Categories
Budgeting & Saving

What Should I Do With My Old 401k?

How long have you been with your employer? And how long do you plan to stay there? As a millennial, you may have a feeling of restlessness. An article from Forbes argues that job hopping is the new normal for millennials. And the most recent data released by the Bureau of Labor Statistics states that employees tend to stay with their current employer an average of 4.6 years.

If you have been with your company for a few years, you are probably thinking of that next step. It is important to continue to grow your career and stretch yourself in the process. You may decide to continue your education and go back to college or start a professional certification. Maybe you are thinking of taking some time off to travel and discover what you truly have a desire to do. It is possible that you’ve realized that you can support yourself with your side hustle and you are ready to become a full time entrepreneur.

Free Money

During your time with your employer you have likely contributed to the retirement plan. If your company offers a match program for retirement contributions, you likely contributed to take advantage of the free money.

Staying with your employer? Click here to watch why free money should make you dance.

Now that you are thinking of leaving, you wonder, “What happens to all of that money in my 401(k)?”

Don’t panic.

It’s your money. And you can take it with you.

And that’s where the Rollover IRA comes in.

The Rollover IRA

As an avid reader of Young Finances, you’ve heard of the Roth IRA and the Traditional IRA. You know that IRA stands for Individual Retirement Account and that it is a savings vehicle designed to help you save for retirement. You know that you will need to designate a beneficiary and that I have a preference when it comes to tax free money.

But I have yet to mention the Rollover IRA.

A Rollover IRA, also known as rollover, is simply a transfer of funds from a retirement account such as a 401 (k) into a Traditional or Roth IRA.

Let’s assume that you have already left your job. Starting a rollover will allow you to move assets from a 401(k) at your old employer into a brand spanking new IRA, Traditional or Roth. In essence, you would contact the administrator that holds your 401(k) and let them know that you want to rollover. They would close out your 401(k), cut you a check and you have 60 days to deposit that into an IRA account that you open.

The Rollover Tax Question

Of course, when dealing with retirement distributions, you have to consider the tax implications. Let’s see what the Internal Revenue Service has to say about it.

Will taxes be withheld from my distribution?

IRAs: IRA distributions paid to you are subject to 10% withholding unless you elect out of withholding or choose to have a different amount withheld. Withholding does not apply if the distribution is paid directly to another IRA trustee.

Retirement plans: A retirement plan distribution paid to you is subject to mandatory withholding of 20%, even if you intend to roll it over later. Withholding does not apply if you roll over the amount directly to another retirement account. A distribution sent to you in the form of a check payable to the receiving plan or IRA is not subject to withholding.

Well there you have it. Directly from Uncle Sam himself.

Tax withholding can be avoided if you roll over the distribution from a retirement plan directly to another retirement account.

You may also be thinking, why should I roll over?

Why not take the distribution, pay the tax penalty and buy a yacht to travel the world?

When you roll over a retirement plan distribution, you generally don’t have to pay tax on it until you withdraw it from the new plan. By rolling over, you are saving for your future and your money continues to grow tax-free.

If you want to allow your money to grow tax-free then a rollover may be right for you.

Ready to Rollover Your IRA?

I’ve discussed Betterment here at Young Finances several times. I have a Roth IRA with them and a few sub accounts dedicated to travel, long term investing and a recent investing challenge. I like them because they provide an easy way to invest with low costs. Betterment portfolios are customized based on your personal preferences and risk tolerance and they work around the clock optimizing returns at every level of risk.

It’s free to roll over 401(k) assets or an IRA to Betterment. There are no trading costs and portfolios contain cost-efficient index funds.

They make things easy.

To transfer your 401(k) assets, the direct rollover method is used which prevents any withholding or tax consequences.

Betterment also provides a rollover concierge to you and they are available to speak to your current 401(k) or IRA provider to make sure the transition of assets is completed smoothly.

Not rolling over? Open a Betterment account today and get a month free.

Something that could take days and tons of paperwork is made easy with Betterment. Instead of an overwhelming, time-consuming process, Betterment takes steps to ensure your money is put to work in an optimized portfolio as soon as possible.


Now that you know how easy it is to roll over, what job will you look for next? Or would you rather take a year to travel the world?

