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Author: BirkChick One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76418  
Subject: How should I fund my Roth? Date: 2/26/2004 12:31 PM
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I am trying to decide how to fund my 2003 Roth and would appreciate comments on my strategy.

I have 3 mutual funds that did very well in the late 1990s, but tanked as soon as the bear market hit. They have been doing better recently, but I feel that their returns are still below average. They are:

JAENX - worth $1K
WWWFX - worth $1K
PRSCX - worth $3K

I was thinking about selling JAENX and WWWFX (both at a loss), and using the proceeds plus $1K that I have in my ING Orange savings account to start a Roth IRA at Scottrade. I'm planning to put the whole $3K in Vanguards total stock market index fund.

I'm 24 and currently am funding my 401K with 8% of my salary (it contains $10K right now, most of which is in VFINX). Also, I have $8K in my efund and about $13K in stock options and restricted shares. My student loans are $20K with an interest rate of 3.125%.

This year, my financial goals are to finish funding my efund (get it up to $11K), fully fund a Roth for both 2003 and 2004 and bump up my 401K contributions to 15%.

I am considering going to medical school in 2007, so I think it is wise to move as many assets as possible into retirement accounts in order to receive the best financial aid package I can.

Do anyone have any comments on my situation/strategy? Could anyone offer any advice?
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Author: n8larson Big gold star, 5000 posts Old School Fool Ticker Guide Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39476 of 76418
Subject: Re: How should I fund my Roth? Date: 2/26/2004 1:27 PM
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If you have the capacity to do all the things you mentioned (e-fund, 03 & 04 Roth, 15% 401(k)), and you're going to medical school, my comment on your situation is this:

Schweet. Where were you when I was looking for a wife?

Okay, no, really. The only thing to consider, and I might be in the minority on this, is that if you want to hide money from the financial aid calculations, you could use it to pay down (or off) your student loans. I know they're considered "good debt" by some, but debt is still debt, and there's not many ways to totally wax 3.125% in returns, such that that money could be considered safely better-spent (though many might argue that point as well).

Which mutual funds you put the money in once it's in a tax-advantaged account is a whole new discussion, but it's hard to go wrong with Vanguard, and at your age (granted, not a whole lot younger than I), total stock market is as reasonable as any low-maintenance approach.

-n8 (FWIW, which is considerably less than $0.02)

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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39477 of 76418
Subject: Re: How should I fund my Roth? Date: 2/26/2004 1:33 PM
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Welcome Birkchick. Glad you could join us.

You seem to have a well thought out plan. Stick with it. You will probably do fine.

You don't mention, but it sounds like you plan to sell your existing mutual funds at a loss to fund your Roth contribution. That's fine, but remember that you can write off up to $3K per year in losses against current income. If you are in a low tax bracket like 15% that might be less attractive than if you are in 25% or higher bracket.

At tax time, don't forget to bank those tax savings and invest them for your future needs.

Fool on!!

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Author: yobria Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39489 of 76418
Subject: Re: How should I fund my Roth? Date: 2/26/2004 11:59 PM
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You're talking small money here...$1K, $3K, $10K...if you graduate from medical school a year early, you'll have a year of $200k-$300K earnings you wouldn't have otherwise. That's big money. So my advice is: Apply for medical school now -as in this weekend- if you're going at all.

As as Paul noted, cap loss selling is a critical part of financial planning. If you've got a loser you can write off, do it (and immediately buy something similar).

Personally I'd invest your efund unless you think you could be fired anytime, but others are more conservative.

Nick



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Author: BirkChick One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39493 of 76418
Subject: Re: How should I fund my Roth? Date: 2/27/2004 8:48 AM
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I would LOVE to apply to medical school this weekend, but I still need to take a year of organic chemistry and a year of biology (both of which I've gotten my company to pay for!). And I need to take the MCAT, so 2007 is a reasonable start date.

Unfortunately, my company has had layoffs for both the years I've worked for them, so I think it's best that I don't invest my efund.

And thanks for the advice on the cap loss selling. I've decided to sell those loser funds today!

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Author: BigArb One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39494 of 76418
Subject: Re: How should I fund my Roth? Date: 2/27/2004 9:05 AM
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My girlfriend is your age and I wish she was half as responsible as you. Im 28 and wish I was as responsible as you. You are doing great. I would definetly start the roth, but I would research the funds before I sold them to check if there are any fees and an accountant to find out how much in taxes youll have to pay.
Best of luck
Arby

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Author: BirkChick One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39502 of 76418
Subject: Re: How should I fund my Roth? Date: 2/27/2004 12:16 PM
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Thanks for the compliment!

I don't believe I'll have to pay any taxes as I have lost money on both of them (totaling about $3000). Unfortunately, it's tax season, so I don't think I want to bother my accountant with this small an issue.

Thanks again!

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Author: BirkChick One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39503 of 76418
Subject: Re: How should I fund my Roth? Date: 2/27/2004 12:27 PM
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Schweet. Where were you when I was looking for a wife?

Probably dating a moron! Hehe. (Luckily, I came to my senses and kicked the moron out of my life and now have a fabulous BF!)

The only thing to consider, and I might be in the minority on this, is that if you want to hide money from the financial aid calculations, you could use it to pay down (or off) your student loans. I know they're considered "good debt" by some, but debt is still debt, and there's not many ways to totally wax 3.125% in returns, such that that money could be considered safely better-spent (though many might argue that point as well).

I hope this doesn't sound terrible, but I am expecting an inheritance this year when my grandmother passes. Now, I would rather be bankrupt than lose my grandmother. But, she is terminally ill and has already outlived the doctor's expectations. I am expecting to receive about 40K from her estate, and with that money I am going to pay off the student loans and purchase my leased car. She's a very financially savvy woman (I think she's been subscribed to ValueLine since before I was born!) and I think it would make her proud if I used my inheritance in that manner.

Thanks for your comments!


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Author: n8larson Big gold star, 5000 posts Old School Fool Ticker Guide Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39505 of 76418
Subject: Re: How should I fund my Roth? Date: 2/27/2004 1:43 PM
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I hope this doesn't sound terrible, but I am expecting an inheritance this year when my grandmother passes.

As long as you don't hang your hat on it, it doesn't sound terrible. Don't hold it against her if she changes her will at the last sound-minded moment and gives the whole wad to Greenpeace or something. After all, it's her money, not yours.

I have the benefit of having two childless stepmothers (no children of their own, I mean) who did well in real estate, and I catch myself all the time (well, more than twice a year) wondering how much they're going to leave to my sister and me. They're probably going to live another 20-30 years, which is plenty of time to blow it all on bon-bons and Caribbean cruises, and they're entitled. I shouldn't even use the phrase "blow it all" because again, it's their money. Interesting question, the psychology of inheritance.

-n8

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