IRA

[PinkPanther3719]

I recently switched jobs. The company I worked for before had a 401k that I vested in. As I no longer work there and my current employer doesn't offer a 401k, I need to transfer it to an IRA. As I'm only in my early 20's, I need help. I tried to educate myself about it, but it's still a bit confusing. So I have a few questions:

1. What bank should I go with? I'm debating between US Bank, Capital One (and 360), Navy Federal and USAA. I'm leaning closer to the last two. Any others would also be welcomed as I want the best variety and return.

2. What type of IRA (Traditional or Roth) and investments should I go with?

3. Should I max it out each year? I can do it, but wanted to know if there are any advantages.

My current vested amount is small (under $1000) as I was working for them part time. I have until November 11th to send them the form to roll it over.

[Anonymous]

Vanguard or Schwab.

Don't listen to investment industry marketing, unless you think you are a financial genius who can predict the market your goal is to pay the LOWEST COST you can. That means low cost index fund with low fees. You can't control the stock market but you CAN control your cost. Even a 0.5% extra cost is huge compounded over the fifty years you will be invested. It will eat about 6% of your LIFE SAVINGS over that time. It is huge. Think of the fee as being out of the return, if you expect a long term 8% return and you pay a .5% fee that is .5/8 or over 6% of your profits they take. Laugh at and run fast from any fee over 1%.

Vanguard sells the lowest cost funds and you should either get them by signing up with vanguard, or getting a Schwab account and buying them that way. If you want to buy them through another bank fine, so long as you DON'T PAY FEES. Don't let them sell you advice or trick you into their own high cost products. 

Get a mix of bond and stock funds based on your age with mostly stocks if you are young to mostly bonds near retirement. Say sliding from an 80/20 mix at the start of your career to a 30/70 mix when you retire. You are young sh throw 80% of your savings into the lowest cost stock market fund you can find, typically the Vanguard Total Index. Throw the other 20% into a bond fund with the lowest cost. When you are 35 come back and reevaluate these ratios.

Yes max out your IRA every year, why pay tax you don't have to pay? 

Sir down one day and calculate what you will need in retirement and how much you have to save to get that.You will be shocked how much you have to save and it will cause you to redo your budget to save more.

Then when you have your plan STICK TO IT. Ignore news about the stock market and follow your plan blindly every month? Market up? Follow your plan. Market crash today? Who cares. Follow your plan.

Market will return to normal over the time periods you care about and even 30% up or down shouldn't throw you off. The less you think about it the better. People get scared and sell when things are low then watch it skyrocket without them and buy to get in just before it goes lie again. Ignore that, stick to your monthly plan and ignore the business news.

Make monthly contributions to your investment accounts and rebalance between your funds to get the right age balance once a year. Every five years or so reset target ratios.

As for ROTH/Trad, Roth is way way better. Go Roth!

[mongstradamus]

fidelity schwab or vanguard all offer very good choices for mutual funds at pretty low costs. If you are looking at TR funds I believe both fidelity and vanguard offer good choices for under .20% as far as expense ratios go. They are pretty good choices if you just want to put money in they will do all the rebalancing stuff for you. 

If i were in your shoes i would just try and put in as much into an IRA as you can afford and still live comfortably. Thats what I try to do. If you are buying individual mutual funds that cover indexes, i would just check maybe once or twice an year and do any rebalancing that you need to do. Compound interest really adds up 

[PinkPanther3719]

I don't understand what some of that means. I understand, get roth, max it out. I don't understand the index or TR funds information or anything. I'm 23 and truthfully, the only reason why I want to get completely clear on this is because I have a 401k to transfer. Or I may have waited a few more years and left all my non-bill/expenses money in savings, but it's probably better this way.

And when I say it's a small amount, it's literally only a little over $250.

[Open123]

Here's what I would do.

1.  Look for a Brokerage Firm with no annual IRA fee and low trading costs.  Max cost per trade you should pay is $7.99 (Fidelity

2.  If under $10K, just buy SPY, and call it a day.

3.  If more, then run an asset allocation target and choose some low cost ETFs.  

4.  Don't buy any mutual funds, annuities, or beta ETFs.  Stick with simple low cost options.

5.  If your tax rate is low this year (under 20%), then consider coverting to a Roth, which is not subjected to RMD and gains are TAX free, not just deferred.

Some good advice on this thread.  Don't pay anyone a fee or invest in anything with high fees.

Good luck!

[Open123]

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@PinkPanther3719 wrote:

And when I say it's a small amount, it's literally only a little over $250.

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Covert it into a Roth IRA, and just buy SPY.  Contribute the maximum you can every year, if you qualify.  It is *IMPERATIVE* you find a custodian who doesn't charge an annual maintenance fee.

