1. This site uses cookies. By continuing to use this site, you are agreeing to our use of cookies. Learn More.

New Retirement Saving Option for Beginners

Discussion in 'Members' Lounge' started by reckedracing, Nov 5, 2015.

  1. reckedracing

    reckedracing TTIWWOP VIP

    Messages:
    21,057
    Likes Received:
    1,180
    Joined:
    Dec 5, 2002
    Location:
    NY
    Any of you younger guys starting out, or perhaps you haven't ventured into retirement savings or don't have a 401k or retirement plan through work... here is a new option from the Dept of Treasury that will help you get into the mix.
    Its basically a ROTH IRA that's backed by the Treasury. No brokerage fees. $5500 per year ROTH limits, and it can grow until you hit 15k and then you can transfer to a normal ROTH account. It will not lose value.
    The annualized rate for last year was about 2% which is more attractive than any savings account you can get these days. The only downside is the money will not be accessible. But its free and easy, good intro to retirement savings.

    https://myra.gov/

    *Interest earned is at the same rate as investments in the Government Securities Fund, which earned 2.31% in 2014 and an average annual return of 3.19% over the ten-year period ending December 2014.

    Its not comparable to stock market gains these last couple years but there is also no risk of a downturn and losing money.
    I had to lock into a 2 year CD to get 2% and that was only a special promo offer.
     
    jamesA and BigJ like this.
  2. get_nick

    get_nick These snozzberries taste like snozzberries... VIP

    Messages:
    11,939
    Likes Received:
    1,059
    Joined:
    Apr 21, 2003
    Location:
    Washington State
    The best part of this is that you can pull the funds tax-free and without penalty if needed. It's a great option for people who have very little discretionary income.
     
  3. BigJ

    BigJ I'm just about that action Boss. VIP

    Messages:
    11,091
    Likes Received:
    408
    Joined:
    Oct 4, 2002
    Location:
    Washington
    I really need to start a roth asap. Really lagging.
     
  4. B16

    B16 Super Moderator VIP

    Messages:
    11,539
    Likes Received:
    534
    Joined:
    Sep 30, 2002
    Location:
    yay area, CA
    Is this capped by income like nearly every other tax deferred savings option I can't use.. :(
     
  5. Drake

    Drake Well-Known Member VIP

    Messages:
    8,633
    Likes Received:
    420
    Joined:
    Oct 6, 2003
    Very interesting. Thanks for the heads up buddy. My wife and I are really trying to get serious about this kind of thing.
     
  6. jamesA

    jamesA Well known pissed off telephone guy VIP

    Messages:
    16,129
    Likes Received:
    1,020
    Joined:
    Aug 10, 2003
    I've never bothered to look into this, so excuse my complete ignorance... but if I start doing this at say 40 a month, do I have to keep putting a minimum of 40 in? Or if things get tight does it matter if you put anything into it at all? Can you dump as much into it as you want per month?

    Explain to me pulling the funds pre-tax vs post-tax, fees, penalties, etc. You can pull your entire IRA out without paying taxes on it before putting the entire sum into another IRA? Is that what that means?
     
  7. get_nick

    get_nick These snozzberries taste like snozzberries... VIP

    Messages:
    11,939
    Likes Received:
    1,059
    Joined:
    Apr 21, 2003
    Location:
    Washington State
    myRA is VERY different from a traditional IRA.

    Pre-tax is like a 401k, the money is distributed straight from you employer into a retirement account that they organized with a brokerage company. You don't pay taxes today since they don't ever make it to your paycheck. The funds are diverted to a retirement account before they are taxed. This has many benefits 1) It's pre-tax dollars. Most people will be in a lower tax bracket when they retire, so you get taxed less later. 2) You lower your tax bill this year. Since you technically have less income, you have less money getting taxed. 3) out of sight, out of mind. you don't think about it when you dont' see it.

    Post-tax is like a Roth. You can divert money straight from your paycheck or transfer from your bank account. The annual limit is only $5500 though. But the benefit is, if you wait until 59 1/2, you don't pay taxes on the earnings. If you pull money out before 59 1/2, you pay taxes on growth AND a 10% penalty.

