Jump to content

mark o'c

Members
  • Content Count

    60
  • Joined

  • Last visited

Community Reputation

0 Neutral

Contact Methods

  • Website URL
    http://www.honorboundadvisors.com

Profile Information

  • Gender
    Male
  1. If you can thread the needle of lowering your Adjusted Gross Incomen via the pre tax contributions to the Traditional 403b, do that and then contribute to the ROTH. I would max out my 403b IF the provider has reasonable fees. Then contribute what you can to the 403b roth and/or Roth IRA. The 1/3 vs 2/3 idea really depends on how much it lowers your income and keeps you eligible for the ROTH. For 2012 Roth IRA's, AGI must be below $173,000 (and is fully phased out at $183,000 for Joint Filers. In my opinion (like those on Bogle)it's always best to maximize your pre tax contributions. It's wiser from a tax perspective. Then maximize the Roth, then contribute to taxable accounts.
  2. Fidelity does not always equal low fees-especially in 401k land. They are as bad as anyone. I am working with a small business right now that pays roughly 3% in fees all in with Fidelity. We are replacing that plan with one that is 1.3% which includes the cost of all admin (compliance, filing, etc) the company had been doing themselves! That is why they, along with every other provider, have been fighting the regs change coming later this year.
  3. Definitely move to TIAA. Expenses are lower than the option you're currently in. Remember, we can't control the market, we can control expenses. Expenses are measured in mutual funds by the "expense ratio." Get familiar with this term. All mutual funds are invested in the market, thus over the long term they all deliver similar returns. The difference is what they are charging you-why pay a premium? Steve has outlined a nice balanced portfolio. Your question about a ROTH depends on whether you could use a Traditional IRA to lower your taxes today. This will depend on your income. ROTHs are post tax contributions but are not taxed on either future growth or at time of withdrawal. Traditional IRAs allow you to take a tax deduction now and they grow tax free-but you pay tax on distributions-this sounds bad but you may be in a lower tax bracket when you are making your withdrawals-as you'll be retired. So you need to consider all this in making your decisions. Finally, right now I would suggest short term bond funds for your Bond investments. Bonds prices and interest rates move in opposite directions. Interest rates can't go lower. Longer term bonds are more sensitive to changes in interest rates-that is, when rates go up, prices on long bonds fall more than those of short term bonds. This is measured by "duration." So if you want to impress people at a cocktail party, tell them you shortened the duration on your bond portfolio to protect the value from rising rates. Typically, we don't know which way rates are going to go but right now we do-so trust me and buy short term bonds, otherwise your investment could drop in value as rates rise.
  4. You can file a Schedule C with your tax return-using the 1099 income as your "business income." You can then set up a SEP IRA and deduct up to 25% (of the 1099 income) or $49,000, whichever is smaller. In addition you can deduct any business expenses associated with earning that income, including miles driven (usually) If you use a home office exclusively for business, you can deduct that as well. It's a great way to save a bundle in taxes legitimately-if you play by the rules. Here's an example, if you had $50,000 in 1099 income, you could deduct up to $12,500 into the SEP IRA and your taxable income of the $50k would be reduced to $37,500. I would consult a tax professional before proceeding. You can open a SEP at the custodian of your choice, like Vanguard or Fidelity and then choose good low cost funds. That's my professional advice, I'm a CFP. You'll save more on taxes and avoid the high fees of the 403b until you get a better provider or an employer with better choices. You can email me if you like: mark@cambridgefinancialadvisors.com
  5. Does he get a 1099 or a W2? Very important. You may have another (better) option. But Steve is absolutely right. You and your fellow teachers need to push reform or you will continue to get hosed by 403b providers..
  6. Traditional IRA would be good if you are looking to lower your current taxable income. However, you are limited to the amount you can contribute to an IRA be it Roth or Traditional. That amount for under age 50 is $5000 for 2011 (think this is going up to $5500 in 2012) but this is a paltry sum, IMO. If your husband has good choices he should max out his contributions (max is probably $16,500) and then determine which IRA to utilize. Usually if you are eligible to participate in a Retirement Plan then the Trad IRA contributuion is nondeductible-you can still make it and get the advantage of tax free growth but why would you when tyou can contribute to a Roth, which also isn't deductible but grows tax free and withdrawals are tax free-and there are no Required Minimum Distributions. Ever. The question then becomes what are your husband's choices? Or start lobbying hard among your fellow teachers but my experience has been that is a verrry long process. You need a plan (and action) now.
  7. And the other 21% won't beat their index next year....
