How to Invest in a Roth IRA--A Beginner's Guide
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- Опубліковано 6 лип 2024
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A Roth IRA is arguably the single best way to save for retirement. One question I receive frequently is how to invest in an IRA. And specifically, is a 3-fund portfolio a sound approach to investing in an IRA. The short answer is that it's an excellent approach for beginners just starting out.
There is one situation, however, where I would make an adjustment. If you also have traditional retirement accounts, I would use them for the bond allocation, reserving the Roth IRA for stock ETFs and mutual funds.
Resources mentioned in this video--
IRS Publication 590-B: www.irs.gov/publications/p590b
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ABOUT ME
While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I'm the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.
I'm also the author of Retire Before Mom and Dad--The Simple Numbers Behind a Lifetime of Financial Freedom (amzn.to/3by10EE)
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I wish I had started contributing to Roth IRAs when I was younger. I only started them after maxing out my 401k comfortably. Luckily I’m still in my 40s so plenty of years left.
Absolutely perfect advice!
If you're not just starting out and in a 0-12% tax bracket, I would probably instead contribute to traditional. Unless you want tax diversification, which is totally reasonable!
Your video is what I was searching for. Thanks Rob!
Really good stuff. Thanks 👍🏽
Good video. Have a great week
Sending this to my friend. Thanks Professor Rob.
Dude you are the GOAT! I needed this
Please report. Someone is impersonating Rob.
I was looking for this advise , I am rolling my Roth IRA from TSP . Plus I am converting my Traditional Ira from TSP to Roth IRA because I want to stay in a lower tax bracket. I am retired , but I am still not taking Social Security. I am in a lower tax bracket so far . Thank you Rob . Good advise.
Can you cover Covered Call ETFs like QYLG, RYLD, XYLD, for next video?
I’m still confused about qualified distribution. What does that mean? And what is the five year rule?
I need to put some untaxed money in a roth IRA. I am retired and the money is from a reverse mortge. Please advise. Thank you for what you do.
I like the three-fund portfolio. I don't believe I know better than the markets on allocating capital. I agree at holding the investments you think will grow the most in Roth, if you have other accounts for the rest of your asset allocation.
How about target date funds for Roth ira
Off topic but is it to safe to put money into a fairly new ETF "vote" (very similar to voo). There's only ~200 million net assets. Can I trust that no one will run off with my money?
So five years from the first I put or every input?
I am currently at 20/80 total portfolio due to bonds gifted. My roth is 100% stock and my 401 is 100% stock. My thinking is keeping 100% in both roth and 401 since the bonds are so dominant. I am not contributing to the bonds at all but using dividends from bonds to fully fund the roth. I have about 20 yrs til retirement and my company does a 5% match also. Does this seem like a good plan moving forward? Thanks for all the info you give!
What if I start a ROTH IRA in my thirties and then decide I want to sell off the REIT portion of the portfolio in my sixties? Say I wanted to then turn that $90,000 chunk into a bond fund to stabilize my ROTH. Would that make any sense?
OR if I wanted to a buy mutual fund with an emphasis on AI stocks, ride it out for the next 10/15 years in my ROTH IRA, then sell it at a potential peak... would I be allowed to take that cash and just put it back into the S&P 500 within the ROTH account?
Another awesome video Rob. I have learned so much from your videos . I feel like I owe you tuition.
You've mentioned in a video a preference for mutual funds over ETFs. It would be interesting to hear your views on how to start a Roth IRA from scratch using mutual funds instead of ETFs. I think there would be issues because you can only contribute so much in year one and some mutual funds have starter limits $3k or so.
You're absolutely right. Vanguard has minimum initial deposit requirements on mutual funds. Of course, Fidelity does not and charges slightly lower fees. I take no issue with ETFs, at least for large well-traded index funds. If I have the choice, however, I do prefer the mutual fund version.
If you were planning to max out an IRA anyway, I think mutual funds would be perfect since the max is $6,000/year; the minimum doesn't matter at that point. And for anyone who didn't have at least $3,000, they could just buy ETFs.
I believe index funds are preferable to ETFs in tax-advantaged accounts because they're simpler in some regards. One of the big selling points of ETFs is tax efficiency, and the capital gain distributions do not matter in tax-advantaged accounts. I just wouldn't purchase index funds in taxable accounts in most cases--unless it's Vanguard.
Great video! What would a more aggressive vanguard portfolio look like with no bonds?
Half VTSAX (US) and half VTIAX (International), or whichever allocation you feel comfortable with. 100% stocks. Maybe add in an Small Cap and Emerging Market for something that's even more volatile but has historically outperformed.
Great video. I was wondering how you feel about vanguard target retirement accounts like 2045, 2050, 2055, etc...
