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    Re: Advice for Roth and 401k

    You might also read / listen to this recent podcast from White Coat Investor interviewing Rick Ferri. I read anything Ferri writes because he's very compelling given his background as a broker who went through a conversion to founding his own firm and promoting (mostly) passive investing and he's written some very influential (and actionable) books on asset allocation and ETFs (among other topics). WCI is a doctor who is generally focused on helping doctors with their finances (or any other High Net Worth folks) but he always has GREAT insights into some of the foundational Bogleheads principles.

    Read/listen: https://www.whitecoatinvestor.com/ri...i-podcast-109/
    Last edited by BamaNation; June 10th, 2019 at 09:16 AM. Reason: added link to Rick Ferri page on Amazon. TideFans may receive commission if you purchase any books linked from this site.

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    Re: Advice for Roth and 401k

    Quote Originally Posted by Jessica4Bama View Post
    Thank you! There wasn't much info in my benefits booklet they sent me. But it doesn't say anything on the Roth IRA about them matching my contributions. Does that normally only apply to 401k's or does it happen with Roth's as well?
    Also, here is what the benefit booklet says. I'm not sure what all this means. How much would they match say if I put in $10,000? I don't really know how to do the math here. This is just an example. I just want to see how to do the math.

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    Your questions are common and valid. And I agree that the information in the screen shot isn't presented terribly clearly. So I'll give you my interpretation, but you need to consult with your HR department for a final ruling. I promise, they get those questions all the time and are used to answering them.

    A few things to start:
    First, your company offers a choice between a traditional 401k and a Roth 401k. That's a good thing. It's also separate and apart from the Roth IRA you have at Morgan Stanley -- two totally different things.

    Second, my reading of the second sentence under Employer Match is that your company unfortunately doesn't match your contributions up to 5% of your salary. They match 50% of your contributions to the extent of 5% of your salary. Effectively, a cap on the match of 2.5% of your salary. That's still good. You get 7.5% in your account, but only have to contribute 5%. That's a 50% return on that portion of your contributions. While it's not as good as a 100% match, it's still way better than you can get anywhere else out on your own.

    Third, the information doesn't explicitly say that the match applies to the Roth 401k option. I'd have to think it probably does, but you need to verify that with your HR department.

    The answer to your question about what happens if you contribute $10,000 depends on your salary.

    Let's say your salary is $75K a year, and that you contribute $10K into the 401K the first year you're eligible.

    5% of your $75K salary is $3,750. Your company matches that at 50% -- or $1,875. Plus, you're contributing an additional $6,250 that isn't getting matched (the difference between $10,000 total you're putting and the $3,750 that is getting matched).

    So you end up with a grand total contributed into your account of:

    $3,750 the part of your $10K contribution that's eligible for your company match, plus
    $1,875 the dollar amount that your company puts in as your match, plus
    $6,250 that you contribute on top of what is being matched
    $11,875 Grand Total Contributions

    Obviously, you'd need to adjust those numbers to reflect your actual salary.

    A few additional thoughts:
    1. I hear a lot of young people (and some older ones) say that they've "maxed out" their 401k contributions when they do enough to get the full company match. Unless their salary is well over $250K, that's garbage. You're not "maxed out" until you're contributing the maximum the IRS allows -- in 2019 that's $19K, and $25K if you're over 50.

    Admittedly, that's not easy to do. Here's how Mrs. Basket Case and I did it: We started out contributing all we could. On top of that, we effectively didn't get a raise for several years. What I mean is that every time we got a raise, we increased our 401k contribution by the amount of the raise. We did that for about 6-7 years, and finally got there. It was a pain for a while, but soon enough it was built into our lifestyle, and largely painless. The reward at the end of that time -- a really nice start on a retirement nest egg -- was incredibly gratifying.

    2. Use debt wisely. Borrow as little as you possibly can to buy depreciating assets (like a car). Buy used. Don't ever borrow to fund experiences -- vacations, concert tickets, dinners out, etc. If you put that stuff on a credit card to get miles or bonus rewards, be sure to pay it off every month -- if you can't do that, you can't afford whatever it is. The first time you have a credit card bill made up of experiences, and you can't pay it off in full, that should be a big, loud, whanging wake-up call.

