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Roth IRA???


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A Roth IRA isn't an actual fund. It is a category of investment, think of it like an umbrella. Every dollar you put under the umbrella gets to grow tax free. You can invest in anything you want under that umbrella, you could even stick it into a money market account if you really wanted to and get tax free interest. The catch is you can only put $5,000 in each year.

To answer your question, look at broad market funds. I really like their mid-cap fund VIMSX. You could also look at VTSMX for a total market fund. People talk about the Dow and S&P all the time but there are literally thousands of other stocks out there that aren't covered on either of those indeces. For some added safety you could look at their Dividend Yield fund, VHDYX.

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Dave Ramsey is good for getting out of debt. I used him and it worked. But as you get more knowledge, Dave Ramsey seems to lack sophistication when it comes to investing. While deployed, I found

I enthusiastically second Vanguard. I used to have my investments with a full service broker until I read The Investor's Manifesto by William Bernstein. It is a great book and I highly recommend it

A Roth IRA isn't an actual fund. It is a category of investment, think of it like an umbrella. Every dollar you put under the umbrella gets to grow tax free. You can invest in anything you want und

Dave Ramsey is good for getting out of debt. I used him and it worked. But as you get more knowledge, Dave Ramsey seems to lack sophistication when it comes to investing.

"2"... Dave is good for the masses because he helps folks get out of debt that would otherwise have wallowed in it forever. When you think about it, what is better, putting $500K away in a savings account WHILE you have $500K in unsecured debt, or paying off that debt and learning to live within your means, while removing the obstacles to wealth, i.e. debt and spending problems. Dave Ramsey is a good means to a STABLE financial future for most folks... But I agree, those who want to take their "portfolio" to the next level should move beyond Dave, once they have their debts and spending habits under control.

"2" on the Bogleheads!

Edited by Carpetbagger
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not to derail, but does anyone have a suggestion for a high-yield savings fund? my USAA account is only yielding .50% APY, and a google search reveals Palladian offering 1.50%.

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Young loggy here looking to switch over from E. Jones to Vanguard and paying more into my retirement in the coming years. Does anyone recommend investigating any specific funds or have most of you guys been pretty happy with their standard Roth?

It depends on how involved you want to be on your investing. If you want a fire and forget type fund, just use their all in one retirement fund series for your age group; like the VFIFX if you plan on retiring around the year 2050. If you want to accept more risk you can buy a number of their index funds. If you're interested in this, I'd recommend reading Bernstein's book as he lays out a couple suggested investment distributions. I split my ROTH IRA roughly along the lines he recommends but a little lighter on the bonds as I don't mind a higher risk. Figure out what risk level you can accept and allocate accordingly. I currently own their 500 Index Fund, Small-Cap Index Fund, Total International Stock Index Fund, Growth Index Fund, Total Stock Market Index, and Total Bond market Index.

With either the all in one or the split funds, you can set up the automatic investing and only think about checking it every five years or so to make sure you still have the risk exposure that you want.

Whatever specific funds you choose, go with index funds. In the long run, they will generally have a higher return than actively traded funds for many reasons.

As for the family friend broker, that is exactly the type of setup I had at my full service brokerage. It was tough moving away, but see the above post on the amount I expect to make/save with Vanguard versus the family friend. Also, having seen some of the troubles my relatives have had with mixing family and business, I try to avoid that mix at all costs.

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Does anyone have any experience with changing mutual fund companies? I've been with T Rowe Price for the last 5 years and am very happy, however the expense ratios at Vanguard are way less and I've heard nothing but good things from people who use them, so am considering the move. I currently have my Roth IRA and mutuals all with T Rowe Price and would like to make the jump, but don't want to get screwed on taxes. Thanks.

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Does anyone have any experience with changing mutual fund companies? ... I currently have my Roth IRA and mutuals all with T Rowe Price and would like to make the jump, but don't want to get screwed on taxes.

What you want is to "transfer custodianship" of your IRA--taxes don't come into play (nothing gets sold & your account transfers intact). Vanguard (and any other company offering IRAs) will have the forms.

Depending on your agreement w/ T. Rowe Price, they may charge you a fee ($75-ish seems to be the vogue) to execute; I recommend you pay that from funds outside the IRA (as you should any fees related to an IRA), otherwise you're effectively withdrawing money from the IRA that you can't put back in.

