posted by gut

Ehhhh, unless you have highly variable income, or expect to be in a higher bracket in retirement (perhaps because of inheritances), then I don't see the point of backdoor Roth.  If your tax rates remain constant, then the value of the Roth IRA and 401k are identical.  Most people are going to come out ahead putting that conversion cost into a brokerage account and paying l-t capital gains on the returns.

When you do the conversion, you're taxed at ordinary rates....and if you put that tax instead into a brokerage account, that can grow to be a sizeable amount (investment returns subject to 15% long-term capital gain), which means your income bracket in retirement has to be significantly higher than now for a Roth conversion to make sense.

I get what you are saying, but there is a fairly significant chance we are going to get a huge detrimental revision to the tax code. So i'm more hedging against a dramatic regime swing than trying to maximize the total dollar amount. I'm also banking on losing 100% of my SS contributions (even if they find a way to fund it when i am eligible, under current code i'm only going to see 15%). 

Anyone have a good, inexpensive site to buy/sell stocks?

Fidelity is $4.95 per trade, I believe Schwab is as well.

Got a little request on what I should do. I think I know the route I'll take, but just wanted to get some additional feedback.

Here's the situation: I have two different student loans. I will pay off one by October this year. I also have one child coming off childcare costs in May, and another one in May 2020. Should I...

1. Take what I'm paying for childcare (either all or partial, doesn't matter) and put that toward my other student loan?
2. Stay course with the regular student loan payments and utilize the childcare expenses towards other things (savings, house, cars, etc.)?

I am already paying between 3-4x my regular student loan monthly payments. The difference between payoff time from #1 to #2 is only 13 months (1 -- June 2022; 2 -- July 2023).

As long as you have 6 months worth of expenses in your savings, I would pay off the higher interest student loan debt with the extra money.

If your car loan is only at 2% or so, I wouldn’t worry about paying that early as you can make more in the market or even in a savings account.

After that, the harder decision is whether to put the extra money in the market vs pay more on a mortgage. This is the internal struggle I have. 

Make more money than I spend

Yeah, long-term you have to look at what offers the best return for your money.  You should be able to average at least 6% after-tax in the market.  After-tax your mortgage interest should be about 3% or less (on an asset that should be appreciating at about that rate).

That's not advocating that you overspend, but any time you can borrow at a low rate and then save/invest at a higher rate...you do that all day.

posted by queencitybuckeye

Fidelity is $4.95 per trade, I believe Schwab is as well.

I don't really advise people buy individual stocks - it's pretty much straight-up gambling once you understand the people driving stock valuation have WAY MORE time and information than you do.  Spend your time on asset allocation, that drives most of the return, anyway.

Vanguard has a ton of very low-cost ETF's, and you can buy/sell their ETF's with no transaction fees up to like 24 times a year.  Now I've not found good ETF's, really anywhere, for fixed income.  But you can make almost every broad equity play you want with ETF's - small cap, large cap, value, growth, emerging market, EMEA, tech, healthcare, etc....

posted by j_crazy

I get what you are saying, but there is a fairly significant chance we are going to get a huge detrimental revision to the tax code.

Hard to argue with that.

My plan is in the first 5-10 years of retirement to live off savings in a brokerage (i.e. low taxable income) and then do Roth backdoor conversions until the marginal rate doesn't make sense to convert more. I'm banking backdoor conversions aren't done away with, obviously.

So that's how I will achieve balance between taxable 401K distribution and non-taxable Roth IRA distributions.  There's always going to be progressive tax, so up to a certain amount of income should always come from your 401K (less any social security received).  Then, once you're into higher marginal rates, you would draw income from a Roth IRA or from a brokerage account (which would be subject to a 15% capital gains, that may increase but the lower bracket for cap gains has been 15-20% for a long, long time).

To me a Roth conversion is very costly, especially if you believe SS is going away.  Because you might be drawing up to $80k from a 401K until you a married couple hits a marginal rate over 15%.  That means, in today's dollars, you should have about $2M in your 401K before you start thinking about shorting your 401k contribution for a Roth or Brokerage account.

I also haven't mentioned state taxes.  The 401K contribution is not taxable at the state level - a Roth conversion is (because it's ordinary income).  This is very significant, especially when you consider many people might retire to a state with no income tax....so you're not just deferring but completely avoiding the state income tax on that money.

posted by gut

I don't really advise people buy individual stocks - it's pretty much straight-up gambling once you understand the people driving stock valuation have WAY MORE time and information than you do.  Spend your time on asset allocation, that drives most of the return, anyway.

Vanguard has a ton of very low-cost ETF's, and you can buy/sell their ETF's with no transaction fees up to like 24 times a year.  Now I've not found good ETF's, really anywhere, for fixed income.  But you can make almost every broad equity play you want with ETF's - small cap, large cap, value, growth, emerging market, EMEA, tech, healthcare, etc....

Ill look into the ETF's.

My 401Ks have been at over 8% so far this year and both my full and part time jobs match 5% so that has been going decent.  I was just looking to be a novice and also teaching the boy savings and investing and such.

I had seen an add long ago about robinhood so I did that as it is free.  I really just wanted to start investing in cannibus stocks.  Not really throwing much money, just throwing some $$ at it from time to time that I would be blowing on nothing anyways.  

posted by thavoice

Ill look into the ETF's.

