Helping "teacher-niece" start a Roth....where?

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Wenonah
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Helping "teacher-niece" start a Roth....where?

Post by Wenonah »

My niece is in her first year of teaching, but worked at a community college for a few years and is on Plan 2/WA state DRS. Has about 5 years total at 32 years old. She wants to start a Roth, but wants me to assist, because she recognizes she is never going to get around to it. I understand the 3 fund Portfolio, but I am by no means an investor and we have our money managed by Personal Advisor Services at Vanguard.

Should I have her read in the Wiki about a 3 fund portfolio and then sign up at Vanguard? do a target fund? Schwab? Fidelity? Will they give her a questionnaire? She probably doesn't want to start with a 1000.00 which I know she needs for Vanguard, but maybe she would if it was important. Thanks in advance. This sound simple, but she is a single mom and needs to think about herself and her own future this time and I don't want to steer her wrong.
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retired@50
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Re: Helping "teacher-niece" start a Roth....where?

Post by retired@50 »

Wenonah wrote: Thu Jun 24, 2021 8:06 pm My niece is in her first year of teaching, but worked at a community college for a few years and is on Plan 2/WA state DRS. Has about 5 years total at 32 years old. She wants to start a Roth, but wants me to assist, because she recognizes she is never going to get around to it. I understand the 3 fund Portfolio, but I am by no means an investor and we have our money managed by Personal Advisor Services at Vanguard.

Should I have her read in the Wiki about a 3 fund portfolio and then sign up at Vanguard? do a target fund? Schwab? Fidelity? Will they give her a questionnaire? She probably doesn't want to start with a 1000.00 which I know she needs for Vanguard, but maybe she would if it was important. Thanks in advance. This sound simple, but she is a single mom and needs to think about herself and her own future this time and I don't want to steer her wrong.
I'd suggest a target date fund at Vanguard, given the above description, especially the following quotes.
"never going to get around to it"
"but maybe she would if it was important"
:shock:

Since she's never going to get around to it, it seems unlikely that she'd read the Wiki.

Pick a suitable target date fund, urge her to make savings a habit, and put it on auto-pilot so she doesn't "forget" to save.

Regards,
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samsoes
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Re: Helping "teacher-niece" start a Roth....where?

Post by samsoes »

Schwab requires a $1000 minimum, but waives that if the person auto-invests monthly at least $100 (I believe - could be wrong on the amount).
That's what I recommended to my early 20's "therapist-niece." We chose Schwab's S&P 500 index fund.

To sweeten the pie, I matched her contributions with the following condition: if she withdrew any amount, even $1, my match ceases permanently. Once a year, I went to my local Schwab office deposited the match amount into her account. Of course, I had her account number, with her permission.
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gwe67
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Re: Helping "teacher-niece" start a Roth....where?

Post by gwe67 »

samsoes wrote: Thu Jun 24, 2021 8:17 pm Of course, I had her account number, with her permission.
I would have said "Thanks uncle, but no thanks".

Boundary violation.
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tibbitts
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Re: Helping "teacher-niece" start a Roth....where?

Post by tibbitts »

gwe67 wrote: Thu Jun 24, 2021 8:28 pm
samsoes wrote: Thu Jun 24, 2021 8:17 pm Of course, I had her account number, with her permission.
I would have said "Thanks uncle, but no thanks".

Boundary violation.
Yes but you probably would have also have already opened your own Roth and every other optional retirement account you were eligible for. And then you would have said "500 index... where's my SCV tilt? No international? I don't think so!"
Last edited by tibbitts on Thu Jun 24, 2021 8:46 pm, edited 1 time in total.
LittleMaggieMae
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Re: Helping "teacher-niece" start a Roth....where?

Post by LittleMaggieMae »

I'd go with a target fund (maybe a 2050 or 2055 as she'll be 65 in between there). I'm guessing it's going to take some time to build up her "nest egg" - and a target fund would be the easiest no brainer way to get it started. When she's more interested in doing something different (like in 10 years - one's 40's seem to be watershed decade for many people. ) she'll have something to work with and can then read/learn from the WIKIs

I'd find out if she know knows where she can have the automatic transfer done:
Thru her paycheck (I can have my paycheck divided up between up to 6 different "bank routing" thingies. - not sure if this will be like that.)
Thru where ever the Roth is set up (I use to have a "pull" from Fidelity that would go to my Roth)
Thru her Bank as a send/push to the Roth.

I might try to encourage her to figure out how and where she wants to do the transfer - so that once she opens it - she can immediately move to the next step of getting the transfer set up.

