Author Topic: Case study: Social worker that is bad at math but wants to FIRE  (Read 2496 times)

italianant

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Life Situation: We are a 33 year old married couple with no children living in Grand Rapids, MI. We are have always filed married jointly, but this past year we did do married filing separately and will do this the next year as well. 

Gross Salary/Wages: Me: $52500, husband: $46000

Individual amounts of each Pre-tax deductions
Per my error, I need to look up these exact numbers, however both my husband and I have 6% of our paycheck withheld for retirement and our respective employers do a 6% match. I also have additional monies taken out to fund my HSA. $370/month goes to my HSA which includes the employer contribution.

Other Ordinary Income: I do a side job managing Facebook business pages for $150/month

Adjusted Gross Income: combined $91,000 for 2017

Taxes:
my federal taxes: $4000, husband federal taxes: $4400
my state: $650, husband state: $1880

Current monthly expenses:
Mortgage- $850 but we put an extra $200 towards
  Ė P&I: $546.27, Escrow amount for T&I $285.20
Gas/electric - $125
Internet- $50
Water - $50 (but paid quarterly)
Groceries - $365
Dining out - $250
Entertainment - $50
Phones - $95
Auto payment - $303 but we are paying an extra $700, sometimes more
Gas/fuel - $150
car insurance - $135 (but paid bi-annually)
My student loans (husbands are paid off woot woot) - $298
Housekeeping $60
Contribute to Roth IRA $350
Miscellaneous (shopping, personal care, donation, gifts, etc.)- $250 (this is difficult to determine because I'm having ongoing issues with mint that is including redundant expenses that fit into other categories already)

Expected ER expenses: We would like to travel

Assets:
2016 Subaru Forester (per mint valued at $22,760)
2012 Ford Focus Ė paid off :)  (per mint valued at $9000)
House Ė owe $100,789 at 3.5% interest rate, (per zillow valued at $193500)
Savings account -- $18000

Me: 401K- $9500
Husband 401K - $54,300
Traditional IRA $34600
Roth IRA $27600
Joint mutual fund $10365

Liabilities:
2016 Subaru Forester Ė original loan amount is $19100, currently owe $13,100 at 4.59% interest rate, should pay it off in 1 year or sooner.

My Student loans Ė  owed principal balance $65800, unpaid interest $4440.00, average interest rate is 5.81% **I'm currently on an income based loan repayment as I am trying to get my loans forgiven after 10 years of service in a non-profit organization. They advise against paying additional towards the principle (I know, stupid). I am on track to have them forgiven next year.

Specific Question(s):We're looking at 1. How are we doing? 2. What can we do differently/better? 3. Any other general opinion/input

Filled out this fire calculator too-- FIRE # is currently 48. We want it lower of course!

https://engaging-data.com/fire-calculator/?age=33&initsav=136374&spend=38630&initinc=60000&wr=4&ir=1&retspend=40000&stockpct=80&fixpct=18&cashpct=2&graph=fix&secgraph=0&stockrtn=8.1&bondrtn=2.4&MCstockrtn=8.1&MCbondrtn=2.4&tax=7
« Last Edit: October 17, 2018, 07:01:23 AM by italianant »

Cwadda

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Re: Case study: Social worker that is bad at math but wants to FIRE
« Reply #1 on: October 16, 2018, 08:07:39 PM »
Overall I think you're doing great. Any plans for kids in the future? That would adjust your FIRE calculations for obvious reasons.

Quote
Groceries - $365
Dining out - $250
Entertainment - $50
These items stick out most to me. $365 is pretty hefty for 2 people. You might be able to bring that down to $200 or $250. The dining out and entertainment is fairly high as well. That's maybe 6-7 meals per month. I guess that isn't so much when put that way, but hey, I guess there's always room for improvement and aggressive saving!

MDM

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Re: Case study: Social worker that is bad at math but wants to FIRE
« Reply #2 on: October 16, 2018, 08:10:34 PM »
Individual amounts of each Pre-tax deductions
Me: 401K- $9500
Husband 401K - $54,300
Traditional IRA $34600
Roth IRA $27600
Joint mutual fund $10365
Perhaps these are your asset numbers?

