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? Invest in pension plan not through work, how?
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amother




OP
 

Post Sun, Dec 26 2021, 6:37 pm
If you want to invest in a pension plan not through work, how do you do it? Can you invest in a roth 401, and how to do this, how much are you allowed to put in? I heard of Vanguard, Fidelity- can you sign up for a roth 401 through them. Or which type should I sign up for?
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Amarante




 
 
 
 

Post Sun, Dec 26 2021, 6:43 pm
Easiest is to call Fidelity or Vajguard and set up an account. Rothy’s taxable the year you earn and a standard IRA is taxable when you withdraw. Standard advice is to use a Roth if you don’t need to lower taxes in year earned and so can be better. With a standard IRA you deduct amounts in the year you put it into the account.

Amount you can put in depends in your age and other factors but any broker can tell you or your tax advisor or just Google.

You can and should invest more than what is tax advantages as the maximums are only relevant to tax savings which of course is important maximize growth.
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amother




Ebony
 

Post Sun, Dec 26 2021, 8:20 pm
1. Find out from your accountant what type of retirement plans are an option for you (in the US) not all taxpayers are eligible for all types of retirement accounts. And find out from
Him if you have a maximum annual funding amount.

2. Then you find a bank to open your a account and fund it. Fidelity, Vangauard maybe your regular bank even offer the type of plan you need.

3. Then you invest the funds.
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amother




OP
 

Post Sun, Dec 26 2021, 8:38 pm
Do these companies charge you money to invest?
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amother




OP
 

Post Sun, Dec 26 2021, 8:43 pm
Also, how do I know which account and which funds to buy?
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amother




Ebony
 

Post Sun, Dec 26 2021, 9:53 pm
amother [ OP ] wrote:
Also, how do I know which account and which funds to buy?


I’m an accountant not a finance person. Can’t help you there...
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Amarante




 
 
 
 

Post Sun, Dec 26 2021, 11:34 pm
amother [ OP ] wrote:
Do these companies charge you money to invest?


Accounts are free it all mutual funds charge management fees. These vary considerably and can actually impact net profits. That is why advice is often to invest in an index fund because these have lower management fees than actively managed funds and so the return is actually higher and these tend to do just as well as other funds.

Of course there are people who actively invest money and do well but for most amateurs investing for the long term, the best thing is to put money in an index fund and just leave it there.
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amother




OP
 

Post Tue, Dec 28 2021, 7:43 am
Amarante wrote:
Accounts are free it all mutual funds charge management fees. These vary considerably and can actually impact net profits. That is why advice is often to invest in an index fund because these have lower management fees than actively managed funds and so the return is actually higher and these tend to do just as well as other funds.

Of course there are people who actively invest money and do well but for most amateurs investing for the long term, the best thing is to put money in an index fund and just leave it there.
How much does it cost? Do these companies only have one type of index fund? If I go on their website, will it be easy to figure out what is an index fund?
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evi




 
 
 
 

Post Mon, Jan 03 2022, 12:39 am
amother [ OP ] wrote:
How much does it cost? Do these companies only have one type of index fund? If I go on their website, will it be easy to figure out what is an index fund?


Here’s Vanguard, a common choice for new investors and what I use.

https://investor.vanguard.com/.....Index

The expense ratio is there in the link for each fund. The lower it is, the lower the charge for running it. You don’t get a bill. They just take it off the amount you would otherwise get when you withdraw funds. If the expense ratio is 0.04%, then for every $1000 that’s a cost of 40 cents per year. (That’s a really low expense ratio you’ll only find on the biggest index funds, such as the ones I mention below. )

The index funds are labeled as index funds, but you will want to be careful whether you select a specialty one or one that reflects the entire stock market. Also stocks vs bonds. There’s much much much less potential growth in bonds vs stocks, (also a somewhat lower chance of a decrease in bonds vs stocks. But in a bad stock market year anyone who held bonds probably did much better.)

I started with
VTSAX
Total Stock Market Index Fund Admiral Shares
which is basically all US stocks. It follows the S&P 500 results mostly if I recall correctly.