I would have her figure out how much she'd going to transfer every paycheck or month. She may need to make some "spending plan/budget" changes to find the money she'll be contributing (every paycheck or once a month). Start 'finding the money' sooner than later.

I would discourage her from the "oh, I'll just put my once a year Tax Refund in my new Roth" or the "oh, I'll do it by hand every month depending on how much $$ I have left over".
(I lost a lot of years of getting money into my Roth because I had to actually make the transfer of money to it.)

ADDED: I think Vanguard/Fidelity also waive the minimums if a monthly auto transfer is set up (might be something like called "an account builder" or something like that.)
Last edited by LittleMaggieMae on Thu Jun 24, 2021 8:52 pm, edited 2 times in total.
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samsoes
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Re: Helping "teacher-niece" start a Roth....where?

Post by samsoes »

gwe67 wrote: Thu Jun 24, 2021 8:28 pm
samsoes wrote: Thu Jun 24, 2021 8:17 pm Of course, I had her account number, with her permission.
I would have said "Thanks uncle, but no thanks".

Boundary violation.
Free money is free money.

I do her taxes for her as well, and keep all the required tax records since she has absolutely no desire to do so. That means, of course, I know her SSN.

Is that also a "boundary violation?"
Last edited by samsoes on Thu Jun 24, 2021 8:52 pm, edited 1 time in total.
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samsoes
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Re: Helping "teacher-niece" start a Roth....where?

Post by samsoes »

duplicate - deleted
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MathWizard
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Re: Helping "teacher-niece" start a Roth....where?

Post by MathWizard »

She could start a Roth using Roth CDs at a bank, and transfer when she gets more interested. I would even have her put some of her emergency funds in a Roth like that if she is otherwise not going to use the Roth space.

The target date fund is a good choice as well since it is a pretty simple glidepath.

She also may have access to a 403b through the college, even if she has a pension. There would be no match, but she could make voluntary contributions.

A big thing with Roth is that contributions can be withdrawn at any time without taxes or penalty. That makes for a great 2nd tier EF for holding the amount over the first 3 months of expenses. Most people don't drain 12 months of expenses, so these would grow for retirement.
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Re: Helping "teacher-niece" start a Roth....where?

Post by tibbitts »

samsoes wrote: Thu Jun 24, 2021 8:50 pm
gwe67 wrote: Thu Jun 24, 2021 8:28 pm
samsoes wrote: Thu Jun 24, 2021 8:17 pm Of course, I had her account number, with her permission.
I would have said "Thanks uncle, but no thanks".

Boundary violation.
Free money is free money.

I do her taxes for her as well, and keep all the required tax records since she has absolutely no desire to do so. That means, of course, I know her SSN.

Is that also a "boundary violation?"
I would say not at all, but it does bring up the issue of what she'll do when you can't do those things for her any longer, which obviously could be any day now. I think it would only be appropriate if you teach her how to do everything you can do, more or less regardless of whether she wants to learn or not. It's just a contingency for the free money, as you point out. I do understand the appeal of being a kind of go-to guy for finances in her life, but in the end it won't be about you. Especially when it comes to finances, it's important for her to learn not to blindly depend on others who might not be as trustworthy as you are.
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Re: Helping "teacher-niece" start a Roth....where?

Post by SnowBog »

For "where" - does she already have an account of any sort at Vanguard, Fidelity, Schwab, etc.? If so - I think the simplicity of having the account in the same location as other accounts "wins".

If not, I'd offer Fidelity, mainly because they have no minimum, and I think offer a better experience than Vanguard. (But the latter is obviously subjective.)

With most brokerage firms allowing free trades, you'd have lots of options for "what" to buy. For example, you can buy Vanguard funds (as ETF's) at Fidelity.
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Re: Helping "teacher-niece" start a Roth....where?

Post by Miriam2 »

samsoes wrote: Schwab requires a $1000 minimum, but waives that if the person auto-invests monthly at least $100 (I believe - could be wrong on the amount).
That's what I recommended to my early 20's "therapist-niece." We chose Schwab's S&P 500 index fund.

To sweeten the pie, I matched her contributions with the following condition: if she withdrew any amount, even $1, my match ceases permanently. Once a year, I went to my local Schwab office deposited the match amount into her account. Of course, I had her account number, with her permission.
I think that's a wonderful gift for a young relative, especially one who as yet "doesn't get this whole investing thing." :mrgreen: For an IRA, there is a one-year opportunity to contribute your max, hopefully $6,000 a year, and then that door closes forever - can never be made up in that account. Of course, you could put the contribution into a taxable when the door closes on the IRA, but it's not the same. It's good to get that money into the Roth to compound up for some 30 years.

