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Author: FIgirl Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5069  
Subject: Milestone on the way to FI Date: 7/3/2007 8:40 PM
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As of 6/30/07, I am for the first time a hundredthousandaire!

Yup, my net worth has now broken the 100K mark. As Austin Powers likes to say, "Yeeaaahhhh, baby!"

I still have a ton of debt on the "liabilities" side (student loans), and most of the money on the "assets" side is illiquid (retirement accounts). But I have a fully funded e-fund (6 months of living expenses).

The big FI goal looming ahead is to start taxable investing. I'm a little leery because I'm not sure how to manage asset allocation between the retirement and taxable accounts; not sure where to invest; don't feel I understand how to manage the taxes part. Etc. I have set a date of 9/30/07, by which time I MUST have a taxable account open and active.

Counting down the years to FI/RE,

FIgirl



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Author: FoolNBlue Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4232 of 5069
Subject: Re: Milestone on the way to FI Date: 7/3/2007 9:20 PM
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Congrats!

FoolNBlue (FIguy... counting down too)

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Author: warrl Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4233 of 5069
Subject: Re: Milestone on the way to FI Date: 7/3/2007 9:59 PM
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The big FI goal looming ahead is to start taxable investing. I'm a little leery because I'm not sure how to manage asset allocation between the retirement and taxable accounts; not sure where to invest; don't feel I understand how to manage the taxes part. Etc. I have set a date of 9/30/07, by which time I MUST have a taxable account open and active.

For opening a taxable investment account, at most brokerages there's a minimum opening balance. Pick the brokerage you want to invest in that has a minimum you consider reachable.

Then your investment priorities are:

(1) Collect the maximum employer matching (and any other free money) on your retirement investing, and

(2) Build up your taxable account to where you can actually open it where you want it.

Once #2 is done, you need to readjust your priorities, probably to put more money into the tax-advantaged retirement accounts.

But we can't offer a lot of guidance there without further information, such as what sort of retirement account (457 accounts have an odd and useful twist), what tax bracket, how much cash you expect to need immediately before & after retirement, how long between expected retirement and Social Security eligibility...

(For example, I need more investments OUTSIDE tax shelters.)

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Author: FIgirl Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4234 of 5069
Subject: Re: Milestone on the way to FI Date: 7/3/2007 10:39 PM
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warrl wrote: For opening a taxable investment account, at most brokerages there's a minimum opening balance. Pick the brokerage you want to invest in that has a minimum you consider reachable.

I'm pretty sure it will be Vanguard. I think I'll do 2 ETFs: VTI (total stock market) and VWO (emerging markets). But I can't tell from the website what the minimum investment is.

Then your investment priorities are:

(1) Collect the maximum employer matching (and any other free money) on your retirement investing, and

(2) Build up your taxable account to where you can actually open it where you want it.


I may have done that backwards. All the retirement accounts available to me are already fully funded.

I assume I will have enough to open a taxable account by September.

But we can't offer a lot of guidance there without further information, such as what sort of retirement account (457 accounts have an odd and useful twist), what tax bracket, how much cash you expect to need immediately before & after retirement, how long between expected retirement and Social Security eligibility...

Retirement accounts:
2 403bs, a 457b, a 457f, and a nondeductible traditional IRA (which I'll convert to a Roth in 2010).

Marginal tax bracket: 33%

Cash needed right around retirement: no idea

Time between retirement and SS: infinity. My projections assume I'll never get SS. That way, if the system's still solvent when I hit 65 (in 2038) it will be an added bonus; but if it's gone bust (I know, it's not going to go broke until 2041) or gets tied to means testing and I don't get any, I'll still be OK.

The hardest part for me is the asset allocation, especially because I have so many different accounts with different options in each of them. The only thing I'm pretty clear on is that I need to get my emerging markets fund out of my 403b and into a taxable account. In the 403b I have to go with VEIEX (the Vanguard mutual fund), which assesses a 0.05% fee on every purchase and sale. In the taxable account I can purchase the same fund in ETF form, which has no transaction fees and a lower overall cost, so long as I do lump sum purchasing.

Thanks for your advice and I would appreciate any other input.

FIgirl





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Author: warrl Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4235 of 5069
Subject: Re: Milestone on the way to FI Date: 7/3/2007 11:46 PM
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Retirement accounts:
2 403bs, a 457b, a 457f, and a nondeductible traditional IRA (which I'll convert to a Roth in 2010).

