Investing (Roth IRA) and Liquidity

birddog23 Senior Member
1,173 posts 8 reps Joined Aug 2010
Mon, Aug 3, 2020 8:58 AM

My wife and I are looking into opening a Roth IRA. Those that have one, who did you use to have manage that? Are you using an online bank? Financial advisor? Just managing it yourself? Interested to hear.


Also, not to turn this into a "look at how much money I have" topic, how much liquid cash should you typically have available? I know these current times are a bit odd and may throw a wrench into this question. But I would imagine there can become a time when you have too much cash just sitting in your checking/savings account.


j_crazy 7 gram rocks. how i roll.
8,623 posts 30 reps Joined Nov 2009
Mon, Aug 3, 2020 9:14 AM

i use a financial advisor now, but when i first was starting i did it all myself. if you are going to be hands off and let it grow with like index funds, run it yourself, if you want to get aggressive with frequent trades and actively manage it (tax loss harvesting and other aspects) you might have a financial advisor do it. 


As for how to run it, i say it's dependent upon your options. when i started mine, my employer had a deal with fidelity that made all account types free on that site (this was at a time where that was not the case, there were account maintenance fees everywhere) now i think most of those fees are not around so go look at a few and see which interface you like best (because there are some bad ones - Merril Lynch) and pick one.

gut Senior Member
18,369 posts 115 reps Joined Nov 2009
Mon, Aug 3, 2020 3:23 PM

There's a lot of information out there on the internet, and it's a little too complex for me to remember all the details.

First, I think the max contribution for 2020 is $7k, and that phases out @ $200k for a married couple filing jointly.  There are, however, some sophisticated workarounds (search backdoor and loopholes). If you can access those methods, it would be better than after-tax brokerage account presuming you don't need the money until retirement.

While the withdrawls are tax-free, the contributions are after-tax so you're saving only like 15% vs. just putting it in a brokerage and having cap gains on the withdrawls.


Don't know if they will close this loophole, but my advice is continue maxing the 401k.  When you retire, you can start doing Roth conversions.  How that works is converting that 401k money to Roth is taxed at your ordinary rate, but presumably you have almost no income (particularly if you aren't taking social security).  Doing that today would cost you 12% for up to $78k of income, and then an additional 10% on your next $90k of income.  So if you are in an equal or higher tax bracket, that is the way to go.  Finance yourself for 5 years from a brokerage account, and maybe half of that is capital gains but you could probably convert $40k a year.

like_that 1st Team All-PWN
29,228 posts 321 reps Joined Apr 2010
Mon, Aug 3, 2020 3:24 PM

I have been pretty happy with Fidelity. 

gut Senior Member
18,369 posts 115 reps Joined Nov 2009
Mon, Aug 3, 2020 3:47 PM

So I guess a new rule just passed as part of the CARES act might let you work around the contribution limits, and add up to $37k after tax to a Roth IRA.  Look up "Mega Roth". 

I think. Definitely need to talk to a sophisticated financial advisor if you're looking to do more than the $6-$7k contribution limit per individual.

gut Senior Member
18,369 posts 115 reps Joined Nov 2009
Mon, Aug 3, 2020 3:54 PM
posted by like_that

I have been pretty happy with Fidelity. 

Years ago, I went to Scottrade because of trade/transaction costs.  Then went to Vanguard because they have no trade fees on Vanguard ETF's, which also have among the lowest management fees of anyone.  They do have limits to how often you can trade those fee-free, but it's something like twice a month.

Asset allocation is like 80% of returns, so I try to get the big stuff right then mining individual names. 

gut Senior Member
18,369 posts 115 reps Joined Nov 2009
Tue, Apr 26, 2022 2:44 PM

Well, embarassed to say I never heard of I-bonds.  I've heard of TIPS, and I guess they work similar(?).  These are taxable federally, but excluded from state/local tax.

Downside is you're limited to $10k per individual in purchases per year.  But right now this beats the heck out of what you get on CD's or cash/money-market accounts, and not many assets look like attractive investments right now.

https://districtcapitalmanagement.com/i-bonds/

Other downside is you have to hold for 12 months minimum, and then you lose 3-month's interest when you cash.  Right now, 7.12% interest rate for the first 6 months, which is then bumped to 9.62% the following six months...so if you cash in 12 months, you'll still yield 6.27%.

You only have a few days to act on this because in May they will be yielding 9.62% for the next 6 months, with no idea what the rate will be the following 6 months (but probably not much lower, if at all).  You'd have to check if your wife could also buy $10k, and whether or not you can put these in your kid's name (may be some tax advantages if used for education - no idea how these work in a 529).

QuakerOats Senior Member
11,701 posts 66 reps Joined Nov 2009
Tue, Apr 26, 2022 2:59 PM

I think if you hold for 5 years you can cash out without  the 3-month interest penalty.  Have to buy them directly , no brokers etc.....which is why many people have not been told about them.

ernest_t_bass 12th Son of the Lama
26,698 posts 204 reps Joined Nov 2009
Tue, Apr 26, 2022 3:06 PM

My ex took half of my pension, so I started a Roth with a financial advisor.  My goal in that Roth is to recoup what will go to the ex (~$85K) over the next 20-21 years.  He runs the numbers, and tells me what I need to invest to hit that number, based on the current market estimates.  It is a person that I trust.

I chose a Roth because it is post tax. 

gut Senior Member
18,369 posts 115 reps Joined Nov 2009
Tue, Apr 26, 2022 3:07 PM
posted by QuakerOats

I think if you hold for 5 years you can cash out without  the 3-month interest penalty.  Have to buy them directly , no brokers etc.....which is why many people have not been told about them.

