Need a little guidance...I have a portfolio of ten stocks and a 401K to which I contribute 8%. I am now researching an index fund that I would like to start. I have decided in a Foolish way to go with the Vanguard 500 Index Fund (VFINX). I am single and have averaged over $100,000 in salary the past 3 years. My understanding is that I would not qualify for any tax breaks if I was to make this index fund an IRA Account. Is this correct? What is the best approach here. Thanks Fools!
With an income over $100K you probably are not qualified for a Roth IRA (unless for some reason your AGI is lower). However, you are still eligible for a conventional IRA. It will not be deductible in your income bracket. However, you still have the tax advantage that investment earnings in the account will not be taxed as taxable income. They will however be taxed as ordinary income when distributed in retirement.At your income level, you will probably find the current $2K annual limit on IRA contributions too restrictive. I would max that IRA each year, work on maxing your 401K to the full 15 to 25% limit--including aftertax. Aftertax 401K contributions are similar to nondeductible IRA contributions: investment earnings are not taxed, but distributions are.If you hope to retire early, you probably need to increase your rate of savings. After maxing IRA and 401K look into LTBH investing. That would be a taxable account in something like an S&P 500 Index fund. Current taxes are low because capital gains distributions are small. You are taxed only when you sell shares and then at capital gains rates rather than ordinary income tax rates.Best of luck to you.
A Roth IRA for a single taxpayer can be partially funded for AGI between $95-110K.In any event an index fund will have lower costs and higher tax efficiency (due to minimal portfolio turnover) and would be a good choice for a nonsheltered growth vehicle.WTR
If you are worried about taxes, why aren't you taking full advantage of the 401k? Is it a bad plan (i.e., bad investment choices, limited choices, high fees)?
Best Of |
Favorites & Replies |
Start a New Board |
My Fool |
BATS data provided in real-time. NYSE, NASDAQ and NYSEMKT data delayed 15 minutes.
Real-Time prices provided by BATS. Market data provided by Interactive Data.
Company fundamental data provided by Morningstar. Earnings Estimates, Analys