"Pre-tax deductions" are what come out of your paycheck before taxes are withheld, or, such as a traditional IRA, can be deducted on Form 1040.

italianant

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Re: Case study: Social worker that is bad at math but wants to FIRE
« Reply #3 on: October 16, 2018, 08:17:19 PM »
Perhaps these are your asset numbers?

"Pre-tax deductions" are what come out of your paycheck before taxes are withheld, or, such as a traditional IRA, can be deducted on Form 1040.

Shoot- yes, I was wrong. Those are assets. I will correct that, although I don't have the exact amount that get withdrawn from my account I have HSA $, and 6% withdrawn and matched to my retirement account.

italianant

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Re: Case study: Social worker that is bad at math but wants to FIRE
« Reply #4 on: October 16, 2018, 08:23:28 PM »
Overall I think you're doing great. Any plans for kids in the future? That would adjust your FIRE calculations for obvious reasons.

No plan for kids!

And yes I agree with the money of groceries plus dining out. When you add it all together it really is a big number! I meal plan, shop at Aldi a lot, grow a garden in the summer, etc, but I also shop at Farmer's markets and tend to focus on local/organic when feasible. That probably accounts for the higher number in groceries. I think we can put a better focus on decreasing the dining out expense for sure.

lhamo

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Re: Case study: Social worker that is bad at math but wants to FIRE
« Reply #5 on: October 16, 2018, 08:39:07 PM »
Other than the food and gas/fuel expenses, most everything else looks pretty good.  Do you have a long commute?  Any way to bring gas/car use down (we spend about $50/month or less on gas.  But we are FIREd so no commute...)

Cell phone also is higher than it could be, but not awful for two people.

Your tax situation confuses me -- isn't married filing separately usually more expensive?  Also why do you have the higher income but pay lower taxes (both state and federal) -- you can't be contributing THAT much to an HSA...

I would up contributions to retirement accounts beyond the match.  That will help bring your tax bill down.  And once you FIRE or semi-FIRE, you can do Roth conversions to move those funds over into the pots you can access pre-59.5.

italianant

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Re: Case study: Social worker that is bad at math but wants to FIRE
« Reply #6 on: October 16, 2018, 08:49:54 PM »
Your tax situation confuses me -- isn't married filing separately usually more expensive?  Also why do you have the higher income but pay lower taxes (both state and federal) -- you can't be contributing THAT much to an HSA...

Thanks for your input! Regarding the married filing separately- without going into all the details it benefits us for the student loan payments as it goes by my income only rather than my husband's being included. The only reason I can think of me paying lower taxes is that all our insurance premiums are through my employer and HSA contributions (HSA contribution is $200/month). Also, my husband claimed any dividends from the joint mutual funds and had to pay taxes-- but it was only $200. I couldn't tell you beyond that.

I also did not add that we are currently contributing $350 a month towards the ROTH IRA, but did not know where to put this. I'll edit and add to expenses so it's somewhere. Do you still recommend withholding more of our paycheck?
« Last Edit: October 16, 2018, 09:22:23 PM by italianant »

Loren Ver

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Re: Case study: Social worker that is bad at math but wants to FIRE
« Reply #7 on: October 17, 2018, 04:57:29 AM »
Your tax situation confuses me -- isn't married filing separately usually more expensive?  Also why do you have the higher income but pay lower taxes (both state and federal) -- you can't be contributing THAT much to an HSA...

Thanks for your input! Regarding the married filing separately- without going into all the details it benefits us for the student loan payments as it goes by my income only rather than my husband's being included. The only reason I can think of me paying lower taxes is that all our insurance premiums are through my employer and HSA contributions (HSA contribution is $200/month). Also, my husband claimed any dividends from the joint mutual funds and had to pay taxes-- but it was only $200. I couldn't tell you beyond that.

