Summit Financial Strategies
Staff Financial Advisor
Matt Garasic is a Staff Financial Advisor at Summit Financial Strategies in Columbus, Ohio.
Matt found an interest in financial services while studying a high school economics course. He was specifically intrigued by the concept of time value of money. Matt believes the most rewarding experience in financial planning is seeing a financial plan come to fruition and the satisfaction it brings to clients. While young investors don’t always need a full-fledged financial plan, Matt is adamant about educating young professionals on the importance of saving and investing.
Matt is an avid fan of The Ohio State Buckeyes and Cleveland sports. In his free time, Matt enjoys reading, watching and participating in all forms of physical activity, and volunteering at the Franklin County Dog Shelter. He specifically enjoys football, baseball, basketball, boxing, and UFC.
BS, Consumer and Family Financial Services, The Ohio State University
To start, tax-free bond funds should not be held in an IRA. An IRA is a tax-deferred investment vehicle, so, whenever you take a withdrawal from the account you will be taxed. Essentially, the tax-free benefits of the bond fund have been negated since it is inside an IRA. To answer the second part of your question, yes, any distributions from the account will count towards satisfying your RMD for the year. Be sure that you are keeping track of the amount you withdraw and satisfying the RMD requirement to avoid the IRS penalty. I would also suggest switching out of the tax-free fund in your IRA so you can earn more income from a corporate bond ETF/mutual fund. I hope this helps, best of luck!
Based on what you're asking, it sounds to me like your best option would be to follow a dollar cost averaging strategy. This involves depositing a certain amount of money into your account at a fixed frequency (Ex: monthly) and then purchasing as many shares as your deposit will allow. An example of this would be taking $150 from each paycheck in a month and then purchasing shares at the end of each month with the $300 you have deposited.
Now, that is the strategy I would suggest for funding your account to make purchases. As for diversifying and eliminating fluctuation in value, diversification is important to avoid over concentration to a certain position but there will always be market risk involved when purchasing equities. Before investing in the stock market it is important for you to understand the risks the market presents. Also, understand that if you are investing for the long term and not planning on using your investments in the near term, it is acceptable to have fluctuations in value so long as you don't sell the investments when the market is down. If you are planning to invest for the short-term then it is better to avoid investing in stocks as they are too volatile to depend on.
If you plan to invest for the long term and follow the dollar cost averaging strategy I summarized above then you have a few options.
1) Do some research and choose 10-20 individual stocks that you want to invest in. You can either purchase a certain amount of shares of one stock each time you make a purchase or you can buy fewer shares of multiple stocks. Continue to do this until you round out your portfolio with a diversified basket of stocks.
2) Invest in a low cost ETF that tracks an index such as the S&P 500. Not only will this keep your fees low but it will give you the ability to diversify without personally choosing individual stocks. ETFs are often invested in hundreds of different individual securities.
I hope this helps clear up some of your options, good luck in your future investing!
I'm sorry to hear about your loss and I'm glad that you are exploring different investment strategies for your inherited IRA. I woud assume the reason your advisor suggested using a more conservative investment allocation is because you will have to take required minimum distributions (assuming you are a non-spouse beneficiary) from the inherited IRA each year. The reason this is significant is because a portion of the investments will have to be sold each year to cover the required minimum distribution. Investing the IRA aggressively will subject you to the risk of selling the investments when they have a low value. Therefore, forcing you to sell a greater amount of shares. If you were forced to sell a greater amount of shares it would more than likely negatively impact your investment return far more than a conservtative allocation would over the long run. Your logic about investing aggressively over the long term in an attempt to achieve greater returns makes sense, but the required minimum distributions place a wrinkle in that plan. I believe your advisor's strategy makes sense as it seems he is trying to provide income from the inherited IRA for as long as possible while trying to limit market risk. The value of the inherited IRA could justify investing portions according to different risk levels. However, if the balance is smaller, it would make sense to try and stretch the income for as long as possible. I have included a link from the IRS website that spells out how required minimum distributions must be taken depending on the time of death and type of beneficiary. I hope this helps!
Unfortunately, your AGI (therefore, MAGI) is greater than the phaseout for taxpayers who are married filing jointly. Therefore, you will not be able to make a deductible IRA contribution. However, you are still left with the options of making a nondeductible IRA contribution or better yet, a Roth IRA contribution. Although the Roth IRA contribution will not reduce your taxable income this year it will provide you with tax-free growth and save you taxes when you begin withdrawing from assets in retirement. You may also contribute to an HSA for 2017 to lower your taxable income, but it is unlikely to lower your MAGI enough to make you eligible for a deductible IRA contribution. The good news is you still have options if you are looking to sock away more retirement funds for the 2017 tax year! I hope this helps.
Great to see that you want to put forth the initiative to pay down your debt and begin accumulating your wealth!
That being said, one of the most important concepts in debt reduction and wealth accumulation is paying yourself first. To elaborate, when you receive your paycheck the first thing you should do is take a portion of it and immediately put it towards saving/investment or paying down debt, try to pay more than just the required payment to reduce your principal quicker. Be careful to not over extend yourself and take more money than you can afford. The goal is to leave just enough money to be able to pay your bills and still enjoy a certain lifestyle. Unfortunately, this requires cutting back on leisure activities in some cases. That is for you to decide depending on your inflows and outflows.
A tool that I use religiously is the Mint.com app. The app allows you to track all of your transactions and then comb over them to decide which categories you may be overspending in. I'll avoid giving a full breakdown of how to use the app but I strongly suggest downloading it and fine tuning your budget over the next few months. You will have a strong understanding of where your money goes in no time.
Watching your account balances grow and realizing your hard work and budgeting is paying off is a euphoric feeling and I wish you the best as you begin!