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Yeah. As long as you earn $1 more than you contributed before the end of the year, it doesn't matter if you contribute all of it on January 1 or April 15 of the next year. If you did contribute $7000 on January 1st and then lost your source of income before earning $7000, and earned no other income that year, you'd need to withdraw the excess and pay a penalty for any earnings that excess generated, but you wouldn't be In Trouble as long as you handle it before taxes are due. It's usually better to have money in the market earlier, so it's usually marginally better to contribute earlier, but ultimately the most important thing is to use the space you have available, so do it when you want to.
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Oct 18, 2023 18:36
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actionjackson posted:plan for next year Here is what you can do in 2024 (assuming you are under the age of 50): 7k in a IRA (Roth or traditional depending on your income level. Technically neither if above a certain threshold, but you can do a backdoor conversion to make it a Roth in that case) 23k elective withholdings into your 403b A bit over 4150 into an HSA (or 8300 if you make it for family) You should know about the mega-backdoor roth. If you are choosing to do a roth contribution for your 23k in the 403b, you should just throw more money into the Roth after filling up the other accounts, by exploiting a tax loophole where you can put after-tax contributions into the account, then do a roth conversion on that money. If you are doing the traditional tax-deferred option, you would have to sacrifice that to do this though, since the pro-rata IRS rules prevent you from doing the mega-backdoor on just the post-tax dollars. If you aren't going to do the mega-backdoor, or want to contribute beyond the 79k limit when using the mega-backdoor: High yield savings accounts are fine if you want the money to be liquid in particular, and are also pretty safe investments if you are expecting to retire soon. However, note that you will be taxed at your income tax level on the interest, so there is an additional cost there. Also, if you already have a good emergency fund, and you don't need quick liquid assets in particular, you can use a brokerage account. Assuming you invest in tax efficient funds (eg: ETFs, stocks), that you will hold until retirement, and assuming you aren't going to be making over 500k in retirement, you will only be taxed on 15% of your net gains (plus capital gains tax from your state), which will probably be below your income tax levels. If you withdraw early but keep it in for at least a year, it will still probably be only 15% unless you are making a killer 500k. If you have all your money in roth, the first 40k of withdrawals each year will actually be tax free, and thus be another roth account basically! MegaZeroX fucked around with this message at 18:58 on Oct 18, 2023 |
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Oct 18, 2023 18:50
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esquilax posted:Do you have a source on this? No, I don't have a source I just post on the internet. I'd imagine that it's one of those things that I'd imagine never gets prosecuted because the administrative burden of trying to track daily income would be absurd and wasteful and in the event anyone ever did get prosecuted for it, the IRS would probably have internal rules preventing anyone from checking that sort of poo poo. Still, to the letter of the law, you cannot invest income you haven't earned into an IRA. The only time this is checked is at the end of the year, so functionally you can do it without issue if you're even a little bit certain you'll make more than the contribution limit. Poque posted:correct, that'd be a wild mess of tracking. dollars are dollars. Yeah, this. If you're even a little bit certain you'll make more than $7,000 in a year you can do it without fear.
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Oct 18, 2023 19:23
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jokes posted:No, I don't have a source I just post on the internet. I'd imagine that it's one of those things that I'd imagine never gets prosecuted because the administrative burden of trying to track daily income would be absurd and wasteful and in the event anyone ever did get prosecuted for it, the IRS would probably have internal rules preventing anyone from checking that sort of poo poo. I linked to the IRS publication about IRAs above. It said nothing about needing to invest specifically income that you've earned. It just said that you must earn income that year in order to invest in your IRA. I could invest $7k I received from my very generous aunt for Christmas on January 1. As long as I earn $7k that year it makes no difference. Money is fungible.
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Oct 18, 2023 19:28
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imagining how many new IRS agents would be needed to track the personal cash flows of 168 million taxpaying Americans
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Oct 18, 2023 19:29
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jokes posted:Still, to the letter of the law, you cannot invest income you haven't earned into an IRA. The only time this is checked is at the end of the year, so functionally you can do it without issue if you're even a little bit certain you'll make more than the contribution limit. Literally not to the letter of the law. To the letter of the law, each year at tax time, looking backwards, you must have earned income equal or greater than what you have contributed, or, use the provided mechanism to square that up. There is no law that says you can't contribute money to your IRA until you have earned income equal to that, during that tax year. It's understandable why you'd think this, I don't want you to feel bad or anything, but... this is literally misinformation and you should stop asserting it.
