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You absolutely want to take advantage of tax-advantaged retirement accounts if you want to become FI early. It's free money, and there are a couple ways (already mentioned) to get to it early if need be.
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Apr 30, 2015 03:41
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Brian Fellows posted:Because you also get taxed on that money as normal income, on top of the 10% penalty. If you hide it in the 401k, you're not taxed on it until you withdraw it. It's definitely a flat 50% up to a maximum match of $9000 (or 100% up to a match of $3000 - whichever ends up being greater, they will contribute).
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Apr 30, 2015 03:43
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1. More money helps you retire faster, so get that full match. 2. You're planning on retiring before 55 but probably not dying before 55. Don't worry about some of your assets being limited to the back half of your life.
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Apr 30, 2015 04:07
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fruit loop posted:Why wouldn't I just contribute $18k this year and take out $27k ($24.3k after penalty) next year, then? See the posts above, but in addition to this note that except under very specific circumstances, you will not be able to withdraw any of your contributions while you are still employed at the same company.
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Apr 30, 2015 04:15
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fruit loop posted:My company matches my 401k contributions by 50%. So if I contribute the maximum of $18k this year, they will contribute $9k. At first, I thought you were a troll, that's how bad your idea is. People who retire in your timeframe not only max out all tax advantaged retirement accounts, they save tens to hundreds of thousands of dollars a year after-tax as well, to the point where the pre-tax stuff is really an afterthought, not the main source of savings.
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Apr 30, 2015 05:27
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fruit loop posted:My company matches my 401k contributions by 50%. So if I contribute the maximum of $18k this year, they will contribute $9k. If you max, then take out 27k next year, it will count as 27k of taxable income in addition to whatever you earn next year, PLUS the 2700 penalty. Which if you can afford to max a 401 k I assume would fall well into a 25% or higher bracket, so there goes most of that match to the irs. Trading an entire year of tax advantaged contributions that you can never make up, for maybe $1000 right now is beyond not worth it. If you are understanding your employer match correctly, it is by far one of the most generous plans anyone in this thread is likely ever to see. Read the OP and make it work for you as long and as hard as it can.
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Apr 30, 2015 06:31
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First: Most plans don't vest the company contribution immediately you almost certainly can't access it until you have left the company or after N years. Second: The tax advantage of saving 18k pre-tax is pretty high. With that plan and your goals I'm guessing your well compensated so in a higher tax rate. Ie at 28% rate 18k pre-tax = 12.9k post tax so really you're looking at leaving 14k on the table (that can accumulate of the next 30 years) by not taking advantage of the full match. Like people have said if you start early you can probably move most of that to Roth and access it much earlier with no tax hit. Third: Money is fungible. A portion in a savings account that you cant touch for a while doesn't make it not exist. It just means that bucket is for later. Fourth: Retiring in 5 years (or maybe 10) is aggressive, especially starting at 25. I'm guessing you aren't really aware of the implications of this plan or what you will really need to accomplish it or all the little things in life that derail plans like that. Money saved earlier can grow enormously over time I.e. $27,000 put into VFINX 30 years ago (1986) = ~$460,000 today. Finally: Good Luck! Murgos fucked around with this message at 13:52 on Apr 30, 2015 |
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Apr 30, 2015 12:45
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I would kill for a 50% match up to the limit. If you don't see why taking advantage of that would help you out, you're not actually thinking about financial independence. That sum of money will do a lot more good for you at retirement age (and will be substantially larger) than it will right now. You are throwing away $9000 worth of tax-advantaged free money. Think about that.