Marginal tax bracket: 33%

Cash needed right around retirement: no idea

Time between retirement and SS: infinity. My projections assume I'll never get SS. That way, if the system's still solvent when I hit 65 (in 2038) it will be an added bonus; but if it's gone bust (I know, it's not going to go broke until 2041) or gets tied to means testing and I don't get any, I'll still be OK.

The hardest part for me is the asset allocation, especially because I have so many different accounts with different options in each of them. The only thing I'm pretty clear on is that I need to get my emerging markets fund out of my 403b and into a taxable account. In the 403b I have to go with VEIEX (the Vanguard mutual fund), which assesses a 0.05% fee on every purchase and sale. In the taxable account I can purchase the same fund in ETF form, which has no transaction fees and a lower overall cost, so long as I do lump sum purchasing.


Is your CURRENT deferred-compensation plan - the one you can put money in today - one of the 457s? The odd twist on those is that you are eligible for unconstrained, no-penalty withdrawals (which you do, still, have to pay income tax on) as soon as you are no longer with that employer. You don't have to wait for some particular age, or roll it over into an IRA and do a 72(t) plan, or etc.

Explore the option of moving your 403(b) money into one of the 457 accounts. This exploration will include whether there are any suitable investment opportunities there.

But if you can't do that... withdrawing it from the 403(b) to put into a taxable account will incur taxes and, I think, penalties. Rolling it over into a conventional IRA will cause none of that. You can, IF YOU WANT, then convert the IRA to a Roth.

(All else being equal and assuming no relevant future changes in tax laws, converting a conventional IRA to a Roth and paying the taxes out of other money has the same effect on your retirement after-tax income from the account as if you had put the tax money into the conventional IRA. But the tax money doesn't count against your annual limit.)

(On the other hand, "all else being equal and assuming no relevant future changes in tax laws" is quite an assumption.)

As for allocation... the big thing is that the standard formulas are way too conservative. Assuming ordinary health and no substantial advances in medical care (and the latter I think is the more dangerous assumption of the two), at age 65 you still will probably have a life expectancy of more than 20 years and a quite reasonable chance of living and being functional for 35 years or longer. The standard formulas seem to me to be planning for death by age 70 - they seem to think that people over 40 needn't look 30 years ahead.

If you don't know precisely why you should plan on such a short lifespan, you shouldn't.

So... if you're going strictly with asset allocation, try to collect long-term data on returns on different sorts of investments, and find the blend that gives the best combination of longevity, safety, and income. And I mean LONG term data. A century would be a good start.

Once you've picked the blend, forget about age-based adjustments.


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Author: bingocards Three stars, 500 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4236 of 5069
Subject: Re: Milestone on the way to FI Date: 7/4/2007 1:49 AM
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>>
I'm pretty sure it will be Vanguard. I think I'll do 2 ETFs: VTI (total stock market) and VWO (emerging markets). But I can't tell from the website what the minimum investment is.
>>

You realize you can buy ETFs from any brokerage, right? Vanguard is a wonderful place but not so great for buying equities, ironically even including their own equities. You pay $30 a year to have a standard brokerage account at Vanguard, and $25 per stock trade. With 2 ETFs and, oh, lets call them quarterly purchases in each, thats $225 a year in dead money.

OR, you could go to Sharebuilder. $4 a purchase, no yearly account fee. That cuts your trading expenses down to $32 on the same schedule, leaving you with an extra $193 happily compounding itself until you retire.

Incidentally, Vanguard's minimum to open a brokerage account is zero. Don't let that fool you, though -- you'd need to invest over $2,500 in each ETF each time to make that $25 a trade a sane expense. (Some folks would say it would be OK at $1,250 each. I think that 2% expenses are pushing it -- at that price you should really just be investing in their funds rather than the ETFs.)

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Author: ziggy29 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4237 of 5069
Subject: Re: Milestone on the way to FI Date: 7/4/2007 12:16 PM
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>> The big FI goal looming ahead is to start taxable investing. I'm a little leery because I'm not sure how to manage asset allocation between the retirement and taxable accounts; not sure where to invest; don't feel I understand how to manage the taxes part. Etc. I have set a date of 9/30/07, by which time I MUST have a taxable account open and active. <<

As far as where you put assets, anything generating a lot of ordinary income (short term stock trades, bonds, REITs) should be in the retirement account. Long term stock holdings and dividend stocks could be held in the taxable account to take advantage of 15% tax rates (these would be taxed as ordinary income when withdrawn from a retirement account).