I also did not add that we are currently contributing $350 a month towards the ROTH IRA, but did not know where to put this. I'll edit and add to expenses so it's somewhere. Do you still recommend withholding more of our paycheck?

You are doing pretty good.  For normal Americans you are doing awesome!!

A few things to consider.
I would max out your HSA contributions.  They are $3450 per person and are triple tax advantaged. 

As mentioned previously, I would recommend putting more in your 401k, even if that means less into Roth.  This has the benefit of bringing your income down for tax purposes.  If you can get close to maxing it ($18500 per person) you can save yourself thousands in taxes.  But even if you can't.  Ever dollar you put in is a dollar that isn't taxed at your high income rate now.  Depending on which income your loan payments are based on (before 401k contributions or after), it could save your hundreds in payments before they are forgiven*.  I would really look into this. 

You two are on a great path.  I think you can bring that number down quite a but, especially once those extra payments towards debts start going to savings. 

LV

* please please please make sure you are on track to get these forgiven.  There are been more and more news stories breaking out about people missing a minor things and missing the forgiveness.   

reeshau

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Re: Case study: Social worker that is bad at math but wants to FIRE
« Reply #8 on: October 17, 2018, 05:38:23 AM »
I would max out your HSA contributions.  They are $3450 per person and are triple tax advantaged. 

I would add: "and don't use it for current medical costs."  I don't see an HSA balance in your assets.  Are you saving with it, or using it like an FSA on medical expenses each year?  Do you have investment options on the account?  Done right, it is a significant resource.

* please please please make sure you are on track to get these forgiven.  There are been more and more news stories breaking out about people missing a minor things and missing the forgiveness.   

I second this point, also.  The class of 2017 managed 96 accepted out of 33,300 applications for forgiveness.  Learn from their mistakes, and at least have a rough Plan B in case it doesn't work out.

italianant

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Re: Case study: Social worker that is bad at math but wants to FIRE
« Reply #9 on: October 17, 2018, 06:58:15 AM »

* please please please make sure you are on track to get these forgiven.  There are been more and more news stories breaking out about people missing a minor things and missing the forgiveness.   

I second this point, also.  The class of 2017 managed 96 accepted out of 33,300 applications for forgiveness.  Learn from their mistakes, and at least have a rough Plan B in case it doesn't work out.

yes, yes, yes! I am the guru of this program with my colleagues. I constantly read articles (although I have to stop myself sometimes because I get too much anxiety). So far I think I've done everything right and I have a form they sent that shows all my payments and my previous employers equaling to how many of those qualify towards my forgiveness. Plan B just stinks: 1. Explore getting an attorney and 2. Focus all my money towards paying them off.

Quote
As mentioned previously, I would recommend putting more in your 401k, even if that means less into Roth.  This has the benefit of bringing your income down for tax purposes.  If you can get close to maxing it ($18500 per person) you can save yourself thousands in taxes.  But even if you can't.  Ever dollar you put in is a dollar that isn't taxed at your high income rate now.  Depending on which income your loan payments are based on (before 401k contributions or after), it could save your hundreds in payments before they are forgiven*.  I would really look into this. 

We're going to have to look into this more. I am working with Edward Jones agent on this and this is what he recommended, but of course he doesn't get paid if I use our work retirement accounts. My husband is through Vanguard which based on what I'm reading is well reviewed here.

Quote
I would add: "and don't use it for current medical costs."  I don't see an HSA balance in your assets.  Are you saving with it, or using it like an FSA on medical expenses each year?  Do you have investment options on the account?  Done right, it is a significant resource.

We HAD a balance of somewhere near $10,000 since we're both pretty healthy people. My husband had surgery earlier this year that depleted a lot of those savings (it's why it's there, right?!). The current balance is $2300. It's on this weird credit card instead of a normal bank account so I often forget about it. I also see now that I'm looking at the account more closely, that $185 per paycheck is being deposited, so $370 per month which included my employers contribution to that as well.