I think they are a reasonable option as you are saving for retirement. I think they get too conservative as you near retirement.
Hello .. Sir Rob, I'm Ros and accidentally got my attention on your program since i got my CSR work with the 401k
im so glad that with your program i was able to learned some how.. the process and to understand all the jargon words of 401k Plan.
Kudos .. amazing Program , from day one i was able to take notes all your explanation with the ROTH IRA.
Hey Rob I have a question about 401k tickers symbols? Why is it I can't find out asset allocation on a John Hancock total stock market fund. Jetsx??? What am i missing?
401K's selection is limited to what your employer provides :(
Would it ever make sense to use a dividend fund for a Roth IRA such as VYM?
I don't see why not. Again, I see the goal as investing in assets with the highest expected growth in Roth accounts. I personally focus on total return, but there are some excellent dividend ETFs and mutual fund.
Hey Rob, love this topic. But should you use ETF"S [ Non re-invest of dividends / Mutual funds in your ROTH; Traditional account? And tax efficiency? Thank You.
Steven, I see no issues with holding ETFs in a Roth.
Non-Vanguard ETFs make more sense in taxable accounts to me. But index funds are totally fine or even preferable in some ways in tax-advantaged accounts because there's no worry about capital gains distributions. In most ways, they're identical--very similar in the grand scheme.
Regarding putting all stocks in a Roth IRA (if you also have traditional accounts), would you also do that if you had a Roth 401(k)? Thanks, Rob.
Yes. That's what I do with my current Roth 401(k).
Qs. I am in retirement , have 200000 in cash buying cds, 200000 in TSP L Income fund and I have started converting my 401 K / TSP into Roth conversion- last 3 years the amount has been 150000. I recently have transferred my Roth part of tsp to Vanguard federal fund 65,000.
I have a total of 142000 in ETFs which I bought in these last 3 years .
Plus I have 2 target date funds - 2025 & 2030 Vanguard.
Should I convert the target date funds in Roth to ETFs in Roth ?
In Roth I have added VOO , VTI, BND, VXUS( ,VNQ, VYM and VTIPS . ) 10% each.
My aim is to convert all of my TSP into Roth because I am still not taking SSI . Any thoughts ?
I am struggling on what I should be investing into in my ROTH IRA. I also have a ROTH 401(k) account. I was considering to mirror the Vanguard 2060 target date retirement fund in my M1 Account and adjust it quarterly. Unless you would recommend going with the a Fund portfolio that you mentioned instead? Thanks.
Can you do a presentation on taxable account portfolio composition. Management. Withdrawal strategies in relation with other portfolio like tax deferred accounts. Appreciate you educating your viewers.
Yes, working on a video now about the order of distribution in retirement from various accounts. Can also cover asset location.
@@rob_berger Hi Rob, I think this is tangentially related to this topic but I was wondering as you mentioned VTSAX (Total Stock Market Fund) and it containing 3,500 funds but the mid and small cap have little to no effect....would you do better to have an S&P 500 Fund coupled with an Extended Market Fund instead of a Total Market Fund to gain more of an effect from the mid and small cap? Or would they be identical? Somehow I would think it would be skewed more to mid and small that way...maybe a topic for a new video?? Thanks for all you do....
Hey Rob, great channel and also really liked your book. I see a lot of material comparing Vanguard's Total Stock Market (VTSAX) with their 500 Index Fund (VFIAX) as someone's primary fund option, but what about the Growth Index Fund (VIGAX)? It has a better rate of return, but not as diversified. What are your thoughts?
Small caps outperform large caps over the long run. Go with VGT, VOO, VO, VB, VBR, QQQ, VV, these are all 5 star rated ETFs from Morningstar
Sometimes growth outperforms value, and sometimes it's vice-versa. Over the last 10 years, growth has far outpaced value, but who's to say that will continue and for how long (in fact, many expect that to flip--especially in a bear market.) For true diversification, you should go with a total market fund and not worry about it; Jack Bogle was a big preacher of this.
But...if you look over the long term, value has actually outperformed growth. My personal long-term plan is to own the global market at weighted market cap (which is currently roughly 55% US, 33% Developed, and 11% Emerging [International is made up of around 75% Developed and 25% Emerging]) but hold a slight 'tilt' toward value--5% or so. Sort of hedging my bets in a sense. Good luck!
They’re both good. Won’t make a difference at the end. The difference is the consistency of funding it
So you have to have held a ROTH account for 5 years before you can withdraw earnings without penalty (assuming over 59 1/2). I have a traditional 401K account and now have the ability to save to a Roth 401K and I am 56. We make too much money to open a Roth IRA and have no other ROTH accounts. Max out my 401K at $26000. our plan allows in service distributions at 59 1/2. My question is if I start contributing to Roth 401k now instead of traditional and at say 60 I move it out of 401K to some other Roth account does the 5 years start all over again? We currently have NO roth accounts.