Congratulations, by the way. We hit a bit of a milestone last month too, as the sum of all our retirement accounts inched above $500K.

#29

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Author: ziggy29 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4238 of 5069
Subject: Re: Milestone on the way to FI Date: 7/4/2007 2:24 PM
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Oh, and one more thing. It seems obvious but it bears mentioning. Do not, under any circumstance I can think of, hold tax-exempt bonds and/or tax-exempt money market funds in an IRA.

In a traditional IRA, income that would have been tax-exempt if held in a regular taxable account would be taxed upon withdrawal. And while that wouldn't be the case with a Roth, why hold a lower yielding security when a higher-yielding taxable equivalent would be just as tax-free?

#29

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Author: FIgirl Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4239 of 5069
Subject: Re: Milestone on the way to FI Date: 7/4/2007 2:51 PM
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Thanks warrl for your reply. To answer your questions:

Is your CURRENT deferred-compensation plan - the one you can put money in today - one of the 457s? The odd twist on those is that you are eligible for unconstrained, no-penalty withdrawals (which you do, still, have to pay income tax on) as soon as you are no longer with that employer. You don't have to wait for some particular age, or roll it over into an IRA and do a 72(t) plan, or etc.

I know! Isn't it great? I just found this out in Jan 2007 - and I promptly started contributing!

Explore the option of moving your 403(b) money into one of the 457 accounts. This exploration will include whether there are any suitable investment opportunities there.

But if you can't do that... withdrawing it from the 403(b) to put into a taxable account will incur taxes and, I think, penalties.


Actually, both of my 403bs are with my current employer (one is mandatory, one is voluntary) - so I have no plans (no ability) to roll anything over. I just plan to switch the investments in one 403b from emerging markets to...something else, and simultaneously buy emerging markets through my taxable account.

(All else being equal and assuming no relevant future changes in tax laws, converting a conventional IRA to a Roth and paying the taxes out of other money has the same effect on your retirement after-tax income from the account as if you had put the tax money into the conventional IRA. But the tax money doesn't count against your annual limit.)

I must admit I do not understand what you're saying. Is this something I really need to get my mind around, or can I afford not to understand it and just happily convert away in 2010?

As for allocation... the big thing is that the standard formulas are way too conservative. Assuming ordinary health and no substantial advances in medical care (and the latter I think is the more dangerous assumption of the two), at age 65 you still will probably have a life expectancy of more than 20 years and a quite reasonable chance of living and being functional for 35 years or longer.

I hear you. My projections assume I live to age 90. My investments are about 95% stocks and 5% real estate (through the TIAA real estate account). No bonds. I've toyed with the Vanguard high-yield corporate bond fund, but that fund moves pretty much with stocks, so it defeats the purpose of having bonds, no?

FIgirl


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Author: FIgirl Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4240 of 5069
Subject: Re: Milestone on the way to FI Date: 7/4/2007 2:56 PM
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bingocards wrote:
You realize you can buy ETFs from any brokerage, right? Vanguard is a wonderful place but not so great for buying equities, ironically even including their own equities. You pay $30 a year to have a standard brokerage account at Vanguard, and $25 per stock trade. With 2 ETFs and, oh, lets call them quarterly purchases in each, thats $225 a year in dead money.

OR, you could go to Sharebuilder. $4 a purchase, no yearly account fee. That cuts your trading expenses down to $32 on the same schedule, leaving you with an extra $193 happily compounding itself until you retire.

Incidentally, Vanguard's minimum to open a brokerage account is zero. Don't let that fool you, though -- you'd need to invest over $2,500 in each ETF each time to make that $25 a trade a sane expense. (Some folks would say it would be OK at $1,250 each. I think that 2% expenses are pushing it -- at that price you should really just be investing in their funds rather than the ETFs.)


Thanks for the info. I know Vanguard gets poor marks as a brokerage. But I feel overwhelmed when I try to sift through all the discount-brokerage options. I looked at Sharebuilder's website but I think they assessed an extra fee for investing in VTI/EWO - because they weren't on a preferred list. Or maybe they didn't - truthfully I got dizzy looking through it all. Vanguard's website is just cleaner and makes more sense to me - and I already have an account with them, so I feel like I'd be keeping my financial life simpler by opening a brokerage with them. But the costs are pretty awful. That's part of why I've dragged my feet on opening a taxable account. I'm still not sure where to do it at.

Do you use Sharebuilder? Maybe I should look at it again.

