The Finances and Debt Thread

[Ob1]

I go 401k Match > HSA > Roth IRA = Non-match 401k > Taxable.

Why HSA over roth? Does your company put money towards it?

 

[TopGun]

Why HSA over roth? Does your company put money towards it?

No, but HSA gets the tax advantages of both the traditional and roth IRAs.

 

[Ob1]

No, but HSA gets the tax advantages of both the traditional and roth IRAs.

That's fair, and for a lot of people that is probably a better option because of the triple tax advantages, but for me my HSA has set investment options like my 401k (not great fees, bob), and I don't like that it has to only be used for qualifying medical expenses until i'm old.


Regardless, youre right. For the average person

Match 401 > HSA > Roth IRA> 401k > Taxable

 

[Pick6]

I don't necessarily agree that ROTH is greater than 401k or traditional IRA (assuming eligible to deduct it). Very likely that tax liability will be lower in retirement than in your prime earning years. Defer as much as you can.

 

[Vindicate2]

I don't necessarily agree that ROTH is greater than 401k or traditional IRA (assuming eligible to deduct it). Very likely that tax liability will be lower in retirement than in your prime earning years. Defer as much as you can.

This assumes that income needs stay the same. What if you want help with a kids wedding or have a large medical expense ? Those irregular large expenses could eat up any of the tax gains you mention above.

Furthermore, this assumes that the tax rates are only variable worthwhile considering which I disagree with.

Here are other advantages:

1. ) Roth contributions can be pulled out without (at least for Roth IRAs)
2.) Either form of the Roth avoids RMDs starting at 70.5
3.) Using Roth’s would insure the lower premiums for Medicare part B (since Roth withdrals don’t count against income, social security does)
4.) For inheritance purposes , Roth’s are more desirable both from a tax stand point when taking mandatory distribution
5.) Beyond that , there is some peace of mind in that account that the balance is I what have versus an account value that is inflated knowing taxes will need to come out.

I admit, I probably think about retirement more than most and look forward to both my wife and I retiring early (shooting for around 60), so this maybe overkill for someone purely concerned with saving for retirement. For those interested, I thought I’d share .

 

[Pick6]

This assumes that income needs stay the same. What if you want help with a kids wedding or have a large medical expense ? Those irregular large expenses could eat up any of the tax gains you mention above.

Furthermore, this assumes that the tax rates are only variable worthwhile considering which I disagree with.

Here are other advantages:

1. ) Roth contributions can be pulled out without (at least for Roth IRAs)
2.) Either form of the Roth avoids RMDs starting at 70.5
3.) Using Roth’s would insure the lower premiums for Medicare part B (since Roth withdrals don’t count against income, social security does)
4.) For inheritance purposes , Roth’s are more desirable both from a tax stand point when taking mandatory distribution
5.) Beyond that , there is some peace of mind in that account that the balance is I what have versus an account value that is inflated knowing taxes will need to come out.

I admit, I probably think about retirement more than most and look forward to both my wife and I retiring early (shooting for around 60), so this maybe overkill for someone purely concerned with saving for retirement. For those interested, I thought I’d share .

You're really overthinking it. For example on your medicare point - your premiums only go up if you are recognizing at least 85k (single) or 170k (MFJ) income in retirement. If you have the means/needs to spend that much, great for you! I don't think the medicare premiums going up $10 is a real concern then. There are also ways to get pre-tax money into a ROTH if you feel the need to have post tax money set aside in a normal aged retirement. Look up ROTH ladder. The IRA deduction is completely phased out at 72k (single) and 119k(MFJ) anyways. At that point, ROTH is the only other answer assuming you max out your 401k, so you will have that "emergency fund" readily available anyways.

It really is as simple as comparing current tax bracket vs. what you think future tax brackets will be. You want to recognize the income when your rates will be lowest. Thats how you will have the most money to work with.
https://www.madfientist.com/traditional-ira-vs-roth-ira/

For the record, i'm working hard towards early retirement (no later than 45).

 

[David.]

Just wanted to do this for fun.

San Diego, 600sqft home costs 350k.

Thats a 2100$ monthly payment for 30 years.

You do not get a home in San Diego on a median income. Or anywhere near it.

 

[Zog]

Dude, lots of shit going down right now. Got into TWO accidents recently. The first one I know I'm not at fault, but the other guy's insurance is trying to say it's 50/50. I'm currently fighting that. The other accident, I'm definitely at-fault for, but the other guy is saying he's injured when I have him on video, saying he wasn't. I only have liability, so that sucks. The collision company is saying that it's $8.5k to fix my car, but that's BS because I looked it up, and the parts are all about 25-50% in cost compared to what they're quoting me. I think I can get it down to $4k. They offered to allow me to purchase them, which I might. We'll see what happens. Got about $10k more to pay off on credit cards before this incident, and I have until Feb 2019 before that debt starts gaining interest again.

That sucks man. Can you just get used parts from the junk yard?

 

[Vindicate2]

You're really overthinking it. For example on your medicare point - your premiums only go up if you are recognizing at least 85k (single) or 170k (MFJ) income in retirement. If you have the means/needs to spend that much, great for you! I don't think the medicare premiums going up $10 is a real concern then. There are also ways to get pre-tax money into a ROTH if you feel the need to have post tax money set aside in a normal aged retirement. Look up ROTH ladder. The IRA deduction is completely phased out at 72k (single) and 119k(MFJ) anyways. At that point, ROTH is the only other answer assuming you max out your 401k, so you will have that "emergency fund" readily available anyways.

