Author Topic: Latest: put 5.5k of savings into traditional or roth ira before yr ends?  (Read 17652 times)

Kaspian

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Yes, I should prepare food for myself to save money but I am so tired from work when I get home...

So is everybody.  I can't think of a single person who comes home from a full day of work feeling refreshed.  (Is there such thing as a professional sleeping job somewhere?  'Cause damn, I'm fully qualified, where can I sign up?)

Once you start making more of your own meals (and that involves chopping stuff, not pre-packaged or just-add-milk foods), you'll eventually start to enjoy it and won't enjoy takeout much at all.  Bad day at work?  Feeling tired or stressed?  I take that shit out on onions and carrots with a really sharp knife.  Plus it's way healthier!  You'll realize just how much fat, salt, and sugar restaurants put in their shlop.

Emergo

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So i did a brief look at what vexax is... my brain is going to explode with all these newer terms (not mentioned in this thread).

Emergo

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So is getting your 401k money without penalty legal or just a very big and secret loophole? Because no one I know seems to know about it.

Malum Prohibitum

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So is getting your 401k money without penalty legal or just a very big and secret loophole? Because no one I know seems to know about it.
  Legal, and you should not be surprised that nobody with whom you are acquainted knows about it.  I also do not personally know anybody who saves 50% or more of his income. 

I just read about it here.

Seriously, go research what people are telling you here and reach your own conclusions.

Emergo

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I will. And i totally appreciate everyones patience and advice for me! Cheers fellas.

Check2400

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So, I've read the responses, and think we need to bring you back to some tangible items to do for the first steps.  I also agree that you would be benefitted greatly from meeting with an hourly/consultation retirement planner in person.  People here may disagree as it is money spent on information that could be obtained by diligent research, but I can't imagine learning the difficult language of personal finance when you are having to filter it through (I assume) your own grasp of everyday English.

Here is my opinion.
1) open a Mint. com account.  Lots of colors and graphs and trends and lets you start learning where your money is going.
2) Cut the Equifax.  You'll be able to monitor you Credit cards via mint, and there is no reason that you will need to have $250/year for this unnecessary service.
3)  Find out what you are contributing to your 401K, and then max it out.  It sounds like you're doing around 1500 a year right now at a minimum (you have $56 every two weeks listed at 401K match).  Either way, if you are interested in early retirement, go ahead and start maxing it out now, or at least start the first paycheck of 2016 at max to finish off your emergency fund.
-----The reason that this is recommended is that it saves you money that grows exponentially.  For every 1500 you put into your 401k, you "lose" about only about 1000 from your paycheck since that money is not taxed.  Yes, you will have less money.  This is what you need to do though, it will train you automatically to live within your budget.
4) If you can sell your SUV and get a hybrid, then do so.  You'll save a good chunk of gas money which, along with the insurance going down because you're going to take the good advice here and get a bare bones policy, will help make up the retirement savings you won't get coming through your paycheck.

Those four things are a great first step.  If you can do that, acclimate to the new normal for a few months, and continue to learn, you'll be on solid footing.  You don't have to go for broke right away (no pun intended?). 

You're rightfully concerned about housing, ring, wife, etc.--after all, what are Mustachians if not planners?  But it sounds like you're using these as excuses to do the basics.  When you find a home, or a girlfriend, you won't be having to make a snap decision on that purchase. 

From there, there is only the continued slashing of budgets, and the educated investments of funding.  A Roth IRA seems like a great vehicle for you for step II, as you will be able to continue saving over your 401K, but still have access to the Principal Funds to withdraw for housing, Rings, etc. when the time comes.  There is risk there, but there is also growth.

That is my two cents.  You've gotten the full fisted facepunch from the forums, but much like savings, take this one step at a time.  I also respectfully defer to the others here that think that any of those four steps should be substituted out for another, but I do think that for you in particular, we should be offering more introductory steps for your planning. 

-CHECK


Mother Fussbudget

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Here is my opinion.
1) open a Mint. com account.  Lots of colors and graphs and trends and lets you start learning where your money is going.
2) Cut the Equifax.  You'll be able to monitor you Credit cards via mint, and there is no reason that you will need to have $250/year for this unnecessary service.
3)  Find out what you are contributing to your 401K, and then max it out.  It sounds like you're doing around 1500 a year right now at a minimum (you have $56 every two weeks listed at 401K match).  Either way, if you are interested in early retirement, go ahead and start maxing it out now, or at least start the first paycheck of 2016 at max to finish off your emergency fund.
-----The reason that this is recommended is that it saves you money that grows exponentially.  For every 1500 you put into your 401k, you "lose" about only about 1000 from your paycheck since that money is not taxed.  Yes, you will have less money.  This is what you need to do though, it will train you automatically to live within your budget.
4) If you can sell your SUV and get a hybrid, then do so.  You'll save a good chunk of gas money which, along with the insurance going down because you're going to take the good advice here and get a bare bones policy, will help make up the retirement savings you won't get coming through your paycheck.
+1 for what Check said.  Great advice.

