Putting some money aside

[Tykimeister]

25 years old. No rent.

Uh, something not "normal", IMHO.

What's the story?

Indeed.

My girlfriend runs for the local university and her scholarship pays for her rent. Before this I lived with a sibling that made more than enough money, so rent wasn't really an issue.

However, come next May there will be more expenses. But with my girlfriend and I both having college degrees, and low expectations on living arrangements I don't see rent being an issue down the road.

For those of you that asked, I have a job. I work for the county as a corrections worker. They take money out for my retirement KPERS, but it is verry minimal. They don't match anything and don't offer a 401k or the like. During the orientation, over 2 years ago, they had an adviser present who gave information about setting up an IRA and everything. The county wouldn't match anything, but they were offering it to new employees. I have decent health insurance, dental, vision, etc.




Thank you everyone for the great advice. My step-father and brother both work for BNSF (railroad) and use Vanguard for their retirement. They never had any problems with them in the past. I will be looking into all this some time very soon. Does anyone know off the top of your head what the min. initial investment has to be for Vanguard?

I'm set in starting a roth IRA for sure. However, I get confused when thinking about where my money actually goes. They have different options for roth IRA's alocations of your funds? Would the money being contributed to the roth automatically be divided into a mutal fund? Is this going to be a guaranteed return of intrest or only how the mutual funds perform?

Again, thank you for all the help and support.
Ty

 

[Tykimeister]

Just went through this with DD who is newly employed and doing the same thing.

Vanguard STAR and Target Retirement funds have $1000 minimum initial investments, all other funds are at least $3000. Additional investments are $100 minimum for STAR and Target funds, with that reduced to $50 if it is done by auto-investment (the latter info I didn't find on their website but was told it by our Flagship advisor).

Hey, thanks for the info. If I am mainly interested in starting a ROTH what would the initial investment have to be? Is it ideal to start with something smaller, or will it cause problems when wanting to move it around to something else?

 

[pb4uski]

I would suggest that you contact Vanguard. They will help you set up a Roth and chose a mutual fund. At 25 I would suggest you be all in equities so the 500 index fund or value index fund or growth index fund.

The mutual fund is a holding within the Roth account.

 

[Koolau]

Hey, thanks for the info. If I am mainly interested in starting a ROTH what would the initial investment have to be? Is it ideal to start with something smaller, or will it cause problems when wanting to move it around to something else?

I believe you can fund a Roth at Vanguard with as little as $1000 (the Star Fund - IIRC). Other funds have higher minimums. But, if you start with a "small" amount in a fund, you can easily (few clicks of the mouse or a phone call) transfer to another fund once you have built up the "starter" fund.

I suggest you start here https://personal.vanguard.com/us/home if you want to read up on the process at Vanguard. I've been satisfied with their funds and helpfulness for almost 10 years now. Obviously, there are other MF companies (many here like Fidelity or Schwab, etc.) YMMV

 

[CCdaCE]

When I was in your shoes, I started by putting money in a Target Retirement 20XX (pick your approx. retirement year) fund at Vanguard. $3k min. to open. Rock bottom expenses (compared to 401k offerings), and has a little bit of everything (international stocks, domestic, bonds, etc.).

You can stick with this your whole life or slice and dice into other funds as you choose to learn more.

-CC

 

[Tykimeister]

Hey, I wanted to let everyone who helped in this thread know that I did, in fact, open a Roth IRA with Vanguard. Waited till the last minute, so opened the Roth on Friday, filed taxes on Monday.

I ended up putting the max $5000 into it since I haven't really been making any large purchases lately. Monday came around and it was sitting at like $4,975, so I was like, "UHHH OHHH."

But today it looks morelike $5,075, so all is good.

Thanks everyone for the help.

 

[Major Tom]

Hey, I wanted to let everyone who helped in this thread know that I did, in fact, open a Roth IRA with Vanguard. Waited till the last minute, so opened the Roth on Friday, filed taxes on Monday.

