So, I started a Roth IRA and instantly maxed out the contribution limit for last year. I'll be calling up USAA this weekend to figure out how to also max this year's contribution all at once properly so that it doesn't look like I put 10k into a Roth in one year. I figured that last year was done and over with but it seems to be possible to put in for both years.

Here's my question- Right now I have a Roth IRA with a target retirement fund in it, for 2050. I have more savings to dump into a fund than my $5,500 limit for the year.

Would it be dumb move to put more money into another fund, but outside my Roth IRA so that I can keep putting money into it whenever I want? I don't make amazing money, but I can do better than just $5,500 a year into retirement investments.

I'm lousy at explaining things, so this is a visual for my current account and what I'm thinking about ("B" is what I'm wanting to add)

1) OVERALL USAA ACCOUNT

    A)  Checking- $XX,XXX
    B)  Target Date Retirement Fund - $XX,XXX (All "extra" money will be dumped into here.)
    C)  ROTH IRA
              --------- 1) Target Date Retirement Fund - $XX,XXX


Note- I know lots of people don't like them, but I'm not going away from the target date stuff for at least the ROTH IRA- I'm too new at this to play with this on my own. I'd just trust that a pro knows what he's doing.

Thoughts? Criticism?

I would at least consider something besides the target 2050 fund and what I would consider would be a straight S&P500 fund or a Total Market Index fund which I'm sure USAA has.  Why?  All target date funds do is assume you will be some age (doesn't really matter, let's say 60) in 2050, they derive your current age (25) and then use a formula which is something like 100-your age to determine the amount of your $ to put in stocks (75% in this example) and the rest (25%) in bonds of some sort.

The "problems" are, you may not be 25; you may not retire when you're 60; you can do the same thing for yourself with better and more cost effective funds; and the biggest one of all (especially based on your comments of having "extra" $ to invest) is that in the long run, your overall return is less since they will always invest some percentage in lower yielding bonds versus higher yielding stocks.

Assuming you are about 25, the "best" (highest overall return in the long run) is to go 100% (or almost) stock...like the S&P500 Index which I'm sure USAA has.

Not only is it not dumb, it's an excellent idea to invest what you can outside of your Roth.  The biggest question you have to ask yourself is how likely you are to need the funds you put into this "side" account.  Just like the target funds shift more and more of your $ to bonds as your (theoretical) retirement date approaches, if you think you might need some of your "excess" funds within a few to 5 or so years, you may not want to invest it 100% in stocks unless you can withstand a potential drawdown (i.e. the stock market goes down but you need the $, forcing you to sell at a loss).  Longer than 5 or so years and it's probably safe to go more heavily into stocks.

Bonds, BTW, are not an attractive investment (to me) right now since interest rates are near zero; they have only one direction to go (up) and when they do so you will lose principle (the money invested) in the bonds.  People think bonds are safe but right now their real returns are negative, especially in a taxable account:  you are assuming a significant interest rate risk for zero (or less) return.

When you say "I'd just trust that a pro knows what he's doing" it makes it sound like your alternatives are Target Retirement and rolling the dice, either by your hand or that of a "pro".  The idea isn't to beat or play the market, the idea is to use a relatively simple set of sound investment strategies to take what the market gives.

The simplest of those strategies:  stick every penny that you can in the S&P500 and forget about it for a few decades.  Assuming you are about 25 you will have millions by the time your 60 or 70.  Someone will be along to recommend everything from penny stocks to gold as better investments than the S&P...and while the S&P may not be the best vehicle, it is the single best investment if you don't know what you are doing.

If you have the time and inclination, check out asset allocation (a gross form of which is what the target fund does for you).

Finally, a link with more links from a similar question.

ETA:  left this post to check the market and...it's another good day in a good week!

I've been out of financial for a while.  However, I'm not entirely convinced the government is going to be able to keep its mitts off Roth IRAs.  That's a boatload of tax revenue they're missing out on, and as the debt climbs higher (and interest rates rise), they're going to be targeting sources of more revenue.



I'd fund both a Roth and a traditional IRA.  

That was incredibly helpful, a sincere "thank you". Off to do more research based on your advice.

Would Vanguard 500 Index Fund Investor Shares (VFINX) be a solid chioce for my "B" option?

Again, all extra cash that I can't fit into my IRA will be going into it (zero interest in buying individual stocks).

