Author Topic: 401ks, IRAs, HSA done... now what?  (Read 9213 times)

firelight

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401ks, IRAs, HSA done... now what?
« on: January 09, 2014, 12:56:05 PM »
DH and I have had a good year in 2013 and maxed our 401ks,IRAs and HSA. Right now, we are investing the rest in index funds (VTSAX mostly) with 80/20 stock/bond split for our portfolio. We also save about 70% of our income. We have a couple of expenses in future (kids, home, etc) but nothing time bound. Right now our goal is FI.

Is there anything else we can do to improve our speed towards FI?

PS:Real estate in bay area is costly and we are not sure if we'll live here for long. So investing in real estate/landlording is not possible (though I wish it was!)

Bruised_Pepper

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Re: 401ks, IRAs, HSA done... now what?
« Reply #1 on: January 09, 2014, 01:18:51 PM »
I'd suggest giving your company's benefit handbook a thorough read-through.  Maybe an Health Care FSA?  Use that for your actual 2014 health care costs and keep the money in your HSA as another retirement account. 

Maybe you can generate more income by using the excess capital to start/buy a business? 

Other than that, just keep sticking it in a taxable account. 

ncornilsen

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Re: 401ks, IRAs, HSA done... now what?
« Reply #2 on: January 09, 2014, 02:51:18 PM »
I don't believe you can have an FSA and an HSA...


Megatron

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Re: 401ks, IRAs, HSA done... now what?
« Reply #3 on: January 09, 2014, 03:35:14 PM »
Start 2014 running! I am basically doing the exact same thing. Maxed out everything by the end of the year. Started buying vanguard funds through my HSA. Not sure if yours have it, but I have Optum. I just max out my 401k contributions to 100% starting on my first paycheck this year (2014) because I have a year's emergency fund and a 20% end of year bonus to live off. HR called and asked if I was for realz. I just opened another Vanguard taxable account and waiting for the bonus to transfer over for some VTSAX. I could max out 2014's Roth IRA with the bonus but then I won't have enough leftover for some Admiral shares after taxes. I should be able to max out everything for 2014 by end of March except for the HSA. The rest of the year are going into dividend stocks in taxable portfolio or that Vanguard account (my ER money). That and I bought a lobster roll sandwich ($12) as a treat for myself for the bonus. best sandwich ever.

Allen

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Re: 401ks, IRAs, HSA done... now what?
« Reply #4 on: January 09, 2014, 04:07:34 PM »
I don't believe you can have an FSA and an HSA...
You van have a transportation or childcare FSA and an HSA, but not a healthcare FSA.

nawhite

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Re: 401ks, IRAs, HSA done... now what?
« Reply #5 on: January 09, 2014, 04:52:02 PM »
Just making sure, you did 35k in 401k's, 11k in IRAs, and 7k in HSA's? So you are at 53k in these accounts. (I always forget that I can do 17.5k in EACH 401k and not total)

Other ideas:

1. Is there an Employee Stock Purchase Plan? If you can "sell immediately" they are a great deal.
2. In California I don't think 529 contributions are tax deductible so that is probably out.
3. If you wish you could do real estate investing, you could look out of state. Lots of good deals in the midwest and south right now.
4. Did you use Roth IRAs instead of Traditional ones? Roth allows you to put more in because you're putting in after tax dollars. (5.5k after tax does you more good than 5.5k pre-tax). Its a tough call but if your tax rate is relatively low now you could come out ahead. Though you're working in California now and said you might not stay there so Traditional IRA's are probably more worth it given the state tax rate.
5. Be aware of the tax basis of your Taxable accounts. Can easily get you a 1% annualized return just by being cognizant of it. Tax gain and tax loss harvesting also come to mind.

Without starting a business or moving out of California, those are all I got.

aj_yooper

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Re: 401ks, IRAs, HSA done... now what?
« Reply #6 on: January 09, 2014, 05:46:16 PM »
Congratulations on your excellent saving!

You may have this already, but ...  Are you using an efficient vendor for your taxable account?  Do all your fund choices have low expense ratios?  I use Vanguard and find it to be the best. 

If kids are in your future, I believe you could start funding a 529 college fund, which grow tax free and are not taxed at disbursement if the expenses are education related.

