Long Term Investing & Retirement: The second best time is now

The Something Awful Forums > Discussion > Ask/Tell > Business, Finance, and Careers > Long Term Investing & Retirement: The second best time is now

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Small White Dragon: Nov 23, 2007; No relation.

kys posted:

Also, I have a lot of money in savings and I like seeing the amount of interest that comes in every month. Is is terrible to leave a lot of money like that sitting around in a taxable account? I don't really need it, I just like to know that it is completely liquid.

I personally don't think so, but it depends on the amount of interest you're getting.

# ¿ Dec 10, 2008 10:29

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# ¿ Apr 29, 2024 15:50

Small White Dragon: Nov 23, 2007; No relation.

SecretFire posted:

Really th only other option with capital preservation is a money market fund, but you're giving up FDIC protection and possibly some liquidity for returns that may not be any larger. A savings account is really the best place for an emergency fund.

Wait, I thought Money Market accounts were FDIC insured? Or is that not what you're talking about?

# ¿ Dec 6, 2009 01:42

Small White Dragon: Nov 23, 2007; No relation.

This is perhaps more medium-term (let's say, 5 years), but it seemed like the best place to ask.

I'd like to start saving towards a house, maybe direct depositing a little bit every month. What should I be looking at? Interest rates at banks suck, but there's not much I can do about that.

# ¿ May 22, 2012 03:45

Small White Dragon: Nov 23, 2007; No relation.

Not sure if this is an appropriate place to ask -- Can I put money in a 529 or something similar for an under-18 relative, without his/her parents/legal guardians having access to the fund, and possibly without them even knowing about it?

Also, I'd love to discuss "medium term investing strategy" if anyone else is so inclined.

# ¿ Jun 4, 2012 03:32

Small White Dragon: Nov 23, 2007; No relation.

SlightlyMadman posted:

Why is it suggested to max out an IRA after your 401k match limit, but before maxing out your 401k? I'm in a weird situation in that my employer decides their matching amount at the end of every year, as an alternative to giving year-end bonuses, so I have no way of knowing what it will be ahead of time. I'm currently maxing out my 401k contribution, but was wondering if there's a really good reason why I should reduce some of that and put it into an IRA instead?

I'm also a bit confused by the phase-outs on IRA contributions based on income. Does that just mean traditional IRA contributions are no longer tax-deductible? Does it have any impact on Roth IRAs?

If I have extra money to save I usually just take 1,000 or so and buy a 5-year CD. Maybe I should at the very least be putting those into an IRA instead?

I believe the advice refers specifically to Roth IRAs.

Roth IRAs are generally considered to have the best tax treatment, in that you do not get a deduction on them, but distributions (once you reach the requisite age) are tax-free. 401(k) get you a deduction now, but any matched funds are essentially free, and free is the best.

As for the income limits, limits apply to traditional (deductible) IRAs if you're eligible to participate in an employer-sponsored retirement plan, regardless of whether you choose to participate or not. There are different income limits on Roth IRAs, and these are imposed regardless of your eligibility or participation for other plans.

# ¿ Jun 6, 2012 00:00

Small White Dragon: Nov 23, 2007; No relation.

keiran_helcyan posted:

Roth IRA income limits are actually meaningless due to a loophole that is widely exploited called the "backdoor Roth IRA". I'd recommend you google that and learn to ignore pesky income limits.

It works roughly like this:

1) Open a traditional (non-Roth) IRA and fund it with $5,000 post-tax (this is the annual funding limit to all IRAs).
2) Let it settle for a couple days (may not actually be necessary)
3) Convert your entire traditional IRA account into a Roth IRA
4) Normally here is where you'd pay taxes for the conversion, however your money has sat for so short in the traditional IRA that you have virtually no earnings to tax.
5) Rinse and repeat every year.

So even though your income might prohibit you from directly contributing to a Roth IRA, with a little workaround you end up funding the Roth IRA regardless.

