financial portfolio

[Dude#1279435]

I'd been recommended to fill your 401K/IRA first before delving into things like Top 20 indexes (not sure the correct term) etc. Also, part of the goal is to have an emergency fund that lasts a minimum of a year but further if possible. I'd been advised to go half 401K/IRA, and half emergency fund till the latter's goal is met. So the emergency fund would just be sitting in some standard bank account with minimal interest so I have access to it without penalty. I'm wondering if there's a better way for my emergency fund to attain better interest w/o the penalty of pulling it out. Any thoughts?

 

[MaxInValrico]

401Ks are company provided perks. Many plans allow for you to borrow against it and pay it back without having to declare what you borrowed as income in the year you borrowed it. IRAs are your personal retirement account. Deposits into both are pre-tax and you don't pay taxes until withdrawal time.

Roth IRAs may be what you need to look at.

What Is a Roth IRA?
A Roth IRA is an individual retirement account (IRA) that allows qualified withdrawals on a tax-free basis if certain conditions are satisfied. It was established in 1997 and named after William Roth, a former U.S. senator from Delaware.1


Roth IRAs are similar to traditional IRAs, with the biggest distinction between the two being how they’re taxed. Roth IRAs are funded with after-tax dollars; this means that the contributions are not tax-deductible. But once you start withdrawing funds, the money is tax free. Conversely, traditional IRA deposits are generally made with pretax dollars; you usually get a tax deduction on your contribution and pay income tax when you withdraw the money from the account during retirement.2


This and other key differences make Roth IRAs a better choice than traditional IRAs for some retirement savers.


KEY TAKEAWAYS

• A Roth IRA is a special individual retirement account where you pay taxes on money going into your account, and then all future withdrawals are tax free.
• Roth IRAs are best when you think your marginal taxes will be higher in retirement than they are right now.
• You can’t contribute to a Roth IRA if you make too much money. In 2021, the limit for singles is $140,000. (In 2022, the limit is $144,000.) For married couples filing jointly, the limit is $208,000 ($214,000 in 2022).34
• The deductible amount that you can contribute changes periodically. In 2021 and 2022, the contribution limit is $6,000 a year unless you are age 50 or older—in which case, you can deposit up to $7,000.5
• Almost all brokerage firms, both brick-and-mortar and online, offer a Roth IRA. So do most banks and investment companies.

 

[Dude#1279435]

Roth IRAs are best when you think your marginal taxes will be higher in retirement than they are right now.

Not sure.

You can’t contribute to a Roth IRA if you make too much money. In 2021, the limit for singles is $140,000. (In 2022, the limit is $144,000.) For married couples filing jointly, the limit is $208,000 ($214,000 in 2022).34

No issue there, but what sucks is the $6-7,000 limit comparted to a 401K.
I'll be working till I'm dead so not sure on Roth or traditional IRA.

My question was more on what to do with the emergency fund. Basic saving account with interest, mutual fund etc? I was trying to make as much gain on the money but w/o the penalty of withdrawl. I'm guessing savings account, but maybe mutual fund if I don't plan on taking anything out.

 

[MaxInValrico]

The Roth IRA is what you want if you don't want to be penalized for withdrawal. To get $$$ from a mutual fund you first have to sell which currently means you won't get any cash for two days (soon to be one day). Roth IRAs can be invested in assets which accrue.

If in doubt, I would suggest talking to a financial planner.

 

[SithZedi]

Dude, I would suggest looking at setting up both a Brokerage account and an IRA at Fidelity Investments or somewhere similar.
You can park your emergency cash in the brokerage account and earn better interest than a bank would pay on your cash. The Cash in the brokerage could be parked in their CORE fund which is FDIC insured and you get a better interest rate than you would at a back. When you accumulate additional funds, you can use the brokerage account to invest in anything you feel comfortable with. These accounts have a checking account built in like a bank.
Their website has a lot of educational material for you to glean information from.

 

[lovinthehd]

The Roth IRA is easier to figure taxes on, not so easy/beneficial sometimes with the others depending when you need it (altho do look into allowed "emergencies" for tax relief). I used the stock market myself to have both gain potential and liquidity when I was younger. In retirement I'm more cashing in slowly my 401k/SEPIRA accounts.

 

[Trebdp83]

Don’t forget to look up RMD rules for 401Ks and traditional IRAs. Roth IRAs have no RMDs for the living but there are rules for any beneficiaries of those accounts.

 

[Dude#1279435]

The Roth IRA is easier to figure taxes on, not so easy/beneficial sometimes with the others depending when you need it (altho do look into allowed "emergencies" for tax relief). I used the stock market myself to have both gain potential and liquidity when I was younger. In retirement I'm more cashing in slowly my 401k/SEPIRA accounts.