Go through your benefits manual and look into all possibilities there. 

firelight

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Re: 401ks, IRAs, HSA done... now what?
« Reply #7 on: January 09, 2014, 07:13:02 PM »
Wow! Thanks for the replies! Reading them makes me feel I'm on the right track and at the right forum! :)

Just making sure, you did 35k in 401k's, 11k in IRAs, and 7k in HSA's? So you are at 53k in these accounts. (I always forget that I can do 17.5k in EACH 401k and not total)

Yes, we maxed everything by making sure we allocated the right amounts (we might have been a few hundred lower for 401k, but that was because we didn't want to go over the limit inadvertently). And we did Roth IRAs. Sadly our companies don't have ESPP and DH is still on the fence about 529s.

I use Vanguard and index funds(admiral shares) - all thanks for this move goes to MMM forum. I had no idea of vanguard or index funds before I started reading MMM.

I think its time to convince DH to fund a 529.

aj_yooper

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Re: 401ks, IRAs, HSA done... now what?
« Reply #8 on: January 09, 2014, 07:55:38 PM »
Vanguard 529 description:  https://investor.vanguard.com/what-we-offer/college/overview

You can put a lot of money there.

ShavinItForLater

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Re: 401ks, IRAs, HSA done... now what?
« Reply #9 on: January 09, 2014, 08:30:53 PM »
I don't believe you can have an FSA and an HSA...

This year, there is a new limited purpose health care FSA that you can have alongside an HSA.  The only claims you can make with that FSA are for dental and vision expenses.  We're using it this year, and the $281 we just spend on vision exams for a family of 4 at Costco will be our first claim.

In addition to this change, FSAs also now have a limited rollover provision or a grace period (can't have both).  I believe the default option is the rollover, where you can carry over up to $500 of unspent dollars to the following year.  If your plan elected to have the grace period instead, you would not get the carryover but would have 2.5 months in the following year to make claims against the prior year's contributions.

Probably too late now to make these elections though, open enrollment would have come and gone.

On the original topic, if you have kids and are confident you would be funding college, then the 529 would make sense as the next priority.  If not, with FI being the goal, a taxable investment account would be my next choice.

If it helps with the 529 discussion, if you ended up not using it for some reason, it can become another IRA, the only downside would be that the earnings would have a 10% penalty when you withdraw them, on top of being taxed on the income (like you would be with any 401k or traditional IRA).  The principal would not have that penalty, only the earnings.  Not the end of the world as a worst case.  There are also exceptions--if god forbid your child died or became disabled, or much more happily got a scholarship, you could then withdraw the funds not needed for college penalty-free.  You can also change the beneficiary--so if your child didn't attend college, you could use it for grandchildren, or for yourself if you wanted to go to grad school, etc.
« Last Edit: January 09, 2014, 08:38:06 PM by ShavinItForLater »

shuffler

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Re: 401ks, IRAs, HSA done... now what?
« Reply #10 on: January 09, 2014, 10:40:19 PM »
[My first time posting!]

Quote
Just making sure, you did 35k in 401k's

My employer's 401k plan allows $20k in after-tax contributions (beyond the $17.5k limit), which can then be rolled-over into their Roth 401k plan (same account).

It's like a backdoor Roth IRA, but done in a 401k.  As an individual, this allows me to shelter $37.5k/yr in a combination of pre- and post-tax dollars.  (Plus some more w/ employer matching.)  I wasn't aware of this option until our HR department sent me an e-mail calling it out as a feature of our company's plan.  My understanding is that it's an optional feature of 401k plans.

Maybe your employer's 401k plans are structured similarly.

nawhite

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Re: 401ks, IRAs, HSA done... now what?
« Reply #11 on: January 10, 2014, 08:28:46 AM »
I have to say contributing to a 529 plan as a Californian doesn't make much sense to me. You still have to pay taxes on contributions and then you can only use the money on education expenses. If your kid gets a scholarship you are SOL and have to pay capital gains taxes on the withdrawls plus a 12.5% penalty (10% federal, 2.5% california). So best case scenario, you have the equivalent of a Roth IRA that can ONLY be used for education expenses. Getting out of capital gains taxes (especially when you can tax-gain and tax-loss harvest with the plan) doesn't seem worth the restrictions to me.