Note that this assumes you do not have any funds in a traditional IRA.

# ¿ Jun 7, 2012 09:35

Small White Dragon: Nov 23, 2007; No relation.

cowofwar posted:

1. Short term emergency fund.
2. Medium term savings for house down-payments, car purchases, vacations.
3. Long term retirement savings. If you have low expenses you'll want tax-advantaged and after-tax accounts.

Pick a savings vehicle for each. So maybe a HISA for the emergency fund (liquid), a GIC ladder system or equivalent (IRA) for the medium term savings and an investment account for the long term savings.

Is GIC just a Canadian thing?

Also, what are people doing with their medium term savings these days? I hear lots of advice about short-term emergency savings and long-term retirements savings, but little about the "house fund" type of things.

# ¿ Oct 17, 2013 00:13

Small White Dragon: Nov 23, 2007; No relation.

The past several years, I've been opening Roth IRAs with a different mutual/index fund each year for my goal of diversification. However, this means several different accounts to track, each with annual maintenance fee, .etc.

I'm thinking it makes logic sense to move these all to a single account provider. This is easy, right? Any reason I should NOT do this?

# ¿ Oct 21, 2013 05:53

Small White Dragon: Nov 23, 2007; No relation.

Huttan posted:

Putting 12% into pre-tax 401k reduces your income to below the phase-out for Roths.
You are still above the phase-out to deduct traditional IRAs.

Doesn't MAGI (the cutoff for Roth IRAs) require you to re-add any pre-tax retirement contributions?

# ¿ Oct 21, 2013 18:31

Small White Dragon: Nov 23, 2007; No relation.

What are some good Vanguard funds that have a minimum of $1,000? The ones I looked at last had higher minimums ($3,000).

# ¿ Oct 26, 2013 03:06

Small White Dragon: Nov 23, 2007; No relation.

KaboomzZz posted:

There is a lot of wrong advice on the internet about this. The way I understand it is that your Roth must also be at least 5 years old to withdraw, e.g.:
If your Roth is 5 years old or older, and you've contributed say some amount of money (example 20,000) and its now (30,000) you can withdraw up to 20,000 without paying a tax or penalty.
If your Roth is less than 5 years old, and you've contributed say some amount of money (example 20,000) and its now (30,000) you cannot withdraw anything without being penalized at minimum the 10% tax.

I believe the 5 year rule only applies to Roth conversions.

edit: not a CPA/EA/.etc

# ¿ Oct 28, 2013 06:58

Small White Dragon: Nov 23, 2007; No relation.

evilalien posted:

Rolling it to an IRA is usually the best option unless your old 401k has better investment options available than Vanguard for example, but that isn't too likely. You just probably just roll it over to Vanguard.

One thing to be aware of is that, in some states, 401k's have much stronger legal protection than IRAs do.

# ¿ Oct 29, 2013 20:35

Small White Dragon: Nov 23, 2007; No relation.

Popete posted:

It seems a Roth IRA is the way to go over a traditional as you pay the taxes now instead of in the future when (likely) taxes would be higher. Is there something I'm missing or is Roth the way to go?

For most people this is true, but it's also hard to speculate what kind of changes there could be to tax law over the next forty years.

# ¿ Oct 29, 2013 22:16

Small White Dragon: Nov 23, 2007; No relation.

For investing in Vanguard (or where ever else), I want to invest towards more than one medium term goal. Is there an easy way to do this?

# ¿ Dec 1, 2013 02:11

Small White Dragon: Nov 23, 2007; No relation.

Hoodwinker posted:

Do you already max out your IRA? If you don't, it might make sense to put it into a better vehicle first.

As for company, either Vanguard or Fidelity or Schwab are generally regarded as all pretty reliable. They each have their own low-cost indexes for the total market. Most people recommend Vanguard because of the corporate structure. If that was the case, you'd buy VTSAX or VTWAX and call it a day.

Is there any disadvantage to buying a vanguard ETF vs one of those funds?