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Oct 18, 2023 19:31
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jokes posted:No, I don't have a source I just post on the internet. I'd imagine that it's one of those things that I'd imagine never gets prosecuted because the administrative burden of trying to track daily income would be absurd and wasteful and in the event anyone ever did get prosecuted for it, the IRS would probably have internal rules preventing anyone from checking that sort of poo poo.
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Oct 18, 2023 19:33
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jokes posted:No, I don't have a source I just post on the internet. I'd imagine that it's one of those things that I'd imagine never gets prosecuted because the administrative burden of trying to track daily income would be absurd and wasteful and in the event anyone ever did get prosecuted for it, the IRS would probably have internal rules preventing anyone from checking that sort of poo poo. I asked which letters of the law in particular say you can't do that, because it appears to me that no letters of the law say that. A lot of people (including myself) have a policy of following tax law even when enforcement is unlikely, so I would request that you either (1) show that it is actually technically illegal or (2) stop spreading bad information. esquilax fucked around with this message at 19:40 on Oct 18, 2023 |
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Oct 18, 2023 19:36
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thanks for the detailed reply!MegaZeroX posted:Here is what you can do in 2024 (assuming you are under the age of 50): yep I'm 41, not married and no kids. Good income my AGI is definitely below 138K! I don't think I'll be doing an HSA next year as I'm switching from a high deductible plan (where I do have an HSA) to a low deductible plan where I simply pay a fixed copays, like 30 for primary, 60 for specialist. quote:
I've heard of those, but my income isn't high enough to where I would be able to utilize it. I don't expect to have anything extra after hitting the limits above quote:
ok thanks. I have 25K in a HELOC but obviously that has a huge interest rate when paying back. My feeling is, if I have more money than I need in a checking account after everything above, why not put something in this high yield account to at least get a few extra bucks? I'm also thinking about if (god forbid) I need to make an unexpected purchase like a new or used car, being able to pay as much in cash as possible, given interest rates. actionjackson fucked around with this message at 20:01 on Oct 18, 2023 |
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Oct 18, 2023 19:55
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Yikes I wanted to leave an afterthought that you can't just contribute to an IRA you also need to have taxable income to cover it. When we unpacked it you people (who are much more well-informed about this than me) established that this is determined annually in arrears, whereas my reading of it was that only income earned within that year can be contributed to an IRA on, essentially, a daily running balance basis. Obviously, I was wrong -- sorry y'all! jokes fucked around with this message at 20:20 on Oct 18, 2023 |
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Oct 18, 2023 20:01
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actionjackson posted:I've heard of those, but my income isn't high enough to where I would be able to utilize it. I don't expect to have anything extra after hitting the limits above Yeah, fair enough. At a 24% tax bracket, and assuming a 15% capital gains rate, ignoring state taxes, assuming your post-retirement tax rate is 0% (AKA assuming tax-deferred income will just never be taxed), and not counting the "extra" tax bonuses of having almost all your retirement income in roths the mega-backdoor roth (for social security, capital gains tax, and miscellaneous), the crossover point where giving up the tax-deferment is roughly putting an extra 31k beyond the limit into the account in 2024 dollars instead of into a brokerage account. Of course, making the assumptions less conservative will make the crossover point lower. This is just for reference in case you get a major raise/bonus or whatever. actionjackson posted:ok thanks. I have 25K in a HELOC but obviously that has a huge interest rate when paying back. My feeling is, if I have more money than I need in a checking account after everything above, why not put something in this high yield account to at least get a few extra bucks? I'm also thinking about if (god forbid) I need to make an unexpected purchase like a new or used car, being able to pay as much in cash as possible, given interest rates. Yeah, this is totally fair, I was just saying that if the purpose wasn't for an emergency fund, then it was probably better elsewhere.
