SP500 Fund and C fund

[Marche24]

I'm thinking of lowering my C fund contribution and move that money to a Roth IRA, I like the fact that I can access the contributions any time I want and not having to wait until I'm 60 years old. What ETF/Index fund (prefer EFT) would be equivalent or closest to that of the C fund? or how can I know this (don't know what to look for)? Just compare the annualized return rate?

VOO
IVV
SPY (don't like the expense ratio)
SWPPX
VFINX

 

[Bullitt]

Don't get too caught up in splitting hairs over fund fees. Who's your broker? They all offer tools that can help you pick the best funds for your goals.

VOO is an ETF and VFINX is a mutual fund. Both of those are good choices, but understand the difference between the two. I think Schwab lets you buy partial ETF shares, but most do not.

As I replied previously, it's not all cut and dry when you need to withdraw contributions from a Roth IRA. Comparisons of a Roth IRA to a savings account are very misguided online. You'll have to sell whatever you're holding in order to withdraw the 'contribution'. There are some exceptions, such as first time home buyer. As a disaster fund, sure it could work, but everyone's situation will vary.

Withdrawals from a Roth IRA you've had less than five years.
If you take a distribution of Roth IRA earnings before you reach age 59½ and before the account is five years old, the earnings may be subject to taxes and penalties.

https://www.schwab.com/ira/roth-ira/withdrawal-rules

 

[Marche24]

Don't get too caught up in splitting hairs over fund fees. Who's your broker? They all offer tools that can help you pick the best funds for your goals.

VOO is an ETF and VFINX is a mutual fund. Both of those are good choices, but understand the difference between the two. I think Schwab lets you buy partial ETF shares, but most do not.

As I replied previously, it's not all cut and dry when you need to withdraw contributions from a Roth IRA. Comparisons of a Roth IRA to a savings account are very misguided online. You'll have to sell whatever you're holding in order to withdraw the 'contribution'. There are some exceptions, such as first time home buyer. As a disaster fund, sure it could work, but everyone's situation will vary.

https://www.schwab.com/ira/roth-ira/withdrawal-rules

Broker: Schwab

Fund differences I've read about
EFT
Buy/sell any time market is open
Low expense ratio
No initial minimum investment
Taxes: going into Roth so not paying too much attention
Can buy fractional share
No trading commissions
Bid/ask spread (choose one with high trading volume)
Can take advantage of a dip

Mutual Fund
Buy/Sell at end of day @ NAV price
May require initial investment amount
Could automate contributions
May have higher expense ratio (unlikely if following an index)
Taxes: going into Roth so not paying too much attention
Set it and forget it approach
Trading commission fees (depending the chosen fund)
No bid/ask spread issue


Withdraw: I get that if I invest the money on the IRA any future withdraw is the sell of shares. So as long as I don't tap into any gains (to avoid penalties/taxes) and the market is + when withdrawing (selling), then it should not be a problem. It normally takes 3 business days to withdraw funds but given I will still have a savings account for emergencies it doesn't affect me if is 1 day or 1 week, as I'm not counting on needing immediately the money I put on the IRA. But I do prefer the option that if I have $300K (random number) in an IRA (w/ gains) and $150K are contributions and if those $150K can cover my expenses for 1,3,5 years I have the option to tap into that and call it a day a few years early than waiting until I'm 59.5 years old. I prefer to invest and get 6% return than leaving my money in a Money Market account at 1% which at the day I will be able to tap into the bigger gains

C fund: Would comparing the annualized rate of return from VOO (example) to the C fund be a good or fair comparison? or is more than just the return rate?

 

[Bullitt]

if I have $300K (random number) in an IRA (w/ gains) and $150K are contributions and if those $150K can cover my expenses for 1,3,5 years I have the option to tap into that and call it a day a few years early than waiting until I'm 59.5 years old. I prefer to invest and get 6% return than leaving my money in a Money Market account at 1% which at the day I will be able to tap into the bigger gains

C fund: Would comparing the annualized rate of return from VOO (example) to the C fund be a good or fair comparison? or is more than just the return rate?

RE: C Fund / S&P 500 Fund; It's up to you to decide what vehicle you want to invest in. There are hundreds of books on index fund investing. I suggest you read one.

Unless you are doing a Roth conversion, you won't have $150k in contributions for around 30 years. There are also various "five year rules" pertaining to Roth IRA contribution withdrawals.

You seem confused. One sentence you're talking long term returns and another you're talking early withdrawal. Talk to a CFP, they can provide you with the guidance needed to reach your goals.

 

[Marche24]

Unless you are doing a Roth conversion, you won't have $150k in contributions for around 30 years.

How come? $6,000 x 30 = $180K ; $6,000 x 25 = $150K

There are also various "five year rules" pertaining to Roth IRA contribution withdrawals.

What other 5-years rules are you talking about? Can you post a reference? Multiple websites only make reference to the same 5 year rule (https://www.schwab.com/ira/roth-ira...xt=Age 59 and under,had less than five years.)

You seem confused. One sentence you're talking long term returns and another you're talking early withdrawal. Talk to a CFP, they can provide you with the guidance needed to reach your goals.

