Author Topic: Please donít punch me too hard  (Read 1996 times)

jdritch

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Please donít punch me too hard
« on: July 14, 2018, 06:44:25 PM »
Hello, my friends. Iíve been perusing this site for a while, and Iím trying to get my finances in order. I had 50k worth of student loan debt that I wiped out last year.  I paid it off ferociously over a 1.5 year timeframe. Starting this year, Iím maxing out my 401k, Roth, and HSA for the first time, and Iím so excited!!

My goal is to FIRE in 13 years at 45, or at the minimum, be FI. FIRE target number is $1M. When I FIRE, I want to use a Roth conversion ladder to bridge the five year gap. Iím about to start a regular brokerage taxable account with Vanguard to build this money.

Iím working hard to reduce spending and save as much as possible. I donít want to look back at my life when Iím old and have large financial regrets. I want to be prepared.

What are your thoughts on my current finances? Are there better tax-advantage ways of investing than what Iím currently doing? Does my investment order look correct? Thank you so much in advance for your help!

Hereís my info:

32 years old
State: Alabama
Single
Gross: 90k
No consumer debt

Monthly take home: 3780. I get paid bi-weekly, so I have two ďextraĒ checks per year.

Assets:
401k: 120k - max it out yearly with 4% match.
Checking: 2k
Emer fund: 10k
Roth: 3k 
HSA: 3k 
Brokerage account: 1k
Car: 14k - driving it until it falls apart


Liabilities:
10 yr Mortgage: 114k fixed @ 4.336%. Just purchased it July 2018. 10 years left on mortgage. Valued @ 170k. No PMI.

Net worth: ~89k

Monthly expenses:
Mortgage: 1274 - includes prop tax (37.5) and HI (60)
Roth: 458 (max it out yearly)
HSA: 287.5 (max it out yearly)
Brokerage: 1000
Internet: 30
Water: 20
Electric: 80
Car insurance: 60
Groceries: 200
Gasoline: 100
Cell: 35
Garbage: 15
Charity: 200
Savings: whateverís left.

Asset allocations:
401k: 100% SP500 VINIX
HSA: 100% Vanguard VTSAX
Roth: 100% Vanguard VTSAX
Brokerage: Will invest 100% Vanguard VTSAX when hit 3k minimum







Raenia

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Re: Please donít punch me too hard
« Reply #1 on: July 15, 2018, 09:13:41 AM »
Hello, and welcome!  Good job on killing the student loan, and on maxing your tax advantaged space, that's an amazing start.

At your income level, I'd probably go for a traditional IRA rather than a Roth - looks like you're in the 22% tax bracket now, and you may be able to drop down to the 12% bracket in retirement.  Generally speaking, Roth is better if you expect to be in a higher bracket in retirement, and traditional is better if you expect to be in a lower bracket.  Of course, that assumes that there's no major changes to the tax structure in the next decade, so YMMV.  Other than that, your investment order looks very good.  You've got all the tax advantaged space filled, no high interest debt, and finally contributing to a taxable brokerage account with the extra.

Looking at your expenses, it looks like there may be a few thing missing.  House repairs?  Car replacement when yours dies?  Gifts?  Travel/vacation?  Eating out/entertainment?  I subtracted out all your expenses from your "Take Home" number, and it looks like you've got about $20/month after all your savings, does that sound about right?

You're doing very well, there's not a lot of low-hanging fruit to optimize on.  Good job!

MDM

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Re: Please donít punch me too hard
« Reply #2 on: July 15, 2018, 07:08:58 PM »
...go for a traditional IRA rather than a Roth

May not be eligible to deduct a tIRA, or at least not the full $5500, due to income.  But yes, someone looking to retire at 45 should likely use deductible traditional accounts as much as possible.

pecunia

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Re: Please donít punch me too hard
« Reply #3 on: July 15, 2018, 07:31:00 PM »
You are doing great.  I wish I had it together when I was 32.

gpyros85

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Re: Please donít punch me too hard
« Reply #4 on: July 15, 2018, 07:36:19 PM »
What is the break down itimized deductions in your take home?

I made 90k a few years back with maxed 401k and took home 5k/month take home...

Alabama also has no state income tax, I know it isn't as straight forward like Florida and Texas, maybe I am missing something..