Once you've COMPLETED the first 4 steps:
5) Go to the Vanguard.com website, and open a Traditional IRA account for yourself.
6) Deposit $$ into your Vanguard IRA.
7) When you have >$10K, purchase VTSAX [NOTE:  Vanguard waives the fee/commission when buying their ETF/Mutual funds in a Vanguard brokerage account!].
8) Each month, add $$ to the Vanguard IRA account, and purchase that amount of VTSAX. [example:  if you deposit $750/month, buy $750 of VTSAX once the deposit clears].

If you want to read more about retirement accounts, the differences in them, and a good strategy that folks here have investigated, and follow, read http://www.madfientist.com/traditional-ira-vs-roth-ira/

Lastly... Welcome!  Don't worry about "getting" the buzz-words. 
You want to 'FIRE' yourself - become "Financially Independent / Retire Early". 
The earlier you start, the better your chance of achieving your "FI number" while you're young.
The best part:  you've ALREADY STARTED by reading here.  All the best!  :-)

---
Edited: 
For extra credit reading, check out (and read) "Your Money Or Your Life" from the local library.   
Also read the MadFientist's website (link above) his goal is to save as much as possible while minimizing the tax hit TODAY, and in the future. 
Finally - read JH Collins' "Stock Series".  http://jlcollinsnh.com/stock-series/
« Last Edit: November 09, 2015, 04:18:47 PM by Mother Fussbudget »

ShoulderThingThatGoesUp

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Or use Schwab and SCHB and skip the $10k VTSAX annoyance.

BarkyardBQ

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Or use Schwab and SCHB and skip the $10k VTSAX annoyance.

Or just buy VTSMX and start with 3k.

Emergo

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It would take me a long time to get another 10k. Maybe i should just invest my 10k i saved for my emergency fund since i could always take it out?

Emergo

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If i do all you guys say and do it right, how early would i be able to retire with the salary i have?

MDM

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If i do all you guys say and do it right, how early would i be able to retire with the salary i have?
Depends on how much of that salary you invest, how much you expect to spend in retirement, etc.  See some numbers below.  If you have different assumptions, see the 'Misc. calcs' tab in the case study spreadsheet and enter your numbers there. 

Quick calculation of "Time to FI"
Planned Withdrawal RateWR4.0%
Annual Savings InvestedS30,000$/yr
Annual Retirement ExpensesE30,000$/yr
Current Assets InvestedA0$
Investment returnr_5.0%
Time to FIt16.6yr
Desired time to FIt6.0yr
Annual Savings NeededS110,263$/yr

ShoulderThingThatGoesUp

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Or use Schwab and SCHB and skip the $10k VTSAX annoyance.

Or just buy VTSMX and start with 3k.

.17% ER. SCHB is 0.04%. People really let their Vanguard loyalty blind them sometimes.

BarkyardBQ

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Or use Schwab and SCHB and skip the $10k VTSAX annoyance.

Or just buy VTSMX and start with 3k.

.17% ER. SCHB is 0.04%. People really let their Vanguard loyalty blind them sometimes.


Depends on where you WANT to be long term. As long as you meet the 10k before the end of a quarter you can reclassify and get the lower ER.

edit: And speaking of blindness...

I think SCHB is missing some stocks. 2,081 vs 3,809 (VTI/VTSMX/VTSAX)

I guess the fund should cost less if the managers are doing less work. ;)


« Last Edit: November 09, 2015, 05:05:35 PM by BackyarBQ »

Capt Stubble

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A couple of cultural notes:

If your Filipino family (aunts, uncles, cousins living in the Philippines) is similar to my GF's family, you're going to have to get comfortable with saying "no." A lot. An American salaried engineer looks a lot like an ATM to someone who works at Jollibee in the province.

Where does your father live currently? I assume he's able to work now, but possibly not much longer? And he has little or no retirement savings? When the time comes, you might want to move him back to the Philippines where housing and medical expenses can be very cheap.

Feel free to disregard the above, especially if I've made incorrect assumptions.

Emergo

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A couple of cultural notes:

If your Filipino family (aunts, uncles, cousins living in the Philippines) is similar to my GF's family, you're going to have to get comfortable with saying "no." A lot. An American salaried engineer looks a lot like an ATM to someone who works at Jollibee in the province.

Where does your father live currently? I assume he's able to work now, but possibly not much longer? And he has little or no retirement savings? When the time comes, you might want to move him back to the Philippines where housing and medical expenses can be very cheap.

Feel free to disregard the above, especially if I've made incorrect assumptions.

