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Small White Dragon posted:I think that just means the amount you'd need for six months might be smaller than someone else's six months.
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Oct 30, 2013 07:17
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Not all emergencies are medical either.
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Oct 30, 2013 19:56
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Dik Hz posted:yup. But you can just keep your receipt and reimburse yourself later. If you have the funds to pay from your taxable account, the timing of reimbursing yourself is better the longer you wait. Either way, you pay with pretax dollars. People who do this will generally have a running balance sheet and accompanying receipts. A portion of your HSA is already "used", just not taken out so it still has tax free growth potential
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Oct 30, 2013 21:14
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80k posted:But you can just keep your receipt and reimburse yourself later. If you have the funds to pay from your taxable account, the timing of reimbursing yourself is better the longer you wait. Either way, you pay with pretax dollars. If you don't max out your 401k then by doing what Dik Hz said you essentially receive tax free income while still maintaining the same amount in your investment accounts except that the money is in the 401k account instead of the HSA.
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Oct 30, 2013 21:32
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So when people talk about saving so much of your income, this is all based on post-tax amounts, right? Even the retirement amounts? I only ask because some things (e.g., 401(k)s and employer-sponsored IRAs) are pre-tax. Also, some people aren't allowed to invest in Roth IRAs. In that case, should you follow the same advice but use a non-deductible IRA?
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Oct 30, 2013 22:47
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I don't believe it's currently possible to not be able to invest in a ROTH IRA, because if you're over the income cap you can just a loophole to convert a normal IRA to a ROTH.
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Oct 30, 2013 22:58
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asur posted:I don't believe it's currently possible to not be able to invest in a ROTH IRA, because if you're over the income cap you can just a loophole to convert a normal IRA to a ROTH. Edit: Say you have $30,000 in an employer-sponsored IRA (e.g., SIMPLE, SEP, .etc) and you put $3,000 in a non-deductible IRA to convert. Only 3,000/(3,000 + 30,000) = 9% of that conversion is tax-free. Is that a wise move? Small White Dragon fucked around with this message at 23:41 on Oct 30, 2013 |
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Oct 30, 2013 23:05
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On a related note, do people usually factor in unemployment payouts into their emergency fund? To me it seems logical to include that, but I guess you could exclude it on the basis that it's not strictly guaranteed (e.g. you could get fired with cause and be denied benefits).
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Oct 30, 2013 23:41
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asur posted:If you don't max out your 401k then by doing what Dik Hz said you essentially receive tax free income while still maintaining the same amount in your investment accounts except that the money is in the 401k account instead of the HSA. If that is the final conclusion and you prefer a higher 401k or Roth account due to investment options or fees, then i agree. But there was some faulty logic along the way. The "you can't beat the 25% savings by paying medical costs with pretax dollars..." comment has no relevance to the idea of keeping money in your HSA, and paying with taxable dollars and reimbursing yourself later, regardless of whether or not you max your 401k or Roth or not.
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Oct 30, 2013 23:43
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Cicero posted:On a related note, do people usually factor in unemployment payouts into their emergency fund? To me it seems logical to include that, but I guess you could exclude it on the basis that it's not strictly guaranteed (e.g. you could get fired with cause and be denied benefits). Personally, the thinking of "well, factor in worst case scenario" means you should not keep that in mind. So basically, the mindset of putting aside a little bit more for the absolute worst case means you have a little bit more security anyway. I've been unemployed twice (thankfully for very short periods) and money goes FAST when you have no income. I would say better safe than sorry. It isn't a large enough amount to consider the lower percentage you get in savings vs investment.
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Oct 30, 2013 23:52
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Cicero posted:On a related note, do people usually factor in unemployment payouts into their emergency fund? To me it seems logical to include that, but I guess you could exclude it on the basis that it's not strictly guaranteed (e.g. you could get fired with cause and be denied benefits). You could get fired for cause, god knows what else. Plus the emergency fund isn't just so you can live six months without a job, it's also to cover emergencies that arise like the house's roof caving in, the car exploding or your wife being kidnapped by (very inexpensive) guerrillas. Six months of expenses is a good measuring stick that scales according to your income and lifestyles, but it's not just about surviving six months after a lay off.