  8. You are doing some good things! Funding the Roth, excellent-however, Thrivent's Fund charges are outrageous. Those companies (Met Life, LFG, VALIC) are what's wrong with the 403b provider market. Rule #1 in dealing with them-do not believe any sales reps!! Their objective is to sell you their product so THEY can get paid. They don't give a damn about you. Yes, blunt but true. I'll let the teachers here chime in about how to strategize a better 403b choice. Continue to do your homework. Knowing the costs of investments is the most important thing you can know, no mutual fund manager is so much better than another that they are worth paying more for. Vanguard is a good choice. Second thing, have a balance-invest in some bonds and international stock funds. Do your homework on these. Ask questions. That is why this board is here. Low expense ratio (.99is high, less than .5 is pk, less than .25 is best)-important to get familiar with how funds charge. Here's a comparison: Charges are spelled out in the mutual fund prospectus (investment document)You can get every mutual fund prospectus with a short internet search (see below). Here's a quick analysis of Thrivent vs. Vanguard. Each Mutual Fund Company is required to disclose (in the prospectus, see fees) what their fees would be if you invested $10,000, and earned a return of %5. This way you can compare apples to apples. They must give you their expenses (what they take in return for managing your money) over periods of 1, 3, 5 and 10 years. Most Thrivent funds are charging between $1800-2000 over a ten year period. So your 10k earning %5 would get you $16,470. Thrivent takes 2 grand of that. That's a third of your gains. For the same investment Vanguard charges $200-300. So consider if you invest 10k every year, you're losing TENS OF THOUSANDS of dollars to crooks like Thrivent!!!! Unfortunately the 403b provider market is largely run by the same type of mutual fund companies and insurance companies. They are not your friends. Thrivent prospectus link: Thrivent Vanguard: Vanguard
  9. I think the tax deferred feature of the 401k is great for everyday investors. Many other things need change. First, my own disclosure: I consult small businesses and not for profits how to get into low cost plans which also reduce their liability to employees. I am paid to do this. I don't manage the investments-that is done by a professional fiduciary. Generally we find plans provided by mutual funds and insurance companies are charging between 2%-5%. Ours is around 1.3%, which includes the cost of compliance and administration-the funds we use (DFA) are around 10-20 bps. The rest of the costs are for filing, reporting, compliance and other admin plus my consulting fee-which at most is 50 bps. We are similar to fee only CFP's for small business 401k's. I recently saved a client with a $2.4 million dollar plan roughly $75,000 a year-and that includes my fees. That $75,000 goes directly into the pockets of the 26 participants. Every year. For starters, I don't think people should be managing their own money, I know this is contrary to what we teach on this board-but most people shouldn't manage money-they make emotional and therefore poor decisions. Instead their plans should be managed by independent investment fiduciaries (generally AIF's-Accredited Investment Fiduciaries.) These fiduciaries don't recieve commissions-generally they get an AUM fee. The investments are in low costs funds like Dimensional Fund Advisors or Vanguard-generally the lowest cost passive funds available. There should be a number of model portfolios (we have 5) 70Equities/30Bonds 60/40 50/50 etc. (based largely on age) and then participants should not be able to make changes-because when they do-they make errors-they sell low and buy high. They take too muck risk. Or not enough. This has been studied and has been proven time and again. Under the current system, plans are beholden to mutual fund companies who work in their own best interest-and not those of the participants-and actually the employer is then liable for ensuring that the costs of investments are reasonable. They seldom are. Next, enrollment should be automatic-no waiting periods with the employer-starting at 5% of income at time of hire and then each year increasing by 1% until the participant is contributing 10%. Otherwise people wait too long to begin investing-and they don't invest enough. This helps solve that. We have a potentially devastating social problem in this country. Once upon a time we could depend on pensions-but they are expensive as Bogle discusses and have been phased out in favor of the cheaper 401k. We are coming to the point where people who have managed their own money are in or approacing retirement-and they don't/won't have enough as life expectancy (and medical costs) continue to increase. Who will support them? It's a pending catastrophe. Next, Businesses should be in the business of doing their business: dentists, software companies, manufacturers, etc. They shouldn't also need to be experts in running a 401k plan. They are taking on too much liability currently-and that liability should lie with the investment fiduciary. Currently the plan sponsor (employer) is the fiduciary and holds the liability. By appointing a professional fiduciary, this liability is with the professional. Recently large corporations, like Caterpillar have been sued and settled their suits. CAT settled for $18 million so you can imagine what it would have cost had they lost the suit. The suit was based largely on fees being too high. Where have we heard this before? I'm sure I'm missing a few things-it's been a long day.