As for everything else you guys have given input, THANK YOU! I was really nervous about posting because I thought we were going to be judged (I'm sorry! money is a sensitive thing for me). I can't wait to talk to my husband more tonight about moving around some money to the suggestions you provided. I'm still open to hearing more in the meantime.

reeshau

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Re: Case study: Social worker that is bad at math but wants to FIRE
« Reply #10 on: October 17, 2018, 07:37:12 AM »
We HAD a balance of somewhere near $10,000 since we're both pretty healthy people. My husband had surgery earlier this year that depleted a lot of those savings (it's why it's there, right?!). The current balance is $2300. It's on this weird credit card instead of a normal bank account so I often forget about it. I also see now that I'm looking at the account more closely, that $185 per paycheck is being deposited, so $370 per month which included my employers contribution to that as well.

It is for medical expenses; and $10k is quite a lot of money to spend.  But realize, the HSA is available for medical spending *at any time in the future*, and to Loren's point is both pre-tax on contributions with tax-free growth, if spent on medical.  So, many people view it as part of the solution for FIRE healthcare:  a deep reservoir that does not affect your MAGI if you need to make a big withdrawal.  You do have a good emergency fund, assuming that is the purpose of your $18k savings.  But, first and foremost, you have to get yourselves to FIRE, so you need to use the tools you have at hand.

Most HSA's have a debit card, but that's not usually the end of it.  It's common to have a mandatory deposit level, say $2k to $3k, after which you can place the money into investments.  Who is your HSA provider?  Do they have a website you can investigate?  In the end, like a 401k / IRA, you could also rollover an HSA to your *own* HSA to get access to investments, but you would have to check with the custodian what their rules and costs are around that.

ysette9

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Re: Case study: Social worker that is bad at math but wants to FIRE
« Reply #11 on: October 17, 2018, 09:35:16 AM »
Did I read Edward Jones? You should make it a top priority to get any money out of EJ and into Vanguard. EJ is notorious for inappropriate investments with outrageous fees.

LifeHappens

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Re: Case study: Social worker that is bad at math but wants to FIRE
« Reply #12 on: October 17, 2018, 09:58:47 AM »
Did I read Edward Jones? You should make it a top priority to get any money out of EJ and into Vanguard. EJ is notorious for inappropriate investments with outrageous fees.
I second this. It took me quite a few years to convince my DH to switch from EJ to Vanguard, but it's really worth it. Call Vanguard and they will do most of the work for you.

Also, you are not bad at math! Your financial health is good and you're working to make it better. No need to denigrate yourself.

Peachtea

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Re: Case study: Social worker that is bad at math but wants to FIRE
« Reply #13 on: October 17, 2018, 06:10:55 PM »
I think you have a tax problem that you should look into. You are filing married filing separately and contributing to a Roth IRA. You canít do this if you make over 10k a year. https://www.irs.gov/retirement-plans/plan-participant-employee/amount-of-roth-ira-contributions-that-you-can-make-for-2018

Those contributions get counted as excess contributions with a 6% penalty. And thatís 6% penalty every year you continue to keep those excess contributions in the Roth IRA. No clue how to fix it for your 2017 contributions (if you contributed to Roth last year). For this years, you can withdraw the contributions. Scroll to bottom of this page: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits Not sure where your IRA is at, but if vanguard check here: https://investor.vanguard.com/ira/excess-contribution

This happened to DH and I our first year married. He had no 401k at work at the time and was contributing to both an IRA and Roth IRA. Tax time I learned about the Roth rule. Luckily since it was only a years worth and there was a market drop, we withdrew the contributions at a slight ($20 or so) loss (so no tax consequences).

Note that when you file separately you also donít get the tax deductions on traditional IRA. So you can contribute but are taxed on the way in and out. This a good reason for you guys to instead invest more in your 401k, which for you has the upshot of lowering your payments.

https://www.irs.gov/retirement-plans/plan-participant-employee/2018-ira-contribution-and-deduction-limits-effect-of-modified-agi-on-deductible-contributions-if-you-are-covered-by-a-retirement-plan-at-work

lhamo

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Re: Case study: Social worker that is bad at math but wants to FIRE
« Reply #14 on: October 17, 2018, 06:47:11 PM »
I believe you can still recharacterize Roth contributions for 2017 to regular IRA contributions -- that option no longer applies for 2018 contributions, though.

