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Posts posted by MNGopher

  1. 1 hour ago, tony said:

    To be clear ,In my post when I was saying "Roth", I didn't mean a Roth IRA. I was assuming you had access to a Roth 403b  or 457b Roth option which allows you to put much more tax free money away than an individual Roth account outside of your school plan. There is a difference in contribution amounts and significantly so. 

    The regular IRA has a deadline for contributions by April 15 2021 or around tax due time. A 403b agreement can usually be entered into anytime depending on your school system rules. I would check that. In my school system we could enter a 403b anytime with no deadline.

    I personally would not put a penny in a tax deferred account with only five years to go. If you have access to a Roth 403b or a 457b Roth account that would be the way I personally would go. That way it's all yours free and clear of taxes. I have 50% of my money in tax deferred accounts and I am dreading those upcoming RMD amounts I will have to pay. I'm even thinking of starting to do a Roth conversion  every year now while I am in my sixties . I'm researching that option. 

    I don't know the mathematics behind it , which is better. It just seem my  financial intuition tells me its the right approach for me and possibly for you. Recent tax reform makes Roths more attractive because of the resulting reduction in tax brackets,. That’s beneficial if you’re in your peak earning years now, because when you put money into a Roth IRA or 403b, you pay the tax first. I also think tax rates will go up during Biden significantly and for years to come as this country becomes more progressive . Something to ponder.  I'm a moderate voter and I prefer conservative measures when it comes to finances even though I tend to be more liberal in my social views. AS you know that's a contradiction because taxes must go up to fund social/progresive agendas.





    He can retire in 5 years at age 55 and he currently only has 35K in tax deferred accounts.  If he does retire at around that time, that will give him 17 years in which he can spend from tax deferred and/or do Roth conversions.  I don't see how RMDs will be a problem for him no matter how much he puts in traditional.  Again though, I agree that a mix is probably smart.



  2. 31 minutes ago, Stillwater007 said:

    As far as ROTH IRAs and 403b's, when is the deadline for each?

    If I start contributing now, I BELIEVE I have BEFORE April Tax Day to contribute to 2020 ROTH IRA, then after the Tax Day contribute to 2021.

    As far as the 403b, the Deadline is Dec 31, so I can only start contributing to 2021.

    Is this correct?

    Finally, with extra savings after maxing a 403b and a Roth IRA, is it wise to open up a regular brokerage account to put in extra savings? Or put it somewhere else?

    Thank you.

    You are correct on those contribution date deadlines.

    403b's and IRAs, Roth or Traditional are both great ways to save for retirement, and you seem to be in a situation where some of both will be best.  In general these tax advantaged/tax deferred accounts are preferred to a regular taxable brokerage account, and most people would recommend maxing those out first.  I do have a taxable brokerage account at Vanguard, that's about 40% of my portfolio.  This is not ideal, but until 6 years ago I had terrible 403b choices, so invested a lot in taxable, so that is where I added money, rather than a 403b with a 2.5% expense ratio.  However, It is nice to have all 3 types of accounts in retirement, for tax diversification and flexibility.  I will draw down from my taxable account in early retirement, before I take 403b withdrawls.



  3. Welcome!  Third party administrators are pretty normal these days, and their fees are usually only a minor inconvenience, and shouldn't stop you from investing with Vanguard.

    As far as Roth vs. Traditional, it comes down to comparing your tax bracket in the current year to your expected tax bracket in retirement.  There are a lot of variables that you haven't given us, like your age, income tax filling status, pension as a % of your final income, Social Security eligible, etc.

    When you say you are near the top of the 22% bracket, are you considering the standard deduction into the formula?  Are you able to deduct your traditional IRA contributions, or is your income too high? This and/or a traditional 403b contribution can further reduce your taxable income. If this could get you down to the 12% bracket (or close to it) that would likely be a wise move.  If you can defer taxes now at 22% now and pay them in the future at either 0, 10, or 12% you should do that.