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Apr 30, 2015 15:12
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Alright. It'll be a huge pain to contribute to my 401k since a significant part of my compensation will be in the form of vesting stocks and a bonus that will all happen like 13 months from now, but I guess I'll have to figure it out. On the other hand, if I have like $28k sitting around, and like $15k in student loans at 6.8% interest, and another $10k in student loans at 3.4% interest, it makes sense to pay off the 6.8% loans in one lump sum, right? And I'd like to own property soon, to save on rent, which makes it kind of hard to justify spending so much on my 401k, since not having to pay $2.5-3k/mo in rent anymore seems like it would better as an immediate step. I saw a a 180sqft studio for sale for just under $270k that seems like a nice way to kill my rent payment. Given I have 4 more months on my lease, about $25k in student loans and a credit score of 616 - 650 (6-9 medical debt collections from college, depending on which CRA's report you look at), I doubt it's worth thinking about right now, but I can dream. :\
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Apr 30, 2015 15:36
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you need to slow down and do some research and future planning. You just casually threw out the fact that owning property "saves on rent" when it might hurt you financially in the long run, especially when you're young due to opportunity costs of being tied to one place. It's not a slam-dunk.
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Apr 30, 2015 15:39
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fruit loop posted:Alright. It'll be a huge pain to contribute to my 401k since a significant part of my compensation will be in the form of vesting stocks and a bonus that will all happen like 13 months from now, but I guess I'll have to figure it out. I don't think you're in good shape to be financially independent anytime soon. I'd prioritize paying off high interest loans over maxing 401k without match, but if you really can get $9k in 401k match you should be doing that at all costs.
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Apr 30, 2015 15:40
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Max that 401k because the match is literally free money. Find a cheaper rental if you think your current one is too expensive, but definitely do not buy anything. Pay down that student loan debt and any other debt you have. You have a negative net worth right now and will not be financially independent in 5 to 10 years. A good rule of thumb is to take your current monthly expenses and multiply by 300, and once you have that much in accessible accounts saved up you can safely "retire". Until that day happens keep saving as much as you can, wherever you can, and take the time to learn more about the subject.
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Apr 30, 2015 15:46
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you will definitely regret not contributing the max to that 401k at that match level.
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Apr 30, 2015 15:54
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fruit loop posted:Alright. It'll be a huge pain to contribute to my 401k since a significant part of my compensation will be in the form of vesting stocks and a bonus that will all happen like 13 months from now, but I guess I'll have to figure it out. Your situation is somewhat complex. $9000 in free money should be your priority, since pretty much nothing trumps a 50% tax-advantaged return on investment. However, that point is moot if you can't meet your debt repayment and savings goals in a reasonable timeframe. If I were you, I'd zap that 6.8% debt with your savings and set aside the rest as emergency funds. After that higher interest debt is gone, I'd split the money you have available after maxing the 401k between the lower interest debt and saving up for a house, if that's something that you feel you definitely want. If you're not making enough to cover all the bases here, it gets a little more complicated, but I assume that you're making decent money if a tiny studio in your area is $270k. Owning property is kind of out of the question right now. First you'd need a down payment, which in your case looks to be around $55-60k if you're planning on avoiding PMI. Besides that, having a mortgage is not the same as killing a rent payment -- the first few years of payments are mostly on interest anyway, so you're not doing much to build equity during that time if you're not making additional mortgage payments. If you want to save on living expenses, you're probably better off finding a roommate. The only way I could see a mortgage being justified in this situation is if you are certain you'll be working in the area for at least the next 10 years.
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Apr 30, 2015 16:00
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the goal of early retirement is to reduce your overall expenses and put the difference into savings (i.e., instead of spending money now, put it toward your net worth). if you work where i think you do, you are at least somewhat highly compensated, even though you live in an area with high housing costs; if you literally cannot afford to max out your 401k contributions you need to reevaluate your retirement goals and probably your lifestyle.
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Apr 30, 2015 16:06
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*Puts on turban* *Put's card up to forehead* "Hmmm, what is a young M.D. just out of residency at Boston Medical Center/MassGeneral/etc..."?
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Apr 30, 2015 16:26
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Hey guys, this has probably been asked before, but is there any reason to use Wealthfront vs Vanguard? From what I can tell, Wealthfront includes a lot of Vanguard ETFs. What does it add, and are those additions worthwhile?
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Apr 30, 2015 16:44
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Uranium 235 posted:Hey guys, this has probably been asked before, but is there any reason to use Wealthfront vs Vanguard? From what I can tell, Wealthfront includes a lot of Vanguard ETFs. What does it add, and are those additions worthwhile? I just stick with Vanguard. Wealthfront looks like a lot of slick marketing and some auto balancing, but they really aren't managing that much in assets. Vanguard is the proven low-cost index fund leader and you really can't go too wrong with them.