This article may help, but I haven't confirmed its accuracy: www.investopedia.com/articles/retirement/08/convert-401k-roth.asp
@@rob_berger Thank you for the article. IT was helpful
Would you add growth funds or ETFs to ROTH as well? Examples: VUG, MGK, VGT?
Well, VTI or VOO both cover growth. You can tilt your portfolio to more growth with a fund like VUG. I never have, but that's because I started investing at a time when value clobbered growth. Now the tables have turned. But they'll turn again, and again, and again.
@@rob_berger thank you!
So at age 57, starting a new Roth I would have to wait 5 years , even after turning 59.5. Is it best tojust stick with my 457, traditional pension and brokerage account and leave it all to my wife ? No benefit with a Roth?
I personally see a benefit in the Roth, at least for those not in the highest tax brackets. The question is whether you'll need to use the money in the next five years.
I am 69 now I have IRA for about 7 yrs is has never received interest on the account 0.001 percent it seems should I now switch to the Roth
Your returns depend on the investments inside the account, not whether it's a traditional or Roth.
Opened a Roth IRA, made a full contribution, and bought VTSAX (last week). With the current market environment, should I have made monthly contributions instead? Is it possible to pull the amount and just re strategize by purchasing VTI across the next few months instead? Or should I just hold VTSAX? Beginner here but glad I finally pulled the trigger and opened and account!
Agg, from personal experience i contribute biweekly instead of lump sum because that how it works better for me with my budget. I cant invest full lump sums, but either dollar cost average or lump sum is good investment strategy. I am not a financial planner by any means, but the important thing is to invest. Also i prefer index funds over etf because i dont want the stress of needing to have all the money to purchase etf (some brokers do not allow fractional shares) and to be stressing if a purchase the etf at the best price possible. I like that with index funds you summit your order and then at the en of the day it gives you the shares at the end of the day when the prices are in.
If you search around you will find statistically you are better off with lump sum investing (as the market goes up 2/3 of the time). Dollar cost averaging, or putting in set amount over a specified period of time, helps with the psychological aspect of entering the market. Either way, you will be fine. Better to invest early and often as Mr. Bogle says.
aag, in a Roth IRA you can move the money to a money market fund or short-term bond fund. No need to actually take the money out of the account (although you can always take out contributions penalty and tax-free since you've already paid the tax on it). Whatever approach you take, I like to settle on it and not change for any reason. Invest the lump sum (which I did 2 years ago after selling my business), or DCA over 6 or 12 months. For me, the key is to make a plan when the markets are relatively stable, and stick to it regardless of what they do.,
Thank you, All! I appreciate the feedback.
Rob, I’m definitely still learning how to identify a relatively stable market. I felt confident in my decision to do a lump sum thinking it was decent timing but now the recent lows and grim forecasts of course make me question my decision. I know I’ve got tons to learn so I appreciate your feedback and of course your content! I only came across your channel a week or so ago and I’ve already learned so much! Thanks!
Tune out the noise! Forecasting a crash has proven to be impossible. Nobody really knows what the market will do. If you are a long term investor expect to hold your investments through several crashes, and to rebalance money into your “losers” to buy low. The key Is to have a written plan and stick to it so emotions don’t take over.
What are the fees in a Vanguard Roth IRA??
Low. Literally no fees at all for having the account (as long as you sign up for electronic statements.) For the funds themselves, they will only be a few basis points; Vanguard is well known for their dirt-cheap index funds and ETFs.
Hi Rob, love your videos. I’m 54 years old and am about to take a previous employers rollover IRA at fidelity and move it to a Roth IRA at vanguard. Do you have any tips on how I can do this without fees or penalties. By the way, I am a newbie to your channel. Thank you so much for your time.
Is the Rollover IRA a traditional IRA or Roth? If it's traditional and you convert it to a Roth, the amount of the conversion will be treated as ordinary income. If it's a Roth to a Roth transfer, there shouldn't be any taxes or fees. But talk to the folks at Vanguard first. They can help you.
@@rob_berger thank you so much. I will do that.
@@rob_berger hello again. I did just check the fidelity account and it states that it needs to be activated.
thinking about adding CHPT and APPL to my Roth Ira
I am being charged $48. Per month on a $43,000 Roth IRA by Morgan Stanley. It seems high to me. Is it??? These are the fees charged and I can't pick what sectors I want to allocate in. Just the risk assessment only. A Morgan Stanley committee does that.
*$48* per month is financial abuse that you should absolutely avoid! That'll costs you ($48 * 12 =) *$576* a year. Get out of there and transfer your balance to more fee friendly IRA custodian like Fidelity Schwab Vanguard.