What are your health insurance premiums?

gpyros85

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Re: Please donít punch me too hard
« Reply #5 on: July 15, 2018, 07:37:58 PM »
You are doing great.  I wish I had it together when I was 32.


32 is STILL a good age to start, I keep telling myself this also, I am in a very similar position myself.. Time to Time kick myself sometimes when I hear about 22 year olds in our position with that extra 10 years of compounding...


inline five

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Re: Please donít punch me too hard
« Reply #6 on: July 15, 2018, 08:21:21 PM »
What is the break down itimized deductions in your take home?

I made 90k a few years back with maxed 401k and took home 5k/month take home...

Alabama also has no state income tax, I know it isn't as straight forward like Florida and Texas, maybe I am missing something..

What are your health insurance premiums?

That's surprising my wife makes 88k and after her 401k she makes $3k per month after tax. Medical is the only only deduction and it's low like $75/month.

MDM

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Re: Please donít punch me too hard
« Reply #7 on: July 15, 2018, 08:27:20 PM »
What is the break down itimized deductions in your take home?

I made 90k a few years back with maxed 401k and took home 5k/month take home...

Alabama also has no state income tax, I know it isn't as straight forward like Florida and Texas, maybe I am missing something..

What are your health insurance premiums?

That's surprising my wife makes 88k and after her 401k she makes $3k per month after tax. Medical is the only only deduction and it's low like $75/month.
Depending on withholding, "take home" pay can vary widely.

One should use actual taxes for cash flow analysis, because these may differ from withholding.  Of course, if they do differ significantly, that's an opportunity....


gpyros85

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Re: Please donít punch me too hard
« Reply #8 on: July 15, 2018, 08:33:00 PM »
What is the break down itimized deductions in your take home?

I made 90k a few years back with maxed 401k and took home 5k/month take home...

Alabama also has no state income tax, I know it isn't as straight forward like Florida and Texas, maybe I am missing something..

What are your health insurance premiums?

That's surprising my wife makes 88k and after her 401k she makes $3k per month after tax. Medical is the only only deduction and it's low like $75/month.

What do you claim on your withholding? I had 2 kids at 90k and now 3 kids so my withholdings were 5 and I still got back 1-2k on taxes. Kids help :)

Do you pay any state tax?

gpyros85

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Re: Please donít punch me too hard
« Reply #9 on: July 15, 2018, 08:39:20 PM »
What is the break down itimized deductions in your take home?

I made 90k a few years back with maxed 401k and took home 5k/month take home...

Alabama also has no state income tax, I know it isn't as straight forward like Florida and Texas, maybe I am missing something..

What are your health insurance premiums?

That's surprising my wife makes 88k and after her 401k she makes $3k per month after tax. Medical is the only only deduction and it's low like $75/month.

That is $32,600 in taxes per year??!! That is considering maxed 401k of 18,500/year and 900/year in medical.....

Raenia

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Re: Please donít punch me too hard
« Reply #10 on: July 16, 2018, 04:57:20 AM »
...go for a traditional IRA rather than a Roth

May not be eligible to deduct a tIRA, or at least not the full $5500, due to income.  But yes, someone looking to retire at 45 should likely use deductible traditional accounts as much as possible.

We'd need exact numbers to be sure, but 90,000 - 18,500 (401k) -3450 (HSA) - 5500 (IRA) = 62550.  Phase out starts at 63000.  OP will want to calculate it using his/her exact numbers, keeping in mind you can recharacterize the contributions if things turn out different than expected.

Njdealguy

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Re: Please donít punch me too hard
« Reply #11 on: July 16, 2018, 08:23:08 AM »
Not sure why reported a net worth of 89k, have other debts besides mortgage?   Your remaining mortgage balance as said is 114k against a total value of 170k so 56k of equity.  That plus the value of your other assets including car value adds up to 209k. 

JLee

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Re: Please donít punch me too hard
« Reply #12 on: July 16, 2018, 08:53:30 AM »
What is the break down itimized deductions in your take home?

I made 90k a few years back with maxed 401k and took home 5k/month take home...

Alabama also has no state income tax, I know it isn't as straight forward like Florida and Texas, maybe I am missing something..

What are your health insurance premiums?

You only paid $1k/mo in taxes and had no other deductions at all? That seems unusually high.

