Correct. You can invest in the target fund both within the Roth as well as in a standard investment account. The difference is only the tax benefits that the Roth allows which is why you would want to max that out first. The only real downside to the Roth is that you can't easily get access to the funds for a long time without significant penalties but that doesn't seem to be a concern for your situation.

You can take out your contributions without penalty (for a Roth) but not your profits.

When are you getting married? Once you are married, you will be able to make a roth contribution also, as long as your spouse has enough earned income for both of you. So if that's coming up, just wait for that.

Will you have more money to invest next year, or is this 7k going to be it for a while? If it's the latter, I'd probably personally just stick the 7k into a savings account and do it Roth next year, since we're already to August.

If you are going to have more to invest or don't want to wait, I'd probably just put that 7k into a total stock index fund, something like VTI. You wouldn't ideally want to have a target fund in a taxable investment, since it's going to throw off taxable bond income.

Does your fiancee have other opportunities to invest at work pre-tax?

Where is the old thread where the guy tells everyone their business idea sucks and why?

What is your reasoning for this? If I had capital and roth space available, i'd use it immediately.

I also think i'd suck up the tax hit in favor of the instant diversification of the TR fund (or suck up the complexity and do a 3-fund portfolio).

If I read his post correctly, he's going to max the roth for his fiancee now (2013), but have $7k left over. Personally, I wouldn't hassle with creating a taxable account unless they are gonna have a bunch more money to invest going forward. I'd just park the $7k and use it for 2014 Roth contributions as soon as January gets here.

I think it might be a few years out; I risk losing a substantial amount of financial aid for school if we get married.

The way it looks, if we max out her contribution for 2013 and then turn around and instantly do it again in January of 2014, we will still have around $15,000 to invest over the course of 2014.



Can you elaborate on the bolded? I am naive so I don't know anything about tax implications (other than what I know about the tax advantages of a Roth), but I would have thought, if you aren't going to touch the money, wouldn't you not have to worry about taxes until you realized the gains (IE until you withdrew money)?


Her company will match 40% up to the first 5% of her contributions to a 401(k). If it matters, she will only be there another 2 years & that only vests her 60%.

I have my whole portfolio in VASGX vanguard life strategy growth. I am a little concerned the market is overvalued and was thinking about putting an extra 12k I have into VBR vanguard small cap value etf. The idea is that the small caps may be better value. Is this silly? Just keep funding VASGX?

so the market is overvalued but SCV isn't?

all of this is market timing, and hence nonsense. stay the course. life strategy is a fine choice.

(if you were to decide you want to overweight SCV that's fine, but you would then want to do that regardless of what the market happens to be doing right now.)

Okay.


Okay, so you need to find out what investment options you have in her 401k. It would also be helpful to understand your current income vs. projected future income. My advise is based on the assumption that your income will probably go up significantly.

Most likely, this should be your order of investment:

1. Invest in 401k to maximize match, EVEN if you are gonna lose some of the vesting. Free money is free money! If they allow Roth 401k contributions for her part, do that.
2. Maximize Roth contributions.
3. Cap out the 401k, assuming the investment options don't uber-suck. Edit: Actually, on second thought, you should do this even if the investments suck, because when she leaves in 2 years, you can roll it over and easily move the money to Vanguard funds.

I think that would more than soak up the money you were talking about, although I didn't do the math. That should eliminate the entire issue of taxable accounts and worrying about tax placement of your investments that I bought up earlier.

+1. Lots of people like to overweight/tilt SCV, so certainly nothing wrong with doing that for the reason of potential increased returns, but don't do it based on any guess that your current holding is overvalued.

There's a company I really want to buy stock in, and they have recently started about going public. I've never bought a stock as soon as the company went public, and I'm wondering if anyone has any experience in this. Is it usually overpriced or underpriced? Any tips to determine if it's a good buy or not? I have faith that the company's value will go up, but I'm just afraid that I'll buy it when it's overvalued, see a quick fall and then have to wait to recover those losses as it readjusts and before it rises.

Thanks a lot for the input. Much appreciated.

Tyler_cracker: Thanks for your earlier response, appreciate it.

One more question for you guys: I'm trying to determine a mortgage calculation and am hoping you guys can help check my numbers. I'm probably making some bad estimations and missing a few things in the calculation.

Property value is $250k, property taxes are 2.35%, insurance is $125, condo fees are $250, loan would be $200k plus $50k downpayment at 4.5% over 30 years, maintenance outside of condo fees approximated to $100 per month.

$1k mortgage payment + $650 estimated taxes + $250 condo fees + $125 insurance + $100 maintenance = $2,125 monthly?