Originally posted 2014-10-06 06:00:58.

Categories
Investing

How to Open a Roth IRA Online with Betterment and Celebrate Like a Boss

I’ve been a Betterment customer for a few months now.

I found Betterment to be a great way for a beginner to invest because they have low fees and they make the process of investing as simple as opening an account and depositing funds.

When you open a Betterment.com account, you will deposit or set up recurring deposits from a checking or savings account. Then the folks at Betterment will invest on your behalf into ETFs based on your portfolio allocation.

Portfolio allocation just means where you want your money to go.

There are two options, stocks and bonds. You don’t have to do any research or constant monitoring of your portfolio.

They manage your everything for you.

You simply have to decide whether you want a low risk portfolio or high return portfolio.

I learned that Betterment offers IRAs, both Roth and Traditional.

I was pretty excited to have a professionally managed retirement account so I opened my IRA with Betterment.

Here is my personal experience with opening my Betterment account.

 How to Open a Roth IRA with Betterment

The first thing that I noticed is that it’s pretty easy to open an IRA. I have an existing account so I simply logged into my current account and started from there.

Here is a screen shot of my current account.

I started with a $250 deposit and I have contributed 25 dollars a month since opening my account in August.

It’s important to make a habit of automatic contributions and I have an auto-deposit that comes out each month for Betterment and one auto-deposit that goes into an FDIC insured savings account.

Even if you can only start with a few hundred bucks, at least get started.

The automatic plan makes saving and investing easy.

Start with Betterment here

I’ve allocated 55% to stocks which is lower than my peers but my goal is to beat the returns of a typical bond fund.

An increase of 3% is fine for me.

Step 1) Choose a New Roth IRA Retirement Savings Goal

In order to open the IRA, you have to click to expand the ‘total balance’ section.

This will show your current goals and give you the option to start a new goal, retirement savings.

After you choose the option to create a new goal/IRA, you will have a chance to choose what type of IRA you would like to open.

If you are not sure if you want a Traditional or Roth IRA, click the ‘Which type of IRA should I choose?‘ right above the IRA type selection.

As a registered investment advisor, Betterment can guide you through this choice.

Step 2) Choose Beneficiaries

After you select the type of IRA, you will be able to choose beneficiaries.

Not sure how to choose a beneficiary? Read this post on choosing a beneficiary.

Step 3) Fund Your New Roth IRA

Now you can choose how to fund your Roth IRA and celebrate!

That’s it!

Pretty simple huh?

Time to celebrate!

[panel style=”panel-primary” title=”Click to Tweet This” footer=””]I just opened a Roth IRA so I can retire like a boss.[/panel]

Click here to open a Betterment account today.

Did you open your Betterment IRA yet? What are your retirement goals?

Originally posted 2014-08-08 05:00:27.

Categories
Investing

The 60/40 Passive Active Investing Portfolio

It’s time to get invested!

Read this post for details on the Grow Your Dough Throwdown. In short summary, I am competing with several other bloggers in a challenge to invest and grow one thousand dollars in an investing portfolio.

In this post I will explain my specific investing decisions.

The 60/40 Investing Plan

I plan to invest 60% passively and 40% actively. Passive investing simply uses index funds to mimic the return of an index. Active investing is the process of choosing individual investments, stocks in this case, in order to beat the return of an index.

I plan to invest $600 dollars with Betterment. I’ve mentioned before that Betterment is my preferred ETF broker. With one easy step, I deposit funds with them and they invest in a diversified index portfolio on my behalf.

I think it is the easiest way for young adults to start investing.

How to Add a New Goal in Betterment

I already have an account with Betterment and I detailed the account opening process here. For this challenge, I will be adding a new goal in my current account.

In a few short steps, I added the Investing Portfolio Throwdown goal.

Betterment Goal Setup1

Betterment Goal Setup2

Betterment Goal Setup3

You’ll notice that they recommended a pretty conservative portfolio allocation for me. Because I mentioned that I would need the funds in 1 year, the allocation is skewed more towards bonds; which are typically used to minimize volatility and therefore risk of lost funds. (Although bonds are thought to be less risky, there is still a chance of losing funds.)