    Fees are fees. Management fees, trade fees, brokerage fees, etc.

    Penalties are mostly for early withdrawal. To entice you to keep the money in the account, the government charges a 10% fee for early withdrawal. Why the government should get 10% of your money that is already yours is a whole other issue.

    You can technically pull IRA money out for 60 days without a penalty as long as you put it back into another IRA. This is generally considered a "rollover", but it's a way to get short term cash by using a loophole. It's an option in an emergency, but a smart adviser will steer you away. Any part that you don't put back in after 60 days is penalized AND taxed at your current year's tax rate.

    The reason you can pull funds out of myRA without taxes is because it was invented by the government and they can do whatever they want. When you by a treasury bond, you are lending money to the government. Thanks to the government's graciousness and goodwill, they are literally paying you 2% per year to give them a loan. (considering the current 30 year treasury is 3%, sounds like you get a raw deal) So this myRA is sort of a hybrid savings account that can be used to roll over into a Roth. You get savings better than a checking account and the government gets a super cheap loan.
     
  8. get_nick

    get_nick These snozzberries taste like snozzberries... VIP

    Messages:
    11,939
    Likes Received:
    1,059
    Joined:
    Apr 21, 2003
    Location:
    Washington State
    yep, just like a roth.

    Q: Who will be eligible to contribute?

    A: Individuals who earn up to $129,000 and couples who earn up to $191,000 will be eligible
     
    Last edited: Nov 6, 2015
  9. B16

    B16 Super Moderator VIP

    Messages:
    11,539
    Likes Received:
    534
    Joined:
    Sep 30, 2002
    Location:
    yay area, CA
    Oh, so this has to be done through an employer?

    And I fucking hate the fact the put this shitty income cap on savings plans like these. I've been telling my wife she should go back to work just so we can put another $18,000 a year into her own 401k plan. Because she is a stay at home mom and married to me, there is no other (besides my 401k) tax deferred plan she/we can use.
     
  10. get_nick

    get_nick These snozzberries taste like snozzberries... VIP

    Messages:
    11,939
    Likes Received:
    1,059
    Joined:
    Apr 21, 2003
    Location:
    Washington State
    Edited, I think I copied that from a ROTH IRA page. myRA is not set up by your employer, you set it up online like you would any other retirement/government option.

    Here is the myRA document excerpt for income limits. https://myra.gov/files/myra-agreement-terms-conditions.pdf
    2015-11-06 08_11_33-https___myra.gov_files_myra-agreement-terms-conditions.pdf.png

    Here is an option for a tax deferred savings account.

    http://www.investopedia.com/terms/i/independent_401k.asp

    Savings and retirement should be done in this order:

    1) 6-12 months EXPENSES (not always income) emergency fund
    2) Employer funded account, ie 401k, Roth 401k, etc. (contribute up to the matching amount)
    3) Roth IRA
    4) Trading/Brokerage/Investments
    5) Hookers and Blow
     
  11. reckedracing

    reckedracing TTIWWOP VIP

    Messages:
    21,057
    Likes Received:
    1,180
    Joined:
    Dec 5, 2002
    Location:
    NY
    I think most of the questions were answered so I will only focus on the things I think were missed.
    You can still do a tax deferred retirement account even if you do not have a 401k and that is the traditional IRA option. You are using post tax money, but then its a deduction on your 1040.
    That will lower your current years income (tax deferral). ROTH is typically better bang for the buck generally speaking, unless you are currently in a 25%+ tax bracket. Then you need to weigh the pros and cons.
    The $40 per month is only if you set up automatic contributions. I would assume you can cancel or alter that amount at any time, but I'm not 100% sure. If you aren't sure that you will be able to consistently do $40 per month then it might be better to just do whatever you can only a monthly basis. I do not believe there is a monthly top end cap besides the yearly limit of $5500. But $40 per month should be a goal and the automatic payment might help you maintain that focus.
    I never ever advise the 60 day loan from a retirement account. This is an absolute last resort option. Typically people in this boat are not the ones that will be able to come up with the 10% penalty + tax if they fail to meet the 60 day deadline. And this type of distribution/rollover has a higher chance of triggering an automatic letter from the IRS and then we have to go to bat for the taxpayer with the documentation to back up the dates and specifics on the transaction.