    If you borrow to buy a house (and almost nobody can pay cash for their first one), have the payment on a 15-year schedule, not 30. Later, if you upgrade your house, keep the payment on the original schedule. Example: say you buy your first house and have the 15-year schedule. Three years later, you upgrade to a nicer house. Your payment schedule on the new house is 12 years. Three years later, you upgrade again. That mortgage is on a 9-year schedule. The idea is to have whatever house you're in at the time debt-free 15 years after your first purchase.

    I don't agree with Dave Ramsey on everything, but he's got the debt thing right. Live like nobody else for a while, so you can live like nobody else forever afterward.

    3. Ignore jackasses braying at social gatherings about their new cars, their vacations, their house, whatever. Almost invariably, they're selling their souls to impress you. Be far more concerned with impressing yourself than bragging to others. You'll be amazed how often those same public braggarts come to you in private, after the party's over, asking for advice on their impossible financial situation....in other words, you're actually impressing them far more than they want the world to know.

    4. Don't confuse gambling with investing. Never have more than 10% of your portfolio in any one investment. Diversify, diversify, diversify.

    5A. The most important thing: Start young, as you already have. Keep it up. For you, time is your most valuable asset. But it is also your most perishable. People that spend everything they can while young wake up at about age 40-45 and realize that they're in deep trouble, with nowhere near enough time to work themselves out of it.

    5B. I know it seems counter-intuitive, but while you're young, recessions are actually your friend. You keep on keeping on with your investments, buying stocks while they're down. Later, when the recession lifts and the stock markets come back (and they always do), this is where you really make hay on the stuff you bought cheap while everybody else was scared and not investing at all. During a recession, turn off the TV news, keep your head about you, and keep on investing. This doesn't hold if you're 5 years or less out from retirement, but at your age it definitely does.

    Yes, it's hard. And it takes between 7 and 10 years to really start seeing the rewards. I liken it to starting a bike ride in 21st gear. It's hard, and you're putting out a lot of effort, and not getting much of anywhere early on, and it sure would be easier to just get off the [stupid] thing. But gradually it gets easier and easier until finally you're cruising along at a pretty sporty clip.

    It's not easy, but nothing worthwhile ever is. And the financial and emotional rewards in the end are just incredible. OK, off the soapbox.
    Last edited by 4Q Basket Case; June 10th, 2019 at 11:05 AM.
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    Re: Advice for Roth and 401k

    Also, you can ask for the ACTUAL PLAN(S) from your employer and/or Fidelity. Not just the HR glossy summaries. The actual plans will spell out what the company and Fidelity have contractually agreed to providing you (and each other).

    Here's a post from Bogleheads discussing 401k vs Roth 401k: https://www.bogleheads.org/forum/viewtopic.php?t=264994

    Here's a calculator and some details : https://smartasset.com/retirement/401k-calculator
    Last edited by BamaNation; June 10th, 2019 at 09:25 AM.

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    Re: Advice for Roth and 401k

    Just an FYI, if you move your Morgan Stanley account, which I think you said was a Roth IRA, to avoid any confusion or possible tax consequences it would best to let the new IRA custodian initiate and handle the transfer from Morgan Stanley. This is normally handled through your employer's HR department.
    "My momma always said you got to put the past behind you before you can move on." Forrest Gump

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    Re: Advice for Roth and 401k

    Quote Originally Posted by GrayTide View Post
    Just an FYI, if you move your Morgan Stanley account, which I think you said was a Roth IRA, to avoid any confusion or possible tax consequences it would best to let the new IRA custodian initiate and handle the transfer from Morgan Stanley. This is normally handled through your employer's HR department.
    Great point and one I may have not made clear. I was thinking Roth & IRA not Roth 401k or Roth IRA through an employer. THere are also options to rollover but there are definite tax consequences that should be considered before doing anything. Have the discussion with employer(s) and / or Fidelity etc before doing or committing anything so that everyone is clear on what you're wanting to do. Easiest thing may be to do nothing but you're probably paying high fees for giving into doing nothing

    Finally, don't succumb to paralysis from analysis! The typical inertia is keep on doing what we've always done. As 4Q states, you taking action now is awesome! Then the new inertia is to keep having it taken out of your salary, increasing your savings as you get raises, and saving more than you spend

    I keep thinking of many other things that help me out but here are a few...

    1) one thing we've tried to do is figure out (in today's dollars) how much do we need in retirement and then for every year we work, save 2 years of retirement spending. This was EXTREMELY painful in the beginning of us doing it. It may not be doable right now but should help you think about why you're actually saving money.

