Investment Vechicles - Strategy.

[collegeguy]

I'd like to invest some more $, and not sure best vehicle to use.

Here's a high level of what my wife and I have:

Me: 401K at work that I max out.
Me: Roth IRA that I max out.
Me: General Account (taxable) that I put money into each month (small amount, and gets invested in a few funds)
Me: Traditional IRA - No $ gets put in here. It's got some money that's been rolled over from previous IRA when I switched jobs.
Me: College Savings plan (529B) - Small amount invested each month.

Wife: Roth IRA that gets maxed out.
Wife: Traditional IRA - No $ gets put in here. It's got some money that's been rolled over from previous IRA when I switched jobs.
Annuity : My wife doesn't have a 401K with her job (small medical office and nothing is offered) so we were putting $ in an annuity since I thought it was the next best thing.

Alll of these accounts are held through AG Edwards, except my Wife's Roth IRA, which is held by Vanguard (very happy with performance, so need to shift).

My situation is my wife was off from work (we had a child) for a while and we were saving up for the baby, so she wasn't making regular Annuity contributions. Now she's back working and we want to start saving more again.

We'd like to try and retire "early" (we're in our low 30's) if possible and I want to balance having enough in the best tax sheltered accounts possible vs. being able to access our money early if we want/need to.

So I guess my questions are:
What type of account do you think we should use? Should we go back to the Annuity?

My understanding (through Vanguard) is that I can open up a ROTH with them even though I already have a ROTH through AG Edwards. Something about this doesn't seem true?

Any thoughts on where to put my $ would be welcome.

Thanks.

[InDebtInDC]

What does "max out" mean? Are you hitting the IRS pre-tax limit or a lower employer limit?

[collegeguy]

Max out means I'm hitting the IRS Pre-Tax limit. Thanks.

[Fern]

well first, if easy access to your money when you need it is important to you, then an annuity is not a good idea since they are irreversible. If you withdraw prior to age 59 1/2 you will pay a 10% tax penalty, not to mention the surrender charges if you withdraw prematurely within the 1st 7 years of the life of the annuity.

If you have spare cash and still want to contribute, i would stop contributing to the AGE Edwards annuity as i think you could find one cheaper with someone like T. Rowe Price. Annuity fees are expensive and AG Edwards isn't known for their prices.

Also, if you have leftover money that your'e just putting into taxable accounts, then I would emphasize either index funds, which have lower annual expensees, or so-called tax-managed funds. Taxes and annual fees erode your returns and over time this can make a big difference.

You can have as many Roth IRA accounts as you want, as long as you don't contribute more than the annual maxmium, $4,000 for a single person this past year, for instance. It's best to consolidate wherever possible, though. A traditional or Roth IRA is just the label that dictates the tax treatment of a given account, so again, you might have a Vanguard Roth IRA that contains contributions from previous years and then open a new Roth IRA with another fund family for future years.

[Scanner]

I am a big fan of muni bonds for people like yourself, because with all the "maxing out", you sound like high earners (or at least high savers).

While you can't deduct what you invest into municipal bonds as a line item, they do accumulate interest tax-free.

You can buy bonds from a discount or full brokerage (like AG Edwards) or as an alternative you can buy a muni bond fund in your state (Vanguard and T. Rowe Price often have them).

You have to balance your whole portfolio with that in mind. That is, you'll want to be in something more aggressive than an annuity and be in something aggressive in your Roth's and 401(k)'s, since muni bonds are considered a conservative investment.

For example, if you have let's say $500,000 in your tax sheltered acccounts, I"d put them all into equities.

Then if you are adding $20,000 year in non-tax sheltered accounts, you could put that into muni-bonds or munibond funds.

PROS OF MUNI BONDS:- interest is tax free
- little or no principal risk (if they are insured)
- know what interest rate you are getting

CONS OF MUNI BONDS- price of bond will flucuate on market if you plan to sell it.

PROS OF MUNI BOND FUNDS- manager decides which ones to buy
- when market moves, sometimes you can get great returns (T.R.P muni bond fund returned 12% one year)

CONS OF MUNI BOND FUNDS- because of market risk the same TRP fund lost 5% one year. Dont do muni bond funds if you can't tolerate loss.

[jIM_Ohio]

Originally Posted by collegeguy

I'd like to invest some more $, and not sure best vehicle to use.