However, I would personally prefer to experience the returns, highs and lows of a more stock based portfolio, so I changed the allocation manually.

Betterment Allocation Change

On Tuesday, December 31st, I deposited $600 dollars into this account. The deposit process takes 1-2 business days so the funds were in my account and invested by January 2nd on the first trading day of the year.

Betterment Portfolio Allocation

For this challenge, I chose a 80/20 split of stocks and bonds. I will have the following Exchange Traded Funds in my account.

Stock ETFs

  • VTI: US Total Stock Market 14.6%
  • IVE: US Large-Cap Value 14.6%
  • IWS: US Mid-Cap Value 4.7%
  • IWN: US Small-Cap Value 4.1%
  • VEA: Developed Markets 33.9%
  • VWO: Emerging Markets 8.3%

Bond ETFs

  • SHV: Short-Term Treasuries 0%
  • VTIP: Inflation-Protected Bonds 0%
  • AGG: US High Quality Bonds 6.6%
  • LQD: US Corporate Bonds 3.4%
  • BNDX: International Bonds 7%
  • VWOB: Emerging Markets Bonds 3%

These percentages should stay relatively constant. Betterment handles the rebalancing to maintain your allocation decision. This means that they will sell and buy so that the account continues to be 80% stocks and 20% bonds.

They also reinvest dividends as they come into the account. This account should do as well as the broad market. No one really knows what the markets will do and a passive investing strategy, like this one, is expected to perform in line with the market.

Investing in Stocks with Loyal3

Loyal3

I plan to invest $400 dollars with Loyal3. Investing with Loyal3 is a new experience for me. This broker allows you to invest as little as ten dollars in companies that you know and love. There are a limited selection of companies so I plan to choose from the options available to me.

Loyal3 Browse Stocks2

Loyal3 Browse Stocks

Loyal3 Stock Choices

Creating a Portfolio With Morningstar.com

To narrow down this list, I went to Morningstar.com and created a portfolio with the full list of options. I have to be honest, it took me a few hours to decide how I wanted to invest.

Was I looking for good long term names or did I want names that would allow me to win the challenge over the next year?

In the end, I decided to create a dividend portfolio that pays monthly, with names in 4 of the biggest sectors in the S&P 500; Consumer Discretionary, Consumer Staples, Information Technology and Financials. I used this site to find constituents, or members, of the S&P 500.

SP500 Sector Allocation

It would be nice if these names helped me win the challenge over the next year, but if not, they are still names that I would be willing to own long term.

Here are the companies I chose.

Consumer Discretionary
LB: Limited Brands, pays dividends in Feb, June, Aug, Nov
YUM: YUM Brands, pays dividends in  Jan, Apr, Jul, Oct
AMZN: Amazon.com
BUD: Anheuser Busch

Consumer Staples
MDLZ: Mondelez International Inc., pays dividends in Mar, June, Sep, Dec

Information Technology
AAPL: Apple Inc., pays dividends in  Feb, May, Aug, Nov
FB: Facebook, Inc.

Financials
BRK.B: Berkshire Hathaway

I’m going to split the $400 dollars evenly across the 8 names. On December 24th and 31st, I deposited $200 in the account. The funds typically take 1-3 business days to show up in your account. On Thursday January 2nd, I placed my purchase orders for all 8 stocks but at $25 dollars each. The $200 that I deposited on the 31st was available for use on January 3rd but I didn’t invest the remainder until the 9th.

Loyal3 places orders in batches once per day. My purchases were executed on January 3rd and January 10th.

buy apple stock with Loyal3

This is the process to buy stock with Loyal3.

How to Invest in Facebook Stock

Step 1: Select an investment amount

select amount to invest in Facebook

Step 2: Click to confirm

click to invest in FB stock

Step 3: That’s it!purchase Facebook IPO

Using the free Instant X-Ray tool available via Morningstar, this is how my individual stock portfolio looks.

Instant X-Ray Morningstar Portfolio

Morningstar X-Ray Portfolio Stats

Based on the stocks that I chose, my portfolio is weighted towards domestic stocks and the style skews towards growth.