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Oct 30, 2013 23:53
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80k posted:If that is the final conclusion and you prefer a higher 401k or Roth account due to investment options or fees, then i agree. But there was some faulty logic along the way. The "you can't beat the 25% savings by paying medical costs with pretax dollars..." comment has no relevance to the idea of keeping money in your HSA, and paying with taxable dollars and reimbursing yourself later, regardless of whether or not you max your 401k or Roth or not. If you can still contribute to your 401k then you avoid tax on your normal income for the amount of the expense. Quick example, if you have a 1k medical expense, you pull 1k from the HSA which is tax free and then divert 1k from your paycheck into your 401k which is also tax free and thus you avoid paying taxes on 1k of your normal income and the total amount in your investment accounts stays the same. Since the distributions of the HSA can be taken any time after they occur you can still delay this so you can probably optimize more based on your future tax rate and 401k contributions.
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Oct 31, 2013 00:20
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asur posted:If you can still contribute to your 401k then you avoid tax on your normal income for the amount of the expense. Quick example, if you have a 1k medical expense, you pull 1k from the HSA which is tax free and then divert 1k from your paycheck into your 401k which is also tax free and thus you avoid paying taxes on 1k of your normal income and the total amount in your investment accounts stays the same. Since the distributions of the HSA can be taken any time after they occur you can still delay this so you can probably optimize more based on your future tax rate and 401k contributions. But your total amount invested does not stay the same. 1k in your 401k is worth less than 1k in an HSA that has receipts to ensure tax free withdrawal. That 1k in the 401k has a future tax bill associated with it. By your logic, why would anyone do a Roth, since a traditional can give you the same amount in your investment accounts? The reason is the same. Choosing to take money out of your HSA to fund a 401k is the same as taking money out of a Roth to fund a 401k and no one has ever recommended that. An HSA that has qualifying receipts to account for the balance is exactly the same as a Roth. There is no slam dunk tax decision that is any more relevant to the HSA situation anymore than there is in the Roth vs Traditional debate. There are tax implications, but the decision is far more subtle. In all cases, I would always max out a Roth before choosing to purposely keep money in an HSA that otherwise has an immediate qualifying distribution. But this is because of fees and investment choices. 401k is more debatable since 401k plans vary in quality. Nonetheless, the way to get maximum benefit of an HSA is to ensure you get tax free withdrawals by having qualifying expenses. The timing and juggling of accounts and decision to choose this over that is an extremely subtle matter beyond that. 80k fucked around with this message at 00:41 on Oct 31, 2013 |
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Oct 31, 2013 00:38
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An HSA is great because you can continue to use the money in it tax-free long after you've ceased to be eligible to contribute to it. I would recommend anyone who can max out contributions to it.
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Oct 31, 2013 00:51
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80k posted:But your total amount invested does not stay the same. 1k in your 401k is worth less than 1k in an HSA that has receipts to ensure tax free withdrawal. That 1k in the 401k has a future tax bill associated with it. By your logic, why would anyone do a Roth, since a traditional can give you the same amount in your investment accounts? The reason is the same. Maybe I'm just confusing myself, but if you account for the fact that you can contribute more into the 401k than you would need for income don't you come out on top. This does assume that the growth of the account will be withdrawn at 65 for something over than medical expenses which may not be a valid assumption. Example if that didn't make sense: 1k medical expense and assumed tax rate is 20% Option A: HSA has 1k in it and grows at 5% for 10 years for a total of $1628.90 of which $628.90 is taxable at say 20% so final total is $1503.11 Option B: Take 1k out of the HSA and contribute $1250 to 401k, $1250 is equal to $1000 post tax, and once again 5% over 10 years for a total of $2036.11 of which all is taxable for a final total of $1628.90.
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Oct 31, 2013 01:11
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asur posted:Option A: HSA has 1k in it and grows at 5% for 10 years for a total of $1628.90 of which $628.90 is taxable at say 20% so final total is $1503.11 Here is where you are confused: HSA investment gains are not taxed when used for qualifying medical expenses, so that is using pre-tax money for tax-free growth. This is why you save your receipts, let the money grow, and if you need to take it out later you can use all your saved receipts to backup the claim. Alternately, once you hit retirement age you could withdraw from your HSA just like you could from an IRA and pay deferred taxes on the gains. But you're virtually guaranteed to have higher medical expenses as you age so eventually you'll have a way to take it out tax-free when you need it (and much of Medicare including parts B & D is qualifying, as well as many forms of long-term care btw). FiveCentNickel posted:All of this got me to thinking… Assuming that you can afford to pay for their medical expenses out-of-pocket and make HSA contributions, should you make claims against your HSA? Or should you leave the money in place and let it grow, completely tax free? Also I'm not sure what comparison you're trying to draw between taking money out of an HSA and putting it in a 401k. HSA contributions are an above-the-line tax deduction very similar to 401k contributions. Maxing out my HSA last year lowered my federal tax bill by something like $900. See also: http://www.hsaadministrators.info/hsa-tax-advantages Guinness fucked around with this message at 01:41 on Oct 31, 2013 |
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Oct 31, 2013 01:18
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FrozenVent posted:You could get fired for cause, god knows what else.