    2) I also have applied little behavioral economic jedi mind tricks like multiplying by 20x the amount of any large purchases I have/want to make. Then I better understand the impact on my retirement savings from that one purchase. I might still make the purchase but at least I know the future impact and opportunity costs.

    3) use the rule of 72 to understand the power of doubling savings through investing

    4) use conservative returns in your planning (we use 4%). Average stock market return over last 100+ years is about 10%. We half that in our planning horizon.

    5) Incorporating the efficient frontier concepts into your asset allocation helps you understand risk/return.

    6) Keep it simple! Passive investing beats active ~90% of the time! Think long term.
    Last edited by BamaNation; June 10th, 2019 at 10:30 AM.

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    Re: Advice for Roth and 401k

    And here's a little advice (take it for what its worth) from a non-financial angle about your financial planning. Understand that the soundest financial plan can be wrecked in one unexpected life event. Don't be consumed by planning for retirement. I'm not saying don't plan for it or not make it a priority. But keep it in perspective and understand that there have been a many of people who have "done it right" only to have a life event wipe them out almost overnight (my late grandmother was a great example).

    I gather from your sig that you are a Believer. Here's a passage that you may have to lean heavily on as you go through this crazy, unpredictable thing called life.

    Matthew 6:25-34
    25 “Therefore I tell you, do not worry about your life, what you will eat or drink; or about your body, what you will wear. Is not life more than food, and the body more than clothes? 26 Look at the birds of the air; they do not sow or reap or store away in barns, and yet your heavenly Father feeds them. Are you not much more valuable than they? 27 Can any one of you by worrying add a single hour to your life[a]?

    28 “And why do you worry about clothes? See how the flowers of the field grow. They do not labor or spin. 29 Yet I tell you that not even Solomon in all his splendor was dressed like one of these. 30 If that is how God clothes the grass of the field, which is here today and tomorrow is thrown into the fire, will he not much more clothe you—you of little faith? 31 So do not worry, saying, ‘What shall we eat?’ or ‘What shall we drink?’ or ‘What shall we wear?’ 32 For the pagans run after all these things, and your heavenly Father knows that you need them. 33 But seek first his kingdom and his righteousness, and all these things will be given to you as well. 34 Therefore do not worry about tomorrow, for tomorrow will worry about itself. Each day has enough trouble of its own.
    The existence of God isn't determined in the thoughts of man. God exists, no matter what man thinks.

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    Re: Advice for Roth and 401k

    Quote Originally Posted by Bamabuzzard View Post
    And here's a little advice (take it for what its worth) from a non-financial angle about your financial planning. Understand that the soundest financial plan can be wrecked in one unexpected life event. Don't be consumed by planning for retirement. I'm not saying don't plan for it or not make it a priority. But keep it in perspective and understand that there have been a many of people who have "done it right" only to have a life event wipe them out almost overnight (my late grandmother was a great example).

    I gather from your sig that you are a Believer. Here's a passage that you may have to lean heavily on as you go through this crazy, unpredictable thing called life.
    Good points, as well. With my students, I use the metaphor of Alice in Wonderland to explain planning ... it goes something like this: Alice came to a fork in the road and didn't know which road to take. She met the Cheshire cat and asked him "Which path should I take?" He said, "Where do you want to go?" Alice answered, "I don't know" and the Cheshire Cat responded "Then it doesn't matter which path you choose."

    Planning is not about perfect execution. It's about having an idea on what you're trying to achieve. Having the perfect plan could mean you never go bankrupt. It could mean you become a billionaire. It could also never be used or life's randomness could wipe you out (as in BB's example above). But having no plan is no better than a random outcome and possibly worse.

    I like Dave Ramsey's potentially paradoxical view on this which coincides with my natural inclination... I save so I can give. He also has a "thirds" philosophy: 1/3 of your salary is for taxes, 1/3 is for expenses (including tithing/giving), and 1/3 is for saving. If one can do this, one has a very good chance of being able to retire, having money to pay for emergencies, and be able to give abundantly and/or have generational wealth that you pass along.
    Last edited by BamaNation; June 10th, 2019 at 10:57 AM.

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    Re: Advice for Roth and 401k

    Quote Originally Posted by 4Q Basket Case View Post
    Your questions are common and valid. And I agree that the information in the screen shot isn't presented terribly clearly. So I'll give you my interpretation, but you need to consult with your HR department for a final ruling. I promise, they get those questions all the time and are used to answering them.

