22 years old - opened up a Roth IRA. How else can I save for retirement?

Im more suggesting think outside of stocks. Real Estate is of course the biggest. Im pretty big into cryptocurrency at the moment, however I wont suggest that unless you put some serious research into it. There are other opportunities.

It comes down to are you interested in investments, willing to take the time to learn about them or are you more into a stash cash in the stock market and forget it?

Depending on your income, reducing your tax burden is significant. However dont let it be the only motivator.

For a long while, I did not have easy access to cash. Its nice to have a sizable bundle of cash in which you can invest in those narrow-buy in windows of opportunity. It doesnt need to be sitting in a bank account not earning interest.

 

No one seems to have brought up debt. Factor that into your savings choices. If you have a massive amount of student loan debt, Credit Card debt, car loans, etc.. consider trying to get ahead of that. Same with any other form of debt. Debt isn't inherently bad but eliminating major debt early should be a strong consideration. It'll open up a ton of flexibility with your money.

Now if you're already debt free, there is some great advice in this thread already.

 

I wouldn't recommend taking unnecessary risks with your investments if you don't have time to do the research. Stick with a passive investment strategy right now. You can, however, be more aggressive with your allocations since you are young. You can do a higher percentage in international stocks, small cap and mid cap stocks, and riskier bonds. Use the passive strategies at Vanguard, Betterment, and Wealthfront to do the allocation work for you. When you want to put some money in unique assets, do your research and start small.

Another thing you can do if you are holding a lot of cash - use a high-yield online savings account like Marcus by Goldman Sachs. It will let you keep your flexibility to invest while making more than a money market fund. Marcus savings accounts are yielding 1.80%. I've checked money market funds for clients, and you aren't coming close to that yield with a money market unless you have $10,000,000 or more.

 

***THREAD BUMP***

my company is ending its 401k program (small business w/ less than 10 employees, not enough people taking advantage, costing too much money). i was originally going to take the cash payout and pay off my mortgage, but ive decided to just roll it into a roth ira.

i could pay off my mortgage right now, but id be wiping out my retirement and my cash savings. it would feel really good to be 100% debt-free, but in the long-run i know thats not the smart move.

so im looking at a roth ira. my question is whether or not its a good idea to open one up through your bank (mine is local credit union) or keeping investment money and banking separate...using charles schwab, vanguard, ect? would i get a lower fee rate if i used my credit union? i like the idea of being able to manage all of my money in one place, but are there any risks in setting up investment account thru your bank?

 

Invest in real estate. Gains are much better than average stock market gains. If you pay off your house it's 'dead' equity that you aren't using to leverage investments. That's a ****-ton of leverage you can use to invest in other properties.

 

I like your idea of keeping the mortgage. It is always tempting to pay off that mortgage, but when you run the numbers, more than likely your interest rate is pretty low. You can either break even or beat the interest you'd save on your mortgage in the market or even in bonds. Additionally, a mortgage shares risk between you and the bank. If something catastrophic happens, I'd rather have the liquidity of the money and let the bank tank on some of the burden of the risk with the loan.

One piece of advice I'd give to anyone saving or planning for retirement. Just because you may max out your 401K or IRAs, that doesn't mean you have to stop saving...my wife and I basically have always maxed our retirement accounts first, then only lived off of one of our salaries...saving the other. This aggressive saving plan has really paid off.

I'm aware that not everybody can do this, or has double income...and you should enjoy life a little while you are young...but if you've maxed out your retirement in the year and have an extra $1k or 2 laying around...instead of spending all of it...spend half of it.

In the case of my wife and I, our retirement accounts are the SMALLEST part of our savings and retirements, despite being maxed out every year...I see those as the "gravy" income when I retire. Again...I know this isn't always possible...but if you have the mindset that your retirement accounts are just supplements when you retire and you aggressively save...you can make a big difference.

 

If your AGI is over a certain threshold (roughly $200k for married filing jointly), you cannot contribute to an IRA without a penalty.

 

As others have said, unless you have an awful interest rate on your mortgage (which seems almost impossible) I wouldn't pay it off. There's so much anti-debt propaganda out there now that people are scared of it and make poor choices. Debt is a good tool. It's a leverage tool. If you are in debt because you are spending money on stupid things, that's stupid, but leveraging your money by carrying a mortgage and investing the actual cash is smart.

Rich people use debt.

Dave Ramsey has brainwashed people (even though his model is a good one) into ignoring too many financial instruments and being scared to death of debt.

 

Tempting, but yeah, I wouldn't do it. Definitely not with your retirement.

I wouldn't abandon that goal altogether though. I would pay extra on the mortgage every month (assuming you already have a 6 month emergency fund in place and you're still maxing out retirement) and have a goal to have it paid off before you retire. Definitely don't want to carry debt of any kind into retirement. At least IMO.

