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Money Matters
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Old 09-06-2013, 11:01 AM   #1
casino is no lie
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Red face ROTH IRA - Bad Idea?

I currently have a ROTH 401(k) and Traditional 401(k). Those are my retirement funds and off limits.

Would it be a mistake to divert funds from savings and place them into a ROTH IRA for the purpose of buying a home in the next 3-5 years? I understand the inherent risks of investment accounts and there is no guarantee that I will earn a return. In fact, I could potentially lose money.

I need the money to be liquid and from my understanding I can withdraw my contributions penalty free. I'm more confident that the money will grow at a better rate in the IRA vs. the pathetic interest rate on savings.
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Old 09-07-2013, 01:20 PM   #2
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Re: ROTH IRA - Bad Idea?

From my understanding, of you're going to be using the money in 5 years or less you're better off just keeping it in a savings account. Longer than 5 years, investment account. I know it sucks because interest rates on savings accounts are crap, but it would suck more of you put it into an investment account and lost money especially if you were going to use that money to purchase your biggest asset.

Personally, I wouldn't feel comfortable risking that. Have you looked into cd's or any other options?

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Old 09-07-2013, 01:49 PM   #3
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Re: ROTH IRA - Bad Idea?

Isn't the annual contribution limit like $5k? Sounds like a good idea to shelter part of your gains. But I'm not sure you can withdrawal without penalties before you're 65...if you can, then I don't see why you (or anyone) shouldn't do it.

You're going to be spending a lot of time researching for a few grand in returns though...might as well use that time to start a small cash business on the side

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Old 09-07-2013, 01:56 PM   #4
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I use Fidelity, they have investment accounts that are managed, but not Roth or 401K accounts. Higher return, yes, you pick up a little risk, but historically they have done well...

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Old 09-08-2013, 09:17 PM   #5
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Isn't the annual contribution limit like $5k? Sounds like a good idea to shelter part of your gains. But I'm not sure you can withdrawal without penalties before you're 65...if you can, then I don't see why you (or anyone) shouldn't do it.

You're going to be spending a lot of time researching for a few grand in returns though...might as well use that time to start a small cash business on the side
It's a ROTH not Traditional IRA. It's my understanding I can withdraw what I've contributed without any penalties. Withdrawing gains is a different story.

And I'm not spending any time researching the investments. I'm sticking with S&P 500 index fund.

I plan to contribute $5,000 each year (i.e., max). I'll be putting aside another $30,000 - $40.000 each year into savings.
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Old 09-09-2013, 07:32 PM   #6
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If the plan is short term as you are stating, why not just open up a brokerage account from somewhere like Ameritrade or Scottrade? You will have access to the entire spectrum of investment options, and it is inexpensive at $7/trade.

You could put it in a low-fee index fund like a VFINX or some similar ETF, which hopefully will give you much better returns than a simple savings account.

I would not recommend opening a brokerage account at your local bank as their fees are absurd.
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Old 09-10-2013, 10:35 AM   #7
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Are you bumping up against the phase outs? Saving $30K-$40K PLUS 401k PLUS Roth IRA sounds like you would be somewhere in the high 100's as far as joint earnings go. By the way, the phaseout is between $178-188K (MAGI) for a MFJ couple.

Also, the assumption of withdrawing principal at any time without penalty or tax is correct. If you contributed $5K/year for 3 years that gives you a base of $15K that you can access without any hindrance.
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Old 09-10-2013, 02:03 PM   #8
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Originally Posted by WerksM3 View Post
If the plan is short term as you are stating, why not just open up a brokerage account from somewhere like Ameritrade or Scottrade? You will have access to the entire spectrum of investment options, and it is inexpensive at $7/trade.

You could put it in a low-fee index fund like a VFINX or some similar ETF, which hopefully will give you much better returns than a simple savings account.

I would not recommend opening a brokerage account at your local bank as their fees are absurd.
I'm not opening a brokerage account period. I was simply going to dump the money into an S&P500 index fund through Fidelity where I already have accounts. I'm not looking to make huge gains quick then have to pay taxes on those earnings.


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Originally Posted by evolved View Post
Are you bumping up against the phase outs? Saving $30K-$40K PLUS 401k PLUS Roth IRA sounds like you would be somewhere in the high 100's as far as joint earnings go. By the way, the phaseout is between $178-188K (MAGI) for a MFJ couple.

Also, the assumption of withdrawing principal at any time without penalty or tax is correct. If you contributed $5K/year for 3 years that gives you a base of $15K that you can access without any hindrance.
I am in a unique situation when it comes to my current housing accommodations and my wife's finances. Let's just say my existing rent is almost non-existent and my wife has access to funds that are not considered income. When you couple that with the fact that we both work, we find ourselves in a situation where we're able to save quite a bit.

I plan to keep the ROTH IRA long-term. I just wonder if it's a mistake to max out the contribution and treating it like a savings account vs. letting it grow. I don't even think I'll need the money in the end, I'd rather just leave it to my children.
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Old 09-11-2013, 09:53 AM   #9
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I am in a unique situation when it comes to my current housing accommodations and my wife's finances. Let's just say my existing rent is almost non-existent and my wife has access to funds that are not considered income.
You sir are a lucky man.
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Old 09-11-2013, 09:57 AM   #10
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ROTH IRA - Bad Idea?

Sounds like you're not very risk-tolerant with this money. Go with a CD you can make ongoing deposits to?


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Old 09-12-2013, 08:08 AM   #11
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You sir are a lucky man.
It's not without some headaches, but first world problems amirite?

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Sounds like you're not very risk-tolerant with this money. Go with a CD you can make ongoing deposits to?
I'm not very risk-tolerant in general. My investment approach has always been "get rich slowly".

I still plan to max out the ROTH IRA. But it seems like it would be better just to leave those funds where they are and leverage my other "investments" like my savings account and CDs.

Best case scenario, it has nice growth and I'll leverage the principal if needed. Worst case scenario, I leave it where it is and let it grow YoY for the next 20-30 years.
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Old 09-12-2013, 08:17 AM   #12
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Re: ROTH IRA - Bad Idea?

Id do it. Imma take a bit and say 5 yrs from now. The sp500 will be much higher than where it is now. Just stick to one index fund.

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Old 09-12-2013, 08:28 AM   #13
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Id do it. Imma take a bit and say 5 yrs from now. The sp500 will be much higher than where it is now. Just stick to one index fund.
That's the plan. Minimal fees associated with going that route and I don't have to constantly monitor the markets.
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Old 09-12-2013, 06:49 PM   #14
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Re: ROTH IRA - Bad Idea?

1. PM F2B
2. Buy gold and silver
3. ??????
4. Profit

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Old 09-20-2013, 01:30 PM   #15
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Turns out our combined income prevents me from doing a ROTH IRA. Looking at a brokerage account now and just investing it instead. Still going for a buy and hold strategy though.
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