Granted, I am also contributing to an HSA and I have state income tax, but at $105k/yr I'm not taking home $5k/mo.

JLee

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Re: Please donít punch me too hard
« Reply #13 on: July 16, 2018, 08:56:08 AM »
...go for a traditional IRA rather than a Roth

May not be eligible to deduct a tIRA, or at least not the full $5500, due to income.  But yes, someone looking to retire at 45 should likely use deductible traditional accounts as much as possible.

We'd need exact numbers to be sure, but 90,000 - 18,500 (401k) -3450 (HSA) - 5500 (IRA) = 62550.  Phase out starts at 63000.  OP will want to calculate it using his/her exact numbers, keeping in mind you can recharacterize the contributions if things turn out different than expected.

I don't believe you can deduct the tIRA contribution when calculating MAGI for deduction eligibility.

Raenia

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Re: Please donít punch me too hard
« Reply #14 on: July 16, 2018, 09:06:20 AM »
...go for a traditional IRA rather than a Roth

May not be eligible to deduct a tIRA, or at least not the full $5500, due to income.  But yes, someone looking to retire at 45 should likely use deductible traditional accounts as much as possible.

We'd need exact numbers to be sure, but 90,000 - 18,500 (401k) -3450 (HSA) - 5500 (IRA) = 62550.  Phase out starts at 63000.  OP will want to calculate it using his/her exact numbers, keeping in mind you can recharacterize the contributions if things turn out different than expected.

I don't believe you can deduct the tIRA contribution when calculating MAGI for deduction eligibility.

Possibly, I was working from memory and didn't look up the calculation.  Regardless, the OP should do the calculation for himself.  If he is in the phase-out range, it would probably make sense to use a tIRA up to the phase-out amount, then Roth for the rest.

MDM

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Re: Please donít punch me too hard
« Reply #15 on: July 16, 2018, 09:25:45 AM »
I don't believe you can deduct the tIRA contribution when calculating MAGI for deduction eligibility.
Correct, one cannot.

The MAGI calculation for traditional IRA purposes (there are, unfortunately, many MAGIs) is https://www.irs.gov/publications/p590a#en_US_2017_publink1000230489.

jdritch

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Re: Please donít punch me too hard
« Reply #16 on: July 16, 2018, 03:28:14 PM »
What is the break down itimized deductions in your take home?

I made 90k a few years back with maxed 401k and took home 5k/month take home...

Alabama also has no state income tax, I know it isn't as straight forward like Florida and Texas, maybe I am missing something..

What are your health insurance premiums?

That's surprising my wife makes 88k and after her 401k she makes $3k per month after tax. Medical is the only only deduction and it's low like $75/month.

What do you claim on your withholding? I had 2 kids at 90k and now 3 kids so my withholdings were 5 and I still got back 1-2k on taxes. Kids help :)

Do you pay any state tax?

It looks like I claim 1 Federal and 0 state exemptions. I might need to take a look at these and do some calculations. We do have state income tax in Alabama. I paid 2,545 last year in AL income tax and expect to pay more this year because I got a 15% raise.

jdritch

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Re: Please donít punch me too hard
« Reply #17 on: July 16, 2018, 03:32:07 PM »
I don't believe you can deduct the tIRA contribution when calculating MAGI for deduction eligibility.
Correct, one cannot.

The MAGI calculation for traditional IRA purposes (there are, unfortunately, many MAGIs) is https://www.irs.gov/publications/p590a#en_US_2017_publink1000230489.

It looks like my MAGI will be at or greater than 68050 this year, depending on if I get a bonus. Regardless, it appears I unfortunately canít contribute to a tIRA and I should stick with my Roth.

MDM

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Re: Please donít punch me too hard
« Reply #18 on: July 16, 2018, 03:52:05 PM »
It looks like my MAGI will be at or greater than 68050 this year, depending on if I get a bonus. Regardless, it appears I unfortunately canít contribute to a tIRA and I should stick with my Roth.
Might be worth reconsidering that conclusion, especially with the early FIRE target.

If your tIRA MAGI is between $63K and $73K, you can deduct some part of $5500.  Yes, it's probably not worth the effort if your MAGI get very close to to $73K but if you are at $68K then you can deduct $2750.  Why not save the 22% federal and 5% state on that amount, assuming you will pay 12% federal and 5% state (or less) when you withdraw after FIRE?