 

Wells Fargo has an Investment arm WellsTrade®.
Fidelity has a Banking arm.

I do not think that there is any additional risk having your banking $$$ and investment $$$ under the same corporate umbrella. IIRC there are different federal insurance programs that protect each.

 

This. So much this.

Debt is now the enemy. Just like carbs in the nutritional world.

Stupid debt = bad
High interest credit card debt = bad

I don't see how a mortgage at 3.5% is bad debt. I have a car loan at 2.8%. I have the money to pay it off in my stocks but why would i do that? I don't want to move my liquid asset into a depreciating asset just for the feeling of not having a payment.

 

^^^ Agreed
My mortgage and graduate student loans are at around 4%. I could pay it off, but 4% is pretty moderate, plus some of it is tax deductible. I'm getting a better return on some dividend paying stocks and bonds.

 

good info yall.

ive always been pretty aggressive on paying my mortgage down with extra principle each month. the way i see it, you are in a battle with your lender over that interest. the more/quicker you can pay it down the less the bank gets in the long run.

its pretty demoralizing at the start of a loan when like 90% of your payment is going to interest. that point where i was finally paying more in principal than interest on my monthly payment was a nice milestone to reach.

as for the roth ira, im just going to use my credit union. i like the idea of having all my finances in one place.

 

If you rollover to a roth, probably should keep in mind taxes. Pretty sure you'll owe some on that.

 

This

 

I am late to the thread but would like to clear up a few things:
1) 401K and IRA are similar but 401K are established by employers for their employees so if your employer does not offer it, you obviously cannot enroll in a 401K.

2) There are 2 kinds of IRA
2a. ROTH IRA, your contribution is after taxed money, your investment return will not be taxed. You can withdraw your contribution anytime since it's your money, already taxed. When you get to a certain age, you can withdraw the rest, no tax.
2b. Traditional IRA, your contribution is pre-tax money, you investment return will be taxed.
Both have strict withdrawal rules and you may have to pay 10% penalty.

3) The max you can contribute into a 401K is 19k I believe, it changes over the years. The max you can contribute to IRA (both together) is 5.5 K I believe

4) If you have more money you want to save, go ahead and open a regular brokerage or bank account and invest your money.
Since you have a ROTH instead of a traditional, you must be willing to invest your after-taxed money. The brokerage account is similar in that regard.
The difference is your investment return will be taxed , but only if you sell the stocks or funds and have capital gain. Since it is your own money, you can withdraw anytime you want as long as you pay the appropriate tax, no penalty.

 

What to invest in:
401K is offered by your employers so the options are also limited to what your employers offer. A few stocks, a few mutual funds, company's own stock.
For other accounts you have more choices.

In general:
1) Stocks have more upside but also more downside, if you are a risk taker and know about the stocks, invest in stocks.

2) Mutual funds is just a basket of stocks and there are many different kinds of baskets. A little less upside but also a little less downside.

3) CD, saving accounts have fixed rate.

4) I don't know bonds. I invested in bond funds but it moves by forces I don't understand.

5) Payoff you credit card debt. This is the MOST important, if you have 0 balance and not have to pay 12-18 % interest. That's is like invest with a 12-18% return. You do not get that anywhere consistently.

6) Pay off your house mortgage. Some say you should not, some say you should. Both are right or both are wrong. It depends on the mortgage interest you pay (4-5% or whatever) vs. the interest you can earn with that money.
Sometimes investing in stocks and funds get you more, sometimes you even lose.

 

Just to add a couple points to these good comments

3) For 401k, the max YOU can contribute this year is 19k. You + your employer contributions can contribute up to $56k (so up to $37k from your employer). If you're over 50 years old, you can contribute a little extra - $6k for 'catch up contributions'.

4) Ordinary dividends are considered income and taxed at that level. Short term capital gains, which are investments held less than 1 year, are also taxed at your income level. Long term capital gains (held >1 year) are taxed at 0, 15, or 20%, depending on your income.

 

An approach to bonds is to build a latter of bonds. Each rung of the bond latter has a different year for maturity. For example a ten year bond latter could have a bond (or a set of bonds) that mature in one year, two years, ... and ten years. Each year a bond will mature and its principal will be used to buy the net rung in the bond latter.

The risk in a bond latter is the individual bonds. This can be mitigated by investing in maturity dated bond ETFs like BSCO, BSCP et al.

 

IIRC, there is no "penalty", the contributions just wont be tax deductible. You can offset any tax benefit losses by doing a backdoor conversion into Roth IRA (earnings & withdrawals will be tax free).