# ¿ Jul 3, 2019 18:17

Small White Dragon: Nov 23, 2007; No relation.

H110Hawk posted:

It's not. You're beholden to $19k on elective contributions, $56k total regardless of how many plans you have. The loophole here is that your self employment sets up a rule for its employee that the 401(k) isn't optional, and that X% (100?) of your earnings are deposited into it. Now you are contributing against the space between $19k and $56k as it's "non-elective." So you could do, for example, $19k at your current employer, they match in $2k, and this leaves you with available space for your self employement of up to $35k.

I'm curious if someone can elaborate on this. I tried googling for "solo 401k mandatory contribution" but it didn't turn up a whole lot that seemed relevant.

This is a mandatory contribution from your pay, not one out of the employer's pocket, right? I found references from a few solo 401(k) providers about mandatory contributions from the employer, and those seem to be limited to like, 25% of compensation.

# ¿ Jul 3, 2019 23:26

Small White Dragon: Nov 23, 2007; No relation.

H110Hawk posted:

Seems you're correct - 25% is the cap. There is an example in this document: https://www.fidelity.com/learning-center/personal-finance/retirement/self-employed-401k

I've actually been looking into this recently and it seems like the only way around the elective deferral limit for a solo 401(k) is:
- Employer contributions (this requires you to pay yourself a massive salary, however).
- Nondeductible after-tax contributions (has to be specifically elected in the plan agreement; generally not the default).

If I'm missing anything, I'd love to hear.

# ¿ Jul 4, 2019 04:41

Small White Dragon: Nov 23, 2007; No relation.

moana posted:

If you're self employed, it's all pass through income, there's no "salary" required. You can contribute 25% of your self employment profit with some roundabout calculation that actually takes you down to 20% of profit. Or am I misunderstanding what you're asking?

Sorry, I was thinking in the context of an owner-only company.

# ¿ Jul 4, 2019 06:34

Small White Dragon: Nov 23, 2007; No relation.

moana posted:

Yeah, that's the same as being self employed / sole proprietorship. Any income will have to be distributed and taxed, whether as salary or otherwise, and so you can use it all as earned income to qualify for your solo401k limit.

In this case, though, you can have separate compensation and profit streams. (Both are taxed, although differently.)

# ¿ Jul 5, 2019 02:02

Small White Dragon: Nov 23, 2007; No relation.

Gazpacho posted:

Citi offers the high rate in 41 states and point-oh rates elsewhere on the same account, which suggests they're trying to boost their presence in those states and could discontinue the high rate when they're done. Which isn't necessarily a problem, if you are always prepared to move on.

I was thinking maybe those rates were only available in states where they don't have a physical banking presence.

# ¿ Jul 10, 2019 05:33

Small White Dragon: Nov 23, 2007; No relation.

WithoutTheFezOn posted:

I notice the Accelerate thing isn�t available in four of the five largest states, only Texas.

Citi has a large physical presence in California, but sold their Texas branches a while back.

# ¿ Jul 10, 2019 18:00

Small White Dragon: Nov 23, 2007; No relation.

Trabant posted:

Hello thread. Liked and subscribed.

I'm about to switch my 401(k) from pre-tax to Roth. Not a conversion (like DACK FAYDEN is considering) but simply to stop contributing to the pre-tax and start contributing to Roth. I've maxed it out and get the full company match and will continue to do so.

My employer is now allowing post-tax contributions of another $29k above the 401(k) limit which can be automatically converted in-plan to Roth. So unless my investments gain like crazy in the 24 hours it takes Fidelity to make the conversions, I should have no real tax bill due to the conversion, and both the contribution and the gains should eventually be tax-free.

Assuming that I'm comfortable with the increased tax hit up front (due to the switch from pre-tax to Roth) and lower take-home (due to the additional post-tax contributions), can anyone give me a good reason not to do this?

