Teach Me: Annuity Savings (IRA and Roth IRA)

Beer Baron said:

"Index Fund"! That's the term I was looking for, not "annuity".

I am currently hitting the cap on my IRA contributions. I came into a healthy inheritance a couple years back and recently got a $12k/year pay raise over what I'd been doing. My sort of easy button plan is just to keep maxing that out at least until the current employer is able to start offering 401k plans.

So, it sounds like what I need to do to start is just to look into Fidelity or Vanguard and just put in funds directly.

Once I've got that figured out, I'll start looking into how to pull the funds out of old accounts and roll them into something else. If I were to try to pull the money out of my current managed Roth IRA account and put it in a Roth IRA index fund (am I getting that right?) would I actually be able to do that if I'm hitting my annual cap with new funds I'm putting in?

So, as I understand it, you currently have 3 "buckets" for retirement? Please correct me if I'm wrong.

1- Roth IRA that is managed by a broker and you're currently maxxing out. Continue to max this out, but find a lower fee option and invest this in passive index funds like VTSAX, etc.

2- Old 401k (probably a traditional 401k) that is just floating around nowhere specific with no funds being contributed. We need to know if this is Tranditional 401k or a Roth 401k. Any idea on when/if you'd be able to fund a 401k with your current employer? Rolling this directly into a new 401k might be best, depending on the situation.

3- "Other retirement" funds at a broker. This is probably a taxable account.

For starters, it's probably easiest to have all of these buckets at the same place, be it Vanguard,Fidelity, Betterment etc. So, do what needs to be done and get them all into passive funds with a single brokerage company (keeping in mind what BoxheadTim mentioned about direct transfers to avoid any taxes).

Second, it's generally best to maximize tax advantaged accounts before funding a "taxable" account. So, active 401ks, either Type of IRA, and HSAs should all be maximized before putting any money into taxable bucket #3 above. This will give you tax benefits either now, or when you remove money from the accounts and has the added benefit of reducing your taxable income.

In reply to STM317 :

That summary is essentially correct. I do not know if the 401k is Roth or traditional. I'll have to go look.

Bucket #3 is not really having anything added to it at the moment. It exists as a result of that inheritance cash. I maxed out the IRA contributions for two years I could do in a lump sum, set aside cash for down payment on a house, bought a couple small niceties, and the remaining cash became Bucket #3.

The other thing about the old 401k is - who is it with? Depending on who is administering the plan, it may or may not make sense to roll it over into a rollover IRA or not. Usually if it's an insurance company, you want to rollover the money in a hurry.