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Oct 18, 2023 20:24
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About a year ago I had a major expense come up and took out a $10k loan on my 401k. I’ve paid back about half of it. I’m currently looking at switching jobs. The new job would also have a 401k. I assumed that I would just be able to keep having the repayment deducted from my check, or be able to send it in manually, but reading up on it that may not be the case? I’m seeing that I may have to repay it immediately when I quit my current job? Is there any way around that? I don’t have $5k to just throw at paying it off. I could have my 401k just eat what’s left (I’ve got way more than enough to cover that) but that would mean I would have to pay a 10% penalty plus taxes on the disbursement. Which is not ideal. Am I stuck eating that or is there some way to just keep paying the loan like I have been? It’s with Fidelity. I do not know if the new job would use fidelity or another broker.
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Oct 18, 2023 20:54
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actionjackson posted:ok thanks. I have 25K in a HELOC but obviously that has a huge interest rate when paying back. My feeling is, if I have more money than I need in a checking account after everything above, why not put something in this high yield account to at least get a few extra bucks? I'm also thinking about if (god forbid) I need to make an unexpected purchase like a new or used car, being able to pay as much in cash as possible, given interest rates. High yield savings accounts are fine, but if you already have a brokerage account, a federal/treasury money market fund or ultra-short treasury ETF is better in almost every case. Especially if you live in a state with income tax (interest from treasuries is state tax exempt, interest from savings accounts is not).
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Oct 18, 2023 22:38
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Fork of Unknown Origins posted:About a year ago I had a major expense come up and took out a $10k loan on my 401k. I’ve paid back about half of it. Read and call, but you're in a rough position and this is one reason (of many) people recommend not taking 401k loans. probably going to have to pay it off. Have you made regular Roth contributions at all? Withdrawing those and using that to repay the 401k loan could be a way to avoid some penalties. You might have some grace period (30-90 days?) which could help mitigate the damage. New job might offer a sign-on bonus?
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Oct 18, 2023 23:03
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CubicalSucrose posted:Read and call, but you're in a rough position and this is one reason (of many) people recommend not taking 401k loans. probably going to have to pay it off. Have you made regular Roth contributions at all? Withdrawing those and using that to repay the 401k loan could be a way to avoid some penalties. drat, guess I’ll have to call them and see what the timeline is. Didn’t expect to be looking for a new job but circumstances changed at my current one to where I need to. I don’t have ROTH savings or really any other savings. Yes I know that’s bad and needs fixed. Doubt I’m looking at getting a sign-on bonus. I’m really surprised that there’s no way to just keep paying off the loan like any other loan. I’m not quitting my job and going to 0 income; I’m leaving and getting a higher paying job. I’m even more capable of paying it off than before. The new job may even use Fidelity as well for their 401k.
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Oct 18, 2023 23:28
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Loan repayment rules aren't there for default risk. They're there to manage tax consequences that are inherent to 401k plans. Is your credit good enough to get a personal loan or low-APR credit card balance transfer? Either of those would be preferable to eating tax+penalty on a $5K disbursement. Especially if your new job would let you pay it down quickly.
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Oct 20, 2023 15:32
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SlapActionJackson posted:Loan repayment rules aren't there for default risk. They're there to manage tax consequences that are inherent to 401k plans. I have good credit so yeah that’s probably the best option. I would have it paid off in about a year and a quarter or so anyway so I can try to find the lowest rate loan I can with a one year repayment. Sucks the interest isn’t going back into my account anymore. How would the balance transfer thing work though? Will credit cards actually let me transfer the balance of the loan onto the card?
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Oct 20, 2023 16:03
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Fork of Unknown Origins posted:I have good credit so yeah that’s probably the best option. I would have it paid off in about a year and a quarter or so anyway so I can try to find the lowest rate loan I can with a one year repayment. Sucks the interest isn’t going back into my account anymore. Those balance transfer checks that credit cards send in the mail would be useful for this. You'd write one of those to your 401K and when they cash it the balance would be transferred to your credit card. Some credit cards will give you a 0% for X months balance transfer offer on sign up if your credit is good enough. There's usually a transfer fee of a few percent though. Example: https://www.alliantcreditunion.org/bank/visa-platinum-card quote:As low as 0% introductory rate for 12 months on purchases and balance transfers (After the introductory period, a low standard variable rate applies ranging from 15.49%–27.49%. Balance transfer fee of 2% of the amount transferred, $5 minimum.)