If you lived in another state which allowed you to deduct contributions from your state income tax then definitely they can be a good deal, but not in California or other states where you can't.

FloridaStache

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Re: 401ks, IRAs, HSA done... now what?
« Reply #12 on: January 10, 2014, 10:08:21 AM »
Quote
You still have to pay taxes on contributions and then you can only use the money on education expenses. If your kid gets a scholarship you are SOL and have to pay capital gains taxes on the withdrawls plus a 12.5% penalty (10% federal, 2.5% california).

Check out the IRS rules on 529 plans: http://www.irs.gov/publications/p970/ch08.html

You can use 529 dollars for a wide variety of educational expenses, including tuition and fees, room and board, books, supplies and equipment.  Even if your kid gets a scholarship, it's highly likely that the scholarship won't cover all fees, room and board, a computer/tablet for class, etc. etc.  You'll be glad you have the 529.  And if your kid doesn't use any or all of the money, you can transfer it to a wide array of other people in your family, even including in-laws and cousins.

I guess my point is that given skyrocketing tuition and fees, if you even think you might have a kid that will go to college, I think that a 529 is worth it.  We live in Florida- no state income tax, so we can't deduct our contributions either- but I will be glad that money is there in 10 short years (gulp) when my oldest heads off to college...

Bruised_Pepper

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Re: 401ks, IRAs, HSA done... now what?
« Reply #13 on: January 10, 2014, 01:50:46 PM »
I don't believe you can have an FSA and an HSA...

This year, there is a new limited purpose health care FSA that you can have alongside an HSA.  The only claims you can make with that FSA are for dental and vision expenses.

Sweet!  I was technically not wrong! 

tracipam

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Re: 401ks, IRAs, HSA done... now what?
« Reply #14 on: January 12, 2014, 04:30:14 PM »

My employer's 401k plan allows $20k in after-tax contributions (beyond the $17.5k limit), which can then be rolled-over into their Roth 401k plan (same account).

It's like a backdoor Roth IRA, but done in a 401k.  As an individual, this allows me to shelter $37.5k/yr in a combination of pre- and post-tax dollars.  (Plus some more w/ employer matching.)  I wasn't aware of this option until our HR department sent me an e-mail calling it out as a feature of our company's plan.  My understanding is that it's an optional feature of 401k plans.

Maybe your employer's 401k plans are structured similarly.

Wait!!  Seriously?  I've never heard of that!  Craziness.....  going to have to check into that on mine.  Anyone else have something similar?  I thought the max was 17.5K combined max per year for 401Ks, regardless of whether it was Roth or Traditional (just like IRAs...).  Our 401K holder just switched and announced they had a Roth option.  Hum. 

shuffler

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Re: 401ks, IRAs, HSA done... now what?
« Reply #15 on: January 12, 2014, 08:37:15 PM »
My employer's 401k plan allows $20k in after-tax contributions (beyond the $17.5k limit), which can then be rolled-over into their Roth 401k plan (same account).
Wait!!  Seriously?  I've never heard of that!  Craziness.....
Yes seriosuly, and yes that's the same reaction I had when I learned about it.
There happens to be a very recent thread in the Investing forum discussing this process: http://www.mrmoneymustache.com/forum/investor-alley/$10k-after-tax-into-401k-or-brokerage-account/

I thought the max was 17.5K combined max per year for 401Ks, regardless of whether it was Roth or Traditional (just like IRAs...).
My understanding is that the limit for tax-sheltered contributions is 17.5k, just like you said.
But this is making after-tax (i.e. non-tax-sheltered) contributions initially, and then rolling it over into the Roth 401k.
It's analogous to the backdoor Roth IRA for high income earners who are normally ineligible to contribute in a tax-sheltered way, so the contributions are initially non-sheltered and then get rolled over into a sheltered account.

TrulyStashin

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Re: 401ks, IRAs, HSA done... now what?
« Reply #16 on: January 13, 2014, 12:23:20 PM »
Quote
You still have to pay taxes on contributions and then you can only use the money on education expenses. If your kid gets a scholarship you are SOL and have to pay capital gains taxes on the withdrawls plus a 12.5% penalty (10% federal, 2.5% california).

