scottrade?






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polizei11
LSU Fan
Lafayette
Member since May 2009
947 posts

re: Various Financial Questions


You pay taxes on the funds you withdraw from the 401k PLUS a 10% penalty.


I have my 401k and Roth IRA with Vanguard. I really like the low fees of Vanguard.






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Lsut81
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re: Various Financial Questions


quote:

You pay taxes on the funds you withdraw from the 401k PLUS a 10% penalty


Are those the same fees I would pay if I rolled it over to a Roth IRA or would I just pay the taxes?






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polizei11
LSU Fan
Lafayette
Member since May 2009
947 posts

re: Various Financial Questions


The taxes you pay regardless of whether you roll it over to a Roth IRA or to your personal bank account. You pay an additional 10% penalty if you do not roll the 401k over to an IRA and rather put the money in your bank account.





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NBR_Exile
LSU Fan
Houston
Member since Jul 2012
85 posts

re: Various Financial Questions


If you withdraw the money from the 401k you will pay tax and a 10% penalty on the earnings.

My advice:

1. Roll the 401k into a Rollover IRA at Scott.

2. Fund a Roth IRA there also after you have your emergency fund set up.

3. Invest in broad based mutual funds/etfs.






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Lsut81
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Member since Jun 2005
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re: Various Financial Questions


quote:

You pay an additional 10% penalty if you do not roll the 401k over to an IRA and rather put the money in your bank account.



Ok, thought the 10% was on there no matter what... Thats good to know

Thanks for the insight






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Layabout
UNO Fan
Baton Rouge
Member since Jul 2011
6732 posts

re: Various Financial Questions


quote:

Like I said, convenience wise it would be easy to put it where I would play in stocks

I wouldn't "play" with the stocks in my retirement fund. You need to think long-term and you need diversity. Day trading is best left to the pros.







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Lsut81
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Member since Jun 2005
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re: Various Financial Questions


quote:

I wouldn't "play" with the stocks in my retirement fund. You need to think long-term and you need diversity. Day trading is best left to the pros.


Oh no, the money I'm putting aside is not going to be touched... But I would also like to put some money into stocks and start to learn the market.






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Lsut81
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re: Various Financial Questions


Did a little bit of research while my internet actually worked last night... This is from Scrottrade about their IRAs. Is this typical in regards to fees and maintenance?

quote:

Investing in a Roth IRA

Looking for a tax-free way to grow your retirement savings? Prefer more control over future account withdrawals? Choose your own investments with no mandatory withdrawal age and no set-up, annual or maintenance fees with a Scottrade Roth Individual Retirement Account (Roth IRA). Scottrade will even refund up to $100 in transfer fees* when you rollover an existing account.
Tax-free Growth & Tax-Free, Qualified Distributions

A Roth IRA differs from a Traditional IRA in that contributions to a Roth IRA are taken after-tax, which means your savings grow tax-free. Because the contributions have already been taxed, you can make qualified, typically tax-free withdrawals, even if your income or changes in the economy move you into a higher tax bracket.






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polizei11
LSU Fan
Lafayette
Member since May 2009
947 posts

re: Various Financial Questions


The no annual or maintenance fee for an IRA is not typical. However, Scottrade gets you two ways.

1.) Charges to you trade stocks (albeit at a low cost)
2.) The Stock and ETF dividends are not automatically reinvested

#2 bolded. That is the real disadvantage. You get the dividends into your account then must spend the $7 to invest them.

I have my Roth IRA with Vanguard. They have an extremely low expense ratio on most of their Target Retirement Date Funds which I use for my IRA. I keep mentioning Vanguard because they are a really exceptional investing group. I'd look into them at the very least.

I have a Target Retirement 2030 Fund for my Roth IRA. It's a mix of 80/20 Stocks to Bonds. I went 80/20 since that is my comfort level even though my actual retirement date is like 2055 (I'm 23). 1 year average performance is 14.24%. The 2035+ Target funds are in the 15-16% average range.