I don't think you are understanding what I'm saying. What I'm saying is:

- Contrary to the TSP, by contributing to a Roth IRA you can have access to the money you put in at any given time. For example, if in 2 years I contribute $5K to each the TSP and Roth IRA I can withdraw $5K from the IRA w/o paying penalties or taxes; this is not possible for the $5K I contributed to the TSP. If you have another source that says otherwise please post it, I would like to read it.
- Instead of having $5K on a saving account at a interest rate of 1% it makes more sense to invest that money for bigger returns and if for whatever reason you need to withdraw money you can penalty/tax free as long as you don't tap into the gains. To tap into the gains you need to be 59.5 years old (plus whatever other requirement). With the TSP to tap into contributions and gains you will need to wait until you are 59.5 years old.
- Example: Maxing out for 20 years, that's $120K, meaning that if in 20 years (assuming you are under the age of 59.5) you can live 5 years (example) off of those $120K you could retire sooner because you have access to that money. Why do it this way and not leave it on a money market account? To take advantage of the much higher rates of return a SP500 fund (example) can give you. The downside would be that you are subjected to the ups/downs of the market, so if that year you decide to withdraw the $120K and the market is down then you are taking a loss.

Does that make sense? Am I overlooking something?

 

[Bullitt]

Around 30 years is plus or minus a few. :notrust: Many 'intangibles' come up in a 25 year time span and savings are often not linear. Things happen. That's one lesson I learned as I've grown up.

Marche24, you're putting the cart before the horse. I'm sorry to tell you this but if you have to ask on a forum what the difference is between a mutual fund and "EFT" (I assume you mean ETF) then you'd do yourself a much better service in reading a book on personal finance and then asking whatever questions you have here afterwards.

The only time I'd use the Roth for early withdrawal is as a disaster fund. Inflation will kill the future spending power of contributions you made 20-30 years ago. Later on, you cannot replace the money you pull out prematurely any faster than the yearly contribution limit. The majority of compounding takes place later in life. You'd be seriously short-changing your retirement in an effort to outsmart the system.

RE: Five-year rule; Kitces is smarter than me when it comes to taxes - https://www.kitces.com/blog/underst...s-for-roth-ira-contributions-and-conversions/

 

[Marche24]

Around 30 years is plus or minus a few. :notrust: Many 'intangibles' come up in a 25 year time span and savings are often not linear. Things happen. That's one lesson I learned as I've grown up.

Of course you can't predict the future but that's not a fair approach. If it were for the uncertainty of the future we wouldn't do anything. I'm just trying to have a better understanding on how thing that can be done today can have an effect in the future

Marche24, you're putting the cart before the horse. I'm sorry to tell you this but if you have to ask on a forum what the difference is between a mutual fund and "EFT" (I assume you mean ETF) then you'd do yourself a much better service in reading a book on personal finance and then asking whatever questions you have here afterwards.

I don't know from where you are getting this, but I don't recall asking what is the difference between a mutual fund and a ETF. In fact, previous reply I state some differences between them. The reason I'm posting here is because I have been reading about the subject being discuss and wanted to ask question. Sooooo... why the attitude? If it bothers you that I'm asking question then I don't know what to tell you nor know what I did to be on the receiving end

Inflation will kill the future spending power of contributions you made 20-30 years ago.

Can you elaborate? The money would have been invested and growing for 20-30 years

Later on, you cannot replace the money you pull out prematurely any faster than the yearly contribution limit. The majority of compounding takes place later in life. You'd be seriously short-changing your retirement in an effort to outsmart the system.

I don't plan to replace the money I take out from the IRA. I will still have my TSP which will be my main source for retirement once I hit 59.5. I see the IRA as spare cash that can help me retire sooner than at 59.5 years old

Five-year rule; Kitces

I read the article but I didn't read anything saying that you couldn't withdraw your contributions before the 5 year mark. He talks about distribution (contribution & gains) but I wouldn't be tapping into gains and he also talks about a 2nd 5-year rule but that's for conversions and I'm not doing that, just plain direct deposits.

 

[Bullitt]

Your Roth IRA can gain 1,000% over 30 years but you can only withdraw your contributions before 59 1/2 penalty free;

So if you bought TSLA at 200 and it's at 1,800, you can sell it and only withdraw 200. You would literally have more money in a money market account paying .01%.

Talk to a CFP, they can provide you with the guidance needed to reach your goals.

 

[Marche24]

Your Roth IRA can gain 1,000% over 30 years but you can only withdraw your contributions before 59 1/2 penalty free;

LOL you still don't get it. Thanks for the chat, found a better place to discuss

 

[Bullitt]

Epilogue:

Some responses from that better website for those who were wondering:

Roth IRA contributions are accessible prior to age 59-1/2. But consider tapping a Roth IRA prior to retirement only as a last resort. Roth space is limited and valuable.

https://www.bogleheads.org/forum/viewtopic.php?p=5390535#p5388395

I am concerned that OP’s first post had 3!!! separate references to withdrawing the contributions early. ***THREE***!!!

That sounds like the primary motivation for opening the Roth IRAs. While the withdrawals can be made, they shouldn’t be considered as ready cash. They should be considered and treated as retirement money only.

If you start withdrawing them for anything else, you likely didn’t do appropriate planning to have a ready-and-waiting emergency funds account. So also set up an account for emergency expenses to cover 6-12 months of living expenses. Once you withdraw from the Roth, you can never replace that money in the Roth but you can re-build an emergency fund account.

https://www.bogleheads.org/forum/viewtopic.php?p=5390535#p5390181