    My hunch is that since you have a relatively small traditional IRA balance (35K) and are only 5 years from retirement, you could definitely be saving more in tax deferred without creating a tax problem.  The exception might be if your pension and social security would immediately upon retirement put you at a higher income than you are at now.  Many teachers have a gap of a decade or so between retirement and pension/SS/RMDs, when they can safely spend down a traditional (tax deferred) account without putting themselves in a higher tax bracket.

    Doing some of both pre and post tax is usually a good idea.  A traditional 403b and a Roth IRA is a good combination for many people (instead of the other way around).

  4. Ed and Tony are having one of their classic left brain/right brain friendly disagreements.  It think it can be shown that mathematically, investing the money will beat paying off the mortgage more often than not, but that doesn't necessarily make it the best choice for everyone.  You can't really put a price on peace of mind.  Let me be the centrist here.  In my case I bought a new construction 2,000 sf home in a medium cost of living area for $104,000.  This was in 1995 and my original interest rate was 7 point something.  I didn't know a lot about investing and only had annuities through my employer plan, so I plowed most of my extra money into the mortgage and paid it off in a little over 11 years.  With the mortgage paid off, I started saving and eventually started investing more around the time of the great recession, which turned out to be a good time to start.  Now, I was lucky on the timing here, and looking back at the rate of return of the stock market during the years that I held the mortgage, it probably would have worked about the same if I had invested the money vs. paying off the mortgage. My timing was lucky and it worked out for me, but in today's environment it certainly seems that keeping the mortgage and investing is the better choice.  However in the future, who knows?

    Jim Dahle, "The White Coat Investor", wrote an interesting blog recently on the this topic of paying off debt vs. investing.        https://www.whitecoatinvestor.com/pay-off-debt-or-invest/




  5. 30 minutes ago, krow36 said:

    There not phasing out 500 Index, just eliminating the Investor class. Everybody gets to use the Admiral class. You do have a choice, don't you.

    Yes, this.  VFINX is not listed on Vanguard's site as an available fund, but I could still find today's price via google.

    There isn't a huge difference between the Admiral share S&P and VTSAX.  Their performance and expense ratio are very close.  I like that you get a little more diversification with VTSAX, and would use it when available.


  6. For what it's worth Vanguard upgraded my investor share fund to admiral shares at about the same time that they started working with the Newport Group.  This was a target date fund, so I'm not sure if they also do this for the S&P fund.  It does look like VFINX might be a fund that they are phasing out and not offering to new customers.  I would get the total stock market (VTSAX) before either S&P fund if given the choice.


  7. Interesting to hear the perspectives from the retirees here.  I'm in about the same position as Whyme (1-2 years away from retirement).  I have considered going earlier but would take a big pension hit, so I think I'll wait it out until 2022. I'm glad I ramped up my savings in my 40's-early 50's, but wish I would have done more saving in my 30's.


  8. Welcome!  I don't think it is "dumb" to be a 100% stock in your retirement accounts at age 35, as long as you have a solid emergency fund. I also don't think there is anything wrong with being 80/20 or 70/30 at that age.  Either way, if you are maxing out both your backdoor Roth IRA and 403b, plus maybe a pension, you are going to be very well set for a fairly early retirement.


  9. 2 hours ago, lausdfred said:

     I'm fortunate in that I don't need my IRA or Roth for income.  I retired in 2013 and went to a capital preservation model intending to spend on travel, charities and big ticket items.  I also have 5 years of income in emergency funds.  I'm 69 and have no debts or heirs. What's the best way to draw down the IRA to put into my spending accounts. Is a monthly distribution better than a one time yearly.  Or should I convert some to my Roth?


    What is the reason for wanting to move assets from your IRA to your spending account, if you don't need the income?  I would just convert traditional to Roth to the top of your current tax bracket, if you are in a lower bracket.


