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My savings account has around $50k that I've accumulated from a recent inheritance above what my household would need to exist for around 6 months without any income. Both my wife and I have maxed our Roth IRAs for the year. I am at 10% pre-tax 401k contribution. My stock portfolio is in good shape. That $50k is only earning .75% APY in my savings account. Bankrate shows national savings account rates are just around 1%. Should I be hanging onto the savings as it is, should I put it into a 6-month CD and re-evaluating the need after 6 months passes, or should I be looking at an investment that has low risk to the principal? I realize all of those are very low ROI options, but I figure this could be an emergency fund - a car got totaled, the roof caved in, etc.
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Dec 1, 2015 14:47
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For starters I think you should try to max your 401k this year, unless you make $180k+ and that 10% will do it.
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Dec 1, 2015 15:00
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Nail Rat posted:For starters I think you should try to max your 401k this year, unless you make $180k+ and that 10% will do it. It's not a good idea to keep the money accessible in case the need arises?
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Dec 1, 2015 15:03
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MJP posted:It's not a good idea to keep the money accessible in case the need arises? It sounds like you already have a healthy emergency fund, so not particularly. If the poo poo really, really hits the fan, you can still liquidate it from your 401k.
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Dec 1, 2015 15:10
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MJP posted:It's not a good idea to keep the money accessible in case the need arises? You said that not counting this money, you have enough to survive for six months without income. I think your emergency fund is just fine (especially because you both have jobs, since your wife was able to contribute to an IRA). What would it take to make it one year? At some point, you have enough emergency fund and you can start looking longterm. If you're not maxing your 401k, you probably need more retirement savings...I'm guessing you've been focusing more on building a great cash reserve instead of that for the past few years. Mission accomplished.
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Dec 1, 2015 15:10
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I agree with nail rat. Use the $50k to supplement the lower net income due to maxing out the 401k if you need to. Lower your taxes and be better prepared for retirement.
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Dec 1, 2015 16:06
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Nail Rat posted:You said that not counting this money, you have enough to survive for six months without income. I think your emergency fund is just fine (especially because you both have jobs, since your wife was able to contribute to an IRA). What would it take to make it one year? At some point, you have enough emergency fund and you can start looking longterm. If you're not maxing your 401k, you probably need more retirement savings...I'm guessing you've been focusing more on building a great cash reserve instead of that for the past few years. Mission accomplished. Actually, we're one income only - my wife is not yet medically able to work, and she's studying up to transition into jobs that would be able to let her work remotely if her medical situation prohibits her from a train or very short drive commute. We maxed the IRAs with another cash windfall - her father is an exec that gets decent bonuses, which he shares with the wife and her brother and sister. My concern with fully maxing the 401k would be reducing income, and I guess I'm still in a what-if state given her situation even though I could theoretically backfill the lowered income from savings if necessary, even while contributing to the brokerage account post-tax and maxed 401k pre-tax.
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Dec 1, 2015 16:59
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Is this gift to your wife from her dad able to be defined as income? If not, she can't contribute to an IRA. Six months should be plenty. It sounds like your wife has a well-off family that will help her, you have six months saved up, you'd have unemployment benefits for six months if you lost your job. Also what are you doing contributing to a brokerage account before you've maxed your 401k 
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Dec 1, 2015 17:38
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Nail Rat posted:Is this gift to your wife from her dad able to be defined as income? If not, she can't contribute to an IRA. Being paranoid about the availability of post-tax to contribute to said brokerage, combined with a mentality that a savings account only gets touched for rainy-day expenses. I've only taken out around $1100 from it over the last two years, but my only contributions back to savings have been these big bonus windfalls as such. You're probably right in that I need to re-evaluate my 401k set-asides, look at restarting contribution to savings, and seeing if I can put more into the brokerage. I haven't really re-evaluated these since a couple of jobs ago, never hurts to consider it. Edit: I recalculated my expenses, and I have a few hundred left over each month if I up my 401k to 11% (it was only at 6%, apparently, but I only started here three months ago) and add on $100/mo going into the savings account just to add to it, for good measure. If nothing else it's good to keep socking away to replenish what I've taken out. MJP fucked around with this message at 20:41 on Dec 1, 2015 |
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Dec 1, 2015 19:31
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The most important question is why are you contributing post tax income to brokerage rather than pretax income to 401k?