    A few things to start:
    First, your company offers a choice between a traditional 401k and a Roth 401k. That's a good thing. It's also separate and apart from the Roth IRA you have at Morgan Stanley -- two totally different things.

    Second, my reading of the second sentence under Employer Match is that your company unfortunately doesn't match your contributions up to 5% of your salary. They match 50% of your contributions to the extent of 5% of your salary. Effectively, a cap on the match of 2.5% of your salary. That's still good. You get 7.5% in your account, but only have to contribute 5%. That's a 50% return on that portion of your contributions. While it's not as good as a 100% match, it's still way better than you can get anywhere else out on your own.

    Third, the information doesn't explicitly say that the match applies to the Roth 401k option. I'd have to think it probably does, but you need to verify that with your HR department.

    The answer to your question about what happens if you contribute $10,000 depends on your salary.

    Let's say your salary is $75K a year, and that you contribute $10K into the 401K the first year you're eligible.

    5% of your $75K salary is $3,750. Your company matches that at 50% -- or $1,875. Plus, you're contributing an additional $6,250 that isn't getting matched (the difference between $10,000 total you're putting and the $3,750 that is getting matched).

    So you end up with a grand total contributed into your account of:

    $3,750 the part of your $10K contribution that's eligible for your company match, plus
    $1,875 the dollar amount that your company puts in as your match, plus
    $6,250 that you contribute on top of what is being matched
    $11,875 Grand Total Contributions

    Obviously, you'd need to adjust those numbers to reflect your actual salary.

    A few additional thoughts:
    1. I hear a lot of young people (and some older ones) say that they've "maxed out" their 401k contributions when they do enough to get the full company match. Unless their salary is well over $250K, that's garbage. You're not "maxed out" until you're contributing the maximum the IRS allows -- in 2019 that's $19K, and $25K if you're over 50.

    Admittedly, that's not easy to do. Here's how Mrs. Basket Case and I did it: We started out contributing all we could. On top of that, we effectively didn't get a raise for several years. What I mean is that every time we got a raise, we increased our 401k contribution by the amount of the raise. We did that for about 6-7 years, and finally got there. It was a pain for a while, but soon enough it was built into our lifestyle, and largely painless. The reward at the end of that time -- a really nice start on a retirement nest egg -- was incredibly gratifying.

    2. Use debt wisely. Borrow as little as you possibly can to buy depreciating assets (like a car). Buy used. Don't ever borrow to fund experiences -- vacations, concert tickets, dinners out, etc. If you put that stuff on a credit card to get miles or bonus rewards, be sure to pay it off every month -- if you can't do that, you can't afford whatever it is. The first time you have a credit card bill made up of experiences, and you can't pay it off in full, that should be a big, loud, whanging wake-up call.

    If you borrow to buy a house (and almost nobody can pay cash for their first one), have the payment on a 15-year schedule, not 30. Later, if you upgrade your house, keep the payment on the original schedule. Example: say you buy your first house and have the 15-year schedule. Three years later, you upgrade to a nicer house. Your payment schedule on the new house is 12 years. Three years later, you upgrade again. That mortgage is on a 9-year schedule. The idea is to have whatever house you're in at the time debt-free 15 years after your first purchase.

    I don't agree with Dave Ramsey on everything, but he's got the debt thing right. Live like nobody else for a while, so you can live like nobody else forever afterward.

    3. Ignore jackasses braying at social gatherings about their new cars, their vacations, their house, whatever. Almost invariably, they're selling their souls to impress you. Be far more concerned with impressing yourself than bragging to others. You'll be amazed how often those same public braggarts come to you in private, after the party's over, asking for advice on their impossible financial situation....in other words, you're actually impressing them far more than they want the world to know.

    4. Don't confuse gambling with investing. Never have more than 10% of your portfolio in any one investment. Diversify, diversify, diversify.

    5A. The most important thing: Start young, as you already have. Keep it up. For you, time is your most valuable asset. But it is also your most perishable. People that spend everything they can while young wake up at about age 40-45 and realize that they're in deep trouble, with nowhere near enough time to work themselves out of it.

