Roth IRA question...

Check this out ... http://www.roth401k.com/

From what I've read, advice is to max out this roth 401k because it holds more advantages to those who expect a higher tax bracket when retiring (yourself) .

from: http://www.rothira-advisor.com/roth401k.htm

It is important to note however that Roth IRAs and Roth 401(k)s and Roth 403(b)s are not exactly the same. The big difference, and it's an extremely important one, is that the new Roth 401(k) and Roth 403(b) plans are available to a much larger group of people. Roth IRA contributions are subject to adjusted gross income (AGI) limits. For instance, in 2007 they are only available to married couples filing jointly with an AGI of less than $166,000, single individuals with an AGI less than $109,000, and most married individuals filing separate returns with an AGI less than $20,000.

These restrictive AGI limitations (which are indexed for future inflation) do not apply to the new Roth 401(k) or 403(b) plans, which means higher income individuals and couples can gain entry into the tax-free Roth environment.This change provides an unprecedented ability for employees to expand or in some cases begin to benefit from investments that will grow tax-free. The 2007 401(k) and 403(b) employee contribution limits are $15,500 (or $20,500 if you are 50 or older) per year. It is important to note these numbers reflect total employee contribution limits. In other words you cannot make a $20,500 contribution to the traditional portion of the 401(k) plan and a $20,500 contribution to the Roth portion of the 401(k) plan.

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from what I understand - option 1 would be your best bet. in essence, you want to maximize the free money that you get added to your accounts: this can come in two ways - by your employer match in your regular 401k and by avoiding taxes in your roth.

etf said:

from what I understand - option 1 would be your best bet. in essence, you want to maximize the free money that you get added to your accounts: this can come in two ways - by your employer match in your regular 401k and by avoiding taxes in your roth.

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I agree.

2) Yes, the advantage will compound over the next 60 years. You want to take advantage of your current low tax bracket

3) No

TysonCook said:

Thanks for the answers, I changed my savings and will set up a Roth IRA this week. Now how to chose an IRA.....

Guess that one question begets (sp) another!
Thanks again!
T

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Go to Vanguard.com. Open a Roth IRA. It will ask you what mutual fund you want to invest in within the Roth IRA. Pick a Target Retirement Fund. Max it out every year in which you have sufficient taxable income. That will suffice until you're ready to learn more.

ActiveDutyMD said:

Go to Vanguard.com. Open a Roth IRA. It will ask you what mutual fund you want to invest in within the Roth IRA. Pick a Target Retirement Fund. Max it out every year in which you have sufficient taxable income. That will suffice until you're ready to learn more.

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go to fidelity.com. open a roth ira, a "fidelity account" and a mySmart Cash account. for the roth, pick a target retirement fund, and max it out. for the general investing account, pick fidelity select money market and stash money in there until you know how to invest it. use the mySmart Cash account as your checking account, and get 3.5% on your checking account if you need the security of FDIC, or stash some of it away into fidelity select money market and get 5.something on that money too. and never worry about paying atm fees either.

TysonCook said:

I think money is freaking sweet, and i want more of it.

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haha, that's the idea. and yes, you have till april 15, 2008 to make your 2007 contribution.

ActiveDutyMD said:

Go to Vanguard.com. Open a Roth IRA. It will ask you what mutual fund you want to invest in within the Roth IRA. Pick a Target Retirement Fund. Max it out every year in which you have sufficient taxable income. That will suffice until you're ready to learn more.

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DP

ActiveDutyMD said:

Go to Vanguard.com. Open a Roth IRA. It will ask you what mutual fund you want to invest in within the Roth IRA. Pick a Target Retirement Fund

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Done already. 2050, here I come.

2050? you must be really young

TysonCook said:

Opened the Fidelity Roth IRA, lowered my 401K contribution to max the match, and will invest to make for 4k this year, then 4k next, and then 4k the last (then I'm attending status, and hopefully will be above the limit).

Thanks for the advice.

Another question, for Roth IRA's that you do a monthly deposit:
1) Do you buy into the funds monthly, quarterly, yearly etc knowing that there will be a fee for the purchase?

Thanks!
T

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What are you buying that you have to pay a fee for? I pay ZERO fees with my Roth IRA. Are you buying load funds, individual stocks/ETFs, or non-fidelity mutual funds through your fidelity IRA?