Young investors often "get it" when they see their account grow over time and when their friends start talking about IRAs and 401k's. And when they get older and start to panic about their finances, they may "get it" then. Your IRA contribution now is a better present than money forked over for a day at Macys or a weekend trip to the beach with friends, as nice as that is. She will probably really appreciate it later in life.
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Re: Helping "teacher-niece" start a Roth....where?

Post by ruralavalon »

Wenonah wrote: Thu Jun 24, 2021 8:06 pm My niece is in her first year of teaching, but worked at a community college for a few years and is on Plan 2/WA state DRS. Has about 5 years total at 32 years old. She wants to start a Roth, but wants me to assist, because she recognizes she is never going to get around to it. I understand the 3 fund Portfolio, but I am by no means an investor and we have our money managed by Personal Advisor Services at Vanguard.

Should I have her read in the Wiki about a 3 fund portfolio and then sign up at Vanguard? do a target fund? Schwab? Fidelity? Will they give her a questionnaire? She probably doesn't want to start with a 1000.00 which I know she needs for Vanguard, but maybe she would if it was important. Thanks in advance. This sound simple, but she is a single mom and needs to think about herself and her own future this time and I don't want to steer her wrong.
Vanguard, Fidelity or Schwab would all be good choices. My personal preference is Vanguard.

I suggest that she start with a target date fund. If Fidelity is picked for the Roth IRA be sure that she uses a low expense Fidelity Freedom Index 20xx Fund, rather than their higher expense actively managed Fidelity Freedom 20xx funds.
Last edited by ruralavalon on Fri Jun 25, 2021 10:00 am, edited 1 time in total.
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Re: Helping "teacher-niece" start a Roth....where?

Post by CyclingDuo »

Wenonah wrote: Thu Jun 24, 2021 8:06 pm My niece is in her first year of teaching, but worked at a community college for a few years and is on Plan 2/WA state DRS. Has about 5 years total at 32 years old. She wants to start a Roth, but wants me to assist, because she recognizes she is never going to get around to it. I understand the 3 fund Portfolio, but I am by no means an investor and we have our money managed by Personal Advisor Services at Vanguard.

Should I have her read in the Wiki about a 3 fund portfolio and then sign up at Vanguard? do a target fund? Schwab? Fidelity? Will they give her a questionnaire? She probably doesn't want to start with a 1000.00 which I know she needs for Vanguard, but maybe she would if it was important. Thanks in advance. This sound simple, but she is a single mom and needs to think about herself and her own future this time and I don't want to steer her wrong.
Have her read this by Bill Bernstein: https://www.etf.com/docs/IfYouCan.pdf
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Wenonah
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Re: Helping "teacher-niece" start a Roth....where?

Post by Wenonah »

Great suggestions. i love the idea of having her sign up for automatic withdrawals through her bank. Not interested in a 403b right now as she doesnt need the fees and of course their is no match from public schools. If i could get her going on a Roth and maybe revisit with her every year when she gets a raise....Thanks a million.
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Re: Helping "teacher-niece" start a Roth....where?

Post by DoTheMath »

It's great that you are willing to help and that she is comfortable coming to you. I would leap on this opportunity, but bend over backwards to make sure it doesn't become overwhelming.

Sit down with her at a computer and together you can set up a Roth IRA account at Vanguard. Fidelity or Schwab or other places would be fine, too, but it's better to go with what you're familiar with so you can provide "tech support" in the future. Make sure you've walked yourself through the process before hand so that you know what to expect and don't run into complications.

Pick a target date index fund and set it to auto contribute from her bank account. Done. Her takeaway should be that it was actually not complicated or difficult and maybe this personal finance thing is something she can figure out.

Finally, say that the reason you suggested a target date index fund and automatic bank withdrawals was because by far the most important thing is to have low costs, to index to capture the market returns, and to have a plan which is simple and easy to stick with. Give her copies of "If you Can" and a "The Simple Path to Wealth" and say that they explain why these are the important things for retirement savings and that if and when she reads them you'd be happy to talk about them (or about anything else).

Then leave it. There is no hurry. It's best to nurture and not overwhelm.
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Wenonah
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Re: Helping "teacher-niece" start a Roth....where?

Post by Wenonah »

Got it, Do the math. Do not overwhelm. I will go through it ahead of time. I have read/listened to JL Collins over the years and I love that suggestion. Sounds like a Target Fund gets the most votes. She also told me she needs to do some double checking on the public loan forgiveness program, so we decided to meet on a certain date and we both have homework--hers is to figure out her loan program. She is a wonderful niece and I love getting young people to start investing, so we are both excited. Thanks everyone.
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