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Oct 31, 2013 02:28
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There are threads besides the "Newbie Personal Finance" that are more suited to this kind of pointless min-maxing. Use the HSA for medical expenses. Use the 401(k) for retirement. If you want to pay cash at the hospital and do some weird tax ballet in April then go right ahead but it's really stretching the scope of this thread.
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Oct 31, 2013 02:59
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Is this a good thread to ask about some of the details of bankruptcy?
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Oct 31, 2013 16:15
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Jastiger posted:Is this a good thread to ask about some of the details of bankruptcy? What's going on that bankruptcy is looking like a good option?
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Nov 1, 2013 01:25
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Zeta Taskforce posted:What's going on that bankruptcy is looking like a good option? It's not for me, its a general question. A person I know went through a bankruptcy and it cost her a lot of stuff. Her car, her credit score, and other things. However, apparently she was told by her advocate "The bankruptcy went through, it'll be final end of month (or so), spend whatever you want". So this person is now buying designer purses, high end knife sets, full price iPhone and iPad products....all on the premise that it'll all be wiped away clean when the bankruptcy goes through. Is that right? Is that how it works, once you're set to be "zeroed out" you're in the clear after that date? Is her advocate giving her bad information? I thought that the judge grants bankruptcy and they watch your poo poo super closely to make sure you don't do exactly this kind of thing. How does it work?
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Nov 1, 2013 05:29
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80k posted:If that is the final conclusion and you prefer a higher 401k or Roth account due to investment options or fees, then i agree. But there was some faulty logic along the way. The "you can't beat the 25% savings by paying medical costs with pretax dollars..." comment has no relevance to the idea of keeping money in your HSA, and paying with taxable dollars and reimbursing yourself later, regardless of whether or not you max your 401k or Roth or not. But you're dramatically overthinking this. The only advantage of what you're suggesting is that it effectively increases the amount you can direct to tax-advantaged accounts.
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Nov 1, 2013 12:13
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Jastiger posted:It's not for me, its a general question. A person I know went through a bankruptcy and it cost her a lot of stuff. Her car, her credit score, and other things. However, apparently she was told by her advocate "The bankruptcy went through, it'll be final end of month (or so), spend whatever you want". So this person is now buying designer purses, high end knife sets, full price iPhone and iPad products....all on the premise that it'll all be wiped away clean when the bankruptcy goes through. Courts have a word for that. Taking out debts you have no intention to repay is called "fraud". Your friend is getting terrible advice. The two most likely outcomes are that her bankruptcy case gets ruined because she is acting in bad faith, or those fraudulent debts incurred do not get discharged. Creditors can ask for those fraudulent debts to be "excepted" from the filing.
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Nov 1, 2013 17:39
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Dik Hz posted:But you're dramatically overthinking this. The only advantage of what you're suggesting is that it effectively increases the amount you can direct to tax-advantaged accounts. Exactly. This is all it ever was about. I was only ever speaking about the misconception that this was somehow not taking advantage of the tax benefit of an HSA. I generally don't even recommend people do this because of the added book keeping, but I do support the original poster who discussed doing this.
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Nov 1, 2013 18:22
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80k posted:Exactly. This is all it ever was about. I was only ever speaking about the misconception that this was somehow not taking advantage of the tax benefit of an HSA. I generally don't even recommend people do this because of the added book keeping, but I do support the original poster who discussed doing this. The main issue I see is that HSA rules can be changed that things that you bought as a qualifying expense can suddenly no longer qualify. On Jan 1st 2011 they changed it so any OTC medication no longer qualifies for HSA spending. If you had receipts for OTC medication you bought prior and planned on cashing in on it later, then those receipts are now useless.
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Nov 1, 2013 19:17
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FCKGW posted:The main issue I see is that HSA rules can be changed that things that you bought as a qualifying expense can suddenly no longer qualify. On Jan 1st 2011 they changed it so any OTC medication no longer qualifies for HSA spending. If you had receipts for OTC medication you bought prior and planned on cashing in on it later, then those receipts are now useless. Those receipts are still good if the drugs were purchased prior to 2011 even if reimbursed later. Anyway, any future HSA concerns should go over to the Bogleheads forum. There is a lot of good discussion there for people who really want the details. There are actually quite a few good reasons to purposely keep money in there even if you don't max your 401(k) account. The method described by the poster earlier is quite popular there. Of course, there are dissenting views, but the discourse there should cover all of them quite well.
