Best vehicle to invest with $10-20K

[mudbuddha]

Hi folks,

I posted several months back about some VULs that we were to cancel.  We are in the process of doing that- replacing them with $1M 30 years term policy each for me and DW.  Once that is completed, we'll cancel our VUL insurance coverage. 

We will have some cash from the VUL policies to be invested.  What would be the ideal way to invest this amount for the next 20-25 years to continue our goal of early retirement? We are 30 years old with emergency funds and 401K maxed already taken care of...The only major addition to the equation is a baby coming by summer of 2007!

Brewer- What's your thought on this?

Thank you for your insight...

Duke 

 

[brewer12345]

Aside from the e-fund, do you have any taxable investments? Any plan or likelihood of tapping the new money before 20 years hence? Tax bracket and risk tolerance?

 

[mudbuddha]

Our risk tolerance would fall under high as we still have at least 20 years until retirement and there will be no chance of tapping into this...Aside from the 401ks w/ company matching, we only have a CD with $20K in it. Oh, and we are in the 30% tax bracket.

 

[brewer12345]

In that case, I would review your overall asset allocation (in the 401ks) and add the money where you need more exposure. If you need exosure in something that is not tax efficient, then swap exposures between the 401ks and the taxable account so that you sell something in the k and buy it in the taxable account. The k psale proceeds could be put into whatever you originally needed to add exposure in.

 

[maddythebeagle]

I thought this thread was going to be about cars

 

[PsyopRanger]

I saw no mention of a Roth?? Even though you have a 401(k) you can still contribute to a Roth, both you and your spouse or are you over the contribution limits?

Lance

 

[mudbuddha]

Thank you for the advice....I was looking at an IRA as well and which one is better-- traditional or Roth? I am also looking at dumping some money into a no load mutual fund of some sort, any thought?

Duke

 

[brewer12345]

Thank you for the advice....I was looking at an IRA as well and which one is better-- traditional or Roth?  I am also looking at dumping some money into a no load mutual fund of some sort, any thought?

Duke

Sounds like you already have the bulk of your savings in 401k/traditional IRA. If it were me, I would probably choose a Roth or taxable account. You want to diversify your tax position in case Congress changes the rules (again). So a Roth might be best. If you have more cash than you can put into a Roth, I would stick the excess in a taxable mutual fund. If you had to pick a single fund, a balanced or target retirement fund would probably be the most efficient vehicle if we are talking about a few thousand buck.

 

[PsyopRanger]

Sounds like you already have the bulk of your savings in 401k/traditional IRA. If it were me, I would probably choose a Roth or taxable account. You want to diversify your tax position in case Congress changes the rules (again). So a Roth might be best. If you have more cash than you can put into a Roth, I would stick the excess in a taxable mutual fund. If you had to pick a single fund, a balanced or target retirement fund would probably be the most efficient vehicle if we are talking about a few thousand buck.

I agree, I love the Roth, give me future tax free retirement money over current tax reductions any day.

 

[brewer12345]

I agree, I love the Roth, give me future tax free retirement money over current tax reductions any day. 

Jump into the top bracket plus a hefty state tax and you might change your tune...

 

[mathjak107]

for most americans the roth isnt a good deal...there are very few of us that will earn more not working then working coupled with the fact that we can pull almost 32,000 a year in un-taxed 401k and ira money almost tax free....the first 19,000 or so is at zero,,the rest at about 1200 bucks in taxes.....32,000 at 1200 tax is hard to beat ....the brackets for the 15% tax go up every year by about 2,000 allowing more income at a lower tax.....and anyone who thinks a politician or political group is going to tell 70 million voting baby boomers they are raising their tax brackets i think is way off base

 

[LOL!]

Re: Roth vs Traditional IRA

Sounds like you already have the bulk of your savings in 401k/traditional IRA. If it were me, I would probably choose a Roth or taxable account. ...

Brewer and the others are right, but the choice is also already made for you, mudbuddha, since you are maxing out your 401(k) and in the 30% tax bracket, you are not eligible for a deductible traditional IRA.  There are income limits to a Roth IRA as well, so you may not be eligible for a Roth IRA.  I think if your AGI is $160K or more then no Roth IRA contributions for you.   That then leaves you with the taxable account but perhaps invested in a tax-managed way.  Here is a link that may be helpful to read:

https://flagship2.vanguard.com/VGAp...eneral/PEdGPTaxSavEasyToBeTaxSavvyContent.jsp

 

[PsyopRanger]

for most americans the roth isnt a good deal...there are very few of us that will earn more not working then working coupled with the fact that we can pull almost 32,000 a year in un-taxed 401k and ira money almost tax free....the first 19,000 or so is at zero,,the rest at about 1200 bucks in taxes.....32,000 at 1200 tax is hard to beat ....the brackets for the 15% tax go up every year by about 2,000 allowing more income at a lower tax.....and anyone who thinks a politician or political group is going to tell 70 million voting baby boomers they are raising their tax brackets i think is way off base

I think this is situational on a case by case basis. I am in a lower tax bracket and already have many deductions, for me the Roth is better. I am also 29, with the rise in inflation, by the time I retire $32,000 is not going to cut it especially for the type of lifestyle I would like to live.

I do plan on making more money in retirement or semi-retirement than I do now, I also have a pension and passive real estate income to look at for taxes.

I really think the decision for a Roth vs. Traditional is heavily dependant on each person’s situation and saying that one way or the other is best for most Americans is a generalization.

 

[mathjak107]

i agree on the age factor....usually here were are talking close to retirement not 35 years out so yes a roth may make more sense for someone younger

 

[mudbuddha]

Thank you all...these are good thoughts.  We are already maxed out on our 401K contributions and agi is slightly under 100K and our income is projected to out pace inflation annually so that means a good no load mutual fund might be a better way to go...thanks LOL! for the link! 

I am just trying to piece together a plan to at least semi retire in the forties but definitely by 50.  Most people that i know think that they would need millions to retire comfortably.  The opposite is true in my opinion that if you plan to atleast have your expenses and emergency funds covered at retirement then, you can have a decent retirement with much less than some crazy million dollars nest egg.  The reason is we would then retain most of our dollar purchasing power which means we don't need millions to retire- time value of money!  Of course to each his own and more money is better, but the point of retirement is to have a choice of not having to go back to work while still maintain your standard of living today.

Basically, if I can save and not over save or kill myself trying to save thinking that we will need an exuberant amount to live comfortably - playing catch up to the joneses if you will, then I probably would not have time to surf this board!  8)

Duke

 

[LOL!]

Thank you all...these are good thoughts.  We are already maxed out on our 401K contributions and agi is slightly under 100K and our income is projected to out pace inflation annually so that means a good no load mutual fund might be a better way to go...thanks LOL! for the link! 

Your sub 100K AGI means you are still eligible for Roth IRA, so that's a no-brainer. Get a good no-load mutual fund or two or three in your 2 Roth IRAs: yours and your spouse's.

Get it? A Roth IRA is just a special container for your no-load mutual fund.