I eventually started using
VGSLX
Real Estate Index Fund Admiral Shares
which is what you could buy if you think real estate still has room to go up.

If you want something that follows the S&P500 even more closely, there’s
VFIAX
500 Index Fund Admiral Shares.

There are international stock funds too but I never had much luck with them.

Be aware the stock market has gone up a lot recently, so be cautious to maintain an emergency fund of 6 months expenses in a savings account that is not invested.

Be careful not to contribute more than the IRS rules for you allow. It’s a headache if you do. Use a good accountant or good tax software or else post your and your husband’s age, approximate income of you, your husband, and whether either of your employers offer a 401k option, whether you file as single, married jointly, married separately, etc, and then someone can calculate your limit.

You can always invest more in a brokerage account that has no tax rules, just be aware that if you sell funds in one before a year is up, it’s taxed at a much higher rate than if you keep whatever you bought for at least a year. So plan to keep whatever you buy for a year if it’s going up , (if it goes down then this doesn’t apply, it might be better to hold for under a year in that case).


Last edited by evi on Mon, Jan 03 2022, 1:24 am; edited 1 time in total
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evi




 
 
 
 

Post Mon, Jan 03 2022, 12:46 am
If you have lower income now than you think you will have later on, sign up for a Roth. If you have income now that’s about what you expect to have in the future, less people do a Roth and more do a traditional account (because in retirement you usually don’t earn much except Social Security - check your statements from SSA, unless you have a rental property). If your income now is probably around as high as or higher than what you expect to have in the future, probably don’t pick a Roth, AND if your job and your husband’s doesn’t offer a 401k, just do a traditional IRA. If you or your husbands job offers a 401k, be very careful about starting a traditional IRA- you may not get a full deduction.

https://www.investopedia.com/a.....7/401(k)_ira.asp

So when I started my career and didn’t make much-and lived in a low tax state, I did a Roth. Later on as my income increased (bH) and I moved to a high tax state I just contributed to my work traditional 401k.


You should also be aware that if you contribute to a retirement account, you won’t be able to pull that money out unless there are extenuating circumstances until you are 59 1/2. Extenuating circumstances are defined by the IRS. If it’s not a Roth, when you take money out, you’ll have to pay taxes on it, since you saved paying taxes on that money when you contributed.

Also for a traditional IRA, check not just how much you’re allowed to contribute, but how much will get the full deduction.
(Link above) Roths don’t give you a deduction so no complications there.


Last edited by evi on Mon, Jan 03 2022, 1:15 am; edited 9 times in total
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amother




OP
 

Post Mon, Jan 03 2022, 12:48 am
evi wrote:
Here’s Vanguard, a common choice for new investors and what I use.

https://investor.vanguard.com/.....Index

The expense ratio is there in the link for each fund. The lower it is, the lower the charge for running it. You don’t get a bill. They just take it off the amount you would otherwise get when you withdraw funds. If the expense ratio is 0.04%, then for every $1000 that’s a cost of 40 cents per year. (That’s a really low expense ratio you’ll only find on the biggest index funds, such as the ones I mention below. )

The index funds are labeled as index funds, but you will want to be careful whether you select a specialty one or one that reflects the entire stock market. Also stocks vs bonds. There’s much much much less potential growth in bonds vs stocks, (also a somewhat lower chance of a decrease in bonds vs stocks.)

I started with
VTSAX
Total Stock Market Index Fund Admiral Shares
which is basically all US stocks. It follows the S&P 500 results mostly if I recall correctly.

I eventually started using
VGSLX
Real Estate Index Fund Admiral Shares
which is what you could buy if you think real estate still has room to go up.

If you want something that follows the S&P500 even more closely, there’s
VFIAX
500 Index Fund Admiral Shares.

There are international stock funds too but I never had much luck with them.

Be aware the stock market has gone up a lot recently, so be cautious to maintain an emergency fund of 6 months expenses in a savings account that is not invested.

Be careful not to contribute more than the IRS rules for you allow. It’s a headache if you do. Use a good accountant or good tax software or else post your and your husband’s age, approximate income of you, your husband, and whether either of your employers offer a 401k option, whether you file as single, married jointly, married separately, etc, and then someone can calculate your limit.