What percentage are you expected to pull out from your retirement?

 

[lovinthehd]

What percentage are you expected to pull out from your retirement?

Not sure I understand that question. I'm pulling out what I need on top of SS, if I live too long it may not last, tho

 

[SithZedi]

I don't know if I understand the question, but think this might be what you are getting at:

For a regular IRA, so long as you wait until after age 59.5, what ever amount you take out is subject to ordinary income tax. So the more you take out, the more tax you pay. Like the more income you make, the more tax you pay. Take out as little as you can. If you are lucky and don't need to take money out at all, you have to start to withdrawals by age 72.

For Roth, after age 60 you can withdraw the whole thing tax free.

 

[davidscott]

If you are still working, then invest in your 401 at least as much to get the company match if they even have one. Best case they have a nice match and also provide access to the Roth. Then you can max it out. If not, then there is no reason to invest there you are better off going on your own. Open an account at a low-cost brokerage like Fidelity or Vanguard (or others) and split the difference between the Roth and the regular IRA that way you can be playing both sides of the future tax rates. And be careful hiring a financial planner make sure you understand their fee structure. Hope this helps.

 

[Trebdp83]

If one is still working and has not taken any retirement out and has also not reached 62 and filed for Social Security, they would do well to take some time to think about what they need and when they will need it going forward. Up to 85% of S.S. benefits can be taxable when combined with other forms of income and some states tax S.S. benefits as well. Life happens and many with a full retirement age of 66 filed for S.S. at 62 and took a 30% cut in benefits. Waiting until 70 would have given them 132% of benefits. Those with a full retirement age of 67 can get 124% of benefits if they wait until 70 to get them. It can be difficult for many to wait. It's a hell of a balancing act and you'll never live as long as you want to but the money might run out before you do. Everybody has a different set of circumstances and an appointment with a financial advisor is not a bad idea. Just follow it up with an appointment at your tax preparer's office and run some projections if retirement is right around the corner.

 

[Dude#1279435]

Can you rollover a 401K into a non-401K account like I dunno Roth or IRA?

 

[Dude#1279435]

Not sure I understand that question. I'm pulling out what I need on top of SS, if I live too long it may not last, tho

Your cashing in slowly. What's the yearly minimum percentage you have to take out?

 

[lovinthehd]

Ah, haven't had to worry about RMD yet as I'm not that old yet....but it shouldn't be particularly onerous and altho have been just withdrawing from a sepira so far, the 401k is next up before then too. This help? https://www.aarp.org/work/retirement-planning/required-minimum-distribution-calculator.html

Your cashing in slowly. What's the yearly minimum percentage you have to take out?

 

[Trebdp83]

Can you rollover a 401K into a non-401K account like I dunno Roth or IRA?

Yes, but there are tax implications that can be minimized depending on how you do it. That's where those appointments come into play.

 

[kurtkrum]

My question was more on what to do with the emergency fund. Basic saving account with interest, mutual fund etc? I was trying to make as much gain on the money but w/o the penalty of withdrawl. I'm guessing savings account, but maybe mutual fund if I don't plan on taking anything out.

I'm not an investment professional, and you should talk to one. I'm going to recommend a Series i bond. You buy them off of Treasurydirect.gov. they pay an interest rate based on inflation. This prevents your safety fund cash from sitting idle during periods of inflation.

Two issues with series I bonds:
1. There is a penalty to sell them early. I think you lose 3 months of interest or something like that. Definitely research restrictions and penalties.
2. You can only invest $10,000 per year.

There are also TIPS that you can consider.

Inflation is high. Cash sitting around loses value every day.

 

[mtrycrafts]

One point of interest if anyone of you have IRA is that you could consider rolling some into a Roth starting at age 60 to limit your future RMD forced takeout.
Yes, you would pay some taxes, but you'd pay more most likely when the forced takeout, RMD, come around.
Also, check out which retirement vehicle RMD must come from as some, like an IRA can come from any IRA but perhaps that 401k may have to come from that account.

If one elects a rollover to Roth, you must not take possession but let the financial company do it directly as they know the paperwork drill.

 

[Trebdp83]

Some get bitten when wanting to do a rollover and get a check in hand for the new outfit. You do have 60 days to get it done without tax penalties but a trustee to trustee transfer is the safer way to go.

 

[snakeeyes]

The emergency fund should be in a separate savings account. Keep 3mo expenses minimum. This will give you and your family some peace of mind.

Personally it makes zero sense to me for anyone with a cc balance to be trying to invest other than their company 401k / Roth IRA / HSA. Those cc interest charges are crazy.