My 401Ks have been at over 8% so far this year and both my full and part time jobs match 5% so that has been going decent.  I was just looking to be a novice and also teaching the boy savings and investing and such.

I try not to discourage people from buying individual names, because that's usually the trigger that gets the reading financial news, following markets, looking at economic indicators, etc.  So small allocations to specific names have a positive impact for those reasons.  But, truthfully, most of the pros can't beat their benchmark indexes..

Absolutely the rule is to contribute at least enough to your 401K to get the maximum match.  Most people should, if they can, contribute the maximum allowed of $18,500 or thereabouts.  That and your house should be your primary savings vehicles.  Maybe a 529 for the kid's college.  But all those have preferable tax treatment, so should be maxed/right-sized before other less tax-advantaged savings choices.

posted by gut

I try not to discourage people from buying individual names, because that's usually the trigger that gets the reading financial news, following markets, looking at economic indicators, etc.  So small allocations to specific names have a positive impact for those reasons.  But, truthfully, most of the pros can't beat their benchmark indexes..

Absolutely the rule is to contribute at least enough to your 401K to get the maximum match.  Most people should, if they can, contribute the maximum allowed of $18,500 or thereabouts.  That and your house should be your primary savings vehicles.  Maybe a 529 for the kid's college.  But all those have preferable tax treatment, so should be maxed/right-sized before other less tax-advantaged savings choices.

To me it really has gotten me to look more closely and study and research.     I am not looking to get rich, retire off of stocks moving forward but if I can make a little bit off an industry that is in its infancy then I am fine with it.

The Thrift Savings plans that I have invested in have traditionally done pretty well so hopefully over the decades it continues

posted by thavoice

The Thrift Savings plans that I have invested in have traditionally done pretty well so hopefully over the decades it continues

That's reminds me of a good point - some people have LOUSY 401K investment choices, like 10 crappy mutual funds and that's it.  So in the long-run underperformance is killing any sort of tax advantage you gained.  But when you change jobs you can roll that over into a brokerage retirement account that lets you invest in almost anything.

posted by iclfan2

As long as you have 6 months worth of expenses in your savings, I would pay off the higher interest student loan debt with the extra money.

If your car loan is only at 2% or so, I wouldn’t worry about paying that early as you can make more in the market or even in a savings account.

After that, the harder decision is whether to put the extra money in the market vs pay more on a mortgage. This is the internal struggle I have. 

I originally thought that paying off the debt would be the best thing. But, I've done some calculations and I'm not sure that's the case.

If I pay off the loan debt, it'll still take me until June 2022. If I don't, it'll take me to July 2023. But, that money that we are not paying toward childcare will all be saved and I'd have a TON more money in savings than I would if I put the extra money toward the debt.

We knew that 2017/18 until 2022/23 would be the hardest 5 years of our lives financially -- 3 kids in childcare plus all these payments. Thankfully, we only have my loan debt and a mortgage. Once the loan, and/or the kids are out of childcare, we will definitely be moving to a better area and a better house. So, saving up seems to me as a more ideal scenario. 

But, my mind can be changed if it makes more sense to pay off early. I just cannot think that having less in savings would be more beneficial than more. Especially when the only difference is 13 months.

posted by gut

Hard to argue with that.

My plan is in the first 5-10 years of retirement to live off savings in a brokerage (i.e. low taxable income) and then do Roth backdoor conversions until the marginal rate doesn't make sense to convert more. I'm banking backdoor conversions aren't done away with, obviously.

So that's how I will achieve balance between taxable 401K distribution and non-taxable Roth IRA distributions.  There's always going to be progressive tax, so up to a certain amount of income should always come from your 401K (less any social security received).  Then, once you're into higher marginal rates, you would draw income from a Roth IRA or from a brokerage account (which would be subject to a 15% capital gains, that may increase but the lower bracket for cap gains has been 15-20% for a long, long time).

To me a Roth conversion is very costly, especially if you believe SS is going away.  Because you might be drawing up to $80k from a 401K until you a married couple hits a marginal rate over 15%.  That means, in today's dollars, you should have about $2M in your 401K before you start thinking about shorting your 401k contribution for a Roth or Brokerage account.

 

I also haven't mentioned state taxes.  The 401K contribution is not taxable at the state level - a Roth conversion is (because it's ordinary income).  This is very significant, especially when you consider many people might retire to a state with no income tax....so you're not just deferring but completely avoiding the state income tax on that money.

agree with all of this. but i'm not working to 60. I'm going to shut it down at 50 (not to a point of not working but going to a MUCH less paying and much less stressful job) so I'll need to be able to get to 59.5 with taxable individual investment accounts, savings etc. hence my want to fund that instead of the 401k, my IRA and 401k combined will be more than enough to live off of once i hit that 59.5 mark, so i'm not worrying about that. AND i'm not talking about not funding the 401k at all, i'll still put in whatever is required to get the match (and realistically, that will be roughly 75% of the max contribution anyway, i'm just saying instead of bridging the gap to get to 19k/yr (or whatever it is at that time) just adding that amount to my normal taxable investment plans.