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zorachus posted:In my case, I'm over the salary cap for penalty-free contributions to a Roth IRA. I also have an option to invest in my employer's (relatively stable) stock at a 15% discount. How much is this cap and if you are over the cap what happens?
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Jul 16, 2013 02:07
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The caps are listed here: http://www.irs.gov/Retirement-Plans/Amount-of-Roth-IRA-Contributions-That-You-Can-Make-For-2013 After which, you cannot contribute to your Roth IRA for that year. If you accidentally did, then you can take that money out before the end of the year.
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Jul 16, 2013 02:12
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ntan1 posted:The caps are listed here: If I'm reading this right, your modified AGI is actually reduced by 401k contributions though and other pre-tax deductions, right?
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Jul 16, 2013 02:17
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Correct.
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Jul 16, 2013 02:22
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I'm a federal employee who just recently switched to a military benefits system. This means that I can still contribute to the TSP (government equivalent of the 401k), but that there is no employer match whatsoever. This leaves me a little unsure of where to start, particularly since there is now the option for Roth TSP contributions, which I believe has a yearly contribution limit of 17.5k. With this in mind, I have a few questions: 1. Since there's no employer match to the general TSP/401k, it seems like I should contribute to a Roth as a first step, correct? 2. Should I treat the Roth TSP exactly the same as I would treat an employer-independent Roth IRA? I'm unclear of the implications of the 17.5k cap as compared to the 5.5k cap for a typical Roth IRA. Is there something I'm missing that makes the employer-sponsored account with Roth tax handling different from a typical Roth IRA, outside of just available fund selection and that much-higher cap? 3. If I'm assuming that my tax bracket will be higher at retirement than it is now, does it make sense to max out both Roth accounts as a first step, for a total of 23k in a year? Or should I start to diversify my tax treatment before I get to that level of investment? For reference, that's likely much of what I will put away toward investments in an average year.
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Jul 16, 2013 03:51
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What's the strategy for maxing a traditional 401k, anyhow? Is the $17.5k cap just for money that you put in, or does that count employer contributions? What happens if you go over the cap accidentally, or is that usually prevented by the 401k managers? If I'm trying to save for a down payment on a house, is it still recommended that I try to hit that 401k cap? I'm contributing 2% more than what I need to get the full match from my employer, and I always hit my Roth IRA contribution limit, I'm just wondering whether I should be allocating more funds to the 401k in lieu of my normal mutal fund account (which is where I'm putting money for the house down payment, some day).
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Jul 16, 2013 09:31
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Canadian question here: Does anyone know offhand if Locked-In Retirement Account (LIRA) transfers affect your RRSP contribution room? Example: For tax year 2013: You have a locked-in transfer of value from a pension fund of 20k You have 22k in your RRSP contribution room You move the locked-in value to a LIRA Does this mean that you now only have 2k of RRSP contribution room? It seems like the LIRA transfer shouldn't impact your contribution room. I mean, that's pension money that taxes were already paid on - or deferred using whatever pension line entry on your T4/tax mechanism thing or whatever - so it should just be a transfer without any other implications, right?
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Jul 16, 2013 12:14
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cowofwar posted:Seems like you'd be hemorrhaging money in fees if you owned 33-100 individual stocks. Good to be diversified but you're better off owning index funds and gambling on a couple individual stocks with 10% on the side. (This was/is great advice, so far - nothing but gains over the last month.  )
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Jul 16, 2013 15:30
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QuarkJets posted:What's the strategy for maxing a traditional 401k, anyhow? Is the $17.5k cap just for money that you put in, or does that count employer contributions? What happens if you go over the cap accidentally, or is that usually prevented by the 401k managers? Putting more money in the 401k is good because the investment will be tax-deferred, and you'll pay less federal income tax every year. You'll have to figure out how much you need to make your down payment - you could tell us the exact numbers (how much you make, your average returns/fees on your mutual/401k, when you plan on buying a house, how high you expect the down payment to be) if you want some guidance, but it's going to be a consideration of the gain you get by buying the house vs. the cost of not deferring some federal tax (with extra consideration if your mutual funds get better returns/have lower fees than your 401k). There isn't an objectively "right" answer on this one (unless your employer's 401(k) loving sucks), just a weighing of trade-offs.
