More Flexible Roth IRA?

[mgdsh]

Just went through all the residency orientation nonsense.

While going through the benefits section, the Roth IRA offered by the university benefits plan has very limited flexibility in what you can do with the money once you deposit in the account.

You basically get a vanilla selection of mutual funds. Meh...

There are no inverse funds, no commodity funds, no individual stocks, etc.

That's kinda crappy IMO esp when we're entering and in the midst of a period where inflation is about to get way the f$#k out of control.

At best we're in a range bound market if not a declining one.

Having some currency selection would be nice as well.

Does anyone have any suggestions for a firm that would allow me to setup a more flexible Roth IRA?

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[lord_jeebus]

I have one with Etrade that pretty much lets me get anything (every fund under the sun, options, individual stocks...). Lots of my money is in BEARX, SKF, DBC...I'm sure places like Fidelity can offer you something similar.

I can't think of any reason to join your employer's Roth.

 

[The White Coat Investor]

Let's slow down a second and make sure you know what you're talking about. It is hard to give good advice because a lot of what you're saying makes no sense.

A Roth Individual Retirement Arrangement (IRA) has nothing to do with an employer. You can put $5K, after-tax, into it every year and invest it in nearly anything you like. You can open one at Vanguard, E-trade, or your neighborhood bank. If you choose a brokerage firm to open a Roth IRA account in, you can buy stocks, bonds, mutual funds and every bizarre little ETF your heart desires.

It sounds like the University that employs you offers some kind of a defined contribution plan. You need to determine several things before you dismiss it out of hand:

1) What kind of a plan is it? Is it a 401K, a 403b, a Roth 401K, a Roth 403b or some kind of a pension (defined benefit) plan? It most assuredly is NOT a Roth IRA.

2) Is there a match? Meaning, is part of your salary dependent on you putting a certain amount of money into this account?

3) What are the investment options, what is the expense ratio of the various options, and what are the other fees associated with the account?

I know many millionaires who have become that way using "crappy" 401Ks. You take the best (usually the cheapest) option available in the 401K, then build your Roth IRA around it to round out the portfolio. Since you are a resident, here is the order in which you should save your money:

1) Invest in the employer's plan up until the point where you get the maximum match.

2) Max out your own Roth IRA ($5K this year.)

3) If married, max out a Spousal IRA. ($5K this year.)

4) Max out the rest of the employer's plan (you'll be rolling it over to an IRA in 3-5 years anyway so it doesn't matter much even if expenses are too high.)

If you still have money to invest (and I'm impressed if you do since we're talking about more than $25.5K/year here on a resident salary), then open a taxable investing account.

Do yourself a favor and read a good, general investing book such as the 4 Pillars of Investing by William Bernstein, a neurologist. Don't buy inverse funds. Don't speculate in currencies and be very careful of the commodities bubble, it may burst soon or it may last a few more years. Realize that inflation may get worse, or it may get better. Over the last year it was about 4.2%, and the buyers of treasury bonds currently estimate average CPI inflation over the next 5-10 years at between 2 and 3%.

A "range bound" market is a chartist's term for something that can really only be defined in retrospect. Most people who get rich investing don't do so by becoming chartists or "technical" investors.

The answer to your question of "where I can find a more flexible [investing option]" is just about anywhere, but I would start with Vanguard.com for mutual funds, or WellsFargo.com for a brokerage.

Good luck investing.

 

[mgdsh]

Let's slow down a second and make sure you know what you're talking about. It is hard to give good advice because a lot of what you're saying makes no sense.

A Roth Individual Retirement Arrangement (IRA) has nothing to do with an employer. You can put $5K, after-tax, into it every year and invest it in nearly anything you like. You can open one at Vanguard, E-trade, or your neighborhood bank. If you choose a brokerage firm to open a Roth IRA account in, you can buy stocks, bonds, mutual funds and every bizarre little ETF your heart desires.

It sounds like the University that employs you offers some kind of a defined contribution plan. You need to determine several things before you dismiss it out of hand:

1) What kind of a plan is it? Is it a 401K, a 403b, a Roth 401K, a Roth 403b or some kind of a pension (defined benefit) plan? It most assuredly is NOT a Roth IRA.

2) Is there a match? Meaning, is part of your salary dependent on you putting a certain amount of money into this account?

3) What are the investment options, what is the expense ratio of the various options, and what are the other fees associated with the account?

1) You're right its a Roth 403b, which is similar enough IMO
2) There's no match
3) the investment options on that 403b are garbage

and thus pointless to go through the university.

I know many millionaires who have become that way using "crappy" 401Ks. You take the best (usually the cheapest) option available in the 401K, then build your Roth IRA around it to round out the portfolio. Since you are a resident, here is the order in which you should save your money:

1) Invest in the employer's plan up until the point where you get the maximum match.

2) Max out your own Roth IRA ($5K this year.)

3) If married, max out a Spousal IRA. ($5K this year.)

4) Max out the rest of the employer's plan (you'll be rolling it over to an IRA in 3-5 years anyway so it doesn't matter much even if expenses are too high.)

We have a separate plan (mandatory) in which they match 100%. That, despite having the same bull**** investment options and being mandatory, still ends up being decent with the 100% match.

If you still have money to invest (and I'm impressed if you do since we're talking about more than $25.5K/year here on a resident salary), then open a taxable investing account.

Do yourself a favor and read a good, general investing book such as the 4 Pillars of Investing by William Bernstein, a neurologist. Don't buy inverse funds. Don't speculate in currencies and be very careful of the commodities bubble, it may burst soon or it may last a few more years. Realize that inflation may get worse, or it may get better. Over the last year it was about 4.2%, and the buyers of treasury bonds currently estimate average CPI inflation over the next 5-10 years at between 2 and 3%.