Are you fairly certain your tax rates are going to be higher in retirement than they are now? If you can comfortably contribute ~$50k to a retirement fund in a given year, I'm presuming you're probably in peak earning years. It's hard to tell what the tax landscape might look like in a few decades, but it might be advantageous to do some pre-tax, too. (You can do the any part of that first $19k as pre-tax but the net $29k has to be post-tax.)

edit: Also, if you don't have any pre-tax IRAs, you can ALSO do a Backdoor Roth IRA. The tax savings alone on doing $19k pre-tax are probably enough to max out one of those ($19,000 * 32% ~= $6000).

Small White Dragon fucked around with this message at 20:16 on Jul 11, 2019

# ¿ Jul 11, 2019 20:13

Small White Dragon: Nov 23, 2007; No relation.

Trabant posted:

Turning 40 soon, so I hope I'm not at the peak of my earning yet. I mean, I might be if anyone at my employer actually realizes I'm massively overpaid for what I do... but I'm not about to volunteer that information. Anyway, I do think taxes will go up both for myself (if I'm able to keep tricking employers into getting overpaid) and because the US just has to raise them at some point. Or the country will default in which case at any attempt at planning anything.

(I know, I know, that's been said for decades and we're still waiting...)

Sure, the US government will almost certainly need more revenue down the line, but the jury is out on how that might be accomplished. For example, if push came to shove, we might end up with a federal VAT in addition to income tax, like most every other country has. What I'm trying to say is, future tax benefits could always be taken away or lessened, but a deduction now is for-sure.

edit: removed other parts, as other commenters already addressed the backdoor IRA part

# ¿ Jul 11, 2019 21:23

Small White Dragon: Nov 23, 2007; No relation.

Trabant posted:

1) Contribute to the traditional IRA basically as much as you can (since there is no limit to the backdoor conversion) using... any source of money, including savings?

While there is no limit on conversions, IRA contributions are capped at $6,000 this year ($7,000 if you're 50 or over) regardless of the kind of contribution.

But otherwise, that looks about right. And FYI, there's a special form (form 8606) you'll need to include on your tax return when you do this.

Small White Dragon fucked around with this message at 21:51 on Jul 11, 2019

# ¿ Jul 11, 2019 21:48

Small White Dragon: Nov 23, 2007; No relation.

Yond Cassius posted:

There's a small meltdown going on over at the Wall Street Journal comments section (paywall warning), because, in some ways, this is already starting. Nobody's coming for a second go at Roth IRA funds, but they're taking some wind out of the dynastic wealth-building potential of really big IRAs. Most of the article is guillotine bait, but the short form is that, if the SECURE Act becomes law, it'll adjust the rules on payouts for non-spousal inheritance of IRAs.

Right now, if you Mitt Romney the hell out of your IRA and die with leftover money, you can leave it in trust to your kids and/or grandkids and trust-fund them for the rest of their (actuarial) lives. The new rules say that non-spousal beneficiaries will have to take out all the remaining funds in an IRA within 10 years, pushing that income A) closer to "now" and B) into higher tax brackets.

While I'm not trying to suggest that Congress will fully rescind all of the tax benefits of Roth IRAs one day, it's entirely plausible that the future tax benefits of Roth IRAs may be worth less than currently expected.

# ¿ Jul 12, 2019 10:27

Small White Dragon: Nov 23, 2007; No relation.

mmj posted:

In general is there any reason to wait until the end of the year to max out an IRA contribution or should I just do it as early as possible to get it out of the way? Like if I have the 5500 available at the start of the year should I put it all in or make deposits over time?

If you were planning to do a pre-tax/Roth IRA and there's the possibility that you could get a bonus or something that might put you over the contribution thresholds? I've heard it can do a PITA to undo.

# ¿ Jul 12, 2019 21:18

Small White Dragon: Nov 23, 2007; No relation.

H110Hawk posted:

You probably want a "SIMPLE IRA" plan - it's made just for folks like you assuming you have some small business number of employees.

