Change Simple IRA or Add Roth IRA?

**PRICEPLUS** · 01-03-2007, 02:27 PM

Re: Change Simple IRA or Add Roth IRA?

Later for that front end load! Go Look at Vanguard, Fidelity, T Rowe Price, and a bunch of other places to set up your IRA.

Check out:

https://www.Investopedia.com/university

https://www.money.cnn.com

https://www.financialplan.about.com

https://www.moneycentral.msn.com

Take a look at the Motley Fool. CBS Market Watch is also good.

For a fee you can join AAII (The American Association of Individual Investors) WWW.AAII.COM

You don't need to be ripped off by an advisor for things you can do yourself!
Check out the resources in your library as well.

I like the ROTH IRA because it is tax free when I need it to be, at retirement!

**disneysteve** · 01-03-2007, 02:27 PM

Re: Change Simple IRA or Add Roth IRA?

Is there any kind of company match or is it strictly your money that goes in? If it is just your money, I'd stop contributing. There is no reason to ever buy load funds and lose nearly 6% of your money up front. I'm willing to bet you can find better performing funds on your own with lower expenses and no load.

**ItsDubC** · 01-03-2007, 02:45 PM

Re: Change Simple IRA or Add Roth IRA?

O ya I forgot to mention that. My company matches up to 3% of my salary. Would switching to a different mutual fund for my simple IRA deprive me of my company's contribution? If so, if my salary was somewhere between $50k-75$k a year, would the loss of the 3% company contribution be offset by me switching to a no-load mutual fund instead of the current 5.75% front-end loaded mutual fund?

**disneysteve** · 01-03-2007, 03:13 PM

Re: Change Simple IRA or Add Roth IRA?

What exactly is the match? Do they give $1 for every $1 you put in up to 3%? Or is it $.50 for every $1, meaning you contribute 6% and they kick in 3%?

Let's say it is the 2nd way, which is more common. Assume you earn 65K (in the middle of the range you gave). You contribute 6%, or $3,900. The company would kick in $1,950. That's an instant 50% return on your investment. Now the fund charges you 5.75%, so of your $3,900 is reduced to $3,675,75, a loss of $224.25. But you are still way ahead thanks to the company contribution.

As much as I hate to see anyone pay a load, I think in this case it makes sense to contribute the full amount you need to contribute to get the maximum company matching funds, but not a penny more. With all additional money, fund a Roth IRA on your own with Vanguard, Fidelity, T. Rowe Price, etc.

**PRICEPLUS** · 01-03-2007, 03:19 PM

Re: Change Simple IRA or Add Roth IRA?

Exactly what is being matched? Are you talking about a 401K? I don't know what your company's policies are concerning these matters or what their exact relationship is with the "financial advisor".

Sit down and read your company's policies on these matters and then take a calculator and do the math. It really is straightforward. 3% match on an uncertain amount will require you to work out the various scenarios.

**autoxer** · 01-04-2007, 05:34 AM

Re: Change Simple IRA or Add Roth IRA?

Originally posted by disneysteve

As much as I hate to see anyone pay a load, I think in this case it makes sense to contribute the full amount you need to contribute to get the maximum company matching funds, but not a penny more. With all additional money, fund a Roth IRA on your own with Vanguard, Fidelity, T. Rowe Price, etc.

That's what I would do, put in just enough to get the full company match, then invest within a Roth IRA.

**ItsDubC** · 01-04-2007, 06:31 AM

Re: Change Simple IRA or Add Roth IRA?

The maximum any employee can contribute is $10,500 per year, and the company will match up to 3% of that employee's salary. Right now, I am set up to contribute the maximum $10,500 over the course of a year.

So instead of contributing the $10,500, I should contribute just enough so that the company will match the full 3% of my salary, and then put the rest in a Roth IRA invested into one of the no-load Vanguard funds that I've been looking into? That definitely makes sense, but for some reason I was under the impression that I couldn't start a Roth IRA unless I was already contributing the max amount to my simple IRA.

As for the Vanguard fund for the Roth IRA: I was considering the Vanguard 500 Index Fund for this but that was before I knew about the various target retirement funds. Would it be unwise to have my retirement account invested in a fund other than these target retirement funds? Perhaps I should invest my retirement account into one of these target retirement funds and create a separate taxable account invested in VFINX for non-retirement growth...

I appreciate all your help guys (and/or gals

)

**Broken Arrow** · 01-04-2007, 06:34 AM

Re: Change Simple IRA or Add Roth IRA?