Morningstar X-Ray Portfolio Allocation

On a final note, my portfolio is positioned to be more sensitive to the economy’s changes. A portfolio with cyclical names, tend to be more volatile. This is because when the economy is not doing so well, in general, people tend to cut back on unnecessary or discretionary spending. Then when things are good again, people tend to spend more.

This affects sectors like Consumer Discretionary and Information Technology especially. You may be less likely to buy expensive beers or go out to eat as much when you have less certainty over whether or not you will be paid.

Sectors such as Consumer Staples are less sensitive to economic changes.

side eye emoji

You will always need toilet paper, right?

Right??

Morningstar X-Ray Portfolio Sensitivity

Now that I have my investing portfolio, I don’t plan on making many changes. In the challenge we are allowed to buy and sell as much as we like. I prefer to see investing as a long term strategy where you buy stock in companies that you like and that are expected to grow over the long term.

What do you think of my portfolio? Are you interested in joining the challenge? Do you have questions about investing? I’m all ears!

See the investing portfolio challenge results here.

Use this link to open a Betterment account and get $25 dollars added to your account.

Disclaimer

Just because I chose these stocks, doesn’t mean that I am recommending them for purchase.

All investing involves risk, past performance is not indicative of future results. There is no guarantee that I will make money. I could lose everything. When mentioning how I plan to invest, it should not be taken as a recommendation or investing advice. You should consult your personal financial advisor to determine what type of investing suits your personal situation and risk tolerance level. There can be substantial risk of loss in trading stocks. You should, therefore, carefully consider whether such trading is suitable for you in light of your financial condition. All transactions in the financial markets are risky. No information I present is intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor.

S&P and S&P 500 are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”), a part of McGraw Hill Financial. Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). Past performance of an index is not a guarantee of future results.

It is not possible to invest directly in an index. Exposure to an asset class represented by an index is available through investable instruments based on that index.

Per FTC guidelines, this website may be compensated by companies mentioned through advertising, affiliate programs or otherwise.

Originally posted 2014-01-10 06:00:38.

Categories
Investing

How to Open a Betterment IRA and Invest Today

A Betterment IRA??

Imagine my excitement when I got this email in my inbox! Betterment.com, my financial advisor, is working on offering IRA’s!

This would definitely give me reason to move my Roth from where it currently is into Betterment. (I am a brand ambassador for Betterment and this is a partner link.)

Or at least I could open a new Betterment IRA and just split the contribution max.

Can I Open an IRA with Betterment?

If you are not familiar with an IRA, that is an Individual Retirement Account. It is a great way to save and invest for retirement.

There are two main types of IRAs, the Roth and the Traditional.

There are also IRAs for those that are self employed but we will just focus on the Traditional and the Roth.

Betterment Offers a Traditional IRA

An option to open a Betterment account as a traditional IRA would be appealing to many investors. I’ve already mentioned in my review of Betterment that I thought the only thing that they were lacking is an IRA option. A traditional IRA offers a way to shelter your current income from current taxes.

When you contribute to a traditional IRA, you do so with pre-tax income.

That means that if you’ve already paid taxes on the money, you will get a tax refund based on the amount of the contribution as long as it falls in the allowable parameters. TurboTax or your accountant can help you with this.

If you are an independent contractor and you are not paying taxes up front then you will not have to pay taxes on that income, at least for right now.

With a traditional IRA you pay taxes upon retirement at the point of withdrawal. And you pay taxes based on your tax rate at the time of withdrawal.

But what if you don’t want to pay taxes in the future, and you’d rather pay them now?

Betterment IRA for a Roth Account

A Roth IRA is also a possibility for you if you meet the requirements.

Everyone is not eligible to contribute to a Roth IRA.

There are certain income restrictions. I know that one day I will meet those income restrictions so I am contributing to a Roth today.

If Betterment does offer the option for a Roth IRA I will be opening one.

The benefit of a Roth IRA is that I do not have to pay taxes on my withdrawals when I retire, as long as I meet the qualifications. The rules could change so be sure to visit IRS.gov to get the details on that.

Some people who expect to be in a higher tax bracket at the time of retirement may opt for a Roth IRA.

The reason I prefer a Roth IRA to a Traditional IRA, is the fact that I do not have to pay taxes on the gains in a Roth IRA. Because I’ve already paid taxes on the initial contribution, everything else, interest, dividends, and capital gains are mine to keep, tax free.