I ended up putting the max $5000 into it since I haven't really been making any large purchases lately. Monday came around and it was sitting at like $4,975, so I was like, "UHHH OHHH."

But today it looks morelike $5,075, so all is good.

Thanks everyone for the help.

I usually get a bit nervous before making a fund or stock purchase, hoping that it doesn't go down straight after I buy it. Then I tell myself that I'm doing this for the long term, and that short term variations aren't important.

The important thing is that you did it. Good job!

 

[xyz]

My calculations show if you make 5% on that $5000 investment over the next 25 years that $5,000 will yield around $57,000..... I wish I had started at 25. Good for you !!

 

[jclarksnakes]

You can watch it or not watch it. Whichever works for you is fine. The important thing is to leave it in there. If the market goes down you will see and hear other people bailing out and selling. They will be doing exactly the wrong thing. Do not join in with them in their financial mistake. And whatever you do, do not take money out to buy something. LBYM and keep saving and investing and you can be financially independent at a young age.

 

[Finance Dave]

Hey, I wanted to let everyone who helped in this thread know that I did, in fact, open a Roth IRA with Vanguard. Waited till the last minute, so opened the Roth on Friday, filed taxes on Monday.

I ended up putting the max $5000 into it since I haven't really been making any large purchases lately. Monday came around and it was sitting at like $4,975, so I was like, "UHHH OHHH."

But today it looks morelike $5,075, so all is good.

Thanks everyone for the help.

Well done. Don't watch it too often or it'll make you anxious. Another trick you can use if it worries yout to buy at the top is to make the initial Roth deposit into the account in a "safe" fund, then slowly transfer (technically they call this buying, but so long as it's still in the Roth you're fine) it to other more risky funds. For example, deposit $5k into a MM Mutual fund, then every 2 months take $1k of that and buy more of your stock index fund. The downside is that in an "up" market, you'll miss out on some returns if you wait...take your pick!

 

[Animorph]

$25? Wait until around retirement, when you can watch it jump by your entire yearly budget in a week or less!

 

[Mulligan]

$25? Wait until around retirement, when you can watch it jump by your entire yearly budget in a week or less!

As a pensioner who contributed over the years into a pension fund instead of a 401k , I dont know how you all do it. When the portfolio drops substantially I would worry about being in the poor house. When it rises, I would worry when it was going to drop. I would probably have worked many more years just out of fear alone.

 

[Accidental Retiree]

When I bought my very first stock in an IRA, over 30 years ago, I bought 17 shares of DIS. I don't recall the price, but the next day it dropped $2/ share.

I went to work the next day bemoaning my $34 loss.

My boss, a CPA, comforted me and said, "Good thing there are no skyscrapers here in town!"

I suppose I lacked perspective!

 

[myself]

The Roth IRA is wonderful, not only does it grow tax free, but you can take all of your principle investment out at any time for any reason. I know, I had to take $4000 out of mine (should have had a real emergency, fund I know) a few years after I opened it. I would strongly urge that you open it with a brokerage company and not a bank. I believe Ed Slott (IRA expert) says that you should NEVER EVER EVER have an IRA with a bank...at least during the "accumulation" stages. The fees are high and the choices are low. I have mine with T. Rowe, but most of the biggies would be a good choice (Fidelity, Vanguard, etc.)

I agree ... At least in part. My current household taxation is fairly low though due to the current tax code. If that changes, I will dramatically increase our Roth holdings to the max and lower the pre-tax withholdings to compensate.
Just bumped pre-tax up to 10% just to see the effect on take-home pay. Currently about 14% of my income is taxed (which is crazy low due to tax credits), although I just bumped our 401k withholdings from 7% - 10% to see what effect ... if any ... that it has. We are also just about to pass the UI/DI limits for the year in our state, so that will have a different effect. But we also held back the max for our FSA last year for dental work (mostly my own).