ActiveDutyMD said:

Go to Vanguard.com. Open a Roth IRA. It will ask you what mutual fund you want to invest in within the Roth IRA. Pick a Target Retirement Fund. Max it out every year in which you have sufficient taxable income. That will suffice until you're ready to learn more.

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I love my Target Retirement Fund.

i love fidelity.

etf said:

i love fidelity.

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fidelity has a pretty good checking acct now that is brand new--mySmart cash, can link to your fidelity brokerage accts. gets 3.5% APY interst, debit card with no atm fees (and refunds for other machines' fees if it is a machine w/visa logo, which most all are..) free checks. no hitches, no minimums. gimmee!

blanche said:

fidelity has a pretty good checking acct now that is brand new--mySmart cash, can link to your fidelity brokerage accts. gets 3.5% APY interst, debit card with no atm fees (and refunds for other machines' fees if it is a machine w/visa logo, which most all are..) free checks. no hitches, no minimums. gimmee!

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i think i mentioned this in another thread, but the smartcash account isn't "pretty good" - it's phenomenal. i've pretty much consolidated my entire financial life at fidelity.

TysonCook said:

Opened the Fidelity Roth IRA, lowered my 401K contribution to max the match, and will invest to make for 4k this year, then 4k next, and then 4k the last (then I'm attending status, and hopefully will be above the limit).

Thanks for the advice.

Another question, for Roth IRA's that you do a monthly deposit:
1) Do you buy into the funds monthly, quarterly, yearly etc knowing that there will be a fee for the purchase?

Thanks!
T

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$5k for 2008!! And at least $500 increase every subsequent year. I'm getting a head start on 2008 right now...

ActiveDutyMD said:

What are you buying that you have to pay a fee for? I pay ZERO fees with my Roth IRA. Are you buying load funds, individual stocks/ETFs, or non-fidelity mutual funds through your fidelity IRA?

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^^ What he said. No-load mutual funds means you can make a contribution every day if you choose.

etf said:

i think i mentioned this in another thread, but the smartcash account isn't "pretty good" - it's phenomenal. i've pretty much consolidated my entire financial life at fidelity.

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Question for anyone, or maybe ETF since you have a my smartcash account
This is from the fidelity site.

Fidelity said:

All Fidelity ATM withdrawal fees will be waived for your mySmart Cash AccountSM. In addition, your mySmart Cash AccountSM will automatically be reimbursed for all ATM fees charged by other institutions while using a Fidelity Visa® Gold Check Card linked to your mySmart Cash AccountSM at any ATM displaying the Visa®, PLUS® or STAR® logos. The reimbursement will be credited to the mySmart Cash AccountSM the same day the ATM fee is debited from the account. Please note Visa does charge a foreign transaction fee of one percent that is not waived, which will be included in the amount charged to your account. The Fidelity Visa® Gold Check Card is issued by PNC Bank, DE and administered by PFPC Trust Company, which are not affiliated with Fidelity Investments. The third party trademarks appears herein are the property of their respective owners.

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A 1% percent on each withdrawal? Am I reading that right, or do my eyes deceive me?

IceMan0824 said:

Question for anyone, or maybe ETF since you have a my smartcash account
This is from the fidelity site.
A 1% percent on each withdrawal? Am I reading that right, or do my eyes deceive me?

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i haven't had the chance to use my atm card overseas yet, but i assume that the 1% charge is pretty standard - usually for currency conversion or something. on the other hand, i actually went out of my way to use a bank of america atm today because they charge $3 for non-customers, and i stood there laughing.

IceMan0824 said:

Question for anyone, or maybe ETF since you have a my smartcash account
This is from the fidelity site.
A 1% percent on each withdrawal? Am I reading that right, or do my eyes deceive me?

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that's pretty standard, foreign transaction fees can range from 0.5% to 3%. the only card that i am aware that NOT charge this is Capital One.

that being said, my local bank has dropped the fee when i returned from a trip and politey asked to have the charges reversed. not sure if fidelity would do the same, but i've had a great experience w/the mysmart cash so far.

Thanks for the responses

blanche said:

that's pretty standard, foreign transaction fees can range from 0.5% to 3%. the only card that i am aware that NOT charge this is Capital One.

that being said, my local bank has dropped the fee when i returned from a trip and politey asked to have the charges reversed. not sure if fidelity would do the same, but i've had a great experience w/the mysmart cash so far.