Edited by Jughead
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What you want is to "transfer custodianship" of your IRA--taxes don't come into play (nothing gets sold & your account transfers intact). Vanguard (and any other company offering IRAs) will have the forms.

Depending on your agreement w/ T. Rowe Price, they may charge you a fee ($75-ish seems to be the vogue) to execute; I recommend you pay that from funds outside the IRA (as you should any fees related to an IRA), otherwise you're effectively withdrawing money from the IRA that you can't put back in.

Rog, sounds like Roth IRA will be a tax free transfer but I'll absorb tax consequences of selling my other existing mutuals right? I guess another option is to roll the Roth IRA to VG and just keep the mutuals at TRowe Price while opening up new ones at Vanguard and slowly building them over time. Thanks for the tips.

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Assuming you want to sell those non-IRA mutual funds and buy Vanguard funds then yes, you will incur taxes. But you also should be able to move the funds over intact just like the IRA and not pay any taxes (handy if you bought stocks six months ago and want to avoid the short-term capital gains). In the long run, it will most likely be better for the bottom line to sell the higher cost funds and buy Vanguard funds.

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  • 6 years later...

ROTH IRA question for anyone in the know. I contributed the max amount, $5,500 each, to my and my wife’s accounts. My taxable income, due to 10 months tax free and using 14 days of tax free leave in one of the other months came out to around $10,100. Normally you can’t contribute more than your income, but is it taxable income or actual income that they care about?

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You are good.  Direct quote from the regs say you just need compensation (versus taxable income or AGI or W-2 income) of at least $11,000.  They define compensation as:

"Compensation includes wages, salaries, tips, professional fees, bonuses, and other amounts re-ceived for providing personal services. It also includes commissions, self-employment income, nontaxable combat pay, military differential pay, and taxable alimony and separate maintenance payments."

https://www.irs.gov/pub/irs-pdf/p590a.pdf

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In reviewing this whole thread, I didn't see anyone mention that you can now choose the ROTH TSP option for any TSP contributions.  I will be upfront that I am a firm believer in ROTH IRAs (I chose that option as soon as it was first available around '97) and therefore jumped on the ROTH TSP option as soon as I saw it. <<CAVEAT: I am not a tax professional and am purely stating my opinions based on my own research and view of the world...your individual situation is not the same as mine and results will vary.>>  I am gladly giving up any tax savings now to reap the tax free withdrawals when I'm retired (*tax free withdrawal of the gains too).  Granted there are nasty articles out there now and again about how Congress could change the laws and go after our IRA accounts at some point but I choose to believe that won't happen and if it does I will meet you in DC with a pitchfork in hand.  So, if you are a ROTH believer like I am then go to your TSP account and choose the ROTH option for future contributions. If I were a brand spanking new AF member in 2018, I would elect to contribute a minimum of 5% of my base pay to TSP to take advantage of the full matching under BRS (you are only auto-enrolled at 3% of base pay so you are "losing" out on free money if you do nothing) and I would designate it all as ROTH (see above for my take on the ROTH).  Another comment to those unfamiliar with ROTH vs. Traditional retirement accounts is that I believe (quick google search on the topic can confirm) we are in a period in history where our effective Federal Tax rate is as low as ever (post 1940) (and that was before the recent Tax Cut Bill passed).  So, would you rather pay taxes now at historically low rates or 20-30 years in the future when who knows what the rates will be (I might put some money on them being higher)?  Another "fun" exercise you can do is start predicting your retirement income and what will be taxed or not taxed.  For example,  Soc Security payments (taxed), Military Retirement Pay (taxed), Traditional IRA/TSP withdrawals (taxed), etc.  I bet you will be like ...hmmm, how could I get some retirement income that isn't being taxed.  ROTH!  There is also a "back door ROTH" contribution option out there.  I have researched it but not executed on that.  I probably would have to consult with a tax professional to ensure I did it correctly.   

On the "where to invest it" side of things, for the non-TSP accounts, a good book to read by novice investors (or like me...investors who have tried to beat the market and failed) is "The Intelligent Investor" by Benjamin Graham.  Warren Buffett calls it "By far the best book on investing ever written".  So, I would be way out of my league to try to provide any better recommendation of the book.  I got the revised addition by Jason Zweig that provides up to date comments on each of the chapters to apply to current day investing (original edition was written in the '70s).  It is on my iBooks so I can refer to it when I feel like doing some risky investing (AMZN, TSLA, Bitcoin...get my drift?).  Cutting to the chase...previous thread comments on using Vanguard and other such low cost investing options are spot on.  Take a look at www.betterment.com as well for hands off investing (robo advising) at low cost.  

