<p>I would be the dummy :o</p>
<p>Anyway, I have a 401k from my last job and another (403b, I think) from my job before that. I am thinking it would be smart to roll them both over to one account since my current new job doesn’t have any retirement. </p>
<p>I have been poking around on Costco’s website and wonder if anyone can give recs on their sharebuilder investing. Is it a good deal? I don’t know much about IRAs so I wouldn’t know what is a good price and what isn’t. </p>
<p>thanks :)</p>
<p>I’m still a dummy, but years ago I read Jane Bryant Quinn’s book *Making the most of your Money<a href=“its%20been%20updated”>/I</a> and found it very readable, though I didn’t follow as much of her advice as I should have. The main thing with IRAs is to make sure the fees are low. I’m a big believer in index funds and automatic payments.</p>
<p>mathmom, that’s exactly part of my confusion! When you say make sure the fees are low…what is low?</p>
<p>Ok, I might not have been in the game too long, but I’ll throw in what I know about IRAs and fees. </p>
<p>Depends on what you are want to invest in – If you are just looking for an index fund [Funds that encompass a broad share of the market and are not heavily managed] then fees should be extremely low. Vanguard’s fees (and others) are about 0.2% of investment. Index funds are pretty stable and follow overall market trends. Try picking up “A Random Walk Down Wall Street” by Malkiel for a good, interesting read on Index Funds and the Random Walk hypothesis (A random, diverse selection of stocks will perform or outperform an actively managed portfolio over time because markets operate such that all known information about a stock is taken into account in the current price of the stock – thus you can’t beat the market return, on average. Sure, there are some flaws in this theory, but it is pretty sound on most points.)</p>
<p>Index funds come in a variety of Shapes and Sizes. There are ones mimic the S&P500, Dow, etc. and others like Russell 3000 (and Russell 1000 [1000 Large Cap Stocks] or Russell 2000 [2000 Small Cap Stocks]) and Wilshire 5000 (Nearly the entire market) and so forth. The S&P 500 has historically averaged about 8% annual returns. </p>
<p>You can also open an IRA with traditional actively managed mutual funds. Fees tend to be higher on these funds (think 1-2% per year) so after you take off the fees, often times these may not beat index funds. And just because they historically have performed well doesn’t mean it will necessarily continue – but some funds do have excellent managers, and do make good returns.</p>
<p>Check out <a href=“http://www.morningstar.com%5B/url%5D”>www.morningstar.com</a> for historical data about any mutual or index fund. <a href=“http://www.MotleyFool.com%5B/url%5D”>www.MotleyFool.com</a> has good information for learning about investing. And check out this article <a href=“http://www.kiplinger.com/basics/archives/2002/03/story28.html[/url]”>Open Your First IRA | Kiplinger; for a little background about opening your first IRA. I would also suggest reading <a href=“http://www.sanfran.com/content_areas/home/view_printable.php?story_id=1507[/url]”>http://www.sanfran.com/content_areas/home/view_printable.php?story_id=1507</a> .</p>
<p>IRAs also come in two forms: Traditional and Roth. </p>
<p>Traditional IRAs: Basically you can put money in the fund prior to it being taxed, and the money is then taxed when withdrawn from the fund .<br>
Roth IRAs: Money that has already been taxed before putting it in the fund and when pulled out later is not taxed.</p>
<p>When deciding which of the two to invest in, just think about your relative tax bracket now versus later. If you are paying fairly high taxes now then it will probably be smarter to Traditional IRA. If you are a low tax bracket currently and see yourself moving up brackets in the future, then it is probably smarter to Roth IRA it. I currently put my money in a Roth because I am only 21, usually don’t earn much per year (Still in school) and therefore am in the lowest tax bracket. When I am older and in a more lucrative job, I will probably invest in traditional IRAs.</p>
<p>IRAs overall are a great way to invest money-- but they have an annual cap (3K a year? [I think it may have just raised to something else…] And increases as you get closer to retirement so you can ‘catch up’). You also can’t withdraw money from an IRA till you reach 59 and 1/2 or you have to pay an percentage in penalties.</p>
<p>As for the 401K rollover directly… that’s something I haven’t had to worry about yet. I am pretty sure you can only roll it into a Traditional IRA. MotleyFool has some articles on rollover, be sure to check them out!</p>
<p>When the dot-com boom was in his heyday, we made lots of money, and I read all the investing books I could find. Here’s the gist:
Put 15% of your income and all “extra money” into investments. Potential investments are real estate, stocks, bonds. A savings account is not an investment; it’s an investment if it MIGHT grow faster than inflation. The only mutual funds that consistently make money are index funds. </p>
