Actually, one can withdraw contributions anytime from a Roth IRA.

"Michael Sullivan" <michael[at]bcect.com> wrote
- quote -

Elle <elle_navorski[at]nospam.earthlink.net> wrote:

- quote -

Actually, one of the biggest advantages to the Roth is that you can
withdraw contributions after 5 years (IIRC), which means you are not
absolutely committing that money to retirement (assuming you are already
putting enough in the 401(k) to handle your normal-age retirement).


Michael

Will Trice wrote:
- quote -


Will,
NUA treatment applies to employer stock held in a qualified plan. There
are a few different ways it could end up there, the key is that it's
held in the plan. The benefit is the biggest when your original cost is
low because only the cost basis is subject to ordinary income tax rates
(and the 10% penalty if you're taking the stock out of the plan early).

The FPA's journal had a pretty good article on the topic last year:
http://www.fpanet.org/journal/articl...p0204-art7.cfm

-Tad

Tad Borek wrote:

- quote -

Tad,

Do the NUA rules apply to company stock that was actively purchased, or
just to company stock that was used to match contributions?

Thanks,
-Will

Matt wrote:
- quote -

Matt,
You may know this but there are two sides to that, when you have company
stock in the 401k. You do take on some additional, company-specific,
risks with that, especially when it's also your employer.

On the flip side there are tax benefits associated with 401k stock, as
long as it goes up in value. You pay a lower tax rate on the gains and
may be able to access the stock earlier than the usual age, without much
penalty for doing so.

The more it goes up, the greater the tax benefit. So netted out a dollar
of gain on those shares is worth more to you than a dollar gain in an
S&P 500 stock index fund in your 401k. This could lean towards a higher
allocation if you think in "after tax" terms. It really depends on your
confidence in the company of course.

The tax part of this is NOT an easy topic but for more info talk to an
accountant or google: NUA 401k. The key term is "NUA", Net Unrealized
Appreciation in your employer stock - that's given the special tax
treatment.

Last point - to the extent you do leave dollars in your employer stock
you might consider weighting the rest of your retirement portfolio
accordingly, to tug it in another direction. Meaning, lighten up on
stocks whose performance are expected to be correlated to the stock of
your company. That's not always possible but between an IRA and 401k you
can often do something. In some cases it's easier...if you work for a
company like Intel for example you can readily identify the sector and
you know your company is a major component of that sector.

-Tad

Matt wrote:
- quote -

It gives you exposure to residential (not commercial) real estate in
one location, and even if you intend to tap home equity for living
expenses in the future, I am not sure that it should cause you to
exclude REITs from your portfolio. The optimal allocation to REITs
could depend on the ratio of your house price to the size of your
investment portfolio. I think this number is probably higher on average
in California than (say) Kansas.

Workers in the private sector have incomes that depend on the general
business climate, but the conventional wisdom is that they should have
some money in stocks. Actually, I think labor income risk is an
important factor that is ignored in most asset allocation studies.

Thanks for the great suggestions and advice. I am looking into the
links suggested, and this is very useful information for me.

To answer some of the questions asked, I have been contributing the
maximum to a Roth IRA and 401(k) up to the pre-tax maximum allowed, and
hope to continue to do the same. The Roth has about 15% of my
retirement money with the rest in the 401(k). I have mostly stock
funds in the Roth (following the guideline that the Roth should have
one's most aggressive investments). I now realize that I have more
options in the Roth regarding bond investments.

The 70-30 stock/bond mix is a target I picked based on a questionnaire
provided by my employer. My actual allocation is not quite there yet,
but I am trying to adjust periodically mainly by re-targetting future
investments. My current allocation for retirement money (including
401(k) and Roth) is as follows:
Employer stock: 18% (trying to reduce this)
Large cap funds: 31%
Small cap fund: 6%
International fund: 6%
Intermediate-term bond fund: 23%
TIPS fund: 3%
High-yield fund: 3%
Money-market: 10%
I am a homeowner, which I assume provides enough exposure to the real
estate market.