Since you're limited to 5500 across all IRAs I think the Roth is the smarter one especially for someone young. I don't think mixing them is a good idea since you won't be able to put very much in either one

That is Vanguard's S&P500 index fund so it should be solid.  Once you get $10k in it I would convert to admiral shares since they have even lower fees. Make sure you set up an account at Vanguard to buy them instead of buying them from USAA

Thanks for the response.

What's the reason for going through them direct instead of buying it through USAA? Fees? I like being able to monitor it all through one app (lazy, I know.)

I'm not positive on the fees but if you buy straight through Vanguard you can buy and sell Vanguard funds with no trading costs. You can set up an account at https://www.wikinvest.com to monitor all your accounts easily

Honestly if you haven't set up your IRA with USAA yet I would recommend setting it up at Vanguard also, and using their target retirement fund.

Thanks- I'll take that into consideration next time. I had a $45 fee when I put $5,500 into the T.Rowe Price 2050 through USAA.

Holy crap!
You won't pay any fees with Vanguard when you buy Vanguard funds.  In addition, the USAA 2050 fund has an annual expense ratio of 0.91%,  VFIFX (Vanguard 2050) has an annual expense ratio of 0.18%.
Personally I would cut my losses with USAA and move everything to Vanguard.  Not only did they hit you up for fees just for the pleasure of being their customer, they are also are planning to charge you an annual expense that is 5 times more.

on edit:
I got sidetracked by the fees, I stand with the above, but also:
Are you making maximum contributions to your 401lk (or similar) plan if available?  If you aren't you may want to put some of the money that won't fit in to an IRA in there for the tax advantages.
Also, I don't know how USAA is setup, but when you contribute to an IRA with Vanguard between January 1 - April 15 they will show you your current contributions made for each respective year through Vanguard and ask you which one you want to apply it to.

Absolutely given, as I stated, that you can withstand a drawdown if the market goes down...like it eventually will; the question is, how much will it go up before it goes down?

That's what I, as any investor, is always worried about. I'm doing this for the long haul so I'm trying to not worry too much about ups and downs and just keep at it.

Just to clarify, there are two different "fees" associated with mutual funds and exchange traded funds (ETFs):

1.  Management fees which they take (regardless of the fund's performance).

2.  Commission charged for the transaction in (buy) and out (sell).  Most firms do not charge a commission on their own mutual funds and ETFs but they will charge if you get someone else's fund...makes sense as they get to keep the management fees when you buy their funds.

Index funds have extremely low management fees because there's not much managing (guessing at stocks) going on:  in the case of an S&P500 index fund, they simply replicate the S&P500.  Note that there are indices for everything an even somethings that don't really exist (in the case where the management firm makes up it's own index, then follows it; doesn't really matter as following an index is going to be less expensive than picking stocks).

In the case of the Vanguard Admiral shares mentioned, the fee is 0.05%/year...which is essentially free.  Specialty funds can easily exceed 1.0-1.5% and most stock funds are in the 0.5-1.0% range.  Doesn't sound like much, but it's drag that you get hit with every year and it ultimately adds up.

Vanguard is a great company (all of my family's funds are there except for what I have in my military retirement account and that will get transferred when I retire) and they are known for low expense ratios.  As an example, I took a quick look at USAA S&P500 fund and the expense ratio is something like 0.25-0.3% but there is a note that says it is in the Lipper 0.57% category...honestly not sure exactly what that means.  Vanguard's "normal" S&P500 expense ratio is 0.17% and as mentioned, Admiral shares ($10k minimum) is 0.05%.

Just a thought but if you already have an account set up at USAA you might consider staying with them or transferring the whole thing to Vanguard, Fidelity, et al:  it's much simpler if you keep all of you funds in one place, at least it is for me.

The Roth really is too good to believe, especially for youngins.

Rather than liquidating tax advantaged accounts, I think a more likely scenario is for the government to simply limit or eliminate the ability to make future contributions to IRAs, 401(k)s and or Roths...that would force the money into the taxable system and yield millions if not billions in tax revenue.

NVM, repetitive question

Go straight to Vanguard and open a "general savings" account. This is a regular taxable account. The best part about Vanguard is they have what I would say are the lowest fees in the financial industry.  

If you are going to use the S&P 500 mutual fund, put this in the taxable account, as 100% of the dividends are "qualified" which result in a special lower tax treatment that dividends out of the target date fund.

Additionally, head over to bogleheads.org for lots more information and ways to maximize you retirement savings.