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Nov 1, 2013 20:01
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It seems a bit odd to me. The main advantage is that it's extra tax-deferred income, so it's really only useful as a way to squeeze in extra cash if you're already maxing your your IRA and 401k. If you're doing that, a few hundred bucks a year seems like way too small a percentage of your portfolio to put that much effort into. The bottom line for me is that even if it's a good idea, it doesn't seem worth the effort. Some people enjoy that sort of thing though, so it might work out for them. I could also see it mattering if you're near to retiring and trying to catch up.
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Nov 1, 2013 20:08
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Unless I'm understanding incorrectly, the benefit of the HSA is that for medical expenses, it is tax-free, period. IRA/401k, you contribute pre-tax but then pay taxes when you withdraw. Roth, you contribute post-tax but then you don't pay taxes when you withdraw. HSA, you contribute pre-tax and don't pay taxes when you "withdraw" for medical purposes (until you're old and feeble, when you can withdraw for normal purposes and pay taxes). Thus, it offers a benefit over IRA/401k, but vvv Right, sorry, I meant that the benefit is only applicable to medical expenses. Not at all what I wrote, in hindsight. totalnewbie fucked around with this message at 23:32 on Nov 1, 2013 |
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Nov 1, 2013 21:09
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totalnewbie posted:Thus, it offers a benefit over IRA/401k, but at the expense of only being applicable to medical expenses, etc. At age 65 you can withdraw from a HSA like you could a traditional 401k/IRA, normal tax but no fees. So its as good as traditional 401k/IRA and only gets better when spent on medical.
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Nov 1, 2013 23:27
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I am pretty disenchanted with the whole HSA thing. The frequently changing rules and high fee accounts make it unattractive to me. Plus, given having maxed an IRA and 401k, I'd rather put any additional savings in a taxable account to use in my 50's.
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Nov 1, 2013 23:57
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I live in Britain. I saved enough to buy a motorbike cash-in-hand last year, then used a loan from my bank to buy it so I could start building my credit score. All paid off on-time earlier this year. I'm selling it and buying a new one shortly, I'm thinking it might help my credit score if I do the same but with a credit card this time. I've taken out one from the same bank again with 0% interest on purchases for over a year. Would it be best for my long-term credit score to go to around 75% of the card, or 90% and get some new gear; and in either event pay it off in one go, or pay it over 3-6 months? I know you don't have to carry a balance. I could also make a series of smaller purchases in the months preceding it, and just pay them off that month. Also, I'm hopefully getting a promotion this month, would it be best to tell the bank so I get a bigger limit and it's on file that I earn more, or just use that to make bigger monthly payments?
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Nov 2, 2013 15:59
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Wootcannon posted:I live in Britain. I saved enough to buy a motorbike cash-in-hand last year, then used a loan from my bank to buy it so I could start building my credit score. All paid off on-time earlier this year. I'm selling it and buying a new one shortly, I'm thinking it might help my credit score if I do the same but with a credit card this time. I've taken out one from the same bank again with 0% interest on purchases for over a year. Would it be best for my long-term credit score to go to around 75% of the card, or 90% and get some new gear; and in either event pay it off in one go, or pay it over 3-6 months? I know you don't have to carry a balance. I could also make a series of smaller purchases in the months preceding it, and just pay them off that month. Your credit score is not a video game high score. If you are not buying a house in the next couple of years you do not need to worry about your credit score. If you have not been a complete idiot regarding credit in the past you do not need to worry about your credit score. Women will not be attracted by your credit score. You will not get baked goods because of your high credit score. If you can afford to pay cash, pay cash. Don't start min/maxing poo poo with credit cards; this is how comfortable people end up an accident away from bankruptcy.
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Nov 2, 2013 16:13
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FrozenVent posted:Your credit score is not a video game high score. If you are not buying a house in the next couple of years you do not need to worry about your credit score. If you have not been a complete idiot regarding credit in the past you do not need to worry about your credit score. Women will not be attracted by your credit score. You will not get baked goods because of your high credit score. I'm actually hoping to put a deposit on a house in the next few years, which is why I'm trying to build a good credit score, thus being safe and always having more liquid cash than I do debt. I thought my saying "long-term" would have implied that, my bad. The loan and a student overdraft years ago are all I've had credit wise.