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Jul 16, 2013 15:33
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QuarkJets posted:What's the strategy for maxing a traditional 401k, anyhow? Is the $17.5k cap just for money that you put in, or does that count employer contributions? What happens if you go over the cap accidentally, or is that usually prevented by the 401k managers? The 401k cap does not include your employer's contributions. It's basically $17.5k + whatever your employer contributes. As for going over the limit, it's up to you to keep an eye on it and make sure it doesn't happen. If you go over, the amount over the limit is taxed twice: first as taxable income, and a second time when you take it out during retirement. Perhaps someone else can answer your second question. My educated guess is that saving for a house should take priority, since larger down-payments can significantly reduce the total you end up paying for the house. But it may also be that it depends on the price of the houses in the area you're looking to settle down in. No Wave posted:The 17.5k cap is just for money that you put in - the employer cap is dependent on income but the combined max is like 51k. So you're not gonna hit that. Yes, but out of that amount, only $17,500 is allowed to come out of your pocket. It is in fact possible to hit & exceed that limit. Slow News Day fucked around with this message at 15:42 on Jul 16, 2013 |
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Jul 16, 2013 15:40
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I find having to keep track of the cap so annoying. My 401k (Fidelity) only lets me set my deduction in whole percentage numbers, so I have to choose the highest number that will end up below my cap. Since I can't put in half a percent or anything like that, I'm actually undershooting the cap by several hundred dollars every year. I wish they had an option like Vanguard does with my Roth IRA where they could just divide the federal limit up over the year and allow me to max out the contribution to the dollar.
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Jul 16, 2013 15:44
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If you make/save so much that you have to worry about not hitting the cap, then falling short several hundred dollars shouldn't be a big deal - you will die rich anyway! Just put that into a taxable retirement account or a 529 or something, and you'll be good!
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Jul 16, 2013 15:56
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For what it's worth my employer's payroll systems have always cut off deductions into Fidelity as soon as I hit the cap for that year; so you might not have to worry about it. Best just ask HR/payroll provider. The only trick was when multiple payroll systems/401k/paycheck sources were in play, since they don't track totals together or anything.
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Jul 16, 2013 15:57
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enraged_camel posted:If you make/save so much that you have to worry about not hitting the cap, then falling short several hundred dollars shouldn't be a big deal - you will die rich anyway! Just put that into a taxable retirement account or a 529 or something, and you'll be good! It's interesting that this forum is so into Roth IRAs vs. normal IRAs - I think it shows a few hidden assumptions - a.) that the posters are young and that their income will increase over their working years, and b.) that they are planning on having high incomes during retirement. Granted, the most important thing is contributing at all, so in this case I don't mind dogma. I guess it could also be a further risk-averse strategy - we don't know what will happen with taxation of investment income in the future, and it's fairly low right now, so it's better to pay the taxes now.
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Jul 16, 2013 16:04
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ntan1 posted:You can only truthfully do the standard backdoor roth contribution once, as the calculation for taxes is based on the total IRA assets. Thanks for the advice. I was thinking that contributing as much as possible to tax-deferred accounts makes the most sense, so I'll at least maximize my 401(k) contribution before considering the ESPP. I don't see anything about an after-tax option in the plan, so that's something I'll probably need to run by HR (or dig a little deeper).
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Jul 16, 2013 16:22
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No Wave posted:I find this stuff easiest to navigate by plotting an exact right course of action and hitting it, so I definitely sympathize with the frustration. SlightlyMadman posted:I find having to keep track of the cap so annoying. My 401k (Fidelity) only lets me set my deduction in whole percentage numbers, so I have to choose the highest number that will end up below my cap. Since I can't put in half a percent or anything like that, I'm actually undershooting the cap by several hundred dollars every year. I wish they had an option like Vanguard does with my Roth IRA where they could just divide the federal limit up over the year and allow me to max out the contribution to the dollar. Just go over the cap slightly and fill out the form to get the overage out. Harry fucked around with this message at 16:41 on Jul 16, 2013 |
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Jul 16, 2013 16:38
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Unormal posted:For what it's worth my employer's payroll systems have always cut off deductions into Fidelity as soon as I hit the cap for that year; so you might not have to worry about it. Best just ask HR/payroll provider. The only trick was when multiple payroll systems/401k/paycheck sources were in play, since they don't track totals together or anything.
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Jul 16, 2013 16:40
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No Wave posted:It's interesting that this forum is so into Roth IRAs vs. normal IRAs - I think it shows a few hidden assumptions - a.) that the posters are young and that their income will increase over their working years, and b.) that they are planning on having high incomes during retirement. Granted, the most important thing is contributing at all, so in this case I don't mind dogma. There's also the whole "pay no tax on your investment returns" part, so perhaps a lot of us are hoping to make good gains on our investments. I think the general advice though, if you're not sure whether your tax rate will be higher or lower when you retire, is to split between traditional and roth style investments to hedge against either eventuality.
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Jul 16, 2013 17:31
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Yeah, and most people don't do a Roth 401k, so using a Roth for the IRA is diversification. I'll ask my HR about the 401k limits, and yeah it's true of course that if I'm maxing out my 401k I probably don't need to worry about a few hundred a year, but I just like to see the numbers match up to the penny!