I'm glad they're matching because I was about to say that those front loads suck! I third (or is that forth) the suggestion get the match, but not a penny more. Then run out and do your own Roth IRA.

**kv968** · 01-04-2007, 07:37 AM

Re: Change Simple IRA or Add Roth IRA?

Originally posted by ItsDubC

As for the Vanguard fund for the Roth IRA: I was considering the Vanguard 500 Index Fund for this but that was before I knew about the various target retirement funds. Would it be unwise to have my retirement account invested in a fund other than these target retirement funds? Perhaps I should invest my retirement account into one of these target retirement funds and create a separate taxable account invested in VFINX for non-retirement growth...

I appreciate all your help guys (and/or gals

)

It wouldn't be unwise to have your retirement account invested in the 500 Index but you would probably want to add more funds to it at some point to balance out your asset allocation. The target retirement funds do that for you and automatically change your stock/bond ratio as time goes on.

If you do create a separate taxable account, make sure your Roth is filled first. You may even want to fund the work's simple IRA before going taxable even though you'll have to pay those nasty front-end loads.

**ItsDubC** · 01-04-2007, 02:32 PM

Re: Change Simple IRA or Add Roth IRA?

I saw in another thread a link to an article saying basically that target retirement funds aren't all they're cracked up to be so I'm still doing research.

The reason I was thinking of getting a taxable account was to let my money grow faster than if it were in an MMA but not be penalized if I needed to take it out (such as w/ an IRA). Do ppl typically do this or put the money that they want to keep at a similar level of liquidity in MMAs? In other words, how can I maintain high liquidity while taking advantage of the higher returns that mutual funds offer?

Maxing out both a Roth AND my simple IRA would mean saving more than 20% of my annual income for retirement. Is that really necessary?

Being a newbie is so confusing

**kv968** · 01-04-2007, 02:57 PM

Re: Change Simple IRA or Add Roth IRA?

Originally posted by ItsDubC

I saw in another thread a link to an article saying basically that target retirement funds aren't all they're cracked up to be so I'm still doing research.

The reason I was thinking of getting a taxable account was to let my money grow faster than if it were in an MMA but not be penalized if I needed to take it out (such as w/ an IRA). Do ppl typically do this or put the money that they want to keep at a similar level of liquidity in MMAs? In other words, how can I maintain high liquidity while taking advantage of the higher returns that mutual funds offer?

Maxing out both a Roth AND my simple IRA would mean saving more than 20% of my annual income for retirement. Is that really necessary?

Being a newbie is so confusing

Although I do tout them alot, I'll be the first to admit that target funds aren't the "end all" to investing and they aren't always the greatest thing available. However IMO they are great for people who don't understand nor want to be bothered with investing and want a "set-it-and-forget-it" type fund. They're also a good place to start if someone is willing to learn about investing but wants somewhere to just park the money in the interim.

As far as taxable accounts, you have to take into consideration what that money is there for. If it's for a downpayment on a house, a car or something you'd like to get in a few years, then investing in mutual funds isn't the right place for that money. A high-yielding MMA or an appropriate-term CD is better. I know you'd like to have the higher returns of the mutual funds (wouldn't we all?

), but those returns aren't guaranteed and you could end up losing a lot of money. Short-term investments shouldn't be with stocks or mutual funds. You also have to pay attention to what you hold in those taxable accounts because some mutual funds can peel off high capital gains (which was witnessed this year by many of them) and you're stuck holding the tax bill.

**ItsDubC** · 01-04-2007, 07:01 PM

Re: Change Simple IRA or Add Roth IRA?

Heh, sometimes I forget about the risk involved w/ investing in stocks and mutual funds. Thanks for reminding me

So if MMAs and CDs are appropriate for short-term investments, what would be an appropriate timeframe for money invested in a mutual fund? At least 5 years? 10 years? I sorta get the feeling that mutual fund investing should be only for retirement, and that any short or mid-term money should be put in MMAs or alternating CDs. I still have a lot to learn, so hopefully that's not the case hehe.

Thanks for ur insight so far, kv968.

**disneysteve** · 01-05-2007, 05:31 AM

Re: Change Simple IRA or Add Roth IRA?

Originally posted by ItsDubC

So if MMAs and CDs are appropriate for short-term investments, what would be an appropriate timeframe for money invested in a mutual fund? At least 5 years? 10 years?

I would say at least 5 years, preferably longer. You need to have time to ride out any market downturn before you need to access the money.

Change Simple IRA or Add Roth IRA?