Thanks
Matt

I would stick with it. You've pretty much already listed the reasons:
as a re-balancer, don't try to time the market. Like you said, you
don't know how high to wait for rates to go to jump back in. What if
rates stay about the same for the next 5 years? Also, future interest
rate increases have already been priced in.

Elle wrote:
- quote -

So did your twin sister Caroline, who wasn't ever convinced either. But
I don't think she ever followed the pointer I gave to www.dfaus.com
which has some pretty convincing data (she did seem to follow the link
to the yield curve on SmartMoney). The thread was "Idea short/medium
term portfolio" [sic] in early 04.

See, Beliavsky isn't the only one who keeps old posts about bonds. =)

-Tad

"Tad Borek" <borekfm[at]pacbell.net> wrote
- quote -

It certainly is. It's arguably just a bad coincidence that the curve is not
so steep right now. In fact, the yield curve for one to five year maturities
can be quite steep. Why not send this fellow to the fine site I think Rich
C. identified to me a year or so ago, showing graphically how the yield
curve has changed in the last 25+ years?

http://www.smartmoney.com/onebond/in...ory=yieldcurve

- quote -

I have strong doubts about the statements above. Then again, it may be a
matter of risk vs. return tolerance.

I would just like to add the caution that studies on withdrawal rates in
retirement for different portfolio allocations (X% in stocks; Y% in bonds)
assume the bonds are long-term, high grade corporate bonds.

This gentleman is not in retirement, but he might want to review
recommendations on portfolio allocations for his age and expected years to
retirement before deciding what maturity bonds to hold.

I liked what people on this group suggested to me a year or so ago: Don't go
out more than about five years with individual bond maturities. That's
roughly about when the yield curve has started to flatten most.

keep investing the same amounts ("stay the course" in that regard).

It sounds like you put 70% into stocks and 30% into bonds. How did
you come to this conclusion? If the assumptions made at the time you
decided 70-30 was a good mix are still the same, stay the course
percentage wise too. If the assumptions changed (you can tolerate more
risk) then go up to 80 or 90 percent stock. If the assumptions changed
(and you can tolerate LESS risk), then I would suggest reducing
equities some and bonds some (maybe 60-20) and put the other 20% into
money markets (cash), real estate, materials, or another investment
category.

Tad Borek wrote:
- quote -

I think this analysis is too simplistic for investors trying to fund
long-term obligations such as a retirement fund. You can search "long
term bonds beliavsky[at]aol.com" in this newsgroup for a December 30, 2004
message on this topic.

<BreadWithSpam[at]fractious.net> wrote
- quote -

If you're saying some people probably should put into the 401(k) as much as
the employer matches (call that X dollars) plus Y dollars more, up to I
believe the current, federal $14k limit, then I suppose you're right that
this is rational for some people.

But I think increasingly the counsel is to only put the X dollars into the
401(k), and then, if one qualifies, put Y into the Roth IRA. The reasoning
is that, with this country's huge deficits, I and others expect tax rates to
be higher 20 years from now than today, so I'd rather pay the taxes on the Y
dollars today than 20 years from today. In addition, the earnings of the
contributions to the Roth IRA of course grow tax-free.

So if you don't want to call my proposal above "conventional wisdom," then
fair enough. But I with I think many others think it deserves strong
consideration.

"Elle" <elle_navorski[at]nospam.earthlink.net> writes:

- quote -

I don't think I'd call that the "conventional wisdom".

If anything, it'd be *at least* up to that which your employer
matches.

The question after the employer match is complicated only
a little if one qualifies to contribute to a Roth IRA. Even
then, though, it's not obvious, nor "conventional wisdom"
that it'd be better to put money in a Roth instead of
maximizing the 401k first.


--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting

Matt wrote:
- quote -

Matt-
Some investors (including me) don't bother with anything but short-term
bonds in the "standard plan" because we think the additional returns of
longer maturities don't compensate you for their risks.

I just checked these a couple days ago, and it illustrates the point -
recent corporate bond yields looked like this:

2 yr - 3.90% (AA)
5 yr - 4.40% (AAA)
10 yr - 4.98% (AAA)
20 yr - 5.34% (AAA)

There's quite a flattening out of the yield, even after 2 years. The
risk-return tradeoff isn't present here. The 20-year bond buyer is
accepting a 5.34% yield for that entire time period, and a lot more
risk...for not even an additional 1% of yield over the 5-year bond. Why
bother?