This is correct, a SIMPLE IRA is much easier administratively than a 401k. However, it does have a few minor disadvantages, which you may or may not care about :

* The cap is lower ($12k instead of $19k)
* the match rates are fixed
* there's no Roth option
* it will complicate backdoor Roths.

# ¿ Jul 13, 2019 00:04

Small White Dragon: Nov 23, 2007; No relation.

facepalmolive posted:

Question of my own: My previous (large, with lots of negotiating power) employer's 401(k) plan allowed for mega backdoors, so I in fact did do that very bougie thing.

I now work for a much smaller company. It offers pre-tax and Roth, but it doesn't appear as if after-tax 401(k) is an option. If I just went up to my plan administrator and just asked, how likely is it for them to add after-tax + in-service withdrawals as a choice?

In other words, does it 'cost' the company anything to add it as a choice? Is Fidelity less incentivized to offer my company the choice?

It's not a default feature of 401ks, it specifically has to be added into the plan document. It supposedly adds overhead as there is required means testing, and (potentially) refunds of some of the after-tax contributions if the benefit too heavily favors HCEs (highly compensated employees).

However, no harm in asking. Most people, I think, aren't even aware of it.

# ¿ Jul 13, 2019 05:09

Small White Dragon: Nov 23, 2007; No relation.

Tab8715 posted:

Why would I chose a traditional 401k over a Roth 401k? Taxes will undoubtably will go up no?

The federal government will probably need more revenue in the future, sure, but maybe at that point we'll have swung politically to the left and there will be just high taxes on the wealthy, or maybe they will raise revenue using VAT or excise taxes, or maybe they change the rules entirely (unlikely) and eliminate tax-free gains from Roths. These things are hard to predict, but point is it's far from certain that your income tax rate will be higher later.

(Personally, I'm a fan of "diversifying" your tax strategy.)

P.S. All that said, if you think you might move later in life, consider taking state taxes into account, as well. If you live in California and might want to retire in Nevada, or whatever, there's a pretty sizable tax rate difference right there.

Small White Dragon fucked around with this message at 05:43 on Jul 30, 2019

# ¿ Jul 30, 2019 05:33

Small White Dragon: Nov 23, 2007; No relation.

Guinness posted:

Unless you ever intend to take advantage of the backdoor Roth IRA due to income limits. Then you don't want any traditional IRA balances.

This. Also be aware that 401K's have much stronger legal protection than IRAs in most states, on the off chance you get sued or something.

# ¿ Sep 6, 2019 03:42

Small White Dragon: Nov 23, 2007; No relation.

Kylaer posted:

Never don't invest. The people claiming they know what's coming do not know what's coming. Sky-is-falling viewpoints are ever-present and should be ignored.

Edit: also, you can't make catch up contributions to a 401k. Use the space each year or lose it.

Is there a cash equivalent offered by the 401(k)? If that's what you think, I'd put money into the 401(k) to take advantage of the tax-advantage space, but not actually invest into a fund or whatever until later.

# ¿ Oct 14, 2019 01:55

Small White Dragon: Nov 23, 2007; No relation.

Hoodwinker posted:

I'm starting a new job in which one of the signing perks was $97k in RSUs. The stock is public, but the vesting schedule is a 1 year cliff with a 3 year total vesting period. My plan is to sell off as shares vest. I have to do a bit more reading, but my understanding of the tax situation is that I'll owe taxes on the stocks as they vest and then either short/long term cap gains on any gains above that (when I sell, with the initial price at grant being my basis). First, is my understanding of the tax situation correct? Second, this makes the most sense, yeah? Obviously I want to diversify my portfolio away from being so focused in my own company (parent company, actually), but I'm not sure if it makes sense to wait a year due to tax considerations. There's a 7% difference between my marginal and the LCTG rate.

With most RSUs, I believe they're taxed when they vest, meaning there's no significant gain to be had by holding on.