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Apr 30, 2015 16:47
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My impression is that they diversify among a bunch of Vanguard index funds and then skim something like
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Apr 30, 2015 16:48
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Murgos posted:*Puts on turban* i was thinking bay area tech
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Apr 30, 2015 17:30
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Could be Bay Area. $2000 sq/ft condo is about right for Boston or the Bay Area but too low for NYC. 50% match on 100% is better than most tech though. e: VVV You're right, didn't consider that. Would expect someone to be 27-28 to finish a residency and that would be at the very early end of the scale. So, tech because finance would likely already know this stuff. Murgos fucked around with this message at 18:24 on Apr 30, 2015 |
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Apr 30, 2015 17:43
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Finishing a medical residency by 25 would be kinda crazy, to boot
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Apr 30, 2015 18:09
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Not a Children posted:Finishing a medical residency by 25 would be kinda crazy, to boot not to mention that student loan debt seems a little low for medical school
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Apr 30, 2015 18:10
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Mr. Glass posted:not to mention that student loan debt seems a little low for medical school Eh, I let that one slide because if you do an MD-PhD they'll comp tuition and give you and upper-lower-class stipend.
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Apr 30, 2015 18:17
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How do you enroll in vanguard voyager services? is it automatic?
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May 1, 2015 00:51
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Not a Children posted:Eh, I let that one slide because if you do an MD-PhD they'll comp tuition and give you and upper-lower-class stipend.
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May 1, 2015 00:59
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Torpor posted:How do you enroll in vanguard voyager services? is it automatic? Yes. If you are really over-eager for it, you can send them a message and they can apply the upgrade within a few days.
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May 1, 2015 01:55
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Can I buy regular ETFS through Vanguard above and beyond my Roth IRA? I like the low overhead and have decent returns on my rIRA, I just want to give them more money because right now it's just sitting in my money market emergency fund. I have enough for 2 years, that's way too much to sit at 1% when it could get ~7%. I managed to open up an IRA brokerage account, which evidently is not what I need.
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May 1, 2015 15:59
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CannonFodder posted:Can I buy regular ETFS through Vanguard above and beyond my Roth IRA? I like the low overhead and have decent returns on my rIRA, I just want to give them more money because right now it's just sitting in my money market emergency fund. I have enough for 2 years, that's way too much to sit at 1% when it could get ~7%. Yes, you can open a regular, non-tax advantaged brokerage account, and you can put as much money as you want in it. I hope you're not planning on putting your entire emergency fund into it, though, because that would probably be a bad idea. You could get 7%, but you could just as easily get -7%.
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May 1, 2015 16:21
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Super Dan posted:Yes, you can open a regular, non-tax advantaged brokerage account, and you can put as much money as you want in it. Ok, I'll just look around the home page instead of the app, I must be going blind. Oh, and I'm going to keep a 10 month emergency fund. Edit: figured it out, thanks CannonFodder fucked around with this message at 19:51 on May 1, 2015 |
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May 1, 2015 16:31
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Any suggested reading in regards to a 529 college plan vs. a general investment account? We're already contributing our yearly max to an IRA and looking to do something to help our kids go to college. Both kids are under 3.
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May 1, 2015 17:18
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Grittykitty posted:Any suggested reading in regards to a 529 college plan vs. a general investment account? We're already contributing our yearly max to an IRA and looking to do something to help our kids go to college. Both kids are under 3. You mean comparing putting money into a 529 vs just investing in normal taxable accounts? I would say that's pretty much a no brainer if you have kids that you think will eventually go to college. The real questions are 1) doing a 529 account vs a pre-paid tuition account 2) which 529 plan to pick. Is there one in your state that offers some benefit to you as a citizen of that state and if so, is it worth using that one over a better plan that doesn't confer any specific benefits to your state.