This post was edited on 1/4 at 10:41 am


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Lsut81
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Member since Jun 2005
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re: Various Financial Questions


quote:

I have my Roth IRA with Vanguard. They have an extremely low expense ratio on most of their Target Retirement Date Funds which I use for my IRA. I keep mentioning Vanguard because they are a really exceptional investing group. I'd look into them at the very least.


Sweet, thanks for the information






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BennyAndTheInkJets
Arkansas Fan
NYC
Member since Nov 2010
3927 posts

re: Various Financial Questions


I can only advise you on how to allocate your 401k, and that you should definitely roll it into a Roth. A way to judge IRA vs. Roth is just to ask yourself if you believe taxes are going to be higher or lower when you retire. Higer - Roth, Lower - IRA.

Now in terms of allocating your 401k. You stated this is long-term, and I know I am a broken record when stating this mathematical relationship but no matter how often I repeat it, it never changes.

Security A = Goes up 60% then down 40%
Security B = Goes up 6% then down 4%.

Security B is worth more than your initial investment while Security A is worth less. The key to growing capital over the long-term is to avoid large losses. The longer your time horizon, the higher chances the turtle will always beat the hare.

With that in mind we go to allocation drivers. Developed economies are looking at 0-2% real growth over the next 3-5 years while emerging nations are looking at 4-5% real growth. From a technical perspective, the realm of "safe" assets (treasuries, mortgages, agency debentures) is decreasing, pushing prices up and yields down. Investors are starved for yield which pushes them out the risk spectrum, in this case investment grade credit bonds would be the logical next step.

The equity market is highly volatile and if you believe that we'll only see 0-2% real growth than that is not good reason to own equities over the long term in large amounts. You should still have exposure, but "playing stocks" should be left to your personal brokerage account rather than retirement. With all this in mind this is roughly the personal allocation that I have and what I have allocated for friends and family.

20-25% Emerging Markets Debt
- Preferably corporate bonds, because emerging market corporates are usually a quasi-sovereign entity, meaning that the government is more of a backstop. They will support them given trouble and take profits given success, this is bearish for their stock but bullish for debt. Also you pick up a very attractive amount of yield here.
20-25% Domestic Income
- This can be either investment grade credit, or any sort of income fund that can utilize municipals, high yield, IGC, etc.. The key here is that the Fed will likely stay on hold with rates till 2015-2016, so with no capital appreciation from rate movements maximizing income is your next best bet. If you have an option of "Long Duration" or "Long Corporate Bonds" take it. Even if rates rise you're still paid out at par and the more you extend duration the more yield you pick up.
10-15% Real Assets
- You mentioned precious metals but by real assets this can be either commodities, real estate, REITs, or even some commodity company stock funds. The basic rationale is that population grows faster than resources, the most basic technical relationship for price apprecation. You won't receive income from commodities (which is why they are not defined as securities), but you have enough income already from the other allocations. This is the most volatile of your allocations, so my advice is never look at this that often. Just wait a couple quarters or years before you look at performance. My personal advice is to go for REITs right now, the housing market is coming back and REITS pay out 90% of taxable income in dividends.
10-15% Domestic Value Equties
- Focus on dividends especially, corporations have a huge amount of cash sitting around and still don't really know what to do with it. The fiscal cliff/debt ceiling negotiations will be continuing for a long time with the next chapter at the end of February. In long bull markets growth will outperform value, in bear markets and muddle-through markets value will outperform growth. You already have a volatile allocation with real assets so just let quality pay (Security A vs. Security B relationship).
10-15% International Bonds
- Ever since the ECB announced the OMT program I have had full faith in recommending this. You'll pick up some extra yield compared to treasuries with this allocation while taking advantage of some mis-pricing in Europe with Spain and Italian yields still pretty high outside the 3-year maturity.
10-15% International Equities
- I trust international equities more than emerging market equities simply for the quasi relationship I spoke to eariler. Also this will be a good way to have indirect negative dollar exposure (if you believe the dollar will depreciate in the future) without having to take actual currency risk.
10-15% Inflation Protection
- This can be either in the form of TIPS or any other "Real Return" fund. Commodities are probably a "better" hedge for inflation but they are very volatile. However, you should have inflation protection so if you decide with REITs or commodity companies in the Real Asset allocation, than make this allocation higher. If you decide commodities or real estate you can get away with lowering this allocation.