<p>Don’t invest in something you don’t understand or that sounds too good to be true. Don’t invest if you don’t like the person making the recommendation, but don’t invest just because you do like them; THINK about the investment.</p>
<p>Don’t be a sheep; if everyone is buying stocks, buy some bonds or real estate. If everyone’s buying real estate, buy stocks… Etc. Diversify.</p>
<p>That’s why you read Jane Bryant Quinn. I don’t remember. :)</p>
<p>BTW if you have your insurance through USAA, their investing services do have “Low” fees.</p>
<p>rollover everything into a Roth IRA. I don’t know about costco’s plan but I do know their money market accounts through capitol one pay very competitive interest rates. Generally speaking better than most banks or investment firms. They are only for cash stuff though, not for retirement accounts.<br>
You might want to look at a brokerage that would do the rollover and put everything in mutual funds (more diversified). Edward Jones is just one of them. Obviously many more. Read Suze Orman’s (can’t stand her) but she has some good advice there. Talk to one or two brokers and find one you can live with.</p>
<p>First you have to find out what your rollover options are. I don’t know if you can roll a 401K into a Roth IRA or not. (ebeeee recommends a Roth IRA which is a great option if you are allowed to do it but you may not be allowed! ) I don’t know what a 403b is, and what the rollover options are. So first, what are your options?</p>
<p>For an IRA, low fee means no fee. I have an IRA with Charles Schwab. It is a self directed IRA. I just recently rolled a 401k into this IRA. I have done that before, with 401ks from previous employers, so there is a nice chunk of money in the IRA. I have bought some individual stocks and some mutual funds. I have a Schwab index 1000 fund (similar to an S&P 500 index fund) a small amount in an international fund, some bond funds, and way too much sitting in a money market fund. </p>
<p>I would open an IRA that at least offers some choices between different mutual funds, although personally I prefer the flexibility to buy stocks, bonds, ETFs or mutual funds. Schwab has a huge list of noload funds that I can buy with no fee.</p>
<p>thanks for all the information!
k_jo, you are 21? Good for you for starting so early. I hope you are majoring in investment banking!!!</p>
<p>NJres, a 403b is just a 401k for a non-profit company (I think). I worked for a hospital and that is what most of my money is in. I’ve just left the money in that account but I can’t add to it since I’m not employed with them any more. </p>
<p>From what little I’ve read it looks like I can’t roll over to a Roth and will have to do a regular IRA.</p>
<p>Well… turning 21 in a Month. And I’m actually an Econ and Environmental Science major at UVa – No investment banking for me, though I did have fleeting visions of working on Wall St. Instead I’ll probably be doing geologic field work for peanuts once I graduate ;)</p>
<p>I’ve just been raised with a strong outlook towards my future – I’ve been planning for retirement since I got my first job. I saved half of my paychecks during high-school and college and invested them for retirement. (My parents tease that when I get engaged I’m going to demand a credit report comes with that diamond ring) My current goal is simply to max out my IRA every year – something that so far I have been able to achieve. I’ve been lucky to have parents who have covered my instate tuition so I haven’t had to take out loans for that. </p>
<p>A lot of people my age haven’t thought about how much of an effect investing young can help you. Putting 3K in a year starting when you are 18 can grow to over 2 million by the time you reach retirement (Giving a moderate annual growth rate of about 8%). Each year you hold off investing, you are really hurting yourself because that money doesn’t have as much time to compound interest. Better to invest as young as possible and not put it off till tomorrow, every day helps.</p>
<p>So that’s my basic little story.</p>
<p>If you worked for a hospital see if you have are eligible to invest with TIAA CREF. I’m partial to investing with Vanguard, but there are many other options for who to roll your 401k into. Even traditional brokerage houses can set you up with low fee index funds, but they will typically encourage you to invest in actively managed mutual funds since they can charge higher fees for those.</p>
<p>Schwab…great idea. Even if you can’t rollover to Roth this year, the law is changing in upcoming years. Can’t remember what I read as far as the date but there are some changes coming up that allow roll to Roth. If and when it really happens it makes sense to do it. k_jo…smart to do what you are doing. I started doing the IRA thing my first job out of college…that money has really added up since I’m now mmmmhmmm a bit older.</p>
<p>According to present law, the IRS will allow you to roll traditional IRA’s into a Roth IRA in 2010 regardless of income. People who do not currently have IRA’s might want to consider putting money in between now and then so they can do it. Especially if they are not eligible for deductible IRA’s. The money they put in will be nondeductible and when they roll it into a Roth in 2010, they will pay tax on only the earnings.</p>