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Oct 20, 2023 16:14
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It seems my friends 401k does have an option to some kind of self directed investing instead of just the fund selection offered, but its through a mechanism I'm (Canadian) am not familiar with. It seems to be a Schwab account you have to set up, that is linked to the 401k account (not Schwab provider)? Something called a PCRA. Are these things legit? Putting an account in an account feels like a recipe for more fees, but I couldn't see anything. I'm also not sure about the set up process - I've reached out to the 401k provider but they're slow as hell. To make it more confusing, the plan documents and the investment options show different providers for the self directed option, so I'm not 100% sure what needs to be opened. I'm guessing they moved from TD to Schwab and forgot to update.
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Oct 20, 2023 16:33
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Jenkl posted:It seems my friends 401k does have an option to some kind of self directed investing instead of just the fund selection offered, but its through a mechanism I'm (Canadian) am not familiar with. Not familiar with the Schwab offering, but I've seen Fidelity offer "brokeragelink" which sounds similar? It was like an extra $200? / year and the plan already offered a good set of funds. I think some coworkers were saying they did it so they could buy (flavor of the month) which sounded really bad. If someone really wanted to go hard into like, smallcap/value or some international things, and the plan didn't offer those options by default, and the cost was low and/or their balance was high, THEN it probably wouldn't be unreasonable.
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Oct 20, 2023 17:00
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Fork of Unknown Origins posted:
A lot of CCs will let you just ACH a "balance transfer" into your checking account.
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Oct 20, 2023 17:33
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CubicalSucrose posted:Not familiar with the Schwab offering, but I've seen Fidelity offer "brokeragelink" which sounds similar? It was like an extra $200? / year and the plan already offered a good set of funds. I think some coworkers were saying they did it so they could buy (flavor of the month) which sounded really bad. If someone really wanted to go hard into like, smallcap/value or some international things, and the plan didn't offer those options by default, and the cost was low and/or their balance was high, THEN it probably wouldn't be unreasonable. That's a fair call out, but I'm not looking at this for stock picking. I'm specifically looking to access the lowest cost target date funds, or possibly a 3-ish ETF mix. The current offerings are costing 38 bp, getting that down another 30 bps would definitely be worth $200/yr.
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Oct 20, 2023 18:30
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Schwab does have low cost mutual funds. Are you saying they just aren't available in the specific 401k plan? The PCRA thing doesn't look like it has additional fees but it does sound unnecessarily complicated if the 401k has ok options (presumably the 38 bps you mentioned is one specific fund, not every fund)
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Oct 20, 2023 19:52
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The only target date options available are all at 38bps. They don't offer enough funds to cobble together anything else either for less. My plan would be to buy Vanguard Mutual funds in the self-directed account. Or shwab if they have them at that price point I don't really care that much. Literally just using it to access funds in the broader market that do the same for cheaper.
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Oct 20, 2023 19:59
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you don't need to be comprehensively balanced within a specific account type, you just need to be balanced against all your retirement savings. for example, international equities are super expensive in my 401(k) plan so i just buy it in taxable brokerage. most 401(k)s have at least a decent S&P 500 index fund, in the worst case just buy that and balance against it in your IRA or other account types.
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Oct 20, 2023 20:13
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Jenkl posted:It seems my friends 401k does have an option to some kind of self directed investing instead of just the fund selection offered, but its through a mechanism I'm (Canadian) am not familiar with. My workplace offers a similar option: Stick with the 401k account manager and their menu of funds and annual fee, or pay a flat $75/year for a self-directed Schwab account. In my case, the Schwab account would be open to the whole universe of funds any retail investor could choose, so I will most likely switch over once my current fees exceed $75.
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Oct 21, 2023 01:02
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Finally closed my intelligent portfolio account with schwab. Now I have a large chunk of money to dump into VTI. Whenever I dump a large chunk into the market I get hesitant. Time in the market right? It's better if I just buy it all at once?
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Oct 23, 2023 21:21
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You should be nervous the longer you're out of the market, because on average, every day you're not in, you're losing money.