You can always invest more in a brokerage account that has no tax rules, just be aware that if you sell funds in one before a year is up, it’s taxed at a much higher rate than if you keep whatever you bought for at least a year. So plan to keep whatever you buy for a year if it’s going up , (if it goes down then this doesn’t apply, it might be better to hold for under a year in that case).
Thanks for the specific types of funds. I thought 6000 was the limit per year for roth ira? Income falls within the limits allowed for a Roth IRA. My work does offer a 401k, can I do both or just my own through vanguard? Not near retirement age.
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evi




 
 
 
 

Post Mon, Jan 03 2022, 1:02 am
amother [ OP ] wrote:
Thanks for the specific types of funds. I thought 6000 was the limit per year for roth ira? Income falls within the limits allowed for a Roth IRA. My work does offer a 401k, can I do both or just my own through vanguard? Not near retirement age.


You can do both or your own only, but if your work offers a 401k and you are married filing jointly, don’t do your own traditional IRA unless your household income is under $109k. A Roth is fine though. It doesn’t matter whether you use your work one or not, it matters whether it’s there.

Yes $6k sounds right.


Last edited by evi on Mon, Jan 03 2022, 1:12 am; edited 1 time in total
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amother




Babypink
 

Post Mon, Jan 03 2022, 1:11 am
amother [ OP ] wrote:
Thanks for the specific types of funds. I thought 6000 was the limit per year for roth ira? Income falls within the limits allowed for a Roth IRA. My work does offer a 401k, can I do both or just my own through vanguard? Not near retirement age.


If your work offer 401k do you put Max in there?
Do they match it?
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evi




 
 
 
 

Post Mon, Jan 03 2022, 1:19 am
amother [ Babypink ] wrote:
If your work offer 401k do you put Max in there?
Do they match it?


The rule is to put at least the amount for the maximum match, or you lose out on lots of free money. After that, whatever you want/ can afford, and also depending on how much money you are comfortable not using until you are 59 1/2. And also depending on whether you are currently in a high tax state or high tax bracket.
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evi




 
 
 
 

Post Mon, Jan 03 2022, 8:47 am
By the way if it's a Roth IRA you can take out some money before you are 59, whatever you contributed but not the capital gains or earnings.
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amother




DarkOrange
 

Post Mon, Jan 03 2022, 8:53 am
You can choose a Target date fund for your Roth. So if you're retiring in 2050 you would choose that date for your Target date fund. This way it balances the stock and bond portfolio to be more risky early on and less risky closer to retirement. Vanguard is the best option for this.

Does your work match for your 401k?
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amother




OP
 

Post Mon, Jan 03 2022, 10:21 pm
They don't offer a match.
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Amarante




 
 
 
 

Post Mon, Jan 03 2022, 10:29 pm
evi wrote:
The rule is to put at least the amount for the maximum match, or you lose out on lots of free money. After that, whatever you want/ can afford, and also depending on how much money you are comfortable not using until you are 59 1/2. And also depending on whether you are currently in a high tax state or high tax bracket.


You always put in the maximum amount that is matched.

If you can get tax sheltered investments through Roth or IRA it is better to go with those because an employer 401 has limited investment options whereas you can use your Roth or IRA to purchase any funds or stocks.
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evi




 
 
 
 

Post Mon, Jan 03 2022, 11:47 pm
Amarante wrote:
You always put in the maximum amount that is matched.

If you can get tax sheltered investments through Roth or IRA it is better to go with those because an employer 401 has limited investment options whereas you can use your Roth or IRA to purchase any funds or stocks.


A Roth IRA is okay even if your employer offers a 401k, but a traditional IRA may not be fully deductible if your employer offers something, and the main point of the traditional IRA is that it's deductible...
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amother




OP
 

Post Tue, Jan 04 2022, 8:58 pm
evi wrote:
A Roth IRA is okay even if your employer offers a 401k, but a traditional IRA may not be fully deductible if your employer offers something, and the main point of the traditional IRA is that it's deductible...
I don't understand?
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