Check out the IRS rules on 529 plans: http://www.irs.gov/publications/p970/ch08.html

You can use 529 dollars for a wide variety of educational expenses, including tuition and fees, room and board, books, supplies and equipment.  Even if your kid gets a scholarship, it's highly likely that the scholarship won't cover all fees, room and board, a computer/tablet for class, etc. etc.  You'll be glad you have the 529.  And if your kid doesn't use any or all of the money, you can transfer it to a wide array of other people in your family, even including in-laws and cousins.

I guess my point is that given skyrocketing tuition and fees, if you even think you might have a kid that will go to college, I think that a 529 is worth it.  We live in Florida- no state income tax, so we can't deduct our contributions either- but I will be glad that money is there in 10 short years (gulp) when my oldest heads off to college...

I invested in 529's for both my kids (FL Prepaid and Va PrePaid) when they were little.   My daughter, 23, didn't go to college.  We waited until she was 20, just to be sure, and then cashed it out.  We got $14k back (only our invested $ and no return at all) and had to pay taxes, penalties, etc.

My son, a HS junior, also has a pre-paid account that I still am contractually bound to pay into every month for another year.  He is going to enlist and won't use it.  So, my current payment of $87.00 could be better invested elsewhere but I am stuck paying into his 529.

It sucks.

 

tracipam

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Re: 401ks, IRAs, HSA done... now what?
« Reply #17 on: January 13, 2014, 05:31:28 PM »
My employer's 401k plan allows $20k in after-tax contributions (beyond the $17.5k limit), which can then be rolled-over into their Roth 401k plan (same account).
Wait!!  Seriously?  I've never heard of that!  Craziness.....
Yes seriosuly, and yes that's the same reaction I had when I learned about it.
There happens to be a very recent thread in the Investing forum discussing this process: http://www.mrmoneymustache.com/forum/investor-alley/$10k-after-tax-into-401k-or-brokerage-account/

I thought the max was 17.5K combined max per year for 401Ks, regardless of whether it was Roth or Traditional (just like IRAs...).
My understanding is that the limit for tax-sheltered contributions is 17.5k, just like you said.
But this is making after-tax (i.e. non-tax-sheltered) contributions initially, and then rolling it over into the Roth 401k.
It's analogous to the backdoor Roth IRA for high income earners who are normally ineligible to contribute in a tax-sheltered way, so the contributions are initially non-sheltered and then get rolled over into a sheltered account.

Wow!  Thanks!  Going to have to look into this and think about it a bit more....

firelight

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Re: 401ks, IRAs, HSA done... now what?
« Reply #18 on: January 14, 2014, 01:27:20 AM »
TrulyStashin, your reply gives me pause. I sure don't want to have a college fund that my kids won't use.... None of the other posts related to 529s spoke about this possibility. Thanks for it!! I'm going to dig up a bit more on what happens to 529s when they are not used.
Till then, its taxable accounts FTW.

Sweet Betsy

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Re: 401ks, IRAs, HSA done... now what?
« Reply #19 on: January 14, 2014, 07:27:59 AM »
There is a difference between TrulyStashin's prepaid tuition plans and a 529 plan. With a 529 plan you can roll a balance over to another family member...a sibling or even a cousin.  You can also hold onto it and change the beneficiary to a grandchild.  You can even use the 529 money yourself if you decide to go back to school.  Definitely don't put money in that you'll really need to get back out for non-education spending but there are lots of ways that a 529 can come in handy even if one or more of your children choose not to go to college. 

TrulyStashin

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Re: 401ks, IRAs, HSA done... now what?
« Reply #20 on: January 14, 2014, 12:14:12 PM »
There is a difference between TrulyStashin's prepaid tuition plans and a 529 plan. With a 529 plan you can roll a balance over to another family member...a sibling or even a cousin.  You can also hold onto it and change the beneficiary to a grandchild.  You can even use the 529 money yourself if you decide to go back to school.  Definitely don't put money in that you'll really need to get back out for non-education spending but there are lots of ways that a 529 can come in handy even if one or more of your children choose not to go to college.

