Index Funds: Jack Bogle has convinced me.....sort of.

[beegee]

Newbie here.

I have a 401K through my work and a Roth IRA through Edward Jones and I'm thinking of moving both into a handful of index funds.

If I invest after tax dollars into index funds, can I make tax free withdrawls? Will I get taxed on my index fund's earnings?

If so I would think the roth ira would be the way to go......right?

Thanks for the help.

[bjl584]

Does your employer give you the option of doing a Roth 401K?

I'm unclear what you mean by asking about investing after tax dollars. A 401K is pre tax unless it is of the Roth flavor.

But, yes, you can do tax free withdraws from a Roth IRA or a Roth 401K.

[Petunia 100]

Newbie here.

I have a 401K through my work and a Roth IRA through Edward Jones and I'm thinking of moving both into a handful of index funds.

If I invest after tax dollars into index funds, can I make tax free withdrawls? Will I get taxed on my index fund's earnings?

If so I would think the roth ira would be the way to go......right?

Thanks for the help.

A Roth is better than a taxable account. Max the Roth first, then if you have more investing to do consider a taxable account. Yes, if you follow the rules, you can withdraw earnings from your Roth tax free.

There are many index investing enthusiasts here. Have you stumbled upon the Bogleheads Index Forum yet? http://www.bogleheads.org/forum/index.php

[Petunia 100]

Investing in a Roth is better than investing in a taxable account. Always max the Roth first. Then if you have more investing to do, consider a taxable account.

Yes, if you follow the rules, you can withdraw earnings from your Roth tax free.

There are many index investing enthusiasts here.

Edit: I thought my first post was deleted because it included a link. But now I see that my first post was not deleted, there are two identical threads.

[beegee]

Just this morning I did.

It feels good to know I'm saving the brokers cut by doing it myself. I have 30 years to go.

Thanks for the help.

[smk]

the decision between roth and trad ira is not automatic. you don't just maximize your roth first. the decision relates to your current and future expected tax rates. the trad ira is like a tax arbitrage. if you have high tax rates now and expect them to fall, the trad ira is better. you also need to consider asset location...do you put stocks or bonds in the ira. these decisions are based upon some relatively simple mathematical formulas which I can supply upon request. they are not made based upon rules of thumb when your circumstances may be different that the situation that created the rule of thumb...everyone is different...

[kv968]

But, yes, you can do tax free withdraws from a Roth IRA or a Roth 401K.

The money will be tax-free when you withdraw it in retirement and you can also take the money you contributed out of a Roth tax-free at any time (not sure if this is what you were also asking) although that's not recommended since its earmarked for retirement. Don't treat it like a savings account.

[Petunia 100]

the decision between roth and trad ira is not automatic. you don't just maximize your roth first. the decision relates to your current and future expected tax rates. the trad ira is like a tax arbitrage. if you have high tax rates now and expect them to fall, the trad ira is better. you also need to consider asset location...do you put stocks or bonds in the ira. these decisions are based upon some relatively simple mathematical formulas which I can supply upon request. they are not made based upon rules of thumb when your circumstances may be different that the situation that created the rule of thumb...everyone is different...

You're right. I didn't read carefully enough, I thought the question was Roth or taxable. But the question is Roth or traditional 401k.

Beegee, the standard "expert" advice is:

1. 401k to the extent there is a match
2. max Roth
3. max 401k
4. taxable account

[smk]

if your current tax rate is very high right now and you expect it to drop precipitously either due to a bad year sometime in the future or during retirement,the standard "expert" is giving you very poor advice by telling you to max your roth and then your trad ira. if you don't believe me, do the math...

[Petunia 100]

if your current tax rate is very high right now and you expect it to drop precipitously either due to a bad year sometime in the future or during retirement,the standard "expert" is giving you very poor advice by telling you to max your roth and then your trad ira. if you don't believe me, do the math...

Of course one should always do the math. General rules of thumb are just that.

[smk]

Of course one should always do the math. General rules of thumb are just that.

then why do you quote rules of thumb when they can be so grossly inaccurate? it's not like the math is difficult...addition, subtraction, multiplication & division...

[Petunia 100]

then why do you quote rules of thumb when they can be so grossly inaccurate? it's not like the math is difficult...addition, subtraction, multiplication & division...

Because Beegee is asking a general question and has not indicated whether s/he is currently in a high or a low tax bracket, or any other details of his/her unique financial circumstances.

[smk]

Because Beegee is asking a general question and has not indicated whether s/he is currently in a high or a low tax bracket, or any other details of his/her unique financial circumstances.

If you quote standard "expert" advice, it gives the appearance of being authoritative. Someone is more likely to listen to it. But you quote it not because it will give BeeGee good direction, but because you don't know enough about the op to determine whether they use 100% roth or 100% trad ira? Seems you are directing the op authoritatively to choose a particular solution when in truth you have no idea what is in their best interest? Is this responsible?

[beegee]

I appreciate all of the input.

Here is my personal situation. I'm 35, married with 3 kids. I make 60K and the wife makes 35K when she's not on maternity leave. I have 16K in a Edward Jones Roth IRA and 17K in a 401K at my work (they don't match) that apparently is managed by BOTH "The Newport Group" and something called "Advanced Capital Group". (Is it likely that they are both charging me fees on top of what the individual mutual funds charge? )

I'm considering moving my Edward Jones Acct into a Roth IRA at Vanguard and also moving my works 401K to vanguard and then converting it to a Roth so that I won't be taxed on any future earnings.

Am I onto something or on something?

[beegee]

and the 401K is a traditional. Thanks.