Gen Y - Retire Rich!

Q&A #25 - New job...what to do with my 401k?

Q: I am taking a new job with another company.  What do I do with my 401K (a regular 401K, not a Roth 401K) from my current company?

A: Convert your 401K to an IRA or a Roth IRA.  This is called a rollover.  It’s pretty simple to do. 

• Call the fund company where you want to open the IRA.  I recommend Vanguard, but it could be Fidelity or T Rowe Price or some other.  Tell them what you want to do, and let them step you through the process.  They have all the forms you need on-line, or they will mail you the forms if you like dealing with paper.  These forms will allow you to transfer the money directly from your 401K trustee (the company that administers the 401K) to the Roth IRA without you actually touching it.
• Roll over the entire 401K.  Don’t decide you need a new dining room set and keep some money for yourself.  You’ll get hit with penalties and taxes and it is just too complicated.
• Don’t ask the 401K trustee to send the money to you.  That’s a bad idea, because you only have 60 days to get it deposited into the IRA.  If something goes wrong and you miss the deadline, you are screwed.  It’s much better to do a trustee to trustee transfer.
• The rollover IS NOT an IRA contribution.  It is a completely separate transaction.  So if you are rolling over $140,000 you don’t have to worry that it exceeds the annual IRA contribution limit.  Similarly, if you make a rollover, you can also contribute to the IRA for the same calendar year, up to whatever the contribution limit is in that year.  The contribution limit for 2009 is $5000 if you are under 50 and $6000 if you are 50 or over.  If you earn less than these amounts in 2009, then you can’t contribute any more than your “earned income”.

Next question.  Should you use a regular IRA or a Roth?

I say Roth IRA.  It’s a much better product for Gen Y people. 

Two problems with using a Roth IRA.

First, you can’t roll over the 401K money to a Roth if your income for 2009 (single or married filing jointly) is $100,000 or more.

The solution to this problem is to roll over your 401K money to a regular IRA this year.  Next year, the 100,000 income limitation goes away, and you can convert your regular IRA to a Roth IRA with no problem.  This assumes that Congress doesn’t make any changes in between.

Second problem……taxes.  If you roll over a regular 401K to a Roth IRA, or convert a regular IRA to a Roth IRA, you have to pay income tax on the money the same year that you make the rollover.  That’s income tax, not capital gains tax.  You can’t use some of the retirement money to pay the taxes.  You need to pay your taxes with non-retirement funds.

Depending on the amount you roll over, the tax bite can be pretty big.  Here are a few ways of dealing with the taxes:

• Roll the money into a regular IRA this year and convert the regular IRA to a Roth IRA in 2010.  If you do this, the government lets you spread out the tax payments over 3 years.
• If you know you will be going back to college for an MBA in the next few years, roll over your 401K into a regular IRA now and convert to a Roth IRA while you are getting the MBA.  Since you won’t be earning any other money while you are getting your MBA your tax bracket will be lower.  Which means the tax bite on the money you converted to the Roth will be lower.
• Roll over your 401K money into a regular IRA now and then convert the regular IRA to a Roth a little at a time over a period of five or ten years.  That way you don’t get hit with a big tax bill all in one year.

Understand that if you keep your money in a regular IRA, you will eventually pay taxes when you withdraw the money (starting at an optional 59 ½ or a mandatory 70 ½).  As opposed to converting the money to a Roth now, paying the taxes when you do the conversion, and then not having to pay taxes when you make the withdrawals.  It’s not like you’re escaping taxes with a regular IRA, you’re just postponing them.  Plus, you pay taxes on all the earnings in your regular IRA (when you withdraw the money). 

The question is, do you think your tax rate will be higher when you are taking the money out thirty or more years from now or will it be higher this year?  Most people think it will be higher when you are older.  This means it’s better to convert to a Roth now and pay the piper up front.

Here’s a link that explains things in detail.  Read it carefully to get familiar with all the rules.

7 steps to a Roth IRA conversion

Besides tax rates, remember two big advantages of Roth IRAs.

1. You don’t pay taxes on earnings.  All withdrawals (after 59 ½ ) are completely tax free. 
2. You are never forced to withdraw the money.  Whereas with a regular IRA you must start taking distributions by age 70 ½.

Why is the non-mandatory withdrawal feature an advantage?  If you have a decent amount of assets when you are 70 ½, you can leave the money in the Roth, growing tax free.  With a regular IRA, you are forced to take some of the money out each year starting at 70 ½ , and this money cannot grow on a tax free basis any more.   It’s always better to have money grow tax free than to grow in a taxable account. 