Not sure if married filing separately means income limits on regular IRA contributions, though.


italianant

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Re: Case study: Social worker that is bad at math but wants to FIRE
« Reply #15 on: October 17, 2018, 07:17:39 PM »
Quote
Most HSA's have a debit card, but that's not usually the end of it.  It's common to have a mandatory deposit level, say $2k to $3k, after which you can place the money into investments.  Who is your HSA provider?  Do they have a website you can investigate?  In the end, like a 401k / IRA, you could also rollover an HSA to your *own* HSA to get access to investments, but you would have to check with the custodian what their rules and costs are around that.

It is only a debit card, through www.myrsc.com (MySourceCard). I looked it up today and it says I can invest money in there when I have a minimum of $1000, which of course I do. It charges me $1.50/month in order for me to do this-- doesn't that seem steep? It gives us 5 categories to choose from to invest (custom, conservative, balanced, moderate, aggressive).

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Did I read Edward Jones? You should make it a top priority to get any money out of EJ and into Vanguard. EJ is notorious for inappropriate investments with outrageous fees.

We only know Vanguard as my husband's employer retirement plan. Can we become personal investors without a connection to an employers plan (he is currently seeking out new career opportunities)?

Quote
Also, you are not bad at math! Your financial health is good and you're working to make it better. No need to denigrate yourself.
Thanks! I'm bad at math, but I'm pretty good at living within my means though!

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I think you have a tax problem that you should look into. You are filing married filing separately and contributing to a Roth IRA. You canít do this if you make over 10k a year. https://www.irs.gov/retirement-plans/plan-participant-employee/amount-of-roth-ira-contributions-that-you-can-make-for-2018

I'm looking into this immediately. Thank you.



***I'm trying to wrap my mind where to re-allocate all of my funds for the best benefit. If I max out my HSA fund then I need to take away from a different spot. I'm also seeing that contributing more to our 401K is better. Just to be clear, we are not contributing to the trad IRA, those were retirement accounts from previous employers of mine. We are contributing $350 to the roth IRA and I believe it is being suggested that I take from the roth IRA?***


reeshau

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Re: Case study: Social worker that is bad at math but wants to FIRE
« Reply #16 on: October 18, 2018, 01:26:37 AM »
It is only a debit card, through www.myrsc.com (MySourceCard). I looked it up today and it says I can invest money in there when I have a minimum of $1000, which of course I do. It charges me $1.50/month in order for me to do this-- doesn't that seem steep? It gives us 5 categories to choose from to invest (custom, conservative, balanced, moderate, aggressive).

Yes, HSA's are a developing account type, and management costs are more (or at least, more overt) than you are used to.  There is some justification, as there is extra paperwork to track eligibility of contributions and withdrawals.  But again, if you have a good chunk of change in there, you can do a rollover like you would with a 401(k) and an IRA.  For what's out there, I don't think the costs are extravagant.  Here is a place where you can compare what you have with other options:
https://20somethingfinance.com/best-hsa-account/

We only know Vanguard as my husband's employer retirement plan. Can we become personal investors without a connection to an employers plan (he is currently seeking out new career opportunities)?