Lol i'm good at saying no, brother. He lives in the same city, but with my aunt. He cant live there forever, as shes just doing him a favor for me (theyre not related, its my mom's sister in law). Shes probably okay with him living there for a year or two more. I wish i could move him to the Philippines, but america is his home. He moved here when he was a teenager. But even if he approved... that would be pretty expensive buying him a home over there. And then what will be his income there to eat?

ShoulderThingThatGoesUp

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Or use Schwab and SCHB and skip the $10k VTSAX annoyance.

Or just buy VTSMX and start with 3k.

.17% ER. SCHB is 0.04%. People really let their Vanguard loyalty blind them sometimes.


Depends on where you WANT to be long term. As long as you meet the 10k before the end of a quarter you can reclassify and get the lower ER.

edit: And speaking of blindness...

I think SCHB is missing some stocks. 2,081 vs 3,809 (VTI/VTSMX/VTSAX)

I guess the fund should cost less if the managers are doing less work. ;)

Correlation of 1.00 according to Portfolio Visualizer. So I'm not too worried about a few hundred stocks.

PARedbeard

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What CHECK said above makes sense to me. Using a ROTH will allow you access to any contributions you make while also allowing you to have tax-free money later in life. So long as you are putting enough money into the 401k to reduce your taxes to the lowest category, it seems like a win-win!

 As for the 401k transfer, I think it is very legal, though I haven't looked into it much. Not to overload you, but there is something called a "ROTH conversion ladder/pipeline", which allows you to convert funds in (I believe, don't quote me on this--I'm just starting to explore it myself) a 401k or Traditional IRA. Since the money you convert is considered a "contribution," you can access it after 5 years. There may be other ways to get get money directly out of a 401k penalty-free, but I am not well-versed in 401k stuff yet, as I only got a job offering a 401k two months ago.

Better minds than mine can certainly help you with this! A forum member called "seattlecyclone" comes to me. He writes a lot on 401ks and IRAs.

boarder42

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Lets go down the getting the savings in the right place first before we start worrying about how to get the money out.  He needs to understand WHY we are telling him these things about where to put his money.  Not just follow an internet blog forum blindly.  once he understands why we are recommending these steps he can move on to the how do i get to my money in RE.


PARedbeard

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Amen, Boarder. Amen.

fiveoh

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I agree with boarder42 as well.

My take is this guy is either trolling or needs to go read all the mmm posts and/or a basic finance site.  Most of the advice being thrown out here is for someone that has a handle on these things and he clearly doesn't.(or is trolling) 

Emergo

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Geez, i'm sorry. And i'm not trolling. Im going to put in time to learn these things, just havent had a chance yet ( posted this topic less than a week ago)

fiveoh

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Geez, i'm sorry. And i'm not trolling. Im going to put in time to learn these things, just havent had a chance yet ( posted this topic less than a week ago)

http://www.mrmoneymustache.com/2013/02/22/getting-rich-from-zero-to-hero-in-one-blog-post/ Answers most of your questions if you are serious.

PARedbeard

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Hey Emergo,
It's going to take time--finances definitely has its own lingo. You'll get there soon enough. There is a lot of background info that you will need to get a grasp on first, which will help accelerate your ability to make wise tax-sheltered and FI decisions. And honestly, you can get as much feedback from this forum as you like, but the ultimate decisions come down to you. Fiveoh and Boarder are leading you in a good direction. MMM provides an excellent background understanding of getting your financial house in order in that post.

Mother Fussbudget

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What CHECK said above makes sense to me. Using a ROTH will allow you access to any contributions you make while also allowing you to have tax-free money later in life. So long as you are putting enough money into the 401k to reduce your taxes to the lowest category, it seems like a win-win!

 As for the 401k transfer, I think it is very legal, though I haven't looked into it much. Not to overload you, but there is something called a "ROTH conversion ladder/pipeline", which allows you to convert funds in (I believe, don't quote me on this--I'm just starting to explore it myself) a 401k or Traditional IRA. Since the money you convert is considered a "contribution," you can access it after 5 years. There may be other ways to get get money directly out of a 401k penalty-free, but I am not well-versed in 401k stuff yet, as I only got a job offering a 401k two months ago.

Better minds than mine can certainly help you with this! A forum member called "seattlecyclone" comes to me. He writes a lot on 401ks and IRAs.
Agreed.  But let's leave the IRA to Roth IRA conversion ladder process to a later date once he has begun investing for FI.  But agreed that should eventually be in his plan.  Best tax advantages are if he performs conversion(s) once he's at FI and in a lower tax bracket, hence my suggestions in a step-by-step list include put funds in a Traditional IRA. 

boarder42

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I think you've got a good basis and a lot of work to do now OP.  You came here pretty scattered and all over the place from houses to engagement rings to FI, sounds like you're trying to figure out some of life in general.  If you can read up and understand your finances you will be in a great place moving forward, and the rest of these questions will start to answer themselves.  There are even posts on here about ways to make budget engagement rings that look fantastic and are 100% custom.

pompera_firpa

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Okay, everyone has really covered all the basics re: 401k and insurance and whatnot, so this is just my extra.