A "range bound" market is a chartist's term for something that can really only be defined in retrospect. Most people who get rich investing don't do so by becoming chartists or "technical" investors.

The answer to your question of "where I can find a more flexible [investing option]" is just about anywhere, but I would start with Vanguard.com for mutual funds, or WellsFargo.com for a brokerage.

Good luck investing.

I probably won't start adding to my taxable investment account until I begin moonlighting a few years down the road. I've got plenty in there to manage for now, especially since I'm almost never fully invested with the short term strategies I use.

I really don't understand why you always try to give advice on how people should invest.

I appreciate your help and taking the time to answer my question, but please do respect that there are thousands of ways to make money in the market. I don't tell you how you should invest, as it clearly wouldn't fit your goals &/or personality. The way I invest fits my goals and my personality.

 

[mgdsh]

I have one with Etrade that pretty much lets me get anything (every fund under the sun, options, individual stocks...). Lots of my money is in BEARX, SKF, DBC...I'm sure places like Fidelity can offer you something similar.

I can't think of any reason to join your employer's Roth.

Nice. DBC has a fairly sizable oil position and the financials won't really bottom or come close to it until housing does.

Good to know. I probably will just end up going with thinkorswim then, as my other accounts are with them and I probably won't get lower commissions elsewhere.

 

[The White Coat Investor]

I really don't understand why you always try to give advice on how people should invest.

I appreciate your help and taking the time to answer my question, but please do respect that there are thousands of ways to make money in the market. I don't tell you how you should invest, as it clearly wouldn't fit your goals &/or personality. The way I invest fits my goals and my personality.

You're welcome! Just trying to help out. At any rate, if you have more than it takes to max out a Roth IRA, I'd still use that 403b. In a couple years you can just roll it over, even if you're stuck with crap for a couple years, the tax break will be one of the greatest investment accounts you ever get, especially if you're into rapidfire trading.

Sorry if I offered too much info, I just see a huge disconnect between someone competent enough to be using complicated financial strategies (options, currencies, etc) and someone who needs advice on how/where to open a Roth IRA brokerage account or doesn't know the difference between a Roth IRA and a Roth 403b. Opening a Roth IRA requires a pretty low level of financial acumen IMHO. Invest however you like.

Good luck.

 

[mgdsh]

You're welcome! Just trying to help out. At any rate, if you have more than it takes to max out a Roth IRA, I'd still use that 403b. In a couple years you can just roll it over, even if you're stuck with crap for a couple years, the tax break will be one of the greatest investment accounts you ever get, especially if you're into rapidfire trading.

Sorry if I offered too much info, I just see a huge disconnect between someone competent enough to be using complicated financial strategies (options, currencies, etc) and someone who needs advice on how/where to open a Roth IRA brokerage account or doesn't know the difference between a Roth IRA and a Roth 403b. Opening a Roth IRA requires a pretty low level of financial acumen IMHO. Invest however you like.

Good luck.

Yea, these retirement vehicles aren't really my specialty as I plan on retiring well before those tax free deduction ages. I also don't really consider myself an investor. I'm far more of a trader.

 

[The White Coat Investor]

Yea, these retirement vehicles aren't really my specialty as I plan on retiring well before those tax free deduction ages. I also don't really consider myself an investor. I'm far more of a trader.

Traders pay taxes too, in fact far more of them than a buy and hold investor. If you're going to be trading it is FAR more important that you shelter your trading money in tax-protected vehicles than it is for me. Think of it as a tax-avoidance vehicle rather than a retirement vehicle. Every time you have a short term capital gain, you pay taxes on it at your regular tax rate (slightly lower LT capital gains rate if you hold it at least a year). If that money is sheltered in a Roth IRA, you pay no taxes on it, even if you trade 3 times a day for a year. You still pay transaction costs (bid:ask spread and commissions) but at least you don't pay taxes. Trading is tough because you have to make enough good calls to overcome the additional costs of switching in and out. The average trader underperforms the market due to costs, so you should definitely track your returns (expenses included) very carefully using something like Excel's XIRR function to make sure you're doing well enough to justify the effort.

Also, keep in mind you can still get to your retirement account money before age 59 1/2. All Roth contributions can be withdrawn at any time for any reason without penalty or tax. Roth earnings can be withdrawn after 5 years for a first house, medical expenses, or education expenses. You can start withdrawing traditional IRA, 401K, or Roth IRA money even before 59 1/2 so long as you pay attention to IRS rules that basically say you have to take out substantially equal payments every year. Here is a pretty good summary I googled up:
http://www.rolloveraid.com/401kwithdrawal.htm

General exceptions: The 10% penalty does not apply to distributions that are:
1- Made as part of a series of substantially equal periodic payments (made at least annually) for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary (if from a qualified retirement plan, the payments must begin after separation from service).
2- Made because you are totally and permanently disabled, or
3- Made on or after the death of the plan participant or contract holder.
4- From a qualified retirement plan (other than an IRA) after your separation from service in or after the year you reached age 55
5- From a qualified retirement plan (other than an IRA) to an alternate payee under a qualified domestic relations order,
6- From a qualified retirement plan to the extent you have deductible medical expenses (medical expenses that exceed 7.5% of your adjusted gross income), whether or not you itemize your deductions for the year,
7- From an employer plan under a written election that provides a specific schedule for distribution of your entire interest if, as of March 1, 1986, you had separated from service and had begun receiving payments under the election
8- From an employee stock ownership plan for dividends on employer securities held by the plan, or
9- From a qualified retirement plan due to an IRS levy of the plan.