Financial Advice and Suggestions

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zultar
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Financial Advice and Suggestions

#1 Post by zultar » Thu Jul 12, 2018 3:41 pm

Hi all,
I find myself in need of good and specific financial advice and I think many of us would benefit from impartial advice as well. I would like this thread to be useful and without too much politics.

I have no debt or loans to pay. My wife and I would like to save for my kids' college and retirement. I've read some about IRA and Roth IRA and 529 plans but I'm not sure if I understand completely and how to maximize my savings (i.e., put X into IRA or Roth). My understanding is that it's better to max out Roth IRA. What should be the general strategy (other than save as much as you can which I will do) as well as how much to put into each kind of account.

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Re: Financial Advice and Suggestions

#2 Post by RagingIke297 » Thu Jul 12, 2018 4:11 pm

It depends on your tax bracket and what your plans for the future are. If you are making/collecting less income now than you plan on making/collecting in the future then a Roth makes more sense. Pay, for example, 15/25% on what you put away now instead of, for example, 28/33% when you pull it out. The opposite applies, if you are making a good deal of money now and are in a high tax bracket, put money in an IRA to avoid paying taxes in the high bracket you're in now and pay lower taxes pulling it out when you're making/collecting less income later in life. (let me know if you follow that, kinda hard to explain in writing)

529 Plans depend on which state you live in, so I can't speak to that as much.

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Re: Financial Advice and Suggestions

#3 Post by zultar » Thu Jul 12, 2018 4:30 pm

My tax bracket, filed jointly, is going to be the 22% and I think we may get into the 24% tax bracket in 20 years, certainly not any time soon. Does that mean I should put money into IRA instead of Roth?
I'm in Kansas now and I may stay for a few years. You can however invest in 529 plan anywhere, not just Kansas plan. I was thinking of doing Vanguard 529.

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Re: Financial Advice and Suggestions

#4 Post by RagingIke297 » Thu Jul 12, 2018 4:41 pm

How much money do you think you'll need each year in retirement, more or less than you make now? I'll look into some 529's and how they work in Kansas because each state can do them differently

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Re: Financial Advice and Suggestions

#5 Post by zultar » Thu Jul 12, 2018 4:46 pm

I figure $60K, without mortgage payment, would be sufficient for a low maintenance life 30 years from now.

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Re: Financial Advice and Suggestions

#6 Post by RagingIke297 » Thu Jul 12, 2018 5:03 pm

As long as you stay married then it would be best to put more into a regular IRA, not a Roth. Instead of putting it into a Roth and getting taxed 22% now, you will get taxed when you pull the money out and you'll be in a much lower (12%) bracket.

As for 529's, the money goes in pre-tax and remains un-taxed if you use it on qualified education expenses. So if you plan on putting your kids through college, or at least helping, then it is wise to have the money in a 529 and have it be tax deferred instead of paying taxes then putting it in a savings account for the same purpose.

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Re: Financial Advice and Suggestions

#7 Post by flash2015 » Thu Jul 12, 2018 6:31 pm

It also depends on how much you are wanting to put away. If you are wanting to save as much as possible, the Roth IRA is allowing you to save more (i.e. saving $5,500 after tax is more that $5,500 before tax - this is why I put part of my 401K money in a Roth 401K instead of a regular one). Roth IRAs are also better if you may want to pass the money to your kids...as there is no required min distribution while you are alive.

Of course, if you want to retire overseas, overseas governments may not look kindly on you getting money tax free from a Roth IRA.

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Re: Financial Advice and Suggestions

#8 Post by ssorenn » Fri Jul 13, 2018 7:58 pm

Zultar, are you self -employed? If so SEP plans are much better than either Roth or IRA. 529s as was stated before are great vehicles for kids education. Kinda like HSA plans in healthcare.

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Re: Financial Advice and Suggestions

#9 Post by zultar » Fri Jul 13, 2018 8:49 pm

No, I'm going to working for a university. They aren't matching or anything in the first year, so it's mostly me trying to plan things out on my own without a financial advisor. I'm not sure if it's worth it to get one. I'll definitely put some money into 529 plan but not sure how much would be optimal.

Also, any advice on what kind of investments? I'm thinking of using Vanguard and buying into one of their mutual funds.

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Re: Financial Advice and Suggestions

#10 Post by ssorenn » Fri Jul 13, 2018 11:12 pm

Vanguard has good funds. Dimensional funds are also good. Watch for fees. 12B1 fees in particular. They can really eat at returns. I don’t know your risk profile, but spread your wealth over different sectors. Never have too many eggs in one basket. Being diversified is of the upmost importance. For you, find that comfortable spot and set it nd forget it. Some people have a hard time with the ebbs and flows of market volatility. Cost average your positions and create time that you will add to positions. Believe in long term investing.

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Re: Financial Advice and Suggestions

#11 Post by Tom Bombadil » Sat Jul 14, 2018 12:26 pm

Regarding Roth IRA or Traditional IRA:

For the most part it’s just a matter of whether you think your tax bracket will be higher now or when you take the money out in retirement. But obviously we don’t know what taxes will look like in the future so it’s a bit of a guessing game. In my opinion, it’s really important to have both - it’s important to diversify your investments but also important to diversify your tax strategies. A big issue when you retire is that there are thresholds where if your income is too high, your social security benefits become taxable (and taking money out of IRAs counts as income whereas taking money out of Roth IRAs does not). Clients who have money in both IRAs and Roth’s are nice to work with because we can take out of the IRAs just enough to keep social security from becoming taxable and then use he Roth IRAs for the rest of the money that is needed that year. It really minimizes the taxes you could pay in retirement.

I would consider doing Roth contributions now because your tax bracket is likely to increase once the trump tax cuts end in 2025. Second, it’s very possible you will put money away in a retirement plan that has a match at some point (which is equivalent to a traditional IRA. Even Roth 401ks almost always have the employer match go into a pre tax position). And Roth IRAs are nice because you can always take out your principal with no penalty. Plus it’s nice to have as education savings as well in addition to any 529s you do.
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