Let’s assume that you have rolled over your 401K money into the Roth IRA.  What next?  Go back and re-read the “Summary of Important Retirement Points” in post number 31.  Follow the guidelines in post 31 for your future retirement contributions at your new job.  

Keep in mind that if you are filing your taxes as a single and your adjusted gross income (AGI) in 2009 is $120,000 or higher, you can’t contribute to a Roth IRA.  Between $105,000 and $120,000 you can make reduced contributions.  If you are married filing jointly, the contribution starts to phase out at an AGI of $166,000 and goes away completely at $176,000.  These numbers change from year to year, so you need to keep up with the rules.  In the event that you are locked out of a Roth IRA contribution for a specific year, contribute to a regular IRA.  There may be many years (I hope) where you earn so much money that you are forced to contribute to a regular IRA rather than a Roth.  That’s OK.  Keep contributing.

And somewhere down the road, if you take time off to find yourself or decide to become a stand up comic, you may find that you are earning $28.52 per week.  That would be a good time to convert the regular IRA money to your Roth IRA.

Q&A #23 - Is buy-and-hold a good strategy?

Q: I just read that “buy and hold” is not a good strategy.  Isn’t that what you recommend?

A: The article you read probably was talking about buy and hold for individual stocks.  Go back and read it again to make sure.  Buying and holding individual stocks is a dangerous strategy.  You add additional risk to the portfolio (company-specific risk).  I do not recommend buying individual stocks at all.

I recommend buying and holding low cost index funds, with annual rebalancing.  This is a wonderful strategy.  There is no company-specific risk associated with index funds. 

Don’t get confused when you read articles about money and finance.  Many “truisms” that apply to investors who own individual stocks do not apply to investors who own low cost index funds.

Here’s a good synopsis of all the things I have been telling you.  The author, Paul Merriman, is an investment professional who makes a lot of money selling DFA funds.  DFA is a good fund company, but they force you to use a broker or money manager.  So I recommend Vanguard instead, which allows you to do things for yourself. 

Here’s the link: The Ultimate Buy-and-Hold Strategy - 2009

Note that Merriman’s strategy and my strategy are like fraternal twins.  Not identical, but very close.  Some of Merriman’s important points about his strategy:

Suitable for do-it-yourselfers.

• Easy to understand and apply.
• Not a cure-all.  When the markets are all down, you will be down too.
• Don’t bother using the strategy unless you are willing to make a long term commitment,
• You need some REITs
• You need some international and emerging market funds.

He and I think alike on all of those points.  We differ on a few things too:

1. He says that many younger people don’t need bonds.  I think that everyone should have at least 20% of their portfolio not in equities.  This includes your emergency fund.  Whether you use bonds, CDs, money funds or bank accounts, you still need some money out of the equity market.

2. He emphasizes Government bonds instead of corporate bonds.  This is a recent change, by the way.   A few years ago, he was OK with corporates.  The bond funds I suggest you own are governments and corporates.
3. He likes intermediate term bond funds.  I like short term bond funds.
4. Merriman is more of a slice and dicer that I am.  So his ultimate portfolio has you owning a lot more asset classes.  I don’t think you need all those asset classes. 

These are not huge differences.  If you decided to pay someone like Merriman to implement this strategy using DFA funds, I wouldn’t throw rocks at you.  I would just snicker behind your back and tell other people that you could do it yourself and save the commissions. 

Q&A #22 - Get multiple credit cards to improve your credit score?

Q: Should you get multiple credit cards to improve your credit score?

A: Post 33 talks about credit cards in detail.  I hope I did a good job scaring you.  Recently, I was discussing credit cards with a bunch of people.  They told me that they use a few credit cards to make sure they have a higher credit score.  Having a good credit score is important.  It could affect whether or not you qualify for a mortgage loan.  One landlord that I know even said that he won’t rent an apartment to anybody with a low credit score. 

Here’s a good article that explains credit scores.

Credit Scores - What You Need to Know

And another article that gives six reasons for owning multiple credit cards.

6 good reasons for multiple credit cards

One of the six reasons listed is that multiple cards will improve your credit score (provided you use them responsibly).

So if you only have one credit card, and you are paying the balances every month, go ahead and open up another credit line or two.  Make sure you do it well in advance of applying for a mortgage.  Apparently, it hurts your score to have newer credit lines.  As the credit lines age, it helps your score.