    "they are literally paying you 2% per year to give them a loan. (considering the current 30 year treasury is 3%, sounds like you get a raw deal)"
    I don't know how to quote here so i'm just pasting that.
    the 30 year pays 3% but you're locked in for 30 years. It looks like anything under the 7 year T bill is paying less than 2%
    This is actually a great rate assuming you are looking in the 3 ish year range before you hit your 15k max. i would not say this is a raw deal unless we are using the terminology differently, not trying to split hairs here.

    You do not need to do this through your employer, it looks to me like you can just set it up right on that website from the comfort of your own home.
     
    jamesA and Briansol like this.
  12. Briansol

    Briansol Admins Admin VIP

    Messages:
    21,456
    Likes Received:
    2,117
    Joined:
    Nov 18, 2007
    Location:
    CT
    Mike, have you considered doing a back door roth ira?
    http://www.vanguard.com/pdf/ISGIRA9.pdf

    it will help you get money out of min distribution accounts so you can earn on it after 70.5 instead of being forced to pull it. Pull form the required dist. accounts.
    https://www.irs.gov/Retirement-Plans/RMD-Comparison-Chart-(IRAs-vs.-Defined-Contribution-Plans)

    i would alter nick's order with this.


    1) 3- months EXPENSES cash. (short term issues)
    2) 12 CDs with $500 in them each, opened once per month over the course of a year for a year term, or 24 cds for a 2 year term (if the rate actually warrants it).
    Assuming you won't need it for a while, you will have steady income for a year or 2 if things go wrong, and earn a better rate. If things go belly up, you can always take the penalty and have it as cash same day. (long term issues. put more than 500 if you can and if you keep these for 20 years without hitting them, they will truly float your monthly)
    3) Employer funded account, ie 401k contribute up to the matching amount, more if you are near a tax bracket change to bring your adjusted gross down and not get whacked extra on it. Don't put money in any managed fund (ie, 2050 retirement target date.) Those have 1-1.5% management fees. Use index funds like s&p500, total stock markert, etc
    4) Employer sponsored HSA account. Max it out. It's the best thing in the world if you're relatively healthy. Acts like trad. ira (taxed at retirement pull) if you don't use the money for health care (goes both in and out tax free!)
    5) Personal Roth IRA
    6) Employer linked account, ie Roth 401k. Likely no match but an easy way to get some left over money in a tax advantageous account

    if you still have cash to burn after maxing out the above, you really have nothing to worry about in terms of retirement.

    People with cash trading accounts who haven't maxed out the above puzzle me. Only thing i can think of it being a good idea is if your employer plan has bad funds in it.
     
  13. get_nick

    get_nick These snozzberries taste like snozzberries... VIP

    Messages:
    11,939
    Likes Received:
    1,059
    Joined:
    Apr 21, 2003
    Location:
    Washington State
    To caveat my following post, the answer to 99.999% of investment questions is, "it depends". There are always variances in strategies, companies, etc. So it pays to do as much research as you can.

    I always advised people to be prepared for an emergency where they are unemployed for about a year. Whether it's injury, layoffs, whatever. If you want to have staggered CDs, that's simply a strategy to gain more interest, and I wasn't going into a detailed strategy. B and I are saying the same thing, just with different strategy.

    The managed funds don't always have high expenses. Vanguard, one of the biggest retirement funds in the country, is very low. Look at the funds in your company retirement account. Bigger companies usually have better options. If you are doing your own IRA, there are often times ETFs that track mutual funds with similar results and lower fees.
    2015-11-06 09_22_53-Vanguard - Target Retirement 2050 Fund - Fees & Minimums.png


    I personally don't do the HSA because I go to the doctor, a LOT. I also have great options such as physical therapy and massage care. I can get 60 massages a year for less than $15/each. So i take advantage. But if you don't go often, you can use the tax deferred savings.
     