All these together cut down the beta of your portfolio with correlations that hedge accordingly. Good luck.






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Lsut81
USA Fan
Member since Jun 2005
64511 posts
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re: Various Financial Questions


quote:

BennyAndTheInkJets


Holy shite


Thanks for the info... Its going to take me a while to process all of it






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BennyAndTheInkJets
Arkansas Fan
NYC
Member since Nov 2010
3927 posts

re: Various Financial Questions


quote:

Thanks for the info... Its going to take me a while to process all of it

No worries, if you have any questions feel free to ask away.

I had a day or two where I ventured over to the Poli board so I am MORE than happy to answer anything over here on markets.






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Lsut81
USA Fan
Member since Jun 2005
64511 posts
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re: Various Financial Questions


quote:

if you have any questions feel free to ask away


I know you kind of broke down the way I should consider diversifying my retirement fund, but what are your feelings on purchasing other things on the side.

Like say I am going to put 1k a month away towards retirement/savings/Investments/etc..., how or would you mix it up? For example

$416 (Max) to Roth (Diversify as you suggested)
$300 to purchase metals (Have become interested recently)
$100 to play in stocks
$200 to savings

I don't know, I may be thinking about things completely wrong and maybe that is confusing






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foshizzle
LSU Fan
Washington DC metro
Member since Mar 2008
29957 posts
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re: Various Financial Questions


Of course, I have my own take on this particular allocation but will have to follow up later when I'm not at work.

Not that Benny is somehow "wrong", it's more that if you ask ten financial advisers their opinions you will get over a dozen valid answers in addition to the invalid ones.

Regarding "playing with stocks" - I think it's a good idea to do this early in one's investing career. The usual result is that you will do reasonably well initially, then get overconfident and bet way too large and lose the shirt off your back. It is far better to learn this early while the money involved isn't that much instead of after retirement when you're bored and rich.






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OnTheBrink
Alabama Fan
TN
Member since Mar 2012
3651 posts

re: Various Financial Questions


quote:

$100 to play in stocks


The only thing I will say about this is to keep in my mind the commissions/fees. Sharbuilder, as an example, charges $9.95 per transaction. So, your $100 becomes $90 after you buy the stock. Just as an example, if you were looking at buying XOM, you could only purchase 1 share. In order to get your money back on that share, you need the price to rise $20, and thats just to break even.

I like the monthly allocations, just not sure about the stock side. Seems almost better to take the $1,200 set aside each year for stocks and make one purchase.



This post was edited on 1/4 at 12:21 pm


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Lsut81
USA Fan
Member since Jun 2005
64511 posts
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re: Various Financial Questions


quote:

Regarding "playing with stocks" - I think it's a good idea to do this early in one's investing career


fwiw, I am VERY frugal with my money... It is something I would like to learn and I doubt I would ever take BIG risks.

I don't go out and party or hit the casinos, so I figure putting that money that I would spend in a night of doing that and having a little fun with it in the stock market wouldn't be a bad thing






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BennyAndTheInkJets
Arkansas Fan
NYC
Member since Nov 2010
3927 posts

re: Various Financial Questions


quote:

$416 (Max) to Roth (Diversify as you suggested)
$300 to purchase metals (Have become interested recently)
$100 to play in stocks
$200 to savings


Disclaimer: I can advise on investing, I can't advise on spending. That's just to what you enjoy.

The Roth allocation, stock play, and savings are all golden. The $300 for metals can be looked at essentially the same as $300 for baseball cards, stamps, or any other sort of collectible you either place some sort of sentimental value on or have an expectation that it will increase in value. If metals is your thing, then by all means do it. Just make sure you get physical and not an ETF or receipt. If you were to ask me what I would personally do, I'd increase savings and use the other $300 for bar tabs and girls with low self-esteem.






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