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Nov 2, 2013 16:19
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Wootcannon posted:I'm actually hoping to put a deposit on a house in the next few years, which is why I'm trying to build a good credit score, thus being safe and always having more liquid cash than I do debt. I thought my saying "long-term" would have implied that, my bad. The loan and a student overdraft years ago are all I've had credit wise. I'm always cautious about giving cross border advice, but people usually overestimate the quantity of credit needed to have good credit. The quality is what loan officers look at. As long as it is decent, no recent lates, nothing crazy on there, you can check off the credit box. When you buy a house, things like your income, your job stability, your savings, your down payment, your reserves, and the price of the house will be other things they look at. Or at least that they look at in the US.
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Nov 2, 2013 17:09
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Wootcannon posted:. Would it be best for my long-term credit score to go to around 75% of the card, or 90% and get some new gear; and in either event pay it off in one go, or pay it over 3-6 months? I know you don't have to carry a balance. I could also make a series of smaller purchases in the months preceding it, and just pay them off that month. It also looks here like you might be letting credit gaming determine whether you purchase new gear or not, which should raise a red flag to you. You really either need to replace a piece of gear or you don't, or want it badly enough to pay for it right now or you don't. Whether you can afford it or not, check your motivations when your reasoning for buying something gets more complicated than that.
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Nov 2, 2013 19:52
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Remy Marathe posted:It also looks here like you might be letting credit gaming determine whether you purchase new gear or not, which should raise a red flag to you. You really either need to replace a piece of gear or you don't, or want it badly enough to pay for it right now or you don't. That's a fair point, well made. I do want to replace it and can afford it but it's whether to buy it with debit or credit, if at this time with the 0% purchase interest it's not gonna make a difference to the amount spent. Zeta Taskforce posted:I'm always cautious about giving cross border advice, but people usually overestimate the quantity of credit needed to have good credit. The quality is what loan officers look at. As long as it is decent, no recent lates, nothing crazy on there, you can check off the credit box. When you buy a house, things like your income, your job stability, your savings, your down payment, your reserves, and the price of the house will be other things they look at. Or at least that they look at in the US. Thank you. I was just concerned about getting a better rate on a mortgage in the future, but this has somewhat eased my mind. I've just remembered from when I was in retail banking(I think it's you I've talked to about this in a previous thread) you do get people with a lower income paying less interest than those with a higher income, because the latter's used gently caress-all credit in their lives. I'd rather not be on a lower income paying more interest! Wootcannon fucked around with this message at 01:02 on Nov 3, 2013 |
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Nov 3, 2013 00:55
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If I apply for a bunch of credit cards in a short period of time (4 in one month) and then utilize them all up to 80-90% of the credit limit, is there any risk of them being able to change their terms on me without any notice? So long as I make payments on time, I would assume they have to stick with the terms they gave me when I signed up, but I seem to remember reading that creditors can keep track of your credit and change stuff if they think you're suddenly a much higher risk. I understand the wisdom of such an action is questionable, but I'm just curious about the practicality of it.
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Nov 3, 2013 19:52
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Assuming it's in the agreement, they can change the limit on you, yes. But it won't result in any additional penalties as long as you pay what you're supposed to pay each month on time. They can't, for example, change the limit and then charge you a penalty immediately because you're over your credit limit. But they can reduce your credit limit ensuring that you have to pay more of your card off before you can take out more credit. Though to be honest, if you're using 80-90% of your limit and paying at least the minimum every month you're their ideal customer.
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Nov 3, 2013 20:15
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Ok, so in the fine print somewhere if they say something generic like "we can change the terms at any time" like every other agreement says now, they could. I guess that's just something I should expect in any contract now. My scheme is to try to take advantage of a bunch of credit card offers and invest the money hoping the return will be more than 3.5% after the 12-15 month introductory offers expire. Check my math on the plan: I have a USAA American Express card that currently has a special on their 'convenience checks' (cash advance) where it's 1.9% APR for 12 months with a fee capped at $75. I've found 3 other cards that I've been approved for that have 0% APR on balance transfers for 12-15 months, with the standard 3% transfer fee. If I take a cash advance from the first AMEX card for $10,000, then transfer the balance to one of the other cards, and repeat this until all 4 cards have $10k on them, I figure I have a $40,000 loan for 1 year at 3.475% interest ($40,000 minus $1,390 in fees and interest). I'll still have another credit card to use for my daily purchases (that I'll pay off in full each month), and I'll plan to invest the $40,000 for a year in addition to the savings I already have invested. Assuming that the stock market doesn't tank and I make at least a 3.5% return on the money after a year, this makes sense, right? I don't plan on needing a high credit score in the near future (I already own a home), so is there an obvious downside I'm missing?
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Nov 3, 2013 20:56
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This sounds like (read: is) a monumentally bad idea.
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Nov 3, 2013 21:01
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