Yes, Vanguard is one of the largest mutual fund companies in the world, and you can open an individual account.  You can also access Vanguard funds through many other brokers, if you already have a relationship with someone or otherwise think you would like to work through someone else.

economista

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Re: Case study: Social worker that is bad at math but wants to FIRE
« Reply #17 on: October 18, 2018, 08:46:11 AM »
I would recommend you look into the actual savings you have by filing married separate. I am also on an income-based repayment plan with PSLF and when I got married last year I calculated out our taxes and my student loan pmt per month both ways - if we filed jointly and if we filed separate. Even though my loan payments are higher throughout the year the tax savings were large enough to more than offset the difference so it was still cheaper overall to file jointly.

italianant

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Re: Case study: Social worker that is bad at math but wants to FIRE
« Reply #18 on: October 18, 2018, 09:34:16 PM »
Quote
I think you have a tax problem that you should look into. You are filing married filing separately and contributing to a Roth IRA. You canít do this if you make over 10k a year. https://www.irs.gov/retirement-plans/plan-participant-employee/amount-of-roth-ira-contributions-that-you-can-make-for-2018

Those contributions get counted as excess contributions with a 6% penalty. And thatís 6% penalty every year you continue to keep those excess contributions in the Roth IRA. No clue how to fix it for your 2017 contributions (if you contributed to Roth last year). For this years, you can withdraw the contributions. Scroll to bottom of this page: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits Not sure where your IRA is at, but if vanguard check here: https://investor.vanguard.com/ira/excess-contribution

I looked into this further and spoke with our EJ person and yeah-- this is not good... thank you for this important information. I'm not sure where we have to go from here but I'm pretty upset about this situation.


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I would recommend you look into the actual savings you have by filing married separate. I am also on an income-based repayment plan with PSLF and when I got married last year I calculated out our taxes and my student loan pmt per month both ways - if we filed jointly and if we filed separate. Even though my loan payments are higher throughout the year the tax savings were large enough to more than offset the difference so it was still cheaper overall to file jointly. We do this as well and unfortunately this year it did not work on our favor because my husband's loans were paid off. It worked against us for us to pay his loans aggressively (which I don't agree with)

Villanelle

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Re: Case study: Social worker that is bad at math but wants to FIRE
« Reply #19 on: October 18, 2018, 09:41:27 PM »
Stop sending any extra to your mortgage right now and use it to pay off the car loan.  Early mortgage pay off has been argued to death here and I won't wade in to those waters, but you have a higher interest rate loan on a depreciating asset, so this is a no-brainer.  Pay off the car.  Then, if you want to go back to sending extra to the mortgage, go ahead.

MDM

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Re: Case study: Social worker that is bad at math but wants to FIRE
« Reply #20 on: October 18, 2018, 09:47:28 PM »
I believe you can still recharacterize Roth contributions for 2017 to regular IRA contributions -- that option no longer applies for 2018 contributions, though.
Just missed the Oct. 16 deadline to recharacterize 2017 contributions.

No problem doing an IRA recharacterization on 2018 contributions.  It's recharacterizing conversions that is no longer allowed.

italianant

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Re: Case study: Social worker that is bad at math but wants to FIRE
« Reply #21 on: October 19, 2018, 07:37:18 AM »
Quote
Just missed the Oct. 16 deadline to recharacterize 2017 contributions.

No problem doing an IRA recharacterization on 2018 contributions.  It's recharacterizing conversions that is no longer allowed.

I stopped contributing the the Roth as of today and will re-route all the payments I was making towards it to my work retirement since that has the added benefit of lowering my income for the student loan payment plan.

We're basically screwed for the 2017 contributions due to the deadline (JUST missed it). I can only hope it won't get flagged/audited. For the 2018 contributions my options are to take it out and put it towards my car loan payment or I was given the option of adding $1500 to equal $5000 and putting it towards a non-deductible IRA under my husband's name and then converting it to a Roth. Thoughts? Any other suggestions? Should I post this question in a different thread?
« Last Edit: October 19, 2018, 07:39:41 AM by italianant »

MDM

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Re: Case study: Social worker that is bad at math but wants to FIRE
« Reply #22 on: October 19, 2018, 09:20:07 AM »
We're basically screwed for the 2017 contributions due to the deadline (JUST missed it). I can only hope it won't get flagged/audited.
Just pay the penalty.  Call it tuition for the "using EJ was a bad idea" course. ;)

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For the 2018 contributions my options are to take it out and put it towards my car loan payment or I was given the option of adding $1500 to equal $5000 and putting it towards a non-deductible IRA under my husband's name and then converting it to a Roth. Thoughts? Any other suggestions? ...
See Excess Contributions to Roth IRAs - Fairmark.com for various ways you can do this.