The plans I bought are 529 plans and they can be transferred to siblings, etc.  My daughter's plan (the Fla. Pre Paid plan) could have been transferred to her (younger) brother but he had to be a Florida resident to use it.  His plan (Va. Pre Paid) can be used by his sister.  It doesn't matter if neither kid wants it.

I could use it, too, I suppose.  But I have three degrees and don't want any more!

My kids are the first ones to NOT go to college in five generations of my family.  Even our girls went to college back in the 1890's when nobody sent girls to college.  College was/ is expected.

Kids have their own ideas, however.

Take-away from my experience:  If you're fully funding every other tax-advantaged retirement/ savings vehicles and still have money left to invest, then a 529 is perhaps a good option.  But if not, then I advise caution.


engineerjourney

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Re: 401ks, IRAs, HSA done... now what?
« Reply #21 on: February 14, 2014, 11:08:50 AM »
Just posted this in another thread, also applies here, didn't want to start a new thread without previous discussions:
I have been doing a lot of reading of the after tax 401K to Roth IRA deal. 
Its pretty sweet if the following:
- You are able to do after tax contributions to your 401K plan (mine does)
- Your provider/employer allows for in service withdrawls/rollovers without penalty (waiting for the answer on this one).

I found the following link to be very insightful:
http://cdn.ameriprisecontent.com/cds/alwp/advisor/jay.d.jacobs/cusersjjacob3desktopjump-start-your-roth-ira-with-a-401k-after-tax-conversion-4-11634680185434967153.pdf

For 2014 the limit is $52K overall, not $49K, otherwise the info in the pdf is good. 

If you are able to meet the conditions its a great way to get more into Roth before contributing to a taxable account.  Good luck!

firelight

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Re: 401ks, IRAs, HSA done... now what?
« Reply #22 on: February 14, 2014, 01:20:58 PM »
Thanks for all the replies. DH and I checked with our employers about after tax contributions for 401k. Sadly neither employer has that option :( From the investment companies where our 401ks are,  it is very simple to set up on the employers' side but both our employers said we were in the "less than 0.1%" of employees who have asked for it and so they don't see a need to do it.

Oh well, atleast there are 0.1% of employees that know of this option and want to use it.

For now, its just taxable accounts for us.

phred

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Re: 401ks, IRAs, HSA done... now what?
« Reply #23 on: February 14, 2014, 03:27:53 PM »
take some night classes to increase your DIY skills

nicknageli

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Re: 401ks, IRAs, HSA done... now what?
« Reply #24 on: February 14, 2014, 03:56:55 PM »
Yes, we maxed everything by making sure we allocated the right amounts (we might have been a few hundred lower for 401k, but that was because we didn't want to go over the limit inadvertently). And we did Roth IRAs. Sadly our companies don't have ESPP and DH is still on the fence about 529s.

I believe most employers (at least the 3 that my household is familiar with) will automatically cut off your 401k contribution at the limit for the year.  The only reason you'd need to possibly worry about maxing out too quickly in the calendar year is if your employer didn't pay their full match because your last few checks didn't have a contribution.

(Hope that made enough sense.)

markstache

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Re: 401ks, IRAs, HSA done... now what?
« Reply #25 on: February 14, 2014, 04:22:38 PM »
Are you familiar with i-bonds (inflation protected savings bonds)? They don't pay a lot, but at least hold their own against inflation (assuming CPI is an accurate measure, yadda yadda). The taxes on them are tax deferred until they are redeemed, and if you use them for a qualified educational expenditure, you can deduct the interest. If you DH is on the fence about a 529, they might be a better option.

They don't get as much press since there is no secondary market and you don't hold them through a brokerage, but they can be a useful component of a portfolio.

Municipal bonds can also provide a tax-free place to park cash. I'm less familiar with these. Perhaps others can chime in.

In either case, you might think about holding tax-free/deferred bonds in your taxable accounts and being more aggressive in the asset allocation of your retirement accounts. I'm sure there is some good stuff at the bogleheads wiki on these kinds of strategies.

nicknageli

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Re: 401ks, IRAs, HSA done... now what?
« Reply #26 on: February 15, 2014, 01:35:13 PM »
I would love to read some first-hand experience on tax-free municipal bonds.  They seem almost too good to be true, especially if you live in a state that seems to be somewhat financially fit.