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Jul 16, 2013 17:35
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Be careful, my payroll was happy to just let me overfund my 401k and have me pay a % fee (10% I think?). I ended up liking funding my 401k to near max out around September and then reducing it to a few perfect to trickle to exactly to the max. It was also nice to get what feels like an income boost late in the year to save up for Christmas. (Who am I kidding, it was to save up for the next years IRA)
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Jul 16, 2013 17:49
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SlightlyMadman posted:Yeah, and most people don't do a Roth 401k, so using a Roth for the IRA is diversification. I'll ask my HR about the 401k limits, and yeah it's true of course that if I'm maxing out my 401k I probably don't need to worry about a few hundred a year, but I just like to see the numbers match up to the penny! You could always bump up your contribution at the end of November to make up that last couple hundred in December. You probably can't get it down to the penny but you might get close!
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Jul 16, 2013 17:50
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Leperflesh posted:There's also the whole "pay no tax on your investment returns" part, so perhaps a lot of us are hoping to make good gains on our investments. ((x money)/tax) * (1.05)^40 Here's the normal IRA math: ((x money) * (1.05)^40)/tax It comes out the same if the tax is equal in both periods. If you expect tax to rise - which it may well - Roth IRA is the win. I'm pretty much 50/50 so I'll do whatever keeps my expected tax burden lowest, meaning that I'll optimize w/r/t expected tax rates, ie, keep AGI as consistent as possible in all periods.
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Jul 16, 2013 19:57
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No Wave posted:Here's the math on putting something into a roth IRA for forty years: This is true, until you're maxing it out. Since roth contributions are taxed, the contribution limits are in post-tax dollars, which means you can effectively contribute more. So the effective contribution limit for a Roth IRA is around $7000 (depending on your tax rate), versus a normal IRA at $5500.
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Jul 16, 2013 20:14
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SlightlyMadman posted:This is true, until you're maxing it out. Since roth contributions are taxed, the contribution limits are in post-tax dollars, which means you can effectively contribute more.
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Jul 16, 2013 20:45
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No Wave posted:The 17.5k cap is just for money that you put in - the employer cap is dependent on income but the combined max is like 51k. So you're not gonna hit that. Real estate is really expensive here, so $60k is the bare minimum that we'd need for a 20% down payment. Anything cheaper than that and we'd be better off remaining renters. Realistically, it'd be closer to $80k. As first-time home buyers this can be lower, but then we start messing with mortgage insurance and things become even more expensive. Together we probably have around $40k in mutual funds, and even if we already had a full down payment it'd still be at least 6-12 months before purchasing real estate would even make sense, for various reasons So the question is: do the extra savings that I gain by increasing my 401k contributions (more tax deferment, more money when I retire due to growth) offset the extra money that I'd have to put into house payments due to A) higher future interest rates and B) higher down payments due to general real estate market growth?
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Jul 17, 2013 09:25
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Quick question: people keep mentioning that a 401K is capped after a certain amount. Can anyone just confirm standard policies and what to do once it's capped? I currently have a 401K, I contribute 6% of my check which is matched 100%, and anything else I put in a separate Roth.
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Jul 17, 2013 15:22
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Duckman2008 posted:Quick question: people keep mentioning that a 401K is capped after a certain amount. Can anyone just confirm standard policies and what to do once it's capped? I currently have a 401K, I contribute 6% of my check which is matched 100%, and anything else I put in a separate Roth. The cap is something like $17,500 so unless you're making an obscene amount of money, you won't have to worry about hitting that with 6%. As was already mentioned above, your match doesn't count towards it either.
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Jul 17, 2013 15:29
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Duckman2008 posted:Quick question: people keep mentioning that a 401K is capped after a certain amount. Can anyone just confirm standard policies and what to do once it's capped? I currently have a 401K, I contribute 6% of my check which is matched 100%, and anything else I put in a separate Roth. 1. Contribute to 401k up to your employer's match. 2. Max your IRA 3. Max your 401k This is generally the recommended way. Depending on the funds offered by your 401k and your current life priorities, you can replace #3 with something else such as a house savings fund or a 529, or even a taxable retirement account. For example if all the funds in the 401k have massive expense ratios (%1.5+) then it might be better to contribute up to employer's match (so you get the "free money") and then put the rest elsewhere.
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Jul 17, 2013 16:17
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QuarkJets posted:
Let's look at it this way - figure out the path that will, with reasonable assumptions, give you the most amount of money over your lifetime. Then factor your own preferences into that decision - I understand that owning your own house can be every comforting. As for what I'd do personally, I'm lazy, so unless the housing market is blowing up soon or the cost of renting is high I'd put off thinking about buying until I was in a position where I was maxing out all my tax-deferred investments. Then I wouldn't have to worry about that. But this will all be dependent on your expectations of the housing market in your area. If you had 100% confidence that the housing market would explode in the next few years, I would obviously buy as soon as possible. I'd strongly recommend consulting a professional in your area. There's a lot of freaky tax poo poo with real-estate that I don't know anything about.
