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Old 12-28-2014, 01:05 AM   #1
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Hello, I am just starting my Retirement Investing. Currently only I'm working, my wife will be graduating as a teacher next year. Ive been working for almost 2 years now, my priority was to finish paying my student loans of 67k @7%. About to get that finished in the next few months.

Since I have no 401k, I was looking into maxing tax sheltered accounts for now first, such as a IRA.

Age 27. Income 150k, Expenses about Half of That. I have at least 25k minimum (after taxes) left over yearly.

What are my options? and Which companies would be recommended? thanks.
Dave

P.S. When my wife graduates, we could increase our income about 40k.
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Old 12-28-2014, 07:40 AM   #2
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I always recommend Vanguard. I've got an IRA and a couple of 401ks there from different employers, as well as my after-tax savings. Their fees and expense ratios are nice and low, which will have a major impact over the long run.

As to what to invest in, it depends on your risk tolerance. A Total Stock Market Index Fund or S&P 500 Index Fund will get you better returns, on average, than bonds, but the variability in returns can be hard to stomach. The real test of your mettle is a 25%-50% drop in the market, and lots of people lose sleep over those.

For now, given your age I'd recommend starting with either of Vanguard's Total Stock Market Index Fund or S&P 500 Index Fund, and read more about what asset allocation lets you sleep at night for the future. Vanguard's Wellington and Wellesley funds are popular here too.
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Old 12-28-2014, 08:07 AM   #3
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Since you are in a high tax bracket, I would focus on tax-deductible IRAs and other tax-deferred savings. But also fund a Roth as long as you can. Also, a HSA if you have qualifying high deductible health insurance (which if you just pay for your medical expenses separately with taxable funds and leave the money in there is similar to a Roth). Once those are full, then taxable accounts.

Invest principally in no-load, low-cost index funds. Focus on domestic and international equity funds for now. I think a good AA for someone your age is 90-100% equities and 10-0% fixed income, with ~30-35% of your equity allocation in international equities. My son is in the Vanguard 2050 fund which is:

1Vanguard Total Stock Market Index Fund Investor Shares62.9%
2Vanguard Total International Stock Index Fund Investor Shares26.8%
3Vanguard Total Bond Market II Index Fund Investor Shares*8.1%
4Vanguard Total International Bond Index Fund2.2%
Total100.0%

but any combinations of these funds in these approximate percentages should serve you well. At your age I was 100% equities and didn't really invest in fixed income until I was in my late 40s but a little fixed income will add a little stability to your portfolio if you would prefer to be a bit more conservative.
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Old 12-28-2014, 11:00 AM   #4
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Someone correct me if I am wrong, but I believe you are ineligible for a Roth IRA because your income exceeds the $129,000 maximum. Also, I think the "married filing jointly" max is $191,000, so you may be excluded there when your wife begins teaching. Im sure there are ways to manipulate these rules to your favor though.


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Old 12-28-2014, 11:18 AM   #5
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It'll probably be close once they are married depending on what deductions from income they have. Current phaseout for MFJ is $181-191k so it will depend on what reductions to income they have. If she has a 401k and maxes it out that would help a lot.
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Old 12-28-2014, 12:42 PM   #6
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I'd do the Roth IRA's as long as you can (this year and maybe next). Both you and your wife should be able to contribute this year at least. Whatever you can't fit in to the IRA goes into tax efficient equities in a taxable account.


I have my mom in this:
25% S&P 500 index
25% US total stock market ex-S&P 500
25% Global ex-US
25% US bonds


Adjust to taste, US mid and small caps are over weighted and you probably don't want that much in bonds.


Individual stocks can be very tax efficient, but they are more work to research and maintain diversity.
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Old 12-28-2014, 02:49 PM   #7
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An often-recommended book is Andrew Hallam's The Millionaire Teacher.

I also like How a Second Grader Beat Wall Street, Your Money & Your Brain, The Millionaire Next Door (a classic, for good reason) and Predictably Irrational.
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Old 12-28-2014, 03:06 PM   #8
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Since I don't have a 401k, my wife will when she starts working. Does that mean we can have a joint 401k, separate 401k's or only she can have a 401k in her name?
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Old 12-28-2014, 03:23 PM   #9
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This:
Quote:
Originally Posted by martinitosnl View Post
...only she can have a 401k in her name?
All 401k's are individual.
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Old 12-28-2014, 03:50 PM   #10
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I would suggest you open a IRA for you and one for wife for this year (2014). then do an immediate conversion to Roth IRAs. While Vanguard is a great company and great choice, I use Fidelity :-) If you have a local Fidelity, You could walk in Monday and walk out with a 2014 IRA done and converted. My 401K is there so I moved my IRAs from couple places to get all in one place. I took statements withme to local shop and they walked me through everything.

Then I would suggest learning about retirement savings and investing. You can contribute up to $5,000 each year to an IRA. Depending on your income level this can be a tax deductible event, or if you exceed the income limit for deductible IRA you can contribute after tax. A traditional deductible IRA is taxed when funds are withdrawn, a traditional after tax IRA is partially taxed when funds are withdrawn, and with a Roth IRA no tax is due when funds are withdrawn. Traditional advice says you should defer taxes when you are high tax bracket, and plan to pay a lower rate in retirement. However, I go against the grain and have my son in all ROTH accounts so the tax bite is gone.
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Old 12-28-2014, 07:03 PM   #11
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Quote:
Originally Posted by REWahoo View Post
This:
All 401k's are individual.
so you can use her 401k contributions to manage your income to be under the limit so you can both fully fund Roths if you are doing some after-tax saving.

For example, let's say she earns $40k and you earn $150k and the Roth limit is $180. You just make sure that her 401k contributions are at least $10k so your income is below the limit so you can fully fund your Roths. YMMV.
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Old 12-28-2014, 07:44 PM   #12
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Quote:
Originally Posted by RetireBy90 View Post
I would suggest you open a IRA for you and one for wife for this year (2014). then do an immediate conversion to Roth IRAs. While Vanguard is a great company and great choice, I use Fidelity :-) If you have a local Fidelity, You could walk in Monday and walk out with a 2014 IRA done and converted. My 401K is there so I moved my IRAs from couple places to get all in one place. I took statements withme to local shop and they walked me through everything.
In the OP's case I think I would just do the IRA, and skip the Roth Conversion. In his tax bracket the conversion would be at a pretty high bracket, and just getting into the IRA would be a good step. IMO the conversion pays off when you can do it at a lower bracket level than what you put it in at (Sorry for the dangling preposition, Mrs. Rosenwasser). At the OP's point in life, just doing the pre-tax saving is a great start.
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Old 01-07-2015, 05:43 PM   #13
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Depending on your income, marital status, etc., you may be able to put money into (an isolated in my opinion) non-deductible "traditional" IRA, then roll the deposit over to a ROTH IRA.
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