You might be right about the 5 years.  Not sure.

The gains ARE taxed, when cashed, as ordinary income.  So held for 5+ years, especially in a low-inflation environment, is going to underperform equities and likely investment-grade bonds.

But if you're looking at these vs. CD's or money-markets, you can cash in 15 months and still make @ 6.7% annualized.

Again, don't look great as a long-term investment.  But in the current market environment, as a place to park some cash for a year or two is pretty compelling.

QuakerOats Senior Member
11,701 posts 66 reps Joined Nov 2009
Tue, Apr 26, 2022 5:13 PM

Agree

Fletch Member
0 posts 3 reps Joined Nov 2020
Tue, Apr 26, 2022 7:41 PM
posted by like_that

I have been pretty happy with Fidelity. 

My Fidelity funds are very good


gut Senior Member
18,369 posts 115 reps Joined Nov 2009
Thu, Apr 28, 2022 2:12 PM

The markets are absolutely bonkers.  GDP shrank last quarter, and the market rallies because they think the Fed will slow down the rate increases?!?

Just the kick in the nuts we need, though:  recession on top of inflation...

QuakerOats Senior Member
11,701 posts 66 reps Joined Nov 2009
Fri, Apr 29, 2022 11:20 AM

It only took 12 months for these jackasses to run us into the ground. 

j_crazy 7 gram rocks. how i roll.
8,623 posts 30 reps Joined Nov 2009
Mon, May 20, 2024 12:56 PM

Figured i'd bump this thread. Seeing what everyone is into now vs 2+ years ago. I still have my same advisor but since we moved from Pittsburgh I'm entertaining a switch to another firm either locally or a vanguard/fidelity model that is less personal, but universal regardless of where i live.

jmog Senior Member
7,737 posts 50 reps Joined Nov 2009
Tue, May 21, 2024 8:38 AM
posted by birddog23

My wife and I are looking into opening a Roth IRA. Those that have one, who did you use to have manage that? Are you using an online bank? Financial advisor? Just managing it yourself? Interested to hear.


Also, not to turn this into a "look at how much money I have" topic, how much liquid cash should you typically have available? I know these current times are a bit odd and may throw a wrench into this question. But I would imagine there can become a time when you have too much cash just sitting in your checking/savings account.

Liquid cash-Look at your absolute bare budget, house, car, food, utilities, etc (no extras, eating out, etc) and take that montly number and multiply by at least 3, up to 6. You should have 3-6 months of essential bills saved up in case of a loss of job.


Currently I "only" have my 401k and a Roth IRA that I "max out" each year in both. Right now that is $7000 per year for Roth, $23000 for 401k.


I have just normal mutual funds for both, the base "I will retire in 20 years" versions that auto change your risk from very high risk from 20s to 40s to low risk in your 60s.


I wish I had more investments like real estate, etc and enough to require/hire a "guy" (financial advisor) but so far that is just not the case. Maybe in a few years when I pay my debt down to $0 (except house, that will take closer to 7 years).

33,369 posts 132 reps Joined Nov 2009
Tue, May 21, 2024 10:01 AM
posted by jmog

Liquid cash-Look at your absolute bare budget, house, car, food, utilities, etc (no extras, eating out, etc) and take that montly number and multiply by at least 3, up to 6. You should have 3-6 months of essential bills saved up in case of a loss of job.


Currently I "only" have my 401k and a Roth IRA that I "max out" each year in both. Right now that is $7000 per year for Roth, $23000 for 401k.


I have just normal mutual funds for both, the base "I will retire in 20 years" versions that auto change your risk from very high risk from 20s to 40s to low risk in your 60s.


I wish I had more investments like real estate, etc and enough to require/hire a "guy" (financial advisor) but so far that is just not the case. Maybe in a few years when I pay my debt down to $0 (except house, that will take closer to 7 years).

Maybe I am thinking of someone else, but don't you make over $150k as a couple? How TF can you still contribute to your Roth? 

j_crazy 7 gram rocks. how i roll.
8,623 posts 30 reps Joined Nov 2009
Tue, May 21, 2024 10:51 AM
posted by Laley23

Maybe I am thinking of someone else, but don't you make over $150k as a couple? How TF can you still contribute to your Roth? 

open a traditional, fund it but don't invest, convert it to roth and roll it into existing roth IRA.  that's what i do every year, do it for myself and my wife.

Automatik Senior Member
15,737 posts 98 reps Joined Nov 2009
Tue, May 21, 2024 10:55 AM

Don’t you have to pay tax when converting a traditional to Roth? Or since it’s only your yearly contribution it’s minimal?

I have a decent traditional IRA from a previous employer 401k roll over. I’m considering converting, but every time I look into it further I bail. I also have a ROTH just sitting at 0. Maybe contribute to both?


All through Schwab.

j_crazy 7 gram rocks. how i roll.
8,623 posts 30 reps Joined Nov 2009
Tue, May 21, 2024 2:21 PM
posted by Automatik

Don’t you have to pay tax when converting a traditional to Roth? Or since it’s only your yearly contribution it’s minimal?

I have a decent traditional IRA from a previous employer 401k roll over. I’m considering converting, but every time I look into it further I bail. I also have a ROTH just sitting at 0. Maybe contribute to both?


All through Schwab.

only on the gains, not the principal. if you don't invest it when you deposit it, no taxes because no gains.


*this is not financial advice, i may be committing tax fraud and don't know it.

Automatik Senior Member
15,737 posts 98 reps Joined Nov 2009
Tue, May 21, 2024 4:44 PM

Thanks!

I got a CPA on deck to figure this out. 

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