Vanessa is curious about Fidelity and Vanguard. She asks: what are your thoughts on the no-fee Fidelity index funds? What are your opinions on Vanguard’s financial advisors?
Andy wants to know: should my wife and I continue maxing out our traditional 401k and backdoor Roth IRA, or should we start contributing to the Roth 401k my employer offers?
Kyle is wondering – how can he minimize his taxes when he earns $450,000/year?
Rob is self-employed and has been maxing out a Roth IRA, but recently discovered that he can open a self-employed IRA. Should he move his Roth IRA money over, or just open a new account and fund it from scratch?
Christina is torn. She and her husband have been saving to buy a house, but because they live in New York, their savings won’t go very far. Is it a good idea for them to continue renting, despite their dreams?
Mercedes is wondering how REITs compare to stocks and owning actual real estate. Additionally, she’d like to know more about Forex trading.
Craig has an employee stock purchase plan (ESPP). Since these tend to be risky, he’s wondering: is he better off moving the $25,000 that he puts towards the ESPP into mutual funds? Or is an ESPP a good way to diversify his funds?
Former financial planner Joe Saul-Sehy and I answer these questions in today’s episode. Enjoy!
Vanessa asks (at 59s):
What are your thoughts on the no-fee Fidelity index funds, both the domestic and international?
Also, do you have any insight into Vanguard’s financial advisors? I was told they charge 0.3 percent on your entire portfolio, but they help rebalance it and look for tax efficiencies. Is it worth paying for this service?
Andy asks (at 24:16 mins):
My wife and I anticipate retiring at age 60; I’m 39 and my wife is 37. We’re maxing out my traditional 401k every year and taking advantage of an employer match. We’re also maxing out our backdoor Roth IRAs through Vanguard using target retirement date funds.
Using the estimated yearly returns of 4-6 percent on Vanguard funds, 5-6 percent on my 401k, and the 4 percent withdrawal rule once we retire, I anticipate that our investments will allow for a comfortable retirement when factoring in my pension and Social Security. I don’t think we’ll have a lot of needs when we retire – I can carry my employer health insurance with me, and we’ll qualify for Medicare four years after we retire. We’ll no longer have a mortgage and our children’s college will be fully paid.
Here’s the issue: I found out my employer has a Roth 401k. We enjoy the nice tax breaks that come from the traditional 401k, and I anticipate that we’ll be in a lower tax bracket once we retire. I’ve also planned our family budget around traditional 401k contributions and would have to re-work our budget to contribute to the Roth 401k. However, the upside of the Roth is that you don’t pay taxes on what you take out. The employer match is still a tax-deferred portion of the 401k.
My question: is it better to maintain our current plan and hope that tax rates don’t go up too much by the time we retire, or should I revise the family budget, lose the tax breaks that come with the traditional 401k contributions, and start contributing the max to a Roth 401k every year?
Rob asks (at 32:16 mins):
I’m self-employed; I have two separate businesses that are doing well. I’ve been maximizing my Roth IRA with Charles Schwab, and ever since learning about the self-employed IRAs available to me, I want to invest more.
It sounds like Vanguard Solo Roth IRA is a good option. My question is: should I move the money I have in my Schwab account over to Vanguard, or just leave it in Schwab and open a new account with Vanguard?
Christina asks (at 42:26 mins):
What should I be calculating to figure out if it makes sense to rent or buy a home? My husband and I are 35, we both have student loan debt (he has $70,000 and I have $67,000 left). We save into our 401k and 403b, we have separate Roth accounts, and we also have a 529 for our two year old. We’re renting and have been saving for a house for about three years – we have $39,000 saved, but because we live in NY, it doesn’t go very far.
Does it make sense for some people to rent as opposed to buy a house? I would love to own a house, but I’m afraid to use all the money that we’ve saved and then be strapped when we need to do renovations, since we can’t afford a new house. Should we just keep saving and wait to buy? What do you think is best?
Kyle asks (at 8:16 mins):
I make about $450,000 per year. As a result, my taxes are very high, and I’m not sure what else I can do to lower them. I max out my 401k, I do a backdoor Roth IRA, I max out my HSA contribution, I do tax loss harvesting when applicable… Other than that, I can’t think of much else for a W2 employee to do to minimize the taxes. Can you help?
Mercedes asks (at 14:33 mins):
In episodes #144 and #174, two callers asked about investing in real estate versus REITs or crowdfunding syndicates. In both responses, you pointed out that when you invest in these options, you outsource decision making. I actually perceive this as an advantage, rather than a disadvantage.
My question is: can I depend on REITs to give me a similar cash to owning real estate? Inherent in this question is, do REITs behave more like stocks, or do they behave more like real estate in response to market cycles?
My second question is: in episode #181, Joe said that if you know anything about the Forex market is you would stay away from it. My understanding is that nowadays, some traders are not relying on older techniques like Fibonacci Sequences that predicts market performance with some level of success. What they’re doing is logging into the market 50 minutes prior to the close of the trading day, they’re trading one a day, and if they see an opportunity to make gains, they make a trade, and if they see no such opportunity, they don’t make a trade. That sounds like there’s less room for speculation. Can you comment on this and Forex trading in general?
Craig asks (at 53:06 mins):
I’m concerned about retirement as I started saving late. Here’s my current situation:
I’m almost 48 and I make around $200,000 annual gross income. I have $200k in my 401k 80/20 split, $50,000 in company stock with another $10,000 unvested, $40,000 in non-retirement investments with Edward Jones, about $35,000 in IRAs for my wife and I, and $50,000 in a high-yield savings account. I max out my Roth 401k and IRAs, I contribute $27,250 post-tax that converts quarterly to Roth and goes into my 401k, my company matches $9,500, and I max out my HSA every year.
The big question is, once I have all allowable contributions done for retirement, I also contribute $25,000 annually to my employee stock purchase plan, which is with Microsoft. I get a 10 percent discount, I hold onto it for a minimum of a year, and then I sell it and use those proceeds to fund the next year’s Roth IRAs and build up my emergency fund.
My total annual investments are a little over $100,000 with $58,000 going into Roth funds. I plan to retire at 60. I cashed out my non-retirement investments and long-term held company stock in September 2018 to pay off the last $200,000 of my mortgage, so now I’m debt-free with a $350,000 house.
Since ESPPs tend to be risky, am I better off taking the $25,000 that I put into my ESPP into mutual funds, or is it a good way to diversify?
Resources Mentioned;
- Renting is Throwing Money Away…Right? – Afford Anything article
- The New York Times Rent vs. Buy Calculator
- Mighty Networks Afford Anything community
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