Final comments/thread hijack if you will, if anyone really wants to ramp up their savings and even retire "early", I really recommend Mr. Money Mustache's site (I found it through another Baseops Forum post)...

             https://www.mrmoneymustache.com/ 

Few things I'm executing on per the advice from the website...I'm renting a house that is well below my BAH (I'm on a three year VLPAD EAD tour so no reason to buy where I'm at),  I'm renting out the house I own at my previous location for well over my monthly mortgage payment, I can walk or bike to my office and do most of the time, I rarely eat out (thank you to my wonderful wife for all the amazing meals!), and paying myself first (IRAs, TSP, and now an early retirement fund).   

Edited by VigilanteNav
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21 hours ago, VigilanteNav said:

In reviewing this whole thread, I didn't see anyone mention that you can now choose the ROTH TSP option for any TSP contributions.  I will be upfront that I am a firm believer in ROTH IRAs (I chose that option as soon as it was first available...

The BRS match will always go towards traditional. You can put your 5% election toward Roth but there's no choice for the government match. This is part of reason as to why you can contribute  $19k or whatever it is this year and still receive the full 5% match.

Edited by Bojangles
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1 hour ago, Bojangles said:

This is part of reason as to why you can contribute  $19k or whatever it is this year and still receive the full 5% match.

This has nothing to do with Roth vs Traditional. You as the employee can contribute $18.5K, and that’s an IRS limit. You’re employer can contribute more and that’s not governed by that same cap.

Total contributions, meaning you + employer, cannot exceed $55K. The limits are the same whether you choose traditional or Roth.

Edited by nsplayr
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23 hours ago, VigilanteNav said:

 Another comment to those unfamiliar with ROTH vs. Traditional retirement accounts is that I believe (quick google search on the topic can confirm) we are in a period in history where our effective Federal Tax rate is as low as ever (post 1940) (and that was before the recent Tax Cut Bill passed).  So, would you rather pay taxes now at historically low rates or 20-30 years in the future when who knows what the rates will be (I might put some money on them being higher)?  Another "fun" exercise you can do is start predicting your retirement income and what will be taxed or not taxed.  For example,  Soc Security payments (taxed), Military Retirement Pay (taxed), Traditional IRA/TSP withdrawals (taxed), etc.  I bet you will be like ...hmmm, how could I get some retirement income that isn't being taxed.  ROTH!  There is also a "back door ROTH" contribution option out there.  I have researched it but not executed on that.  I probably would have to consult with a tax professional to ensure I did it correctly.   

With all of the favorable tax treatments of income you get in the military you are probably correct that a Roth option is best. But what you really have to consider is your marginal rate vs. effective rate. Every dollar you contribute to the traditional TSP or a Traditional IRA comes off the top. You are deferring taxes at your current marginal rate. When you get to retirement what will matter is your effective tax rate on your combined income. If you stay a full 20 years and are replacing 50% of your base pay + social security + TSP withdrawals then this probably isn't as big a deal. However if you aren't going to have a military (or any other) pension, the effective rate on your withdrawals at retirement will likely be lower than your current marginal rate. Under the old tax code if you were in the 25% marginal rate then a traditional was most likely better. I haven't really run the numbers lately if the 22% rate works out the same. 

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On 1/28/2018 at 8:05 AM, MilitaryToFinance said:

With all of the favorable tax treatments of income you get in the military you are probably correct that a Roth option is best. But what you really have to consider is your marginal rate vs. effective rate. Every dollar you contribute to the traditional TSP or a Traditional IRA comes off the top. 

Bingo!  No one seems to realize this.  I tried to argue this point in another thread about 3 years ago, but everyone lost their minds saying it was the effective rate, or that I didn't understand tax brackets, etc, so I didn't bother.  Thanks for bringing this little nugget back into the discussion.  No doubt our effective rates are super low, especially with tax free earnings from deployments.  But if you contribute $5500 to a Traditional IRA, that $5500 is deducted from the top of your income for the year, and would have been taxed at the highest marginal rate.

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