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Jul 17, 2013 18:47
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Edit: NM.
El Kabong fucked around with this message at 19:12 on Jul 17, 2013 |
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Jul 17, 2013 19:00
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So I'm in the enviable position of being a trust fund baby. I'm 24 and just finished up school. I'll be making approximately 145-160k with a small amount of debt. I have around 100k in a Roth IRA, several smaller investments, plus a trust that vests when I turn 35. My current lifestyle could easily be maintained on 30k post-tax. I'd like to get some opinions about how aggressive I should be in investing. Should I max the 401k and Roth, then put whatever remaining savings into investments with a higher yield (and loss) possibility? My immediate focus is going to be paying off the debt I have and accumulating some liquid savings, but I'm trying to figure out what I should do after that. The only other pertinent thing is that I refuse to have anything to do with the stock market.
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Jul 17, 2013 20:35
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Omerta posted:So I'm in the enviable position of being a trust fund baby. I'm 24 and just finished up school. I'll be making approximately 145-160k with a small amount of debt. I have around 100k in a Roth IRA, several smaller investments, plus a trust that vests when I turn 35. My current lifestyle could easily be maintained on 30k post-tax. You've been investing in a Roth since you were 4?
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Jul 17, 2013 20:37
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Bobo the Red posted:You've been investing in a Roth since you were 4? Yeah, just like I've been accumulating assets for my trust since I was born. No, my parents established Roths for my sister and I. edit: Perhaps you're wondering how someone my age has that much in a Roth. My parents own a company and I've worked for them ever since I could do anything. When I was growing up, they paid me a nominal amount (like $5 an hour in cash) and my "salary" equated to enough to max out my IRA contribution. Omerta fucked around with this message at 20:52 on Jul 17, 2013 |
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Jul 17, 2013 20:45
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Omerta posted:Yeah, just like I've been accumulating assets for my trust since I was born. No, my parents established Roths for my sister and I. I asked because it is illegal to contribute to a Roth unless you earned money that year. I forgot that the tax code is mostly optional when you get rich enough. But yeah, you should max 401k match if you have that, then Roth, then the rest of the 401k. Avoiding the stock market at all feels like a mistake, especially since you are clearly well off enough to weather the risk. Honestly though, you probably have enough money that it makes sense to talk to a proper financial planner.
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Jul 17, 2013 20:54
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Bobo the Red posted:I asked because it is illegal to contribute to a Roth unless you earned money that year. I forgot that the tax code is mostly optional when you get rich enough. Mkay. My Dad is a CFP, but he's pretty conservative with his investment choices. Guess I'll ask around again when I actually have money saved up to invest.
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Jul 17, 2013 21:00
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If you have enough capital you can easily fund a retirement and avoid the stock market while maintaining a balance of diversity and risk. The stock market just allows the average person with smaller amounts of capital to achieve that balance as well.
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Jul 17, 2013 21:02
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If you talk to a financial planner, it needs to be a CFP with a fiduciary guarantee (your father probably counts). What's the interest rate on the debt?Omerta posted:The only other pertinent thing is that I refuse to have anything to do with the stock market. What's the reason for this? I understand that many people feel that the stock market is too risky and that tons of people actually lose money off of it. However, even a conservative portfolio that is long term has at least a small percentage in stocks for diversity. There's a big difference in investing in the stock market as a "whole" using an indexed mutual fund and investing in individual stocks. I'd recommend reading the Four Pillars of investing by Bernstein. At your current point, you need to know about your finances and understand the math behind investing. Beyond this, there is little excuse to not spend the 2-3 hours necessary to have the background given your position. ntan1 fucked around with this message at 21:13 on Jul 17, 2013 |
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Jul 17, 2013 21:03
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Omerta posted:The only other pertinent thing is that I refuse to have anything to do with the stock market. Don't be retarded. Also, Roths have only been around since 98. Harry fucked around with this message at 21:28 on Jul 17, 2013 |
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Jul 17, 2013 21:22
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Omerta posted:The only other pertinent thing is that I refuse to have anything to do with the stock market. You're in a great position, so one of the first things you should do is set some goals. With that salary and that level of expenditure, you could be financially independent with a nice income in ten years (especially given that you get your trust then). I think that's a nice target - millionaire by 35! You could get it done pretty easily. Harry posted:Don't be retarded. But in this case if you added 5500 a year since '98 that would come out to roughly 100k after interest. No Wave fucked around with this message at 21:41 on Jul 17, 2013 |
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Jul 17, 2013 21:31
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Harry posted:Don't be retarded. With big enough capital and wanting to live off of $30k a year while earning $160k, I see nothing wrong with staying away from stocks entirely. Hell for his goals I'm pretty sure checking account interest would be enough.
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Jul 17, 2013 21:32
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