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in terms of fee reversals, fidelity is no wells fargo, but their customer service is so excellent that i wouldn't be surprised if you went down to a branch or something and they reversed it for you.

Great question....You should not contribute to this in your life stage. Use your hospitals credit union to put away as much cash as you can. You want to have liquid money so that if the opportunity comes up to go after an opportunity, you have the flexibility. Putting money into a retirement account takes that money out of the game for you. The income that you earn in the future will dwarf the 4% or 8% that you are putting away currently. Make sure that you look at your options for disability insurance to make sure that you can transition into practice and not have to worry about disability insurance in the future. I have heard that a lot of people get policies with exclusions because things have happened to them.

TysonCook said:

Hello,
Very stupid question but something I was thinking about....

I'm in a 3 year residency. I've funded my 401k up to the max match (4%) by my employer, and some above as well (currently at 8%).

1) Should I decrease my 401k monthly funding to the exact match (4%) and invest the rest in a Roth 401k? (the other 4%)
2) If so, is there much advantage to doing this since I graduate in 20mo (and by the time the paperwork is in etc).
3) I'm getting married in 3 weeks and our combined income will be around $100k, would this make any difference?

Thanks for any advice. I just don't know a lot about Roth IRA's

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doceyeball1979 said:

Make sure that you look at your options for disability insurance to make sure that you can transition into practice and not have to worry about disability insurance in the future. I have heard that a lot of people get policies with exclusions because things have happened to them.

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What do you mean? Can you elaborate on that?

UserNameNeeded said:

What do you mean? Can you elaborate on that?

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It sounds like he's advocating buying private disability insurance as soon as you can. The insurance you have as a resident is employer based and goes away when you move on to another job, and if you're aiming at working for a small or solo practice, you probably won't get employer-provided disability. The thing is that it's harder to get approved for disability or really any insurance the older you get because you're likely to have more health problems, so it's better to lock it in before any health problems hit. If you're going to always work for large employers, it's less of an issue because all their employees generally have the option of signing up for disability coverage regardless of health status.

Another thing about disability and all those employer offered insurance policies is that you should sign up in the first period that you're eligible for it. If you're eligible for disability through your employer and opt not to get it and try to sign up the next year, you'll have to submit Evidence of Insurability and might get denied. Don't trust your HR people on this because they're prone to screwing it up.

I will say I disagree with the above advice about retirement savings. If you're thinking about buying into a practice soon, it might be different, but that seems like more of an issue for dentists, etc..

doceyeball1979 said:

Putting money into a retirement account takes that money out of the game for you. The income that you earn in the future will dwarf the 4% or 8% that you are putting away currently.

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my brother makes fun of me because i put 100% of my (very meager) salary into a 403(b)/457 plan. he says that "if the money i'm putting in there actually makes a difference in the end when i have to retire, i'll be a loser." i figure that a. i don't need the money now, so why not put it to work and b. regardless of the actual amount, i'm developing good habits that should carry over when i see my income soar as a practicing physician.

doceyeball1979 said:

Great question....You should not contribute to this in your life stage. Use your hospitals credit union to put away as much cash as you can. You want to have liquid money so that if the opportunity comes up to go after an opportunity, you have the flexibility. Putting money into a retirement account takes that money out of the game for you. The income that you earn in the future will dwarf the 4% or 8% that you are putting away currently.

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I'm going to have to strongly disagree with this for several reasons:

1) Establishing habits is huge. Personal finance is more about behavior than math.

2) If you become anything other than an internist, fp, or pediatrician, you'll never be eligible for a Roth IRA after residency due to income restrictions. A Roth IRA is more flexible than a tax-deferred account because it has no RMD at age 70, tax rates may go up in the future (making a tax-free investment more useful) and it can be stretched (for estate tax purposes.)

3) Contributions to a Roth IRA can be withdrawn at any time, for any reason, without penalty. The earnings can be withdrawn for medical expenses, a first house, or educational expenses. They must be invested in securities traded on markets open every weekday. That's pretty darn liquid in my book. If you're really worried about liquidity, invest it in a Money Market Fund inside a Roth IRA.

4) If you squirrel away $10K/year (you and your spouse) in Roth IRAs for 5 years in a surgical residency, then let that compound for 30 years at 5% (real, that is after-inflation, returns) that will equal $239K in today's dollars ($794K if inflation is 4%/year). That might be chump change for doceyeball, but to me it is worth it.