It really is as simple as comparing current tax bracket vs. what you think future tax brackets will be. You want to recognize the income when your rates will be lowest. Thats how you will have the most money to work with.
https://www.madfientist.com/traditional-ira-vs-roth-ira/

For the record, i'm working hard towards early retirement (no later than 45).

Fair enough . I admit the more recent advice i have read I may not be maximizing tax efficiency post retirement . I don’t expect to be above of 170 typically , but could I see doing so in certain calendar years (if you include social security for 2 working spouses wit decent incomes plus irregualar expenses ...absolutely).

One could argue going pre tax and then converting between 60-70 to Roth strategically during those years with the lower tax rate. Problem with that is both my wife and I have significant matches from our employers, so we already have significant pre tax , so post tax is more prudent for us. Everyone is different though , I guess that is why they call it personal finance . I just don’t think it is as simple as just saving some dollars as you outline, but I fully admit i’m not an expert and just am planning to retire early.

 

[Zog]

401k Match > Roth IRA > Non-match 401k = HSA > Taxable. NEVER FORGET THIS

I go 401k Match > HSA > Roth IRA = Non-match 401k > Taxable.

Taxable = Brokerage? Or Traditional IRA?

Roth IRA or Traditional IRA is better than non-match 401k on the premise of the fees that are normally associated with 401k plans. Of course, if you roll over the 401k into an IRA and change employers every couple years, that is negated somewhat, but still something to consider. Plus with Roth you can withdraw the principal without penalty, which is nice if you have unexpected large expenses.

I have a non-HDHP plan so I can't do an HSA. For me 401k Match > Roth IRA > Traditional IRA (can't do both RIRA and TIRA, I know) > Non-match 401k

I don't necessarily agree that ROTH is greater than 401k or traditional IRA (assuming eligible to deduct it). Very likely that tax liability will be lower in retirement than in your prime earning years. Defer as much as you can.

There is something to say about not having to worry about what the tax rates will be and how much you'll be withdrawing in a certain year. Having a mix of Roth and traditional investments is best, IMO.

 

[Vindicate2]

Just wanted to do this for fun.

San Diego, 600sqft home costs 350k.

Thats a 2100$ monthly payment for 30 years.

You do not get a home in San Diego on a median income. Or anywhere near it.

David , I know I didn’t post in your other thread , but I respect you immensely with regard to addiction ( I offer nothing in that category with regards to point of reference). From a financial perspective , if you live in southern Cali, Silicon Valley, or Mahanttan I have no idea how you can save . I have a friend in Manhattan and I have no idea how can get ahead . I’m going to ask a dumb question , have you thought of leaving San Diego for no other reason for cost of living reasons so you can get ahead?

 

[Pick6]

There is something to say about not having to worry about what the tax rates will be and how much you'll be withdrawing in a certain year. Having a mix of Roth and traditional investments is best, IMO.

Fair point I guess. Psychological advantages do come into play. Such as paying off mortgage early vs investing in the stock market. Mathematically (and historically) its better to use extra money to invest rather than pay down mortgage. Like I said above though, if you're in a position to save for retirement and take full advantage of all tax advantaged accounts available to you, you're naturally going to have to have some ROTH money. I plan on living on ROTH/taxable as long as I can before reaching normal retirement age.

 

[Vindicate2]

Dude, lots of shit going down right now. Got into TWO accidents recently. The first one I know I'm not at fault, but the other guy's insurance is trying to say it's 50/50. I'm currently fighting that. The other accident, I'm definitely at-fault for, but the other guy is saying he's injured when I have him on video, saying he wasn't. I only have liability, so that sucks. The collision company is saying that it's $8.5k to fix my car, but that's BS because I looked it up, and the parts are all about 25-50% in cost compared to what they're quoting me. I think I can get it down to $4k. They offered to allow me to purchase them, which I might. We'll see what happens. Got about $10k more to pay off on credit cards before this incident, and I have until Feb 2019 before that debt starts gaining interest again.

Guitarlfter, I have a question. Big picture , I see we are a few years in and you have reduced your debt . I realize you
hit a rough patch with the accidents, but is the finish line in sight ? I mean you are expending a lot of energy doing debt gymanstics that you could be spending more time with your family. If you had no debt, would you care about he interest rate? Is that goal still jon the radar or is it elusive?

 

[David.]

David , I know I didn’t post in your other thread , but I respect you immensely with regard to addiction ( I offer nothing in that category with regards to point of reference). From a financial perspective , if you live in southern Cali, Silicon Valley, or Mahanttan I have no idea how you can save . I have a friend in Manhattan and I have no idea how can get ahead . I’m going to ask a dumb question , have you thought of leaving San Diego for no other reason for cost of living reasons so you can get ahead?

Here's the rub - i really like it here. Weather, people, stuff to do. And my Job pays pretty well and I can't do it anywhere else. Id be starting over.. The only thing I can't do is buy a home and I really have to consider how important that is now

 

[Vindicate2]

Here's the rub - i really like it here. Weather, people, stuff to do. And my Job pays pretty well and I can't do it anywhere else. Id be starting over.. The only thing I can't do is buy a home and I really have to consider how important that is now

Gotcha, San Diego is beautiful. Grandparents had an ocean view place in Carlsbad . I understand on the home front with regards to Cali. My cousins grew up in Thousand Oaks and can’t afford to by a house either . My uncle bought a modest home in San deigo that was over a million over ten years ago. If you can swing it , then you will never regret it