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Dec 1, 2015 20:43
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KYOON GRIFFEY JR posted:The most important question is why are you contributing post tax income to brokerage rather than pretax income to 401k? That's a fair question. My 401k and IRAs are retirement-only funds. I don't expect to touch them until I retire. The brokerage account I may need to liquidate, at any given time. If I started selling brokerage funds, I'd be subject to capital gains tax, unless immediately contributing them to my 401k negates the capital gains tax. Unless I can just transfer them directly to my 401k. But you raise a really salient point. When I started my brokerage account it was with a financial advisor (non-fee based) that did good things for my grandparents, getting them out of some kind of annuity that they bought while under dementia or some other situation where they got preyed upon. I was contributing what I could to my 401k - maxing the match and a little more - and contributing to the brokerage account. Now that I think about it, it was probably because he was non-fee based, instead making his cut out of the share of operating expenses based on my investments, that he advised me to go brokerage rather than just go 401k. But it is logical that I have some assets that I could liquidate, though - for a future vacation, or if I need to buy a car, etc. Granted, a $62k savings account kinda flies in the face of that. I'm somewhat risk-averse and have invested accordingly, basically recently selling some purchases of ETFs and mutual funds that I thought would bracket different sectors of the economy and just putting it into VFORX and letting that do the diversification for me. I am not an active investor and am happier not being one. I just want to be able to retire one of these days, even if Social Security is completely useless or gone thanks to politics. But yeah... why DO I have a majority of my brokerage account in VFORX, which is what I'd want to retire on, and why am I buying it post-tax if pre-tax could do the same? I'm going to sleep on it but I want to give that idea real consideration. Thank you for asking that question.
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Dec 1, 2015 21:11
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In extremely dire circumstances you could always take out a 401k loan. It's not advised, but it's better than leaving the opportunity for bigger retirement savings on the table in the first place when you already have a large savings account and an active brokerage account. You have assets you can liquidate now, plenty of them. You should focus on retirement in tax-advantaged vehicles, or you won't be able to retire. Also, don't listen to your grandpa or someone who doesn't actually understand how Social Security works; it's not going anywhere, though if it runs through the surplus payments will be reduced by about 30%. Still something. Also, you're better off with index funds and not individual stocks in that taxable account, unless you're already to the point that it's literally play gambling money (you're not, since you're not maxing your 401k). It sounds like the financial adviser you listened to wasn't exactly that great a guy either. I think you'd do well to read some books on investing/retiring, but I'd like to just stump William Bernstein's If You Can, a short pamphlet that will take you an hour or two. And it's free. https://www.etf.com/docs/IfYouCan.pdf Nail Rat fucked around with this message at 21:23 on Dec 1, 2015 |
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Dec 1, 2015 21:20
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Nail Rat posted:In extremely dire circumstances you could always take out a 401k loan. It's not advised, but it's better than leaving the opportunity for bigger retirement savings on the table in the first place when you already have a large savings account and an active brokerage account. You have assets you can liquidate now, plenty of them. You should focus on retirement. Whatever he did got the annuity fixed up. It was 2006 and I was more inclined to hear my parents out on financial matters. It's 2015 and I'm a different person in a different financial position. I'm also still trying to break out of "gently caress gently caress gently caress I'm the single income earner and caretaker, I must stoically shoulder burdens like a manly man" mindsets. They don't really help anyone. I guess it's my accountant who answers how I'd go about getting some kind of tax benefit by moving stocks from brokerage to 401k?
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Dec 1, 2015 21:23
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MJP posted:I guess it's my accountant who answers how I'd go about getting some kind of tax benefit by moving stocks from brokerage to 401k? I posted this above, but reposting: I think you'd do well to read some books on investing/retiring, but I'd like to just stump William Bernstein's If You Can, a short pamphlet that will take you an hour or two. And it's free. https://www.etf.com/docs/IfYouCan.pdf If you don't understand the tax benefit of 401ks, you need to start at the beginning, and don't listen to a financial adviser. Their goal is to use you to make money. Read some simple books on the topics, or look at the bogleheads wiki, or the Long Term Investment thread at the top of this forum. The OP should have some good info for you, and you can ask questions there.
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Dec 1, 2015 21:26
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Nail Rat posted:I posted this above, but reposting: No no, I get the tax benefits of a 401k - it's just more of a technical question, whether or not I can take some kind of tax deduction by transferring post-tax purchased mutual funds into a 401k. I'm very much sleeping on whether or not I could just take the $250 per month I put into the brokerage and add that to my just-increased-today 401k pre-tax deduction.
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Dec 1, 2015 21:36
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Nail Rat posted:Is this gift to your wife from her dad able to be defined as income? If not, she can't contribute to an IRA. You can contribute to a non-working spouse's IRA, as long as you file a joint income tax return.
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Dec 1, 2015 21:41
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GoGoGadgetChris posted:You can contribute to a non-working spouse's IRA, as long as you file a joint income tax return. What if she's working? I'm in a similar position to the OP except I have maxed 401k and Roth IRA contributions this year. Also do I need to throw together a TOD account? (I think that's what they're called.) I have about 40k beyond our emergency fund that I think may turn into a house down payment that's just sitting in a 1% savings account.
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Dec 4, 2015 09:41
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