  10. We don't have all the information on the relative, but from the clues given:  1) charter school,  2) young with only a couple years experience, 3) no match,  4) less than perfect 403b vendor,  5) under $6K to invest annually......Roth IRA seems like the logical choice.  She can start making tax deferred investments as her income rises.


  11. On 8/12/2020 at 1:23 PM, whyme said:

    I don't think Paul Merriman is in it for the money.  I get the impression that he has been wealthy for decades; he seems to be a true believer who had his enlightenment experience when he went through the Dimensional Fund Advisors boot camp and he wants to evangelize.  That approach, involving "factors" like company size and "value" (I think that is primarily determined by the ratio of book value to market cap), is grounded in academic research, notably by Eugene Fama who was awarded a Nobel prize for his efforts in this area.  One can argue--as Bogle probably would--that Merriman's approach is overcomplicated, involves more fees and risks underperforming the broad cap-weighted market, which provides "Enough," to cite the title of one of Bogle's books.  But to my mind some overweighting of small cap, "value" and maybe a couple of other categories (in low-cost passive funds) in an effort to capture the premium that those factors are demonstrated to have yielded in the past is within the circle of reasonable approaches to investing, so long as one sticks with it.  If Bogle is right, those factors will revert to the mean and over the long run you'll end up with market returns minus fees, so you'll do slightly worse if you are paying higher fees.  If Fama is right, in the long run you can expect a bit better than broad-market returns, but you must assume more short-run risk to get that premium.

    It is interesting to contrast Merriman with Rick Ferri, who was also a DFA, Fama and French-influenced slice-and-dicer (he wrote a book about asset allocation) but who seems to have drawn closer to Bogle's simple broad market philosophy in recent years, describing the basic decision to invest in stocks as "the cake," and questions about factors, etc., as "the color of the icing on the cake."   I count both of those guys among the voices that will set folks on a good course, in stark contrast to the horde of brokers and insurance salespeople that prey on 403b account holders.  We're doing fine if the arguments are confined to the icing.


    Ferri interviewed Merriman in this episode of the Bogleheads podcast.


    I'm in the camp that the average investor doesn't need to "tilt".  I mean it might work out better and it might not.  I think the main thing is that if you decide to do it, you don't chase performance, by changing your tilt every few years, or you are bound to underperform the total market by doing this.  You have to commit to it for your investing life, as Rick Ferri often says.



  12. Which is the greater amount?

    A.  Your salary this year.

    B.  Your annual pension income + 4% of your estimated 403B balance when you retire.

    If A is greater, you are likely better deferring taxes in a traditional 403B, so that you will pay taxes at a lower rate.  If B is expected to be greater put the investments in some type of Roth account and pay the taxes this year.  If A and B are too close to call, do half of each.

    This might be overly simplified, but I think it a good general guideline.  

    PS:  If you do work until age 75, you could probably take out more than 4% every year and never run out of money.


  13. 7 hours ago, Marian said:

     I guess I'm worried that I'll be so poor in retirement that I won't even be able to afford my taxes, which is why the Roth contributions even seem like an option. This is the part that is so embarrassing to me.

    If there is a bright side to being very poor in retirement (low income), it's that at least you can take money out of a traditional account at a very low tax rate!

    I don't think you're going to be as bad off as you think.  Start upping your contributions to the maximum or near max and your accounts will start accumulating fast.

  14. Fidelity Security Life is not the "good" Fidelity.

    I think the Vanguard traditional 403B is your best plan.  Your income now is probably greater than the combination of your state pension and your withdrawals from your own deferred account will be.  If your tax bracket is higher now than it will be when you retire in your 70s (with no SS), then you are better off doing traditional and paying the taxes later at a lower rate.  If there is a possibility that your retirement income will be higher than it is now, you could hedge the bet by contributing to a Roth IRA on your own.  But if your retirement income is higher than it is now, you might want to rethink working until your mid 70s and retire sooner.