  14. Briansol

    Briansol Admins Admin VIP

    Messages:
    21,456
    Likes Received:
    2,117
    Joined:
    Nov 18, 2007
    Location:
    CT
    If you get options to vanguard funds, you are lucky. Even more so if you get Admiral funds. I've found that most 401ks i've had, don't get many options for good funds. My current plan offers 2. The rest are >1% Oppenheimer and other garbage and a few better fidelity select funds.

    Still, at .18% the fees are still double most non target funds. VFIAX (S&P tracker) and VTSAX (total market) are only .05%. it's more than 3 times cheaper in fee cost. Yes, it's penny pinching, but re-invested and compounded over the years it does make a difference.


    My company has a pretty good HSA. I know some other places have a 6k deductible. I have a 1500 deductible, money i allocate towards it is company sponsored. So, i basically get a auto savings 3350 raise by maxing out my contribution.

    the regular pcp account has a 1k deductible and costs a little more monthly. The difference is a few bucks on the tail end if you use it a few times (check up, etc). In the longer run, the hsa is more profitable, even if you are sick, as it has lower total out of pocket costs too should something serious happen.
    I don't use my hsa money for any of my doctor stuff... i pay cash. I'm using it solely as a savings vehicle for my old age when i'll surely have high medical costs. More savings :) Leave the hsa money for when i really need it.
    I have an account that has brokeage options after you have a 5k balance too. So, i can invest that hsa money in vanguard funds
     
  15. B16

    B16 Super Moderator VIP

    Messages:
    11,539
    Likes Received:
    534
    Joined:
    Sep 30, 2002
    Location:
    yay area, CA
    It looks like I need to be a business owner to do the independent 401k.

    Already have 12 month emergency fund on expenses.
    I max out the federal limit for my 401k, $18k a year.
    Ineligible for a Roth IRA or a Traditional IRA.

    Considered #4. I just find it fucking shitty that we can't contribute another $18k a year to a spouse 401k simply because she does not work.

    #5 is actually #3. :)

    I was not aware of this backdoor Roth. Thank you for showing me!

    1.) I keep 12 months because kids...
    2.) I haven't considered this, looks like a good idea to me.
    3.) I do the fed max on my 401k, but will look into the type of fund I have. Was not aware of management fees vs. no fees.
    4.) I have kids and a wife who manages to see a dr at least once a month. My medical expenses are pretty high. I tried an HSA once and got royally fucked.. lol I do use the FSA though.
    5.) Ineligible.. :(
    6.) Ineligible.. :(
     
  16. jamesA

    jamesA Well known pissed off telephone guy VIP

    Messages:
    16,129
    Likes Received:
    1,020
    Joined:
    Aug 10, 2003
    Welp, I just need to confirm my bank account and then I'll be getting started. Thanks for this, I've been thinking about this for a few months now and never really knew where to start.
     
    reckedracing likes this.
  17. reckedracing

    reckedracing TTIWWOP VIP

    Messages:
    21,057
    Likes Received:
    1,180
    Joined:
    Dec 5, 2002
    Location:
    NY
    Keep track of your contributions for the year. You will probably receive a Form 5498 reporting your contributions that you should give to your tax preparer so they are reported on your tax return.
    Assuming this is like a ROTH IRA you should be able to continue contributing until April 15th of 2016 and have it apply towards your $5500 limit for 2015. Then once April 15th rolls around you should start on your 2016 contributions to try and hit the max.
     
  18. jamesA

    jamesA Well known pissed off telephone guy VIP

    Messages:
    16,129
    Likes Received:
    1,020
    Joined:
    Aug 10, 2003
    I was thinking about seeing if I could keep them small, try to do 20-40 a week out of each check just to get the hang of it then put more toward it later once I start getting this other debt lowered. I really doubt I'll hit anywhere near the 5500/annually.
     
Verification:
Draft saved Draft deleted

Share This Page