A Backdoor Roth IRA may be your best choice.  Contributions to traditional IRAs are not limited by MFS status: Retirement Topics IRA Contribution Limits | Internal Revenue Service

italianant

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Re: Case study: Social worker that is bad at math but wants to FIRE
« Reply #23 on: October 19, 2018, 09:44:55 AM »
I'm going to take this question about the Roth IRA to a new thread under Taxes because it's totally a new (and very necessary) tangent from this case study now. Will update this post with the link to it. My head hurts!

UPDATE: https://forum.mrmoneymustache.com/taxes/tax-woes-excess-roth-97906/
« Last Edit: October 19, 2018, 01:19:59 PM by italianant »

Peachtea

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Re: Case study: Social worker that is bad at math but wants to FIRE
« Reply #24 on: October 19, 2018, 06:52:36 PM »
Well, if it makes you feel better my rough calculations show youíre still coming out at least a couple thousand ahead by filing separately even after accounting for the slight increase in taxes (from filing separately vs jointly) and potential penalties for the Roth IRA. (But you should always do your own maths on it.) And this is the last year you will need to file separately if your loans are forgiven in 2019.

If I were you, I would:
1) increase your 401K contributions by the amount you were putting into Roth IRA like you said.  But I would also throw the $200 you put extra towards your mortgage in your 410K and whatever amount per month you were investing in the EJ brokerage account. It doesnít make sense to invest in taxable account before maxing your 401K (unless in the unlikely situation that your investment options/fees in the 401K were so horrendous that it cost more than the tax savings). And as Villanelle mentioned your mortgage rate is low. It makes more sense to invest rather than pay extra towards a low mortgage.

2) figure out the tax issue and fix it

3) then fire whoever did your taxes. The Roth penalty for filing separately has to be pretty basic since the free version of turbo tax alerted me to it (and told me options on how to fix it for that year). I recommend turbo tax, and I think their forum is helpful too. I used Credit Karma last year (free) b/c I no longer qualified for the free version of turbo tax. It was fine and I will probably continue using it, but I thought turbo tax was more helpful/intuitive.

4) then fire EJ. I agree with MDM that you should look at this as a cheap lesson and move on from them. They donít have a great reputation and the fact that they missed your filing status when recommending a Roth IRA is unimpressive to say the least. Plus fees. Even if you eventually decided you needed an advisor, right now I donít think you have the assets to justify one.

   4(a) Roll your IRAs to vanguard.* Selecting a target date fund could be good option while you learn more about assets allocations and type of funds you want to invest in. The fees arenít as low picking your own, but are decent and probably lower than your EJ ones. You can always change your selection later in an IRA without tax consequences. And doing a roll over (rather than a withdraw) shouldnít cause any tax consequences.

   4(b) Figure out what the tax consequences might be for selling whatever is in your EJ brokerage account. I think some people who make the mistake of starting with them leave what they have already invested with them and just stop investing more. That way they are not selling stocks at inopportune times or incurring extra taxes. But your brokerage account balance is low enough that it might be worth cashing out, paying whatever taxes (if any) on the gains, and then opening/depositing it into a vanguard brokerage account. Similar to their IRAs, vanguard offers easy target ďLifeStrategyĒ funds for those who donít feel comfortable picking their own. Higher fees than picking your own, but not bad while you learn.

5) Research investing on your own. Itís not as scary as you might think. I thought these were some good starting resources: https://jlcollinsnh.com/stock-series/ and https://www.bogleheads.org/wiki/Three-fund_portfolio

6) Stop paying for housekeeping, put that money in your 401K.