But don’t start spending more money just because you have more credit.  Keep saving and investing.  If your average credit card bill is $1,200 a month with one card, make sure that when you get three cards, your average balance combined is still $1,200 per month.  And keep paying the outstanding balances completely.  It won’t hurt the credit score, and you will avoid those nasty fees and finance charges.

If you have a bad credit score, here’s another article to read:

How to Improve Your Credit Score

I’m in a different position from you guys.  I don’t need any more credit, so I froze mine.  This prevents anyone from taking out a loan or credit card in my name, including me.  It’s the best way to prevent identity theft.  If I need more credit down the road, I can lift the freeze temporarily.  But it’s a hassle to do so.

The rest of you better review your credit reports to make sure nobody’s playing games with your credit history.  Since there are three credit agencies, you can work it so you get a free one from each of them once a year.  Stagger it so that each free report you get is four months from the last report.  That way, every four months, you have free access to your credit report.

Q&A #21 - Will the world go down in flames?

Q: Will the world go down in flames?  Will the market ever recover to where we were a few years ago?
A: I’ve had some email discussions with a few readers and they have asked me these questions in various ways.  

Remember that the one big assumption we made at the beginning of this blog is that the world is getting better, and will continue to get better.  That is an assumption, not a guarantee.  If you do not think the world will continue to be a better place to live, then you should not invest in equities.

Can I prove that the world will continue to get better?  No.

There are big problems in the world.  Will one of these problems get so big that it makes the world regress?  I don’t think so, but I can’t prove it.  You need to make your own evaluations.

Sorry I can’t offer you any comfort in this area.

Let’s go forward under the premise that our one big assumption is correct.  So, when will the market recover?

Here’s a good read: Download JGLetter_1Q09

Try to read the whole newsletter.  I found it a little difficult to understand some of the things he was saying.  But the last page gives a good summary of Grantham’s views.  He gives us an 85% chance to get to a new high in 20 years and a 15% chance to do it sooner.  In other words, he is 100% certain that in 20 years or sooner, the market will be at an all time high.

Here’s another good read: Stocks still face deflationary collapse

This article paints a bleak picture for the short term, but makes no predictions beyond 2016.  I believe that his advice is meant for people who may be retiring in the next seven years.  They probably shouldn’t invest any more money in the stock market, if they believe his predictions.  And maybe they should cut their losses now and cash out now! 

If you are a long term investor, which I hope you are, then this second article really doesn’t help you.  You shouldn’t care what happens in the next seven years.  You should be saying to him, “What about in 40 years?  Read your technical analysis tea leaves and charts and astrology signs and tell us what will happen then, Obi-wan”.

Here’s the bottom line.  Both of theses guys could be wrong.  There is no way of knowing what’s really going to happen.

But, if the second guy is right, you shouldn’t stop investing for the next seven years because things will be choppy.  The best time to be saving and investing is when the market is hurting, not when its at an all time high.

So keep saving and investing, provided you believe our assumption that the world will continue to be a better place.  You see how we’re back to our one, big, unprovable assumption? 

In the end, everything hinges on your belief in the world!  Which is a big reason why so many people to not invest their money in equities.  It takes a leap of faith!   

Q&A #20 - Does the Sierra Club offer mutual funds?

Q: Does the Sierra Club offer mutual funds?
A: OK, I submitted this question myself.  I hate those little Sierra Club whiners who come around asking for money and trying to make me feel guilty about the world.  Did I ever knock on their parents’ doors and try to guilt them into buying whole life insurance so their kids wouldn’t have to pay taxes on their inheritance?  No I didn’t.

Sure, they’re against nuclear power now.  Wait until their lights go out or their monthly electric bill consumes 40% of their gross income.  They’ll change their tune.

It’s even better when the holy rollers come around asking if I’ve found Jesus.  First, I explain that I was an altar boy in grade school and am still in therapy from the trauma that the priests and nuns put us through in the name of Jesus.  And I’m not even talking about anything sexual.  Then I point to the mezuzah on the doorjamb and explain that my wife is a radical Zionist who helped settle Palestine (which would make her like 100 years old, but they can’t count).  I tell them they’ve got ten seconds to scoot before I sic my crazed blind and half deaf pointer on them.  Then I laugh insanely as they run across my lawn, tripping over the various rakes and other gardening implements I never seem to put back into the garage.  