Good luck!

[mongstradamus]

I am by no means a Ira expert but starting with domestic total stock fund like vti, itot, or schb would be a really good start. I like those choices over a s&p 500 etf like spy or voo because you get a little exposure to mid or small caps, which I think is better in the long run.

You can decide after few thousand if you want to invest in international or bond. I think the most important part is keeping costs low since that's only thing you can control.

[Anonymous]

I started with vanguard last year. Super simple. You need 1k to get started but then you can contribute in whatever amounts you like. TR stands for target Retirment Funds. Which you can't see vanguard makes it super simple for beginners to just auto contribute to a TR 2050 fund and not really think about it again. Year

y contribution maxes out at 5.5k. Just do it. Make it a goal for yourself. Your young, but seriously if I (33) could go back ten years and contribute I'd have an extra million.

[Thomas_Thumb]

A Roth IRA has the advantage of tax free investment growth with no taxes due when funds are pulled out at retirement. For younger workers in lower/middle income brackets, the Roth IRA is a great option. Given the small 401k balance, I would suggest rolling the amount into a new Roth IRA and paying any taxes due.

As far as what institution to establish a Roth (or traditional) IRA with, everyone's circumstances are different. List the things you want in a plan, research plans of interest and rank them according to your list.

[tacpoly]

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@PinkPanther3719 wrote:

I recently switched jobs. The company I worked for before had a 401k that I vested in. As I no longer work there and my current employer doesn't offer a 401k, I need to transfer it to an IRA. As I'm only in my early 20's, I need help. I tried to educate myself about it, but it's still a bit confusing. So I have a few questions:

1. What bank should I go with? I'm debating between US Bank, Capital One (and 360), Navy Federal and USAA. I'm leaning closer to the last two. Any others would also be welcomed as I want the best variety and return.

I suggest not going to a retail bank, but rather open an IRA and a Roth IRA with a discount brokerage firm.  The reason for this is that retail banks usually charge high maintenance fees and have limited choices in their investment products.  The reason to go with a discount brokerage is because you don't have a ton of money to invest and you're young so your needs are pretty simple so you don't need much investment advice or a managed account.  Once you are older, have more substantial and varied assets, and a family, you'll need more guidance with investments, retirement planning, and estate planning.  With larger account balances, you tend to get a lot more benefits like lower transaction and maintenance costs, free investment advice -- it's the age-old paradox of being given more when you need it less.

People have mentioned Fidelity, Schwab, and Vanguard.  This is because they're probably the biggest and most likely will meet your needs in the foreseeable future. 

2. What type of IRA (Traditional or Roth) and investments should I go with?

You're young with limited funds and limited knowledge.  I suggest you seriously consider what Canadian-in-Seattle wrote above.  The most important thing is to start saving and investing regularly NOW.  The second most important thing is to keep saving and investing, ideally increasing your savings rate as you increase your income.  The third most important thing is to keep fees and costs low -- this will require that you read and learn to understand the prospectuses that come with the funds. 

By the way, if you don't want to bother with doing your own stock and bond allocation, Vanguard has a balanced fund that invests in stocks and bonds (60/40 iirc).

You should start to learn tax implications of your retirement investments -- you can apply this knowledge to your investments/savings outside the retirement accounts (because the 401K and IRAs will not be enough).  Start learning about more investment vehicles (those ETF's that were mentioned, individual stocks, options, bonds, real estate, etc...).  Once you have a good understanding of those, then you can see how they might enhance your portfolio. 

3. Should I max it out each year? I can do it, but wanted to know if there are any advantages.

You should definitely max it out each year -- specially important when you are young!  Take advantage of compounding (allowing money to grow over time)!  Considering your age and income (low tax bracket), I would definitely max out the Roth IRA.  If your company offers a Roth 401K, consider enrolling in that instead of the straight 401K. 

My current vested amount is small (under $1000) as I was working for them part time. I have until November 11th to send them the form to roll it over.

With such a small amount, your ex-company will probably just cash you out.  But you should open up your own IRA and Roth IRA accounts anyway.  Again, take advantage of compounding by starting to save now. 

I forgot to add.  Please read If You Can:  How Millenials Can Get Rich Slowly.  It is only 16 pages long, but is filled with excellent advice (for everyone) that you can follow.  Here's a link:  http://www.etf.com/docs/IfYouCan.pdf

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Jesus people.  The kid said he's a total novice about investment choices so why throw "TR fund", "SPY", "ETF", "RMD" into your posts.  If you're going so far as to give advice, at least make it somewhat clear for a newbie.