Here's a high level of what my wife and I have:

Me: 401K at work that I max out.
Me: Roth IRA that I max out.
Me: General Account (taxable) that I put money into each month (small amount, and gets invested in a few funds)
Me: Traditional IRA - No $ gets put in here. It's got some money that's been rolled over from previous IRA when I switched jobs.
Me: College Savings plan (529B) - Small amount invested each month.

Wife: Roth IRA that gets maxed out.
Wife: Traditional IRA - No $ gets put in here. It's got some money that's been rolled over from previous IRA when I switched jobs.
Annuity : My wife doesn't have a 401K with her job (small medical office and nothing is offered) so we were putting $ in an annuity since I thought it was the next best thing.

Alll of these accounts are held through AG Edwards, except my Wife's Roth IRA, which is held by Vanguard (very happy with performance, so need to shift).

My situation is my wife was off from work (we had a child) for a while and we were saving up for the baby, so she wasn't making regular Annuity contributions. Now she's back working and we want to start saving more again.

We'd like to try and retire "early" (we're in our low 30's) if possible and I want to balance having enough in the best tax sheltered accounts possible vs. being able to access our money early if we want/need to.

So I guess my questions are:
What type of account do you think we should use? Should we go back to the Annuity?

My understanding (through Vanguard) is that I can open up a ROTH with them even though I already have a ROTH through AG Edwards. Something about this doesn't seem true?

Any thoughts on where to put my $ would be welcome.

Thanks.

You have one IRA per person. You can have as many custodians as you want (AG Edwards and Vanguard are custodians). Your one IRA has a yearly max constribution of $4000 in 2007 and $5000 in 2008.

Spouse has one IRA as well.

Technically the traditional IRAs you mentioned are rollover IRAs, those have slightly different rules. Not important for this discussion, though.

My suggestions:

401k max is $15,500 for 2007- you are hitting this correct? What is balance in account?
Roth IRA max is $4000 each for you and $4000 for spouse in 2007. You are hitting this correct? What is Roth balance?

Taxable accounts are good. You have several advantages for using taxable accounts and wanting to retire early. You can access this money any time, control some taxable events, and take advantage of lower tax rates.

Keep in mind what is most tax efficient going in (401k) is the least tax efficient coming out (pay ordinary income taxes on withdraws). What is most tax inefficient on way in (Roth, then taxable accounts) is most tax beneficial on withdraw (Roth is tax free and taxable accounts are taxed at much less than ordinary income tax rates right now).

401k converts the cheap tax rates to higher ones.

If you contribute 10k to a mutual fund, hold it and let it grow to 100k...

In an T-IRA or 401k you will pay taxes at 25%-28%-33% or 35% rates
In a taxable account you will pay taxes at 15% long term captial gains rate
In a Roth IRA you will pay no taxes.

I'd rather pay nothing or 15% than the higher rates in the 401k.

This being said, maybe consider buying indivudual stocks in a taxable account. Consider that dividends also have favorable tax rates (relative to income tax rates). Maybe create a post tax brokerage account with muni bonds and stocks, and use this to fund early retirement.

There are other places to plan for early retirement... if you want referrals send me a PM.

[Janey]

Bumping this thread for further opinions/experiences... we are in a similar situation as collegeguy.

[getrichslow]

Originally Posted by collegeguy

I'd like to invest some more $, and not sure best vehicle to use.

So I guess my questions are:
What type of account do you think we should use? Should we go back to the Annuity?

My understanding (through Vanguard) is that I can open up a ROTH with them even though I already have a ROTH through AG Edwards. Something about this doesn't seem true?

Any thoughts on where to put my $ would be welcome.

Thanks.

First, congrats on the baby! Second, sounds like you are doing fantastic job of managing your money.

You can open as many Roth IRA's as you want but no reason to have more than one.

In general I would say fund you 401k to the level of getting the company match (if there is one) then max your Roth's. You likely know that in a pinch you can withdraw your Roth contributions even if you haven't reached retirement age (but don't do it unless you must). You can also use it to pay for your childs college (but don't do that either).

I wouldn't venture to give any more advice since I don't know your situation well enough. Lots of ideas will be thrown at you here. If you are willing to investigate, and have time between changing diapers, you will likely find something that feels right to you.