# ¿ Oct 18, 2019 02:46

Small White Dragon: Nov 23, 2007; No relation.

SA-Anon posted:

Anyway, I was talking to one of the people in charge of my 401k plan today, they mentioned something interesting... So if I go over the IRS limits it rolls into... pre-tax? (Or is it pre-tax rolling over into Post-Tax) Either way, they made it sound like theres a way to put more money in your 401k, past the the IRS limit of 18.5k, but it rolls into a different account or something...

Some 401(k) plans permit contributions in excess of the 19k limit. These contributions are post-tax but can often be converted to a Roth.

# ¿ Nov 6, 2019 08:59

Small White Dragon: Nov 23, 2007; No relation.

I realize it's not worthwhile to try to time your investments, but what about timing Roth conversions?

# ¿ Dec 18, 2019 19:56

Small White Dragon: Nov 23, 2007; No relation.

Mu Zeta posted:

The Secure Act is supposedly helping people to kickstart their retirement savings by giving small businesses incentives to start 401k programs. Wouldn't it be a lot simpler and easier to just let people pack away 20 grand a year into their IRA?

I agree that it sucks that how much tax-advantaged retirement space you have is tied to your employer, but I think the ultimate goal is to hopefully get most people auto-enrolled so money is automatically withheld for retirement; that's harder to do in the IRA space.

# ¿ Dec 26, 2019 00:53

Small White Dragon: Nov 23, 2007; No relation.

Mu Zeta posted:

I see people post about hating California but when we split off they are going to miss eating affordable avocados and almonds and garlic. They'll see. They'll all see!

After that happens and San Angelis becomes some kind of big city state, I look forward to produce from the new states of South California, East California, and Jefferson.

# ¿ Jan 3, 2020 22:54

Small White Dragon: Nov 23, 2007; No relation.

MJP posted:

1) Around how much does one spend on just raising one child, excluding future college savings/529s and stuff?

Supposedly the average cost is around $14,000/year (source) but it can vary heavily depending on your area. In places like NY, SF, LA, just the increased rent for an extra room is probably the biggest cost.

# ¿ Jan 13, 2020 16:51

Small White Dragon: Nov 23, 2007; No relation.

Animal posted:

If the FSA bank is not trying to scam you and you are definitely gonna spend that amount of money anyways then it would be stupid not to use that FSA and save on taxes. For those who are not aware, unlike an HSA, the FSA acts like an interest free loan which you pay through the year and your payments come off before taxes from your paycheck. The catch is that if you don�t use all of the loan money by the end of the year, you lose it and your employer keeps it and has to use it to keep funding their FSA program so it ends up back in the hands of the FSA provider. So there is an incentive there for them to be skeptical and interfere as much as possible with your attempts to get your distributions.

Some FSAs allow for limited rollover fwiw (mine is up to $500).

Also if you leave that employer, I believe the FSA is forfeit.

# ¿ Jan 29, 2020 14:20

Small White Dragon: Nov 23, 2007; No relation.

SeaWolf posted:

I've always contributed to a Roth IRA so I never did forms for the IRS (whoops maybe??). But in 2019 I switched to a traditional, and now it's tax time... Vanguard says forms won't be available until AFTER 4/15 because I can contribute for last year until then even though I'm definitely already way maxed... How do I do my taxes without this??

Don't you know how much you contributed?

# ¿ Feb 2, 2020 03:28

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# ¿ Apr 29, 2024 15:50

Small White Dragon: Nov 23, 2007; No relation.

SeaWolf posted:

On that note non deductible... The past 6 years I've been doing Roth IRA I haven't done anything... So I kinda hosed up?

I don't think you actually have to report Roth IRA contributions. You do, however, have to report traditional contributions and any conversions from traditional to Roth.

# ¿ Feb 2, 2020 04:30

The Something Awful Forums > Discussion > Ask/Tell > Business, Finance, and Careers > Long Term Investing & Retirement: The second best time is now

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