I will have to see the overall effect on our take-home-pay and adjust up/down accordingly. I should have waited until after the UI/DI level hit for an apples/apples comparison, but I can always adjust it later in the year to allow for that next year.

 

[myself]

Hey, thanks for the info. If I am mainly interested in starting a ROTH what would the initial investment have to be? Is it ideal to start with something smaller, or will it cause problems when wanting to move it around to something else?

I know this is late in the thread, but after speaking with a Fidelity rep (I have an IRA and a spousal Roth IRA through them), I have come to realize that what is traditional "word of mouth" states that you have to have $X.
When in fact, the dollar amount your place into your Roth is relatively minimal (some dollar figure automatically transferred is OFTEN enough. In order to invest in certain mutual funds (MF), however, you have to have a certain amount to invest into the MF before your are "allowed" in.

That being said, you could theoretically build your own equivalent of the MF but have to wait to purchase a solid 1 or more shares of any given stock, in order to match a given MF's portfolio.
As an example, I literally just last month transferred a small $300 into a Roth for DW, but it isn't invested as of yet. By next year however, we intend on actually investing the monies put into that account ... hopefully fully funded by April 15th of next year, which falls on a Monday. Once the cash amount builds up in the account, we have every intention in creating a diversified portfolio!

 

[Animorph]

I agree ... At least in part. My current household taxation is fairly low though due to the current tax code. If that changes, I will dramatically increase our Roth holdings to the max and lower the pre-tax withholdings to compensate.

Did you say that properly? You want to make Roth contributions when your taxes are low or you have maxed out other tax deductible accounts, which sounds like now for you. If your taxes go up, you should be moving more towards contributing to tax-deductible accounts.

 

[myself]

Did you say that properly? You want to make Roth contributions when your taxes are low or you have maxed out other tax deductible accounts, which sounds like now for you. If your taxes go up, you should be moving more towards contributing to tax-deductible accounts.

On the contrary, I did say that correctly.

You see, one of the things that holds my income tax down is pre-tax investments (along with property taxes which are high in NJ, and mortgage interest, and the biggest is by far our child tax credit).

As an example: When the legislation was signed into law reducing SS by 2%, I immediately increased my 401k by that amount so that I wouldn't be responsible for paying taxes on the extra 2% of my pay, which would have gone into SS anyway. I didn't "miss it" before, and it was fundamentally going toward a "retirement fund", which is effectively what SS is.

Likewise, I have estimated that my deductions/exemptions will be changing in about 7-8 years, when I will only be able to utilize the standard deduction which will undoubtedly rise by then as it usually does. At that point, I will lower my 401k to company match (at a minimum), and increase my Roth savings, since I would be paying tax on the larger income anyway.

I however was mispoken regarding what I said about "14% of my income is taxed". In fact my total tax for my income (SS, medicare, fed, state) is slightly less than 14% of my gross income.

PS: Sorry for the late reply.

And as always, remember YMMV.

 

[myself]

As an perfect example, when I increased my withholdings toward my 401k from 7% up to 10%, I found that the percentage which was taken out for taxes went from 26.3%, down to 24%. DOH!

That is due to a combination of W-4 withholdings (13 currently) to keep more money coming into the house throughout the year, but still getting back some money when taxes are filed in April. And for anyone wondering, according to the instructions to fill out the W-4 for my income and number of dependents in the household, 13 is a valid number on that form.

Again YMMV, since not everyone's circumstances are identical to mine.

As usual, I will examine our tax situation at a few points throughout the year to ensure that we are not underpaying our taxes.

 

[Finance Dave]

$25? Wait until around retirement, when you can watch it jump by your entire yearly budget in a week or less!

Very true...my 401k has made more so far this year than I have in salary....and I don't work for minimum wage.

 

[obgyn65]

I am a bit late on this thread but agree with below. Congrats.

The important thing is that you did it. Good job!