FIgirl


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Author: ziggy29 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4241 of 5069
Subject: Re: Milestone on the way to FI Date: 7/4/2007 2:59 PM
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>> I've toyed with the Vanguard high-yield corporate bond fund, but that fund moves pretty much with stocks, so it defeats the purpose of having bonds, no? <<

Well, "junk" bonds are more tied to equities than investment-grade bonds in that they are more sensitive to economic conditions.

Last time I checked, the additional yield from "junk" didn't justify taking on the extra risk. When there's blood in the water, junk is selling off and it gets a 4-5% yield premium over investment grade bonds, that's the time to consider junk bonds for (maybe) 5-10% of your portfolio. But right now the yields aren't high enough relative to quality bonds to convince me it's worth doing. They have a pretty long way to fall if the economy starts to falter.

#29

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Author: FIgirl Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4242 of 5069
Subject: Re: Milestone on the way to FI Date: 7/4/2007 3:03 PM
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We hit a bit of a milestone last month too, as the sum of all our retirement accounts inched above $500K.

#29


Woo hoo! Congratulations. If I recall from some of your other posts you are pretty young - which means you have a turbocharged FI/RE plan!

FIgirl



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Author: ziggy29 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4243 of 5069
Subject: Re: Milestone on the way to FI Date: 7/4/2007 3:06 PM
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>> If I recall from some of your other posts you are pretty young - which means you have a turbocharged FI/RE plan! <<

I'm 41 and my better half is 39. I was fortunate in that I saw the writing on the wall in my early 20s about the need to support my own retirement (not trusting pensions or Social Security to be there for me). As a result I've put 10% or more into my 401K plans since I was 23.

#29

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Author: bingocards Three stars, 500 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4244 of 5069
Subject: Re: Milestone on the way to FI Date: 7/4/2007 11:31 PM
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I do use Sharebuilder, and to the best of my knowledge there are no extra fees for non-preferred securities, whatever those are. I have an account full of Vanguard ETFs, too -- VWO especially. (Its like EEM minus the ugly expense ratio.) Trust me, they haven't been dinging me for extra on it ;)

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Author: clrodrick One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4260 of 5069
Subject: Re: Milestone on the way to FI Date: 7/10/2007 2:42 AM
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First of all, good work FIgirl to get into the "hundredthousandaire" club. <thumbs up>

It was less than a year ago when my 401K hit the 100k mark. I was so happy I made a print out of the balance just for giggles. My next goal, which I hope to hit before the end of 2007, is for the sum of my retirement and taxable accounts to hit the "quartermillionaire" club. :)

As for Vanguard, I must be mistaken because I visited their site a few months ago because I was interested in opening an account with them. I was looking at the total stock market fund and I thought the details were something like a minimum 2k to start and a low yearly account maintenance fee. Am I talking about something different than everyone else?

I also have a Scottrade taxable account where I could purchase the same fund, but Scottrade charges a $30 transaction fee every time I purchase shares of it plus Vanguard takes their yearly fee. This was making me think it was fiscally prudent to deal straight with Vanguard. Am I wrong with this thinking?

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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4261 of 5069
Subject: Re: Milestone on the way to FI Date: 7/10/2007 8:00 AM
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As for Vanguard, I must be mistaken because I visited their site a few months ago because I was interested in opening an account with them. I was looking at the total stock market fund and I thought the details were something like a minimum 2k to start and a low yearly account maintenance fee. Am I talking about something different than everyone else?

Vanguard's minimums for index mutual funds is generally $3000; there are low balance fees and annual fees that may apply, although if you will agree to receive everything electronically, they waive some of the fees.

I think that the other posters in the thread were talking about Vanguard ETFs (Exchange Traded Funds) as opposed to mutual funds. The ETFs are like shares of stock that mimic a mutual fund. They also change value during the day like stocks and they can be traded like stocks, at any time during the day; mutual funds are re-valued and traded only after the market closes for the evening. Here is a page on the Vanguard website with more information: https://flagship.vanguard.com/VGApp/hnw/funds/etf

ETFs are generally good if you have a lump sum to invest because they often have even lower annual expenses than the mutual fund they mimic, and there aren't any annual fees. Because you have to pay a commission with every buy, they may not be so good if you are investing a smaller amount on a regular basis, because the trading costs can become prohibitive.

AJ

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Author: clrodrick One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4267 of 5069
Subject: Re: Milestone on the way to FI Date: 7/16/2007 7:43 PM
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Thank you AJ for the response. I will visit the link you provided to learn more about investing with their ETF vs. mutual funds.

