Author Topic: Suggested investment order holds for low income/weird job situations?  (Read 612 times)

Double Yu

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The MMM suggested order of investing can be found here: https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153

My question is about applying that order to a specific and somewhat atypical MMM financial situation.

Nutshell: We (DH (56) and self (48), with 2 kids, one of whom is still home) have been relatively low-earners our whole lives. DH is employed overseas and I am self-employed in the US. We have next-to-no retirement savings but are trying to rectify that assisted by some inheritance (~$150k) and a little further down the line the proceeds from sale of a property overseas. We have a small amount of debt <$9,000 at 0% and own our home outright.

I'm keen to follow jl collins' suggestions and move toward some Vanguard index funds - but am unsure WHERE in this lineup I should do that.

I would love to have some input on how to modify the following steps, given certain conditions (details provided in-line):

0. Establish an emergency fund to your satisfaction   -DONE- - this is larger than some would advise because DH's contract ends in a little less than a year so we've saved a 1yr tight-budget buffer in case there's nothing for him right away.

1. Contribute to your 401k up to any company match  - neither of us are employed with a company that matches anything. Should we each be opening up self-funded 401ks?

2. Pay off any debts with interest rates ~5% or more above the current 10-year Treasury note yield.   -N/A-       

3. Max Health Savings Account (HSA) if eligible. -I just signed up for an HSA-approved plan (via coveredca, I get some assistance) - and it looks like I can do something with that via Fidelity.... where should I look to learn more, because I haven't any idea how to link things together so I actually put $ in an HSA?

4. Max Traditional IRA or Roth (or backdoor Roth) based on income level - I have a SEP-IRA, newly created in the last year that hasn't met the ... hmmm... cap? whatever amount it needs before it can be invested. I started it with Fidelity because of another IRA (form an old work benefit some years ago)... am willing to rollover to Vanguard but just haven't done it yet. DH has ~$15k in an old work thing too -- yes, I need to figure out what it is and what to do with it.        

--- at this point, the steps below seem much less relevant since I've not completed the above but please correct me if I'm wrong ---

5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA deduction, swap #4 and #5)           
6. Fund a mega backdoor Roth if applicable.   
7. Pay off any debts with interest rates ~3% or more above the current 10-year Treasury note yield.    -N/A-       
8. Invest in a taxable account and/or fund a 529 with any extra.           


thanks for your help!

MDM

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Re: Suggested investment order holds for low income/weird job situations?
« Reply #1 on: December 02, 2018, 03:08:13 PM »
1. Contribute to your 401k up to any company match  - neither of us are employed with a company that matches anything. Should we each be opening up self-funded 401ks?
Maybe, but that would be step 5.

Quote
3. Max Health Savings Account (HSA) if eligible. -I just signed up for an HSA-approved plan (via coveredca, I get some assistance) - and it looks like I can do something with that via Fidelity.... where should I look to learn more, because I haven't any idea how to link things together so I actually put $ in an HSA?
Is the HSA through your employer (i.e., deductions come pre-tax from your paycheck), or do you contribute by paying via check?

Quote
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level - I have a SEP-IRA, newly created in the last year that hasn't met the ... hmmm... cap? whatever amount it needs before it can be invested. I started it with Fidelity because of another IRA (form an old work benefit some years ago)... am willing to rollover to Vanguard but just haven't done it yet. DH has ~$15k in an old work thing too -- yes, I need to figure out what it is and what to do with it.   
Go forth and figure out what it is and what to do with it.  ;)
With a little more info, folks here might be able to help.   

Quote
--- at this point, the steps below seem much less relevant since I've not completed the above but please correct me if I'm wrong ---
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA deduction, swap #4 and #5)           
See Solo 401(k) plan - Bogleheads and links therein.  It appears DH is not eligible (assuming DH is not self-employed).  After reading that, do you think the solo 401k is better than the SEP for you, or not?  And why?

terran

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Re: Suggested investment order holds for low income/weird job situations?
« Reply #2 on: December 02, 2018, 03:56:22 PM »
These steps are like a ladder in that you don't really move on to the next one until you've finished the one you're on. So a low income person might not complete all the steps because they might have neither the means nor the need to max out all available accounts.

Moving your SEP and rollover IRAs to Vanguard would be a fine option. Sticking with Fidelity would also be a fine options. Fidelity has more bad investment options than Vanguard does, but they also have just as many good investment options, so you have to be more careful with Fidelity, but once you've picked a few good options you'll do just as well at either of them. Here's a list of good Fidelity options and how they compare to the Vanguard funds you'll often see recommended: https://www.bogleheads.org/wiki/Fidelity

A target date fund based on the year you plan to retire would also be a fine option. With Fidelity you want to be careful to pick one of their Fidelity Freedom Index funds and not one of their Fidelity Freedom funds (note the word Index in the preferred option).