This is a point-in-time illustration but the long-term data bear it out
as well- there hasn't been much, if any, long-term advantage to longer
bond maturities. They're a lot more volatile but don't necessarily
return more. Again, looking at long periods of time - there have been
exceptions.

I say the "standard plan" because I would reassess this if we could
again buy Treasuries yielding, you know, 11% or something like that. And
it's tied to individual circumstances...an investor with known cash
needs (that can be met with the current yields) might not care about the
risks of the longer maturities. But for the typical long-term investor
focusing on a fixed asset allocation I think the "stick to short-term
bonds" approach deserves consideration.

-Tad

Matt, is a portion of your retirement portfolio by any chance outside the
401(k)? Say, in an IRA?

Are you following the conventional wisdom about how much to put into a
401(k)? Namely, only up to that which your employer matches?

I personally feel interest rates bottomed out a year or so ago. The
"conventional wisdom" does not exactly apply in such conditions, and many
web sites discuss this. I think rates can only go up, but they'll go up very
slowly, and I imagine they'll kind of stop and oscillate around a mean for a
few years here or there, too, in the next 15 years. Like you have noticed,
as rates rise, NAVs of investment grade (IG) bond funds like yours will go
down, and yield rises. Multiplying NAV and yield tends to give a constant
product. In a record low interest rate environment, where rates can only
rise, one is locking in a low rate of return for as long as one holds the IG
bond fund.

If possible, I think the prudent choice is to put at least some of one's IG
bond allocation into a bond ladder. Say a five-year ladder, with CDs or IG
bonds maturing one-year apart. Hold all to maturity. That way, you capture
the rising yield, but lose no principal. Also there are no commissions on
CDs; they have nice yields right now; bond funds tend to have expense ratios
that really eat into yields; and so a newly begun, five-year bond ladder,
having an average maturity of 3 years may very well have a higher yield than
a bond fund with an average maturity of 3 years. Compare CD rates at
bankrate.com with a fund like FSHBX (ave. maturity = 2.7 years, yield =
2.58%), say.

It's not too late to make a change, but nor is there any rush to do so.
Interest rates are not going to charge up overnight. That would wreak havoc
on the economy, and the Fed et al. know this.

I am trying to follow the usual advice given in this group (and
elsewhere) to keep a diversified mix of stocks and bonds in my
retirement portfolio. I would like clarification on an issue that's
been bothering me since I hear conflicting opinions from different
sources.

Since most of my money is in my 401(K), I am limited by the set of
stock and bond funds available to me in my employer's plan. For the
bond portion, I can choose from a short-term fund or an
intermediate-term fund (GESLX) which has an average maturity of 5 to 10
years. Since I have at least 20 years left before retirement, I have
been allocating about 30% of my 401(K) money to the intermediate-term
fund, and the rest to a reasonably diversified set of stock funds.

The conventional wisdom is for an investor like me to "stay the
course", and not to try to time the market, except to re-balance
periodically and to gradually increase the bond portion of my portfolio
as I get older. However, the talk of a "bubble" in the bond market has
me concerned, since I have a sizeable amount of money (over 50K) in the
intermediate-term fund.

I have seen the following options suggested, but not sure which way is
best.

1. Stick with the intermediate-term fund. Although the NAV of the fund
will drop as interest rates rise, the yield will go up as well, and
since I have a long time horizon, I will come out on top in the end.

2. Sell the intermediate-term fund, and keep it in a money market fund
until the rates have risen to a point when it is safe to get back into
the bond fund. The problem is that I don't know long the wait would be.

3. Sell the intermediate-term fund, and buy the short-term bond fund.
This is the advice I have commonly seen. However, I don't see much of
an advantage over option #2 above, since the yields for short-term bond
funds are pretty low currently.

Any other suggestions? Perhaps a combination of the options I listed
above? Is it already too late to worry about this since the interest
rate increases are well on their way already?

Thanks for any advice.

Matt