  15. https://www.wsj.com/articles/aig-unit-to-pay-20-million-to-settle-sec-probe-of-teacher-retirement-business-11595941081?st=450wa1z5z9qabty&reflink=article_imessage_share&fbclid=IwAR3gjMXHvOuGa9m8roP0njjLUzZ8bnELB7-p3o8-Vs1KWFepXKUVPFBhpZw

    Dan Otter posted this on the Facebook page, in case anyone hasn't seen it yet.  Looks like a step in the right direction in placing some accountability on the insurance companies that prey on educators.



  16. 12 minutes ago, krow36 said:

    IRS regulations of 403b plans do not allow investing in individual stocks. You’ll have to lobby Congress if you want to change that.


    This is a case of the IRS saving the OP from himself.  There is absolutely no reason to buy individual stocks in a retirement account.  If a person wants to play the market with expendable cash, then they can do that in a taxable account (still not recommended).


  17. On 7/20/2020 at 11:40 AM, Tricia C. said:



    After accounting for my CDs and HYS, I found out that I was actually a 66/34, and without Cash & CDs, I'm actually closer to a 80/20 with stocks & bonds!!  For investment purposes, should I account for emergency fund, CDs, HYS when re-balancing my portfolio? Thanks!

    I guess if you want to be completely accurate you should count your emergency fund as part of your asset allocation.  Some people do and some don't...personal preference.  I've heard people say they are 100% equities, with no bonds, yet they have 3 years of expenses in cash, so actually they aren't even close to 100% stock.  As long as you're aware of what you actually have, either way is fine.


  18. ^ That is a good job of explaining the tax brackets, Ed.  I think most people do err on the side of putting too much in Roth accounts.  That's not to say there isn't a place for both, but during your peak earning years most should be going into traditional accounts IMO.  While most teachers have a pension that will fill up the 0 and 10% space in retirement, most pensions will not fill up the 12% bracket, especially if you are MFJ tax status and your spouse doesn't have a pension.

    The best time to use Roth accounts are early in your career, or any year your income drops for whatever reason.  Also many teachers will have a decade or more (about 13 years in my case) after retirement but before collecting Social Security when they can convert to a Roth up to the top of the 12% bracket.  Putting money in a Roth during peak earning years is locking in your taxes at 22% (currently) and that can't be undone.  There is a pretty good chance you will be able to take it out of traditional for expenses or convert it to Roth at a lower rate later, if you decide to defer it during high income years.

    If a saver does err on the side of contributing too much in a traditional account and ends up in a higher bracket in retirement, this would mean your investments did really well, and it's not really the worst problem to have.


  19. I haven't heard much about people in the public sector being worried much about RMD's.  What is your concern?  Is it pushing you into a higher tax bracket?  The IRS doesn't require that you spend your RMD.  You can always reinvest it in a taxable account.  In fact if you are still working as an adjunct professor after the age age of 72, you can still invest in a Roth IRA at any age as long as you have earned income.

  20. Whether you should be contributing to traditional (pre-tax) or Roth (post-tax) really comes down to comparing your tax bracket in the year you earned the money vs. your tax bracket in the year that you will withdraw the money in retirement.  The latter, is of course an estimate.  You're going to pay taxes one way or another.  You just want to pay them when it's most beneficial for you to do so.  General rule of thumb that I would recommend:  If you are currently in the 10 or 12% bracket do all Roth.  If in the 22% bracket favor the traditional contribution, but some of both is fine.  In the 24% bracket or higher, max traditional before doing any Roth.

    As far as if tax brackets go up or down in the future, I agree with most people that they will probably go up, since we are at historically low rates that are currently set to expire  in 2025.  I don't really expect them to go up all that much though.  The 12% bracket may revert back to 15 or so, and 22% may go to 25.  These small changes in tax rates wouldn't affect my basic strategy for determining which type of account to contribute to.


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