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Looking to start a Roth and more...
Old 06-27-2010, 09:56 PM   #1
Dryer sheet wannabe
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Looking to start a Roth and more...

My 401k plan is pretty bad at SuperMegaCorp. There is no match, but they do put in a percentage of my Salary based on SuperMegaCorps performance each year, this year was 4%. The investment choices are rather poor, but it is free money after all. I do not put any additional resources into my 401k.

My wife has a pretty good 401k and has a company 401k match up to 6% at NotSoMegaCorp. She puts 6% in her 401k. She has access to Vanguard funds that have even lower expense ratios than what is stated on their website for investor class funds.

Problem is she only works part time and makes 25k-30k a year. I work full time + and make 60k-80k a year.

I also have a Health savings account with a 1-1 company match up to 50% of the deductible, after that there is no match. I max this out but do not consider it in my FIRED funds at this point in my life. I am 27 and the account is fairly young and could be wiped out with a couple of large medical expenses. Hopefully nothing happens and I will be able to use this as another tax deffered savings account but for now I treat it as a health insurance expense.

I also dabble in both of our Company stock purchase plans. I don't spend too much money on them but if the market is right they can be very profitable. Basically with hers you can decide on the last day of the quarter if you want to buy the stock at the first day of the quarter price X .85. If the stock went up that quarter it is a no brainer!

We have focused on reducing debt the past few years instead of saving money but we are ready to start sacking away cash. The last major hurdle is my truck and we want to refinance the house. The goal is to have both these tasks accomplished by March 2011. At that point we will be able to save atleast 2k a month, if not more.
(I hope for $2500 a month, plus my bonuses)

For now I want to start a Roth IRA. I was looking at Vanguard since they have the lowest fees in the industry, however they have a minimum investment of 3k. I am not as familiar with the Fidelity funds, but they will wave the minimum requirement if you set up automatic payments. I like this set up because I can just have them take $400 a month out of my checking account, almost like set it and forget it (Not likely to forget it) I do have the ability to write the check to open the Vanguard account today, it would cut into my 3-6 months of expenses savings, but I would still have a cushion.

Any recommendations either way. What funds do you recommend? I currently try to balance long term savings with 80% stocks, 20% cash/bonds.

My current plan is to step into a different field around 37-40 to work less, current norm is a 13 hour day! My goal is to have 500k-750k to do this. The day I hit 750k I will not be at SuperMegaCorp, but I will need at minimum 500k to do this. Even without any additional contributions, If I have 500k at 37 and I do not touch it until 50 I should be able to FIRE comfortably. Numbers will work out better at 750k! (Looking at 1.4m to 2m)

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Old 06-28-2010, 07:59 AM   #2
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You're doing a great job of saving at age 27. Investing in a Roth IRA after your 401k matching sounds wise as we can be assured that tax rates are only going up. I've only saved in tax deferred and taxable accounts myself but am ready to go with the Roth IRA as well. I'll be interested in reading the responses of others regarding their choice of investment company for their Roth.

"There is no dignity quite so impressive, and no independence quite so important, as living within your means." Calvin Coolidge
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Old 06-28-2010, 09:10 AM   #3
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as i am 27 as well, i'll throw in my 2 cents and hopefully it is controversial enough to get a discussion started.

my IRA is housed over at T.Rowe (my 401k and DW's IRA are at vanguard). T Rowe has pretty good funds with ok costs. not as low as vanguard, but ok. T Rowe has a $1000 minimum and needs a certain minimum deposit each month to open an IRA. i'll probably roll over to the additional fees with T Rowe, if you don't have $5000/fund at some point in august, you get hit with a $30 fee.

I would ask yourself where you want to be. If you ultimately want to be at vanguard, I would just save up until you have the $3000 to open an account. Rolling over is pretty simple, but it is one more thing you need to do. I wouldn't touch your emergency fund, as this is not an emergency. of course, someone will probably make the point that you can withdraw your contributions to a roth at anytime with no penalty...

i would look at one of their target date retirement funds. the vanguard 2030 has near a 80/20 allocation. when picking, don't actually target a date, but target in on a current allocation that best fits your plans.
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Old 06-28-2010, 10:55 AM   #4
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If you go with index funds at either Vanguard or Fidelity it really doesn't matter. They both have good choices for domestic equity, international equity and bonds. The fact that you are saving at such an early age is the most important driver of your long term success.

At 54% of FIRE target
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Old 06-28-2010, 12:08 PM   #5
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I'm around your age as well (31), and my thoughts would be to look at one of the major three for your Roth (Vanguard, TRowe, Fidelity), but consider leaning toward Vanguard if your wife's 401k is being managed there already for simplicity's sake. Check if they will waive the $3k min due to your other vanguard investments - I believe that there is a qualifier like that, though it's been awhile since I looked. Regardless, open it, and if you need to do it with $3k from your cash, split that monthly $400 between replacing the cash and investing in the Roth until you catch up. After that, maybe look at increasing you investments in either your discounted stock or your wife's low-cost 401k. What sorts of restrictions are on that discounted stock purchase? If minimal, it may make sense to max it every time and unwind each one as soon as able to lock in the subsidy. Not what the company intends, but it can be a real problem to be dependant on one company for both salary and investment return.
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Old 06-28-2010, 05:27 PM   #6
Dryer sheet wannabe
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My wifes 401k is through wells Fargo, however 50% of the funds available are vanguard.

I think I am going to use fidelity for my Ira, I might move it later, but it looks good for now.

I am probably going to need multiple avenues to invest, I am sure we will end up with vanguard accounts within the year.

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