I setup a Roth IRA through my bank long ago. My work assigned financial advisor said they could help me with my RothIRA. Stupidly I moved the Roth under my assigned financial advisor. I say stupidly because in order to contribute to the Roth, have to download a form from the Roth company, fill it out in pen, attach a check. I send it to my advisor via US mail, then my advisors office send the form and check to the Roth company and then my check gets cashed and clears then the account receives a credit. While this worked in the 80s it is 2022. I would like to move the Roth back under my control so I can fund the account by electronic transfer. In November or December 2022 I satisfy the 7 year surrender requirement. Is this worthwhile? I don't fund my Roth because the process is so time consuming and I feel the only person who benefits is the financial advisor.
Typical Roth IRA account should not have a surrender requirement. What is the name of the mutual fund company and or the names / tickers of the mutual funds you are invested in? (Suspect you might have been sold *_load_* funds in which case you're right to no longer fund that account.) Depending on your answer it's likely worthwhile to move the account to another low cost IRA custodian.
There is probably a simple solution to this question, but say you have all of your stock allocation in a Roth IRA and all of you bond allocation in a traditional IRA (no other accounts). If the stock market crashes, how do you rebalance to add money into your stocks from your bonds?
That's a great question. In my experience it's usually not that cut and dry. You tend to have some stocks in a traditional as well. But, if you didn't, and stocks crashed, you'd sell some of your bonds in the traditional and buy stocks in the same account.
@@rob_berger See…I knew it was simple. Wasn’t thinking straight. That’s what I get for posting while working.
Rob, say you've had a ROTH IRA for many years which now has about $150k in it, but in the form of something kinda dumb like low-yield annuities, but now you wanna switch that to a 3, 4 or 5 fund Vanguard portfolio, as you've shown us, which I think pay around 2% to 2.8%? Why not just pull out the big guns and do $150k of QYLD and RYLD at 11%? I'll of course trust whatever reason you think that's not a good idea. I'm here to listen and learn. I've just heard that their high yield is actually safe, but get a bad name from the 11% yields of high-danger stocks like mortgage REITS, BDCs and oil pipelines.
I've yet to find a covered call ETF that outperforms a simple index. Compare QYLD to QQQ, for example, and QQQ crushes it. They have high yields because of the premiums earned from selling the covered calls. But their total returns, which is what matters IMO, fall short. I love the dividends my investments generate, but not more than the Total Returns.
@@rob_berger Rob, huge thanks for the reply. Your point makes absolute sense. I'll now try harder to find good total returns within the same stock or ETF, but they're hard to find! My version of "total return" so far is buying high-div and high-growth separately - so that my port is 50% dividend stocks like old Div Aristocrats with maxed out growth ceiling/equity REITS/energy companies -AND- 50% growth like the FAANG stocks/semiconductor chips/Cloud/EV related companies like lithium batteries and charging stations. Thus, getting growth and dividends, but from separate sources.
Why do people choose a ETF over an index?
With the kinds of funds we are talking about, it doesn't much matter. There are some ETFs that cover asset classes not available with mutual funds. And if you use a robo advisor or M1, you have no choice but to use ETFs.
ETF's are generally more tax efficient and usually recommended for taxable accounts while index and mutual funds are generally recommended for tax sheltered accounts.
Hey Rob. Someone made a fake UA-cam account of you and is replying to my message in the comment section.
When deciding whether to invest in a Roth vs. Traditional IRA, you have to answer the following question: Do you think your taxes will - for whatever reason - be higher in the future than now, or higher now than in the future?
With a Roth IRA, you pay the taxes now, and pay no taxes on the money (and gains) in the future. With a traditional IRA, you get a tax break now, and pay taxes on the money (and gains) in the future.
Some people think that with all the deficit spending government's budget, and with our society's crumbling infrastructure that will need to be fixed at great expense to the taxpayer, we all will be paying higher taxes in the future - whether we like it or not.
Personally, I don't take a side. I hedge my bets, and put some in a Roth IRA, and some in a traditional IRA.
ROTH IRA Summarized: no capital gains taxes, no dividend taxes, no forced withdrawals, great tool for passing wealth on, people under age 50 are capped at 6K currently annually, 50+ 7K annually. The video covers the idea to be more aggressive in a ROTH IRA due to avoiding taxes and keeping the bonds to your taxable accounts, however bonds are included in the 3,4,5 and 6 fund portfolios. You could drop them to 0%. Personally I have a lot of individual stocks in my ROTH IRA. Great Video Rob!!!!! Still want to know how you so elegantly switch screens from yourself to the computer!
He is probably using a ATEM software control.
At 59.5 you can’t really enjoy life cause you’ll be too old.