I agree with him about the importance of disability insurance though. If you're not adequately insured, there is no point in beginning an investment program.

TysonCook said:

Next question...when I was studying up on Roth IRA's, it states that I can take my 2007 tax return, and invest it in my 2007 roth IRA. Does anyone have experience with this? Any advice on how? I'm using fidelity.
!

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File taxes Feb 1. Refund goes into your bank account by say Feb 15. Transfer to Fidelity before April 15th. Put into Roth IRA for either 2007 or 2008 contribution (must specify for all contributions between Jan 1 and Apr 15.)

ActiveDutyMD said:

File taxes Feb 1. Refund goes into your bank account by say Feb 15. Transfer to Fidelity before April 15th. Put into Roth IRA for either 2007 or 2008 contribution (must specify for all contributions between Jan 1 and Apr 15.)

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better yet, give the IRS the routing number to your Fidelity Account or mySmartCash account, and get your refund sent directly to it. then all you do is login to fidelity and do a transfer from one account to the other.

TysonCook said:

Another question (actually this is from several in my class as we were out the other night)...

So lets say that we moonlight this month and also go to the dentist/optho (to zero our health care accts).

We earned and spent the $ in 2007, but due to hospital and flex spending acct red tape, we don't see the actual payment from moonlighting for 6 weeks (effectively being paid in 2008 for services rendered in 2007).

Is there a way to use that $ toward our 2007 Roth? or is it effectively a closed account Jan 1 2008?

I know its a random ?, I just have the opp to moonlight a lot this month and don't want to rock myself if I can't deposit the $.

Thanks again for all the awesome advice!!!!

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You can use any money you want to make a 2007 Roth contribution so long as you do it before April 15th 2008 so long as you made at least as much as you put in 2007 Retirement accounts within the calendar year of 2007.

My work right now uses MFS for their 401K...I just briefly heard you can choose your mutual fund package.

Would this automatically mean that they don't have an index fund available? I'd have to do mutual funds...or does MFS do both (I heard it goes by company, so people here might know just based on the name...)

Unlimited415 said:

My work right now uses MFS for their 401K...I just briefly heard you can choose your mutual fund package.

Would this automatically mean that they don't have an index fund available? I'd have to do mutual funds...or does MFS do both (I heard it goes by company, so people here might know just based on the name...)

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simple solution - contribute the max amount you can each year to your employer's 401k, typically in something that has a stable value (money market fund if offered, otherwise some sort of large cap stock fund or balanced fund or the like.) at the end of the year, roll over your 401k into an IRA at the firm of your choice, and get access to the investments you need. from what i understand, you can't really do this for employer-match money though - you can only roll-over funds you have put in.

Depends on your plan. It would be really irresponsible for your plan administrator to not choose one of MFS's index funds to be one of your fund choices, so I suspect that there is one there.

Gracias very much

etf said:

simple solution - contribute the max amount you can each year to your employer's 401k, typically in something that has a stable value (money market fund if offered, otherwise some sort of large cap stock fund or balanced fund or the like.) at the end of the year, roll over your 401k into an IRA at the firm of your choice, and get access to the investments you need. from what i understand, you can't really do this for employer-match money though - you can only roll-over funds you have put in.

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If you max out your IRA, can you still rollover from a 401k into the IRA? Thought it wasn't possible. Anyways, Unlimited, an index fund is a type of mutual fund with passive management, so some might be offered anyways. I personally wouldn't go through rolling funds over every year -- only roll over into an IRA when you leave employers.

And I thought you couldn't rollover your 401K into an IRA, unless you were no longer with your employer?

UserNameNeeded said:

And I thought you couldn't rollover your 401K into an IRA, unless you were no longer with your employer?

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yes - when you max out your IRA, you are essentially not allowed to put in new money (i.e. make contributions). however, money in a qualified retirement plan (like a 401k, 403b etc) has already been accounted for (paid taxes on, or in the case of a roth, at least reported to the irs), so you can definitely roll it over to an IRA. I've done this multiple times for my mom.

there are some employers that don't allow you to roll-over your 401k until you've "separated from service" (i.e. left), but from what I understand, this is mostly for employers that have made some sort of matching contribution with their money. this is something you have to ask the administrator of the plan. there are a lot of retirement plans out there that force you into some pretty crappy funds, so i don't see why you wouldn't rollover to fidelity, vanguard, or t rowe price.