<p>3bm103, thank you! I remember reading about it but couldn’t remember the exact year/date. I was pretty excited because in the past I didn’t qualify for the Roth.<br>
As long as someone can afford to pay the taxes in 2010, it definitely makes sense to roll everything into a Roth right?</p>
<p>DrDrew - you said you were going to “roll over” your 401ks into an IRA.</p>
<p>“Roll over” is the critical term. Under no circumstances should you accept a check from the 401k, and then send that to your new IRA. Have the 401 send the funds directely to the new IRA- the funds should move from trustee to trustee. </p>
<p>A common mistake is to take the funds personally with the intention of finishing the process, and then fail to do so in the required time, resulting in fully taxation + 10% penalty. If the IRS sees that you received money from your 401K, at best you’ll need to provide evidence that it was rolled within 60 days (I bleive that’s the threshold) and at worst you’ll miss that timeframe and owe huge taxes and penalties.</p>
<p>I’m a bit believer in index funds. FInd a good info source and roll 80+% into total stock market index or similar. Check out the Vanguard site as they are a good well-rounded firm.</p>
<p>I would say the best advice so far is talk to several local representatives and find what works for you. </p>
<p>As far as fees, EVERYBODY gets paid somehow, someway. Depending on how hard you look, there is no such thing as NO FEE. What, they live on sunshine? What you have to figure out is what is reasonable to you? </p>
<p>Figure out if you need full service (edjones) or self directed or somewhere in between. Do you want someone making trades for you without consent? (descretionary trading…it’s legal) which often times depending on the broker could be just to meet a quota. Do you want to fire and forget? trade daily?
There isn’t a right answer, just yours. </p>
<p>As far as converting existing IRA’s to Roths, remember it costs something to do so. You basically are cashing out one (current income) to start another. How long will it take to recover that expense? Why not consider a traditional rollover AND start a new Roth? </p>
<p>Having been in the business for a while I’ll make this observation… Sometimes a “new” idea is really just a way to get paid again for money you’ve been paid once for. Look at the overall cost of a transaction, fees (or so named) are just a small part.</p>
<p>“As long as someone can afford to pay the taxes in 2010, it definitely makes sense to roll everything into a Roth right?”</p>
<p>Not necessarily. Talk to a financial planner or accountant. What’s your tax bracket now? What will it be when you retire? How old are you? How long will these be invested?</p>
<p>“Why not consider a traditional rollover AND start a new Roth?” Because not everybody qualifies for a Roth. Nor a Roth Rollover. That’s why the new rule in 2010 will help a lot of people.</p>
<p>Doing it with non deductible IRA’s is a no brainer. These have already been taxed. So only the earnings would be taxed in the year you roll it into a Roth. Also, I believe I recall that you can spread the tax over two years. Be careful if you have deductible IRA’s and non deductible. The IRS won’t let you designate which you are rolling.</p>
<p>“Why not consider a traditional rollover AND start a new Roth/”</p>
<p>160k for joint filers, so alot of folks should qualify. The thing you aren’t addressing is the tax penalty break point. When do you make up for that initial loss? How long does it take to get back that 28% you give up to have the amount tax free? Why not use a little of both to minimize your tax exposure over time? Besides, before Roths we sold 401k with the thought of lower tax brackets in the future, now we sell Roths with the thought of higher tax brackets in the future. What’s your crystal ball say? 
</p>
<p>“Doing it with non deductible IRA’s is a no brainer. These have already been taxed”</p>
<p>What about the gain? Just the prinicpal has been taxed. </p>
<p>I do agreee with your point of talking with a finanical rep or two. Accountants aren’t necessarily the best choice for investment advice. </p>
<p>Again, we’re all just looking at our own crystal balls here predicting the future. Diversity in investments is still the basic consistant advice. I know it’s not popular, but it’s time tested. Invest in what you know, learn about what you don’t.</p>
<p>As I already said in my post: only the gain would be taxed if a non deductible IRA is rolled into a Roth.</p>
<p>160K is for putting money into a Roth. It’s 100K for rolling it. Until 2010</p>
<p>“only the gain would be taxed if a non deductible IRA is rolled into a Roth.”</p>
<p>can you make up for the tax loss in return? How long would your breakpoint be? It would depend on how old, of course or if you have not made any gains in your existing IRA. What is the transaction costs of the move? that’s either going to make it a good idea or a poor one, far from a slam dunk.</p>