The Sierra Club???  You would think that they are investing “responsibly”.  Go ahead, type in www.sierraclubfunds.com on the old homepage.  You will be directed to a website for Forward Funds.  The large cap fund they offer was started in October 2006, so we really can’t measure past performance against any benchmarks.  The fund is too young.  But when you buy the fund, you pay a commission of 5.75% (outrageous).  And the ongoing annual fee the fund charges you is 1.49% (as opposed to 0.18% for the Vanguard Total Stock Market fund).   

OK, maybe these extra costs are the price you pay for a fund that is associated with the Sierra Club.  This fund should be more environmentally friendly, no?  Here are the top ten holdings of the fund as of March 31, 2009:

• Johnson and Johnson
• IBM
• Coca Cola
• Nvidia Corp
• Bristol Myers Squibb
• Oracle
• Exxon
• Walmart
• McDonald’s
• First Energy

What about the Forward Small Cap Fund?  Maybe their top ten holdings have some crunchy sounding names.

• Aecom Tech
• Corrections Corp of America
• URS
• Neutral Tandem
• Chipotle Mexican Grill
• Family Dollar Stores
• Factset Research Systems
• Salesforce.com
• Amedisys, Inc.
• Investment Technology Group

I’ve heard of a few of these but not the others.  However, they don’t smell crunchy to me.  And you have to pay a 5.57% commission, as well as a 1.77% annual expense ratio, for the privilege of investing in this Sierra Club Recommended fund.  

In fairness, as I mentioned in the last post, no mutual fund will last long if it doesn’t deliver decent returns compared to its peers.  So the fund managers really have no choice.  They have to buy companies that make money, not companies that do nice things.  I’m sure they have some sort of filter to make sure they don’t own any sweatshops or napalm producing companies.  But my point with Socially Responsible Investing is that the fund managers will continually be compromising the fund’s investment goals in order to make sure the fund generates good enough returns to stay in business.

And as you can see from the costs of owning these funds, the fund managers need to pay for their three houses and Mercedes Benz sportscars too.

Q&A #19 - Profit from environmental companies?

Question & Answer #19

Q: I think that climate change is the big problem for our generation, and under those circumstances, the companies with an environmental mission should be able to profit from the problem.  Is this logic flawed?

A: It’s not flawed.  But not every company that gets involved in climate change will be a winner.  Some will profit.  Many others will not.  So don’t buy individual stocks.  Find a mutual fund that specializes in this area, to spread your risk and reduce your expenses.  And use your mad money (5% of your portfolio) for this investment.  Because over time, most of your equity money should be invested in the other funds I recommend, which are designed to give you market average returns at minimum risk. 

There are a couple of web sites related to social investing.  They claim that there are more than 260 funds specializing in this field.  You will need to focus on the funds that specifically invest in climate related companies.  There are probably a handful.  When you research these funds, you will probably notice that the annual expense ratio is much higher than the Vanguard Index Funds I have recommended.  That’s a price you pay for taking a chance on environmental companies.  Also, before you invest, take a look at the fund’s holdings.  You might be surprised to find out that the holdings don’t exactly meet your own standards.  This is another problem with Socially Responsible Investing.  The fund managers need to show a reasonable return, and are forced to compromise their standards.  Wait until you see the next post about Sierra Club Funds!

President Obama’s main fund holding is Vanguard FTSE Social Index Fund.  It has a low expense ratio of 0.24% and $254 million in assets.  But it does not invest a lot of money in climate change.  The top three industry holdings are financials, tech, and consumer goods.  If you are tempted to buy this fund, to salve your conscience, I advise against it.  Put your money into the Total Stock Market Index Fund and the Total International Fund instead.  You owe it to yourself to make sure you have a comfortable retirement.

I talked about socially responsible investing in Q&A #5.  Please re-read that post for the details.

Q&A #18 - Can my parents serve as my emergency fund?

Question & Answer #18

Q: Can my parents serve as my emergency fund?
A: If your parents are really and truly financially secure, and are absolutely willing to give you $20,000 if things go south in your life, go ahead and use them as an emergency fund.  This does not mean that you should invest 100% of your own money into equities.  You still need to keep at least 20% in cash/bonds.  Why?  So you don’t panic in a crisis (like the one we are wading through right now).  You always want at least 20% in cash/bonds.  I know that I’m conservative here.  Other people say that if you are young you can commit 90% or 100% to equities.  I just don’t believe that’s a good idea. 