Should I Keep my Personal Betterment Account?

So if I open a Betterment IRA, should I keep my personal Betterment account?

I plan to.

I like the personal account because I am using it as a travel fund and I plan to make contributions and deductions often.

There are penalties for withdrawing funds early from a retirement account so I know I will still use my personal account.

Click here to open an IRA with Betterment.

Should You Choose Traditional or Roth IRA?

Not sure which type of IRA is right for you? Use this tool.



Originally posted 2018-10-24 08:00:15.

Categories
Investing

December Investing Challenge Results and 2015 Challenge Begins!

It’s January! And time for the final update on my Grow Your Dough Throwdown portfolio. You may remember that at the beginning of 2014 I entered a challenge to grow $1,000 in the markets. I decided to take a combined approach using passive and active methods.

For my active portfolio, I invested $400 with Loyal3. For my passive portfolio, I invested $600 with Betterment. Here is my post that details the stocks that I purchased.

Even though it is not an even split, I decided to call my portfolio the Gemini Portfolio. It’s a little of this and a little of that. Sometimes balanced and sometimes not as we Gemini’s can be.

The passive side lagged a bit during the year because I had some bond funds in the ETF portfolio. After I updated my allocation, the passive portfolio started keeping up with the markets nicely.

The active side performed poorly for the first few months of the year but then it started kicking butt and taking names! Choosing the right individual stocks helped boost my portfolio performance and I finished the year up 9.71%. If you are an email list subscriber then you know what my annual return goals are. And I’m happy to say that in 2014 I made it!

December & Year-End Portfolio Results

December Investing Challenge Results- Gemini Portfolio | Young Finances

What’s Next?

Up next is the 2015 Grow Your Dough Throwdown! This year I’m adding a $500 dollar portfolio with Motif Investing. I also moved all of the cash from last year into my Loyal3 account and I purchased a few more stocks.

What is Motif?

Motif Investing is an online brokerage firm offering an intuitive platform that empowers individuals to invest in real-world ideas through motifs. A motif is a carefully researched and balanced portfolio of up to 30 stocks reflecting a specific idea or trend. Examples include Renter Nation, Caffeine Fix and Seven Deadly Sins. Motifs are fully customizable—you can add and delete stocks, and change their weightings. You’ll pay just one low commission – and no management fees. And, you’ll get important diversification both within a motif and across motifs.

Motif Investing offers brokerage accounts as well as no-fee retirement accounts, including Roth IRAs, Traditional IRAs, and Rollover IRAs.

Motif Investing also provides a social network where its members share and discuss investing ideas. Ask for feedback. Find out what other investors have to say about the motifs that may interest you. You can invite people you trust most to join your own investing circle. Share only what you want, with the people you’ve chosen, or share nothing at all. It’s all up to you. And you’re always in control.

Investing Challenge Tracker

To make it easier to keep up with all of the challengers and our portfolio performance, the guys at Motif created a handy widget that will display the leaders. A quick but VERY IMPORTANT note. All investing involves risk and past performance is no indicator of future results. As I always say DO YOUR RESEARCH before investing.

Grow Your Dough 2.0 - Motif Leaderboard | Young Finances

Use this link to open a Betterment account and start investing today.

Disclaimer

All investing involves risk, past performance is not indicative of future results. There is no guarantee that I will make money. I could lose everything. When mentioning how I plan to invest, it should not be taken as a recommendation or investing advice. You should consult your personal financial advisor to determine what type of investing suits your personal situation and risk tolerance level. There can be substantial risk of loss in trading stocks. You should, therefore, carefully consider whether such trading is suitable for you in light of your financial condition. All transactions in the financial markets are risky. No information I present is intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor.

S&P and S&P 500 are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”), a part of McGraw Hill Financial. Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). Past performance of an index is not a guarantee of future results.

It is not possible to invest directly in an index. Exposure to an asset class represented by an index is available through investable instruments based on that index.

Per FTC guidelines, this website may be compensated by companies mentioned through advertising, affiliate programs or otherwise.

Originally posted 2015-01-13 06:00:49.