- quote -

Not even Vanguard can beat the TSP's amazing low fees. All of the funds
charge a measly *three* basis points. That's lower than even the
four-and-a-half basis points Vanguard charges on institutional shares of
it's total stock market index fund (VITNX). And you don't have to meet the
$100 million minimum. ;-) I concur that the Roth might not be smart given
that the original poster's income might restrict future contributions.
Instead I would recommend funding the TSP account to the IRS elective
deferral limit. You can build a very nice portfolio using the TSP funds,
especially the G Fund which has a duration like a money market fund but a
yield like a long term bond fund. And the share price never declines.
Sweet!

Finally, consider using the flexible savings account to pay for certain
health care or dependent care expenses using pre-tax money. You can learn
more here:

www.fsa.feds.com

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My main concern is the OP's income may be rising rapidly.
I'm thinking s/he may be a freshly minted MD and his/her
income may rise quite rapidly in the next few years. Meaning
s/he may not be able to max out the Roth that much longer.
Thus s/he should continue maxing out the Roth in particular.

Of course clarifying it is MAGI we're talking about here and
how TSP and/or 401(k) contributions (and student loan
interest and more) lower this is fine. I just would not want
my main point on Roths to get lost.

On 2008-02-05 02:46:40 -0800, hithere62[at]gmail.com said:

- quote -


Congratulations on your good work so far! Do you own your own home? If
not, begin to think about getting one as soon as you can. In the future
you might also consider buying a vacation home or cottage, or even
rental property. The returns from long-term holdings of real estate can
be large. Another suggestion: Investigate dividend reinvestment plans
(DRIPs) in individual stocks. These have many good features. Of course,
all this assumes that you will continue regular contributions to your
Roth IRA and company retirement plan. Do not put all your eggs in one
basket! If I were you, I would forget about annuities. Good luck.

"Default User" <defaultuserbr[at]yahoo.com> writes:
- quote -

His contributions to the Federal Thrift Savings Plan ("TSP")
for this computation work just like a 401k.

If his nominal pay is $90k, his AGI may be substantially
lower than that after accounting for the TSP (and maybe some
other things). The 2007 and 2008 max contributions to the
TSP are $15,500 and I don't think there's a percentage
limit (ie. it's not limited to 15% of your pay or such -
which for our $90k earner would bring it down to $13.5k
and likely lower his agi, barring anything else, to $76.5k)

That's a huge difference. Self-employed folks who manage
to put a lot into a SEP-IRA may also get their MAGI
significantly lowered thereby, too (that 25% of comp is
often a nice chunk, along with that $45k (07) limit).

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Elle wrote:


- quote -

It's not straight income, but the modified adjusted gross income. In
particular, that still allows keeping the reduciton in AGI for 401(k)
contributions.

Here's some useful information:

<http://www.fairmark.com/rothira/modagi.htm
<http://www.irs.gov/pub/irs-pdf/p590.pdf
So contributions to the 401(k) can help make you able to contribute to
a Roth if you're up against the limit.




Brian

--
If televison's a babysitter, the Internet is a drunk librarian who
won't shut up.
-- Dorothy Gambrell (http://catandgirl.com)

I echo much, if not all, of what Bread, sandybeth, and jIM
wrote.

A few observations:

1.
Has some annuity salesperson or web site been trying to sell
you on the "tax advantage" of annuities (via tax deferred
growth) without listing the arguably much bigger tax
disadvantage? Listen, you have tax deferred growth, but when
you draw from the annuity, you get to pay taxes at ordinary
income tax rates. By instead putting the money into a
taxable account, you pay money at capital gain tax rates,
which are now advantaged (by a lot) compared to ordinary
income tax rates. I think the following site is pretty good
on annuities:
http://www.suzeorman.com/igsbase/igs...xpertiseID=107 .
Other financial planners popular with the media have similar
warnings on annuities.

2.
Savings bonds historically have done much worse than stocks.
If you have a lot in them, I suggest you consider cashing
them in when doing so is not penalty free. Five years from
purchase may be the time limit for your bonds. Give the type
of savings bonds you have and when they were purchased, and
people can elaborate.

3.
Your TSP matches something like the first 5% of your basic
pay contributed to the plan, right? Generally, whether to
contribute beyond this 5% depends on the plan's offerings.
Look at the fees on the plan's mutual funds and services.
Compare to the expenses on similar funds at Vanguard.
Vanguard is one of the most competitive stock fund companies
around. It may very well pay to put your excess beyond 5%
into a taxable account with low cost index funds.

4.
Be aware that there is an income limit for contributing to
Roth IRAs, and you are approaching it. To me this means max
out your Roth as much as you can while your income is
relatively low. For example, for 2007, a single person who
made more than $114k could not contribute to a Roth IRA.
Over $99k, and the allowed Roth contribution is limited.
Google for the limits and details.

5.
Start getting a handle on exactly where you are with your
budget. Put your investments on a spreadsheet. Set up a
separate spreadsheet for your total income and your monthly
expenses.