By the way, don’t assume your parents will help you out.  Ask them if they will provide money for you to live on during emergencies.  This should be a serious discussion where you:

• Define the word “emergency”. 
• Decide on whether interest will be charged.
• Decide on the terms of paying back any money they give you.
• Decide on whether or not you need to sign a contract with them.  Some parents may insist on a contract, others won’t care.

Even without a “contract”, it’s still a good idea to put everything in writing, so nobody says they don’t remember the terms.

If you have at least one sibling, or step sibling, the answer is more complicated.  Especially if you have a good for nothing sister who your parents wouldn’t give a dime to.  She would be royally annoyed if they agreed to help you out.  If you don’t want a war with your sister down the road, maybe you should set up your own emergency fund.

Of course, your siblings might already be mooching like crazy from your kind, good-hearted parents.  If you’re the only kid who is responsible and working and saving and investing, I’ll bet you resent your parents slipping a couple hundred to your sister every month so she can meet the rent on an apartment that she really can’t afford because she works part time as a fact checker for a start up newspaper in SoHo.  But she always has money for parties and getting her hair done, etc., etc.  Did I hit a nerve?  The point is that money makes family relationships crazy sometimes, so be careful about asking your parents to be your emergency fund.  Your siblings might look at you as the moocher, even before you have a true emergency and actually need the money.

One more note about emergency funds.  You can withdraw your contributions (not the earnings) to a Roth IRA at any time, with no penalties or tax payments.  Now that I’ve told you this secret, I also tell you “Don’t do it!”  You don’t want to have the attitude that you can raid your Roth IRA in a pinch.  Once you start thinking that way, it’s easy to move away from your savings goals.  You start hitting up the Roth every time you need something that costs more than $200, and there goes your retirement.

But if your back is to the wall, and your parents can’t help, this is your final source of emergency cash before you go to Frankie the Fingerchopper for a loan.

Question & Answer #17

Q: I’m still confused about how I allocate my savings each year!  Exactly what funds do I open, and when do I start contributing to each fund?

A: Let me show this to you with numbers so I can explain it better.  Assume you decide to use the Basic Allocation, which is 50% VTSMX, 30% VGTSX, and 20% Cash/VFSTX:

                                                                                                                         Total Balance in Each Fund   
                                                                                                        ------------IRA------------      ---------Taxable---------
Age    Salary    Total Portfolio    Total Roth IRA    Total Taxable    VTSMX    VGTSX    VFSTX    VTSMX    Emergency  Fund
22    50,000    7,500                                                7,500                                                                              7,500
23    51,500    15,000                                             15,000                                                                            15,000
24    53,045    22,957                  5,000                   17,957            5,000                                   3,000         14,957
25    54,636    32,759                 10,350                 22,409             6,000      4,350                    7,409         15,000
26    56,275    43,494                 16,075                 27,420             6,723      9,352                   12,419        15,000
27    57,964    55,233                 22,200                 33,033             7,723      14,477                 18,033        15,000
28    59,703    68,055                 28,754                 39,301             10,200    18,554                 24,301        15,000
29    61,494    82,042                 35,766                 46,276             10,000    22,766    3,000    31,276        15,000
30    63,339    97,286                 43,270                 54,016             10,000    29,270    4,000    39,016        15,000

My assumptions:

• Your starting salary is $50,000 and you get about a 3% increase each year.
• Your investments earn about 7% each year.  In the real world, this will never happen.  Some years you will earn more, some years you will earn less, and some years you will lose money.
• You save 15% of your salary every year.

Look at what is actually happening to the portfolio:

• It takes you two years to build up an emergency fund of $15,000.  This is your cash position. 
• In the third year you borrow a few dollars from the emergency fund to open VTSMX.
• You don’t need to open VFSTX until your portfolio exceeds $82,000.
• In your taxable portfolio, all you need is VTSMX.  As your portfolio grows, you may need to add VGTSX to your taxable portfolio, but that won’t happen until later down the road.
• You are rebalancing your investments every year by making changes to your IRA holdings.  Notice how the IRA balance in VTSMX decreases at age 29.
• It will take you 9 years before you finally hit the 50%/30%/20% asset allocation.  At age 30, you have a total of $49,016 in VTSMX (when you add the IRA and the Taxable holdings).  You have $29,270 in VGTSX(all in the IRA).  And you have $19,000 in Cash/bonds (when you add the VFSTX holding to the emergency fund holding).  Your total portfolio is $97,286.  This works out to 50%/30%/20%.