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Oct 23, 2023 21:30
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Yes, just put it in. The market tends to go up a bit more often than it goes down, and it's impossible to predict whether it's about to go up a bit or down a bit, so you just want as much time in the market as possible to get the maximum odds that you take advantage of all the up bits between now and when you need to sell.
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Oct 23, 2023 21:31
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Awkward Davies posted:Finally closed my intelligent portfolio account with schwab. When you get around to selling this in 30+ years, whether the market goes up or down in the next few days, weeks, or months is going to be irrelevant compared to the decades of growth.
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Oct 23, 2023 21:32
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Thank you for the reassurance. Dumped it all in.
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Oct 23, 2023 21:50
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Besides everyone knows it won't drop 2% until 2 days after I click that buy button.
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Oct 24, 2023 12:40
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MegaZeroX posted:If you are doing the traditional tax-deferred option, you would have to sacrifice that to do this though, since the pro-rata IRS rules prevent you from doing the mega-backdoor on just the post-tax dollars. The mega backdoor Roth doesn’t require pro-rating. (Apparently some bad plans do it anyway though?)
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Oct 24, 2023 14:18
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KYOON GRIFFEY JR posted:you don't need to be comprehensively balanced within a specific account type, you just need to be balanced against all your retirement savings. one of the main things that I'm looking forward to with finding a new job is getting my money out of the garbage 401(k) that it's in right now. They don't even HAVE a S&P500 index, let alone a cheap one, and I think the lowest expense ratio for anything is around .80. Target date funds are over 1%.
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Oct 24, 2023 14:47
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The Leck posted:one of the main things that I'm looking forward to with finding a new job is getting my money out of the garbage 401(k) that it's in right now. They don't even HAVE a S&P500 index, let alone a cheap one, and I think the lowest expense ratio for anything is around .80. Target date funds are over 1%. woof. probably still worth it for the tax deduction and match but that's painful.
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Oct 24, 2023 14:48
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On the topic of the mega backdoor Roth: I'm going to get access to it next year, but won't be able to save up to the cap limit. I do have some money earmarked for retirement in a taxable brokerage account, though - is there any reason not to use my extra cap space to "move" it into my 401k by withholding enough that my paychecks are below my living expenses and then selling the taxable stuff off to make up the difference? All I can think of is losing the taxable account's emergency liquidity, but that never anything that I was relying on.
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Oct 24, 2023 15:23
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raminasi posted:On the topic of the mega backdoor Roth: I'm going to get access to it next year, but won't be able to save up to the cap limit. I do have some money earmarked for retirement in a taxable brokerage account, though - is there any reason not to use my extra cap space to "move" it into my 401k by withholding enough that my paychecks are below my living expenses and then selling the taxable stuff off to make up the difference? All I can think of is losing the taxable account's emergency liquidity, but that never anything that I was relying on. Potentially some cap gains taxes. Potentially losing some liquidity for like 5 years. Otherwise yeah, this seems very sensible.
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Oct 24, 2023 15:27
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raminasi posted:The mega backdoor Roth doesn’t require pro-rating. (Apparently some bad plans do it anyway though?)  Well, this is a major revelation to me.
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Oct 24, 2023 15:30
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The Leck posted:one of the main things that I'm looking forward to with finding a new job is getting my money out of the garbage 401(k) that it's in right now. They don't even HAVE a S&P500 index, let alone a cheap one, and I think the lowest expense ratio for anything is around .80. Target date funds are over 1%. Yeah I'm in a similar boat. I forgot to opt out of 401k contributions for a bit so I have some money tied up in it. There's no employer match, the target date funds have an ER of 1.03%, and while there is an SP500 fund its still at 0.5% ER. I guess I'll just shove everything into that and aggressively max out my Roth IRA and the better funds it has access to.
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Oct 24, 2023 18:09
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Jabarto posted:Yeah I'm in a similar boat. I forgot to opt out of 401k contributions for a bit so I have some money tied up in it. There's no employer match, the target date funds have an ER of 1.03%, and while there is an SP500 fund its still at 0.5% ER. I guess I'll just shove everything into that and aggressively max out my Roth IRA and the better funds it has access to. This sounds like my old plan. Try to get your employer to switch, there are plenty of modern plans out there that are better and cheaper for everyone involved.
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Oct 24, 2023 21:52
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