6.
If you are not familiar with diversifying through asset
allocation, consider experimenting with the free, somewhat
fun, asset allocation tools at
http://home.earthlink.net/~elle_navorski/id8.html . This
will give you some idea as to (1) what history tells use
about different asset categories and (2) what investment
categories one should consider (large company stocks;
foreign stocks; savings bonds; etc.)

7.
Start getting a handle on what stocks have historically
returned, and with how much risked, over different time
periods using the tool:
http://moneychimp.com/articles/rando...me_horizon.htm

8.
Lurk here and at other free fora as your time allows. Do not
rush into anything. Remember the only stupid question is an
unasked question, and that the internet is a wonderful
resource for many basic financial planning questions.

The principle of "tax diverisification" says the same thing as
asset diversificiation - dont put all investments in the same
tax vehicle, because tax laws could change in the future and
you become overloaded with a disadvantaged investment.

In you case an annuity is TOO similar to a IRA/401K - it defers
earnings to be taxed at regular income rates in retirement.
You can pretty much achieve the same object by investing
in stock index fund - which accrues most of its taxes only
when sold. But its taxed at capital gains rates which is currently
less than regular income tax rates. The advatange of annuity
is you sell and buy a different investment without getting a tax hit.
There is a change stocks could enter a long-time slump like 1930-1945
and 1966-1982 and not go anywhere (but you wouldnt have gains to tax
then).

On Feb 5, 5:46*am, hither...[at]gmail.com wrote:
- quote -

Taxable accounts
Savings or money market accounts
I-bonds (if you are holding bonds to maturity, have you considered I-
bonds instead?)
529 accounts for kids education
Real estate
Life insurance

I would consider all of these (in any order) before an annuity.
Annuities are not bad, if used properly. Consider investing in a
taxable account (no limit to a taxable account either), then buying an
immediate annuity when you need the income.

In a taxable account you could do any of the following (some of these
already suggested):
1) hold an index fund (total market index) which has low turnover and
low yield.
2) hold a tax efficient managed fund
3) hold tax efficient muni bonds
4) hold dividend paying stocks to take advantage of lower tax rates on
dividends
5) Use a balanced fund until you have enough saved up for a house

- quote -

First of all, I want to commend you on your situation--you are earning
excellent money for a 24 year old and have an solid financial plan so
far, unlike most young people. I wouldn't renew those savings bonds
when they're mature, however, there are better places to put your
money. Instead of an annuity, why don't you research some of the
index funds at Vanguard or Fidelity? They also have some retirement
funds. The loads are much less than an annuity would have. I'm sure
someone else on here can point you in the right direction in regards
to these funds.
SandyBeth

hithere62[at]gmail.com writes:

- quote -

You haven't really talked about what you plan on
doing with all the money yet. For retirement alone,
you may be on the right track, especially if you are
planning on retiring early (at only 24, 65+ is an
eternity away). But you might want to build up some
substantial non-retirement savings before you tie
any money up in an annuity (even a low-cost one like
we've discussed here before). Have you considered
saving for a house? An account for starting to build
up savings for future kids college?

If you're maxing out the TSP *and* a Roth, you're
reasonably on your way to saving for retirement and
might consider modifying that plan when your income
goes up (ie. you won't be able to do the Roth anymore).

But while there may be some reasonable arguments for
annuities, I'd review other goals and build up some
significant taxable savings/investments before looking
at the annuities. If you're concerned about ongoing
taxation, a low-turnover tax-efficient index or even
a fund which is just more careful about realizing gains,
can do quite a bit better in the long run than an
annuity which has higher expenses *and* will have all
the gains taxed as income rather than cap-gains when
they finally do come out.

If you already had very substantial taxable investments,
and owned a house, and had a large emergency fund, and
money put away or savings building for your next car *and* for
some other things (again, future kid expenses, etc),
*then* would I say it's time to look at the annuities.

There may be a place for them in some portfolios, but
I'd say that it's relatively uncommon.

[note re: terminology -- we are, I hope, talking about
variable deferred annuities. Bear in mind that there
are both variable and fixed annuities and there are
deferred and immediate annuities. And I assume we
are also talking about them without all the expensive
riders that are often available and which push
expenses up enormously.]

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No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
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Thank you all those who had any suggestions.

I am looking for a way to maximize my savings for the future.

Here is what I am dealing with:
1. currently 24 years old
2. $90K income (health professional)
3. Not a big spender... saves majority of earnings and still live
modestly.
4. have Roth IRA, Savings Bonds, TSP account
- started roth in 2006 and maxed out for 2006 through 2008
- have several savings bonds and plan on holding them till maturity
- on my way to maximizing TSP account (like a 401K)

I was thinking about opening up an annuity because it doesn't have a
contribution limit like the TSP and Roth IRA. I would like to
contribute monthly and being so young I think it's a great time for me
to start my retirement/savings plan.

Does anyone have any suggestions on if this would be a good step for
me to go into? Should I be going into annuities? Are there other
options that I can look into?

Thank you to anyone that response to this message.