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May 1, 2015 22:10
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Sorry if this is the wrong thread for this, if so, please point me at the right one? I have a Wealthfront account and they've just started offering tax-loss harvesting. Do I want to activate that? It's also giving me the following disclaimer, along with some others: "Be aware that if you and/or your spouse have other taxable or non-taxable accounts, and you hold in those accounts any of the securities (including options contracts) held in your Wealthfront account, you cannot trade any of those securities 30 days before or after Wealthfront trades those same securities as part of the tax-loss harvesting strategy to avoid possible wash sales and, as a result, a nullification of any tax benefits of the strategy. " I have a 401(k) and a Roth IRA. How would I know if there is a conflict? There's another disclaimer about restricted securities, how would I know if I'm restricted from anything? Also should I even have my money in here? I know very little about investing, my CEO recommended I open the Wealthfront account.
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May 1, 2015 22:49
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Drink and Fight posted:Sorry if this is the wrong thread for this, if so, please point me at the right one? Tax loss harvesting means selling one stock at loss while swapping the same dollar amount for a another well correlated stock. Basically idea is to collect losses for the year to offset any potential gains for the taxable account. The wash sale rule just means the harvesting wouldn't working if you held stock like Vanguard's VTI in multiple accounts. You wouldn't thrown in jail by the IRS, just lose any tax advantage through the harvesting process. As for robo-advisors, I do use Bettermant and Wealthfront. It's basically a decent option IMO for investors who want to do fire and forget investing since they automatically do chores like rebalancing/dividend investing. Another good all in option for simple investing is to go with Vanguard's life strategy funds. etalian fucked around with this message at 23:46 on May 1, 2015 |
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May 1, 2015 23:42
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etalian posted:Tax loss harvesting means selling one stock at loss while swapping the same dollar amount for a another well correlated stock. Basically idea is to collect losses for the year to offset any potential gains for the taxable account. Thanks. So you're saying that unless I want to scrutinize and compare every stock in all my accounts, I shouldn't turn on tax-loss harvesting?
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May 2, 2015 00:16
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Drink and Fight posted:Thanks. So you're saying that unless I want to scrutinize and compare every stock in all my accounts, I shouldn't turn on tax-loss harvesting? It's more the tax harvesting wouldn't work if you held VTI in one account, Wealthfront does the stock substitute swap to harvest the loss but you would run into the wash condition if you bought/sold the same substitute stock all in a 30 day period. http://www.investopedia.com/terms/w/washsalerule.asp etalian fucked around with this message at 03:44 on May 2, 2015 |
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May 2, 2015 00:31
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So I'm back! Watching my net income shrink to nothing is painful, but I'm gonna max my 401k to catch that sweet, sweet employer match. Now I have another problem, though: my fund choices suck. My lowest expense ratio is .5 for an S&P 400 index fund (I guess heavily weights towards mid cap). In an idea world, I'd find the closest approximation to a 50 VTSMX/40 VTIAX/10 VBMFX that I could and call it a day. The problem is, the best option for large cap US stocks is .94 ER, bonds is .85 ER. International stocks and small cap are both 1.22 ER. So I can build a balanced portfolio and eat high expense ratios, or I can shove 90/10 S&P400 index / .85 ER bond fund and hope for the best. Is that a terrible idea?
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May 2, 2015 02:11
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What companies should I invest my fake money into in one of Investopedia's simulator games?
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May 2, 2015 02:24
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VorpalFish posted:So I'm back! Watching my net income shrink to nothing is painful, but I'm gonna max my 401k to catch that sweet, sweet employer match. Now I have another problem, though: my fund choices suck. Seems reasonable. If you put a mid cap index and a large cap index on the same chart they'll track each other pretty closely. You could even consider not owning bonds in that account if you have an ira somewhere that you could put some bonds in.
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May 2, 2015 02:27
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warderenator posted:Seems reasonable. If you put a mid cap index and a large cap index on the same chart they'll track each other pretty closely. You could even consider not owning bonds in that account if you have an ira somewhere that you could put some bonds in. I have a Roth and a taxable brokerage account. Should I just be treating it all as one pool for the purposes of balancing? It's gonna be hard to rebalance between them and going forward the 401k will outpace the other accounts significantly when it comes to contributions.
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May 2, 2015 14:39
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