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Author: edyboom223 Big red star, 1000 posts Old School Fool Ticker Guide CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4275 of 5069
Subject: Re: Milestone on the way to FI Date: 7/19/2007 11:47 PM
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hey everyone, ok maybe i have no life cause i am 23 and on a retirement discussion board, and im sure that i dont understand all of the circumstances described in your original question...but as far as looking for a place to open an individual taxable trading account...i dont believe that anybody has mentioned zecco to you, as in www.zecco.com, they are a division of equinox, i started my ira with etrade, and i transferred over to zecco, for 1 simple reason, free trading, granted there are limits, in that you cannot trade more than 10 a day or more than 40 a month...if you do then you are charged 3.50 per trade...still cheaper than most places!...there is no minimum to open an account there, i should mention, there is a 30 annual fee for an ira, but just for an individual account there is no fee, and trading is free with the previously mentioned restrictions, i will be honest...it was kind of a pain setting up my account with them, it took a few days, a little bit of work, but it is worth it, and now that everything is setup, i have been with zecco for 2 months, and i am extremely pleased with them...the format is very easy to use, the trading is quick, they are consistently tryin to be innovative in improving their website (which there are no major problems with anyways)...so, the bottomline is, free trading, ive made about 15 trades with them in those 2 months, at etrade that would have cost me almost 200 at 13 per trade, and now its nothing...i am sorry for writing this in a totally scatterbrained manner, but i absolutely love having my roth ira at etrade...yes its a roth, i didnt mention that previously...because of the benefits of a roth...you can take out as much money as you put in, so lets assume i deposited 8000 in 2 years, and lets say it goes up to 1000, i can take 2000 out and never get taxed on it...of course i can never take more out than i have put in, but the bottomline is that i can actually access the money i earned in there to use right now and not get taxed on it, it gives me the freedom to trade whenever i want, at etrade i would never do that because i hated getting charged fees for trading, so i would hold onto more losers in hopes that they would rise, now i can move money more quickly and have it earn more money for me rather than have it sit there and waste time...alright, i must warn you now...free trading can be scary in an individual taxable account...merely because of the fact that you can sell whenever you want, and the more you make and the more you sell, the more you get taxed, so be careful, dont sell willy nilly, make wise decisions in a taxable account, with my roth i am given the freedom to do what i want when i want because i wont get taxed...but with a taxable account, watch your back, because nobody else will

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Author: edyboom223 Big red star, 1000 posts Old School Fool Ticker Guide CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4276 of 5069
Subject: Re: Milestone on the way to FI Date: 7/19/2007 11:50 PM
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when i used the number 1000, i meant to use 10,000, sorry

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Author: whyohwhyoh Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4278 of 5069
Subject: Re: Milestone on the way to FI Date: 7/21/2007 1:03 AM
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and i transferred over to zecco, for 1 simple reason, free trading,

- I predict Zecco will be bought out by a larger discount broker that charges commissions within 3 years. Zecco is most likely trying to build up a large client list to sell at a later date. Just my off the wall thoughts from past experiences.

- I prefer to select a broker that is both low cost and has a good probability of being around when I retire. All the paperwork involved and future changing tax laws etc... it just makes it easier to have all your contributions, trades, etc. with one broker. JMHO.

- Personally I only own about 10-15 stocks at a time, make about 10 trades a year at the most, so $10 commission per trade is low enough for me.

- This notion of pulling money tax free out of your Roth IRA is dangerous for a FIRE Wannabee. Once removed, you cannot reinsert the funds later. Money should only be removed under dire circumstances.

--
whyohwhyoh

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Author: RV2000 Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4279 of 5069
Subject: Re: Milestone on the way to FI Date: 7/22/2007 12:53 PM
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"...yes its a roth, i didnt mention that previously...because of the benefits of a roth...you can take out as much money as you put in, so lets assume i deposited 8000 in 2 years, and lets say it goes up to 1000 (corrected to 10,000), i can take 2000 out and never get taxed on it...of course i can never take more out than i have put in, but the bottomline is that i can actually access the money i earned in there to use right now and not get taxed on it..."

While this may be working out for edyboom223, I strongly discourage others from viewing their IRAs (Individual Retirement Arrangements) as simply another trading account. After all, we all were 23 once, but we all also want to retire someday. One helpful way towards a comfortable retirement is to systematically target funds specifically towards that goal......not possibly for that goal.....for that goal.

I have several friends that have had their retirement plans set-back by using retirement funds for playing the market. Kinda sad.

Just something to think about.

rv

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