    5B. I know it seems counter-intuitive, but while you're young, recessions are actually your friend. You keep on keeping on with your investments, buying stocks while they're down. Later, when the recession lifts and the stock markets come back (and they always do), this is where you really make hay on the stuff you bought cheap while everybody else was scared and not investing at all. During a recession, turn off the TV news, keep your head about you, and keep on investing. This doesn't hold if you're 5 years or less out from retirement, but at your age it definitely does.

    Yes, it's hard. And it takes between 7 and 10 years to really start seeing the rewards. I liken it to starting a bike ride in 21st gear. It's hard, and you're putting out a lot of effort, and not getting much of anywhere early on, and it sure would be easier to just get off the [stupid] thing. But gradually it gets easier and easier until finally you're cruising along at a pretty sporty clip.

    It's not easy, but nothing worthwhile ever is. And the financial and emotional rewards in the end are just incredible. OK, off the soapbox.
    Excellent advice

  9. #22
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    Re: Advice for Roth and 401k

    Quote Originally Posted by Bubbaloo View Post
    Excellent advice
    And well presented. It left the tax attorney with nothing to add...
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    Advice for Roth and 401k

    4Q with some awesome advice, again!

    Also, extending 4Qs first point, the real maximum is more like $54k... which, if you had a side business you could create a Solo 401k and contribute there as well. Also, 401k plans may allow after tax contributions, and Roth IRAs allow so-called back door and mega back door contributions. You’ll want to know these exist when you’re running the hospital or taking in lots of side hustle $$

    The above are obviously not following my previously stated simple rules and generally only make sense at high income and/or executive-level pay or small business owner with good profitability so don’t worry about them anytime soon but could be of help to somebody on here.


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    Last edited by BamaNation; June 10th, 2019 at 01:26 PM.

  11. #24
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    Re: Advice for Roth and 401k

    Goodness all this is confusing. Haha. The reason I worry about it is I'm single and I don't see myself ever marrying, so my income is what has to sustain me when I am old. One of my fears is living paycheck to paycheck and not being able to afford a house or retire or afford things I need and the list goes on. I'm not one who looks too far into the future. I am more of in the moment type of person, but the thought of not having enough money to live on in retirement strikes fear in me. I have always been one who has saved money. I currently have no debt, but will be looking for a house soon, which I am hoping to be able to put between 20-30% down. I do pay off my cards monthly, so no interest fees for me. But all this investing stuff really confuses me.
    Last edited by Jessica4Bama; June 10th, 2019 at 09:55 PM.
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    Re: Advice for Roth and 401k

    Also, on a side note that I thought was interesting. I recently watched a segment on the today show who had some financial guru. They said if you put away $200 a month starting at age 30 in a Roth IRA, by the time you are 70, it would have gained up to 1.2 million. I guess that is based on the current returns each year, which could go up or could go down. But I thought that was an interesting tidbit. A lot of 30 plus year olds may not be able to contribute that much, but it sure makes me want to invest what I can now while I am still in my early 30s.
    Hebrews 11:1



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    Re: Advice for Roth and 401k

    Quote Originally Posted by Jessica4Bama View Post
    Goodness all this is confusing. Haha. The reason I worry about it is I'm single and I don't see myself ever marrying, so my income is what has to sustain me when I am old. One of my fears is living paycheck to paycheck and not being able to afford a house or retire or afford things I need and the list goes on. I'm not one who looks too far into the future. I am more of in the moment type of person, but the thought of not having enough money to live on in retirement strikes fear in me. I have always been one who has saved money. I currently have no debt, but will be looking for a house soon, which I am hoping to be able to put between 20-30% down. I do pay off my cards monthly, so no interest fees for me. But all this investing stuff really confuses me.
    If you have no debt and pay your cards off monthly, you already have the right hard-wired mindset. Don't let all the details paralyze you.

    Invest everything you can for 30 years, including increasing the amount invested as your income rises. Don't worry about recessions or downturns in the markets until you're about 5-7 years from retirement. As I mention above, these are the times young people can really make huge progress toward their long term goals. If you do all that, the power of compounded returns will take care of you.

    And as someone posted earlier, take some time to smell the roses along the way. Just don't overdo it, confusing wants with needs. For example, you may actually need some time off...a few days at the beach. Do that a couple of times a year. While you may want it, you don't need 10 days at the Grand Floridian in Orlando, or a week on South Beach at the Delano.
    Last edited by 4Q Basket Case; June 11th, 2019 at 05:34 AM.
    You can't reason a man out of a position he didn't reason himself into.

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