7) If you havenít seen it yet, the investment order is very helpful: https://forum.mrmoneymustache.com/investor-alley/investment-order/

*Btw people often recommend Vanguard b/c they are reputable and have some of the lowest fees. There are other good companies, but Vanguard is kind of the gold star, no thinking required good option. DH has his IRA rollovers with Vanguard and has had good experience with their website/ platform. We use actually use Charles Schwab for a brokerage account since they also have low index fund fees and we already had checking accounts with them.

italianant

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Re: Case study: Social worker that is bad at math but wants to FIRE
« Reply #25 on: October 19, 2018, 08:29:03 PM »
Wow Peachtea- Thank you for the thoughtful response. I really do appreciate it and plan to look at the links you provided more closely this weekend.

1. Will do! :) Have a slight hiccup because I have a weird retirement plan where I can NEVER change it (6% with an employer match of 6%). They offer a 457 plan if I want to add more, which I need to research what this is and how it's different. Back up is putting that Roth IRA money using my husband's retirement plan.

2. Working on it-- so very painful

3. I can't fire myself, but it did not come up using TaxSlayer.

4. Definitely on the chopping block. Considering points 4A and 4B once we figure out #2 out.

5. Will need to read this because I do find it intimidating.

6. Noted.

7. Have not seen this and really excited to read this more thoroughly because this is what I think I'm missing and feeling overwhelmed on where to start.

Thank you again!



20957

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Re: Case study: Social worker that is bad at math but wants to FIRE
« Reply #26 on: October 20, 2018, 06:25:35 AM »
As I understand it, 457s are great plans because they have the tax advantage of a 401k but no penalty beyond taxes for early withdrawals. Of course you need to look at fees but how lucky that you have access to a 457!

italianant

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Re: Case study: Social worker that is bad at math but wants to FIRE
« Reply #27 on: October 21, 2018, 08:35:27 AM »
Quote
As I understand it, 457s are great plans because they have the tax advantage of a 401k but no penalty beyond taxes for early withdrawals. Of course you need to look at fees but how lucky that you have access to a 457!

Reading more into it, the 457 does look like a great option. However, John Hancock has terrible reviews for high fees. Difficult decisions! Gah.

ysette9

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Re: Case study: Social worker that is bad at math but wants to FIRE
« Reply #28 on: October 21, 2018, 03:09:17 PM »
Quote
As I understand it, 457s are great plans because they have the tax advantage of a 401k but no penalty beyond taxes for early withdrawals. Of course you need to look at fees but how lucky that you have access to a 457!

Reading more into it, the 457 does look like a great option. However, John Hancock has terrible reviews for high fees. Difficult decisions! Gah.
You could list the investment options and their fees here and the smart crowd can help you decide if it is worth it, and if so, which funds are the best.

italianant

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Re: Case study: Social worker that is bad at math but wants to FIRE
« Reply #29 on: October 23, 2018, 05:32:32 AM »
Okay, it's been a busy week. Some updates-- We are moving ALL of our accounts to Vanguard! :) Once that happens, bye bye to EJ adviser. Vanguard will also assist on paying the 6% penalty for 2017 (bah). My husband is going to pursue EJ's E&O insurance for the penalty and costs associated with taking out 2018 funds.

I signed up for the 457 to use in the meantime. I don't have the fees for that, but if they are high in a year or 2 I will consider transfer them to a trad IRA if needed (I will probably pose the question to the forum in the future- are the fees worth being able to take them out early?)

I got into a major car accident on Saturday and now the 2016 Subaru is totaled. Waiting to hear from the auditor, and looking at our options for a vehicle, although I don't think we are going to get away without financing a small amount for the vehicle we have in mind. I know that is not very MMM-ian of us, but we want a slightly used car that we can run to the ground for 10 years plus and not have to put in a ton of repairs at the forefront.

Thanks everyone for your input!
« Last Edit: October 23, 2018, 05:45:19 AM by italianant »

Loren Ver

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Re: Case study: Social worker that is bad at math but wants to FIRE
« Reply #30 on: October 24, 2018, 06:52:04 AM »
This was  a wonderful read (except the car accident part). 

Best of luck to you moving forward!