I will talk about portfolio rebalancing in great detail in the next week or two. 

Question & Answer #16

Q: Is it dumb to have a 401k with Fidelity and a Roth IRA with Vanguard, or should you stick with one company?

A: No, it’s not dumb.  Often it is necessary to own funds with more than one fund family.  

This is where you appear to be right now:

• Your 401K offers Fidelity funds, you don’t have much choice.  Do the best job you can in setting up your 401K plan with Fidelity Funds that offer the asset classes I recommend.  
• You will probably find that a few asset classes you need are missing from the Fidelity options.  
• These missing asset classes should be the ones you include in your Roth IRA and your taxable account.
• See if Fidelity offers index funds that invest in these missing asset classes.  If not, find another fund company (preferably Vanguard) that offers funds with these asset classes.
• If Fidelity and Vanguard both offer funds that invest in your missing asset classes, look at the costs.  Which fund has the highest annual expense?  Which fund charges a load to buy it or sell it?
• If the costs are close and you want the convenience of one stop shopping, put everything in Fidelity.
• If the costs are not close, go with the lowest cost fund, even if it means using another fund company.

Here is an example of how costs can eat away at your portfolio.  Let’s look at Fund A and Fund B and make the following assumptions:

•    They are both index funds.
•    Each fund is offered by a different fund company.  Both fund companies are equally well regarded.
•    Both funds invest in the same asset class.  
•    To make things simple, let’s assume there is no purchase or sales charge for either fund.
•    Fund A – Annual expense ratio of 1.25%.
•    Fund B – Annual expense ratio of 0.25%.

It’s clear that you should invest in Fund B.  Low cost is more important than anything else.  Look at the impact of the expense ratios on your money.

Roth IRA Balance    Fund A Costs    Fund B Costs
    $5,000                       $62.50           $12.50
    $50,000                      $625.00         $125.00
    $100,000                    $1250.00        $250.00

Remember that these are annual costs.  I calculated them by multiplying the balance times the expense ratio and dividing by 100.  

Again, if the annual costs are pretty close, then you should pick the fund that is most convenient to own.

You might be asking, “How the heck do I get all this information?  The Fidelity/Vanguard/pick a fund company web site is as user friendly as the high speed internet help desk (can you feel the sarcasm dripping from that metaphor?).  

I suggest you get your information the old school way.  Call the fund company and ask these questions:

1. Do you have a fund that invests primarily in _________ asset class (fill in the blank with small US stocks, large US stocks, REITs, etc.)?
2. Is the fund open to new investors?
3. What is the minimum amount to open the fund?
4. What is the minimum amount for additional purchases?
5. What is the annual expense ratio?
6. Is there a sales load to open the fund, make additional purchases, or sell shares?
7. If the fund is held in a Roth IRA are there additional charges?
8. Is there an annual fee for low balances?
9. Are there any 12b-1 fees?  (If you haven’t read my earlier posts, pretend that you know what these are.  Nod sagely as you read this and I won’t know the truth.  If there are 12b-1 fees, hang up quickly and never invest in that fund.

Once you have these answers, you can compare Fidelity’s fund to Vanguard’s or T. Rowe Price’s or Schwab’s.

If you are still confused, or you think the fund company people are trying to pull a fast one, ask for a fund prospectus.  Maybe you can download the most recent one.  You do have to read the whole thing, as the information you want is probably hidden in one of the dark recesses of the prospectus.  Where did they get that name anyway?  Is the plural prospecti?   

Question & Answer #15

Q: Is there such a thing as a joint money market account? How does that work for tax purposes if the two people are filing separately?

A: Yes, you can have a joint money market account, just as you can have a joint bank account.  Here’s a link to Vanguard’s website, showing the different types of ownership that a money market account can have: Vanguard - Person and Business accounts

So who pays the taxes on the earnings from a joint account?  The primary account holder!  When you open the account, you fill out a registration form or a new account form, or whatever they want to call it.  Somewhere on the form you have to tell the fund company who will be the primary account holder and who will be the secondary account holder.  At the end of each year, the fund company will send the IRS a form telling them how much money was earned by the account, the primary account holder’s name and the primary account holder’s social security number.  The IRS will be looking for taxes from that person.

By the way, don’t try to get a SS# for your cat and include Mr. Claws as the primary account holder.  Nowadays, the government is getting very sensitive about these types of shenanigans.  They even took $10 Million away from old dead Leona Helmsley’s dog.  Leona Helmsley's Dog Loses $10 Million