  10. The 401k is failing everyday Americans. The fees are ridiculous (not as ridiculous as 403b's) but nonetheless. And Bogle agrees: 401k's are not meeting the retirement needs of Americans. In particular, I like this: "As investors, we are all average, and as investors, we all share the stock market's return. It's going to turn out to be 8 percent return, we're all going to share 8 percent return, but only before costs are deducted. We all share the market's return less the cost of the financial system. All those management fees and brokerage commissions and sales loads and God knows what else is thrown in there -- the advertising that you see. So if investors would just use index funds, and particularly the cheapest ones, they would, by definition, capture the market return, or almost all of it -- 98 percent, 99 percent of it. ... The evidence is profound that mutual fund investors make terrible errors in terms of timing. They want to pour money into the stock market when it's high, and they want to pull it out when the market is low. They make terrible errors on fund selection. They want to buy funds that have done the best, and then when they do the worst they want to switch out of them and get into something else that is then doing the best. All that shuffling around is a tale told by an idiot, full of sound and fury, signifying nothing but losses for the investor. ... Then another place we have really gone awry is we now offer people basically a nice little s######gun by which they can commit suicide: We have given them brokerage accounts, and you can run a brokerage account in your 401(k) plan. So you can then buy individual stocks and go back and forth and do all the insane things that so many investors do all the time. So we have taken a system that should be simple -- own the stock market and hold it forever; if you like bonds a little more as you get older, have more in bonds, and hold it forever -- [and] now it's pick and choose and select and move money back and forth, even to the point of where you can pick individual stocks and pick your company's stock, which is a big part of the 401(k) problem, and issue; you can do that, too. It's a system that really needs to be fixed, and badly." For the whole interview: Bogle interview
  11. Necessary? I don't know. It has less risk than the Long Term Bond fund you were considering. That's the only reason I brought it up as a possibility.
  12. Long Terms are useful in a portfolio. I can't say I would recommend them right now knowing what we do. Longer term bond prices are more sensitive to interest rate change and since the Fed Funds rate is near zero, we can predict with some certainty the future direction of interest rates, UP! Knowing this it is difficult to recommend adding long bonds because when rates go up, their values (prices) will shrink. It is difficult for me to make generalizations about a portfolio without knowing the other mix of investments and the client's circumstances. But here goes. I would not buy long bonds-is the Vanguard Intermediate Bond Fund an option? It has more yield than short term without the exposure to a fund with longer duration. I generally would not add Intl Bonds-I see no advantage in doing so. I think you may be overcoaching your portfolio. You currently have a nice mix of bonds with the TIPS and in the total bond fund-it IS diversified. The total bond fund already has Intl exposure so again adding more in a seperate fund is not necessary. Add more to what you own and maybe put some in an intermediate fund if it's a cheap option.
  13. Long Term bonds are longer in maturity, generally 10-30 years. Hi yield (formerly known as junk) bonds pay higher yields because they are a greater credit risk, i.e the issuer of the bonds have unstable cash flow or not as strong of a balance sheet (less cash or hard assets.) In short, they are less reliable. Therefore they pay higher borrowing costs-and higher rates of interest to those willing to invest in their bonds. If I want to increase risk (return) in portfolios-I do so in the equity portion of the portfolio. Bonds are for safety not risk. Safety trumps yield. Longer term bonds have higher yields than shorter term bonds from the same issuer because the purchser takes more risk (and is paid more in return)in that the issuer has to pay interest over a longer period-the further out in time you go the more uncertainty and therefore the higher yield. This should not be confused with hi yield bonds-which are defined by their credit quality.
  14. I would always advise maximizing any tax deferred option before starting a taxable option. Again, why pay tax if you have the option not to? Next best is to invest after tax dolars in tax free growth instrument-so I have no problem with that. Again it depends on one's circumstances but I think it's a good option for bk10.
  15. Not only OK but preferred. Would you rather be taxed on all the gains? I think your concern is having too much money where it is inaccessible? In another post you mentioned you had a nice sized "emergency fund/cash fund" -even if this money isn't earning much-that's OK. It's role is to be there in case of job loss, sickness, or other unforseen disaster. Keep it in safe accounts: CD's, savings accounts or Treasuries. If you do begin to invest in taxable accounts Tony has nailed an important strategy in doing so: Every year at this time of year we go through client accounts and sell "losers" i.e. those positions that have capital losses. Each year you can reduce your taxable income by $3000 of capital loss. If you have more losses than you can use, you can carry them forward to the next year and may do so until they are used up-there is no expiration. Also you should invest taxable accounts in equities. This way you only pay capital gains tax rates, 15% (if sold after 1 year from purchase), bonds should be in qualified accounts as the interest is taxed at your marginal rate, ie 25%, 28%.
×
×
  • Create New...