If you find you're able to fill your SEP IRA and either a traditional or Roth IRA for each you and your husband (he may not be eligible since he works overseas) you may want to look into opening a solo 401(k) assuming your business has no employees other than you as that will give you a higher limit.

Given that your husband works overseas your tax situation is likely pretty complicated, and I'm not sure how that might interact with what I'm about to say, but be sure to familiarize yourself with the Saver's Tax Credit and the Earned Income Tax Credit. Depending on what you mean by low income I wouldn't be surprised at all if you have to pay any federal income tax or even get money back (except for self employment tax -- there's no escaping that).

Double Yu

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Re: Suggested investment order holds for low income/weird job situations?
« Reply #3 on: December 03, 2018, 10:54:52 AM »
Hi MDM, thanks for your reply.

1. Contribute to your 401k up to any company match  - neither of us are employed with a company that matches anything. Should we each be opening up self-funded 401ks?
Maybe, but that would be step 5.

Ok, that's good to know it's one that can be placed a bit later in the lineup.

Quote
3. Max Health Savings Account (HSA) if eligible. -I just signed up for an HSA-approved plan (via coveredca, I get some assistance) - and it looks like I can do something with that via Fidelity.... where should I look to learn more, because I haven't any idea how to link things together so I actually put $ in an HSA?
Is the HSA through your employer (i.e., deductions come pre-tax from your paycheck), or do you contribute by paying via check?

I'm paying out of pocket - no employers are involved in any of our scenario.

Quote
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level - I have a SEP-IRA, newly created in the last year that hasn't met the ... hmmm... cap? whatever amount it needs before it can be invested. I started it with Fidelity because of another IRA (form an old work benefit some years ago)... am willing to rollover to Vanguard but just haven't done it yet. DH has ~$15k in an old work thing too -- yes, I need to figure out what it is and what to do with it.   
Go forth and figure out what it is and what to do with it.  ;)
With a little more info, folks here might be able to help.   

Ok, it's on my to-do list. I'll get back to you on it.

Quote
--- at this point, the steps below seem much less relevant since I've not completed the above but please correct me if I'm wrong ---
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA deduction, swap #4 and #5)           
See Solo 401(k) plan - Bogleheads and links therein.  It appears DH is not eligible (assuming DH is not self-employed).  After reading that, do you think the solo 401k is better than the SEP for you, or not?  And why?

correct, DH is not self-employed. And I'll check out the Bogleheads article and get back to you on that one too. Much appreciated - I'm really having a hard time wrapping my head around what to do without the convenience of employer-provided anything, but I have hope it's figure-outable :)

MDM

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Re: Suggested investment order holds for low income/weird job situations?
« Reply #4 on: December 03, 2018, 11:30:59 AM »
Quote
3. Max Health Savings Account (HSA) if eligible. -I just signed up for an HSA-approved plan (via coveredca, I get some assistance) - and it looks like I can do something with that via Fidelity.... where should I look to learn more, because I haven't any idea how to link things together so I actually put $ in an HSA?
Is the HSA through your employer (i.e., deductions come pre-tax from your paycheck), or do you contribute by paying via check?

I'm paying out of pocket - no employers are involved in any of our scenario.
Yes, Fidelity is now an option for HSAs.  See Health savings account - Bogleheads for more.

Double Yu

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Re: Suggested investment order holds for low income/weird job situations?
« Reply #5 on: December 03, 2018, 04:19:50 PM »
Hi terran, thank you also for your comment. Yes, our tax situation is kinda wonky (FEIC, etc) - and frankly I don't know enough about how to deal with future taxes (related to investment/retirement income).

I figure at this point I can't let fear of tax complexity make me wait  to get started on some aspect of the retirement planning (even though we're more FIR than FIRE).

MDM

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Re: Suggested investment order holds for low income/weird job situations?
« Reply #6 on: December 03, 2018, 05:06:22 PM »
Hi terran, thank you also for your comment. Yes, our tax situation is kinda wonky (FEIC, etc) - and frankly I don't know enough about how to deal with future taxes (related to investment/retirement income).

I figure at this point I can't let fear of tax complexity make me wait  to get started on some aspect of the retirement planning (even though we're more FIR than FIRE).
The case study spreadsheet might be able to handle your tax situation.  Then again it might not.  But if it does, it will show you your marginal rates for different amounts of retirement account contributions.