In my reading I've found it suggested that you should budget 1% to 2% of the value of the home for yearly maintenance. This would mean that your maintenance cost should range from between $208-$416 per month.

As another planning tool I've seen it suggested that the maintenance budget will range from 30% to 50% of the monthly mortgage. This would mean that your maintenance cost should range between $300-$500 a month.

Obviously this isn't a science but it would seem that the amount you're budgeting for maintenance is too low. Maybe Google something like "how much to budget for maintenance" for further reading.

unless the place is literally falling down, spending 30% of your mortgage payments on "maintenance" seems excessive.

I guess it depends what you include in "maintenance" and whether you have things like a gardener, cleaner and full-time groundsmen to look after the 30 acre garden you have.

A rough estimate pulling some numbers from the web:

1 re roof (avg composite shingle roof only last 16 yrs) $3500
re side once every 20 years $10,000
2 repaints $6,000
2 hot water heaters (10-13 year life) $2,000
lawn maintenance avg $315 per year $6300
2 fridges low cost estimate)$2,000
2 sets of washer and dryer $2,000
1 repave driveway $3,500
2 interior repaints $2,000

This works out to about $155 a month over the course of 20 years which is 15% of mortgage costs. So, you are right, 30% is probably a bit higher than one would would expect (if I didn't miss anything major).

Just put the fiance to work tracking down the investment options for her 401(k); I have a few questions though. The term "elective deferral" is the only bit that makes me uncertain on the quote below, otherwise it would seem straightforward, but is this what describes our contribution limit for the 401(k)?

From the IRS website
My second question is with regards to the "taxable accounts" issue. As I understand it with a ROTH we pay taxes now and then don't pay taxes again, and with a 401(k), we save our pretax money (unless we are talking about a ROTH within the 401(k)) and then pay taxes at the end. What are the tax consequences of, say, investing in mutual funds outside of these tax sheltered accounts? I was under the impression (which means very little) that there aren't any tax issues until you sell your asset and realize some capital gains/losses. So if you are a long term investor, why are there "tax placement" issues and, without paining yourself too much to go into the details, what are these tax placement issues?

Thanks

elective deferral means the money you volunteer to have withheld from your paycheck and injected into your 401k.

you should probably look at tax rules for 2013 and not 2012. the individual elective deferral limit is $17.5k this year.

you are correct about how roths and 401ks work.

you are correct that you will pay capital gains tax when you sell a holding. the thing you're missing is dividends. if they are non-qualified, the dividends are taxed as ordinary income on your 1040, just like savings account interest.

total us stock market is very tax-efficient, providing almost entirely qualified dividends. total bond market is very tax-inefficient, providing almost entirely non-qualified dividends.

Thanks, this clears up a lot.

On the bolded: If we own something like a target retirement fund (not in an IRA), do we (because of the mixture of stocks and bonds) experience a mixture of qualified/non-qualified dividends? Or, was the scenario you described only representative of what happens when we own something like Vanguard Total Stock Market Index Fund and Vanguard Total Bond Market Index Fund?

Yep, exactly. That's why I suggested not holding that in a taxable account.

tyler answered everything else perfectly.

Thanks. Regarding what options are available for us in her 401(k): all the information I've read from her brochure talks about "pre-tax" so I'm assuming it is a high probability that they don't have a ROTH option. Here are what seems to be the funds available.



Is it a snap call with the Vangaurd SmCap Idx because of the low fees?

Wow, your plan sucks. Is this your entire retirement portfolio? If so, I wouldn't have everything in small caps. I think your best bet is likely just pick a target date fund. Trying to piece together a portfolio from those other funds seems like a pain and probably doesn't save you enough to make it worth it.

We would also be making a max contribution to her Roth account via a target date fund. Mostly just talking about what to do with an additional 15k in 2014 after we max the Roth so it would only be the entire portfolio (excluding the Roth) for a few years.

having a portfolio of just small cap would be sort of like moving to alaska using only a miata. it's possible you'll get there in record time, but it's far more likely that something goes horribly wrong.

i'm with dale; your gf's plan sucks .

what i would do is make a http://www.bogleheads.org/wiki/Three-fund_portfolio.

Pimco Total Return is a reasonable bond fund (though you don't even have the institutional shares so it has a pretty ridiculous expense ratio). i'd use that for the bond portion.

TAP Stk Index looks like either an s&p 500 or total us stock index. fill the rest of the 401k that isn't taken up by the bond fund with that. if it's an s&p 500 index, you can use small cap value to fill it out; see http://www.bogleheads.org/wiki/Appro...l_Stock_Market.

in taxable space (brokerage account), buy total international stock index. fill the rest with total us stock index.

et voila! a bit more complex than a TR fund but tax efficient and flexible.