First of all: congratulations! You're going much, much better than the average American at saving money. This is awesome!  That said:

I didn't see anyone mention this, but you listed employer matching for your 401k without seeming to know much about it.  Do some research! Find out what the percentage is (it looks like they match 75% of your contribution?) and, if there's a cut-off point for the match, where that point is (most employers cut off matching once their contribution gets to a certain percentage of your base pay-- often 6%), when will you be vested in the program ("vested" = "you get to keep the employer contributions even if you leave the company if you've worked here for X number of years, otherwise they keep that money"), etc.  This is FREE MONEY! You'll need to know what you're dealing with, otherwise you'll be lacking information that you'll need for making decisions in the future.

In short: if your employer contributes up to 6% of your base pay, by maxing out your 401k contributions and pulling in an employer match, you would be getting nearly the same amount of savings per paycheck-- $842 (averaged over the year) vs. $875-- but you would have nearly $500 left over after bills, instead of about $60.

At $500/paycheck, you would have the money for LASIK very quickly, and then you could go ahead and start tossing that money into whatever investments you choose.

You'd be saving 42% of your gross income, plus whatever % of your income your employer matches for the 401k-- and that is BEFORE you start to make any adjustments regarding food, driving, insurance, dropping Equifax, etc., AND before taking into account those two "extra" paychecks a year.  Definitely, definitely a no-brainer.

For further tweaking:

1) You need to cook. If a future wife is on your mind, think of this as an investment in lady-finding, because women love men who can cook. I know you're exhausted at the end of the day-- aren't we all!-- so you'll need to find some time that isn't in the midst of driving-- doing all the prep work in the morning before you leave for work, or making a bunch of meals on the weekend that you freeze for heat-and-eat on weeknights, or even just stocking up on cheap frozen pizzas.

2) Start tracking your expenses. Just trust me on this one.

3) See if you can find alternatives to driving for car trips that aren't your commute.

4) While there's no improving on your living situation from a financial standpoint, the other end of the commute question is where you work. Start a long-term research project to get a feel for what the jobs are like within a five-mile radius of your mom's house. Keep an eye on this, via Indeed searches or something similar. Between the gas, the EZ-Tags, and the awful drain on your time/energy/quality of life, your current commute is not something you'll want to keep forever.

Good luck!

ooeei

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Hey Emergo, I'm a 26 year old engineer in Houston, so I can kind of see where you're coming from.  As much as the commute sucks, it's probably financially better than moving close to work (due to your really low rent at home).  It sounds like you've got a good grasp of English, but maybe not an "advanced" grasp required to talk about all of this financial stuff at the moment. 

Since you don't know exactly what you're doing yet, I'd recommend boosting up your 401k to about 10% of your pay (someone at HR should be able to help) and put it in one of the funds someone above recommended.  In the meantime, read up on what an Traditional IRA, Roth IRA, and 401k are and how they work.  Google is your friend!  Once you've read up more you can come back here with more detailed questions and get some helpful advice.  I like 20somethingfinance.com and getrichslowly.org for info on stuff like that.

The basic rule for retiring is that whatever you have invested you can withdraw 4% per year without the investment decreasing (the gains in the investment offset what you're taking out).  That means you can take your yearly expenses and multiply them by 25 to find out what you need invested to live off your investments.

If you live off $20,000/year, you need $20,000*25= $500,000 invested to "retire."  If you live off $30,000 you need $750,000.  If it's you and a family, and you're taking care of a parent or family member, and donating to a church, you're probably going to be spending over $40,000/year ($1,000,000 needs to be invested)

From the sounds of it, you want to retire early, but also want to help out family and your church.  While that is admirable, those goals are working against each other for the most part.  For example, that $440/month you tithe adds up over time.  If you invested that money every month for 10 years you'd have $76,000 (assuming 7% interest).  That's enough to buy your dad a house.  If you invested it every month for 20 years you'd have $230,000.  If you invested it every month for 40 years you'd have over $1,000,000. http://www.moneychimp.com/calculator/compound_interest_calculator.htm is what I used for the calculation.

As for buying your dad a house, I know it's a cultural difference.  My girlfriend is Chinese and there is a bit of an expectation that the kids take care of the old parents.  There are all sorts of arguments as to whether that is beneficial overall, but it is what it is.  You have the unfortunate position of being in the "bridge" generation where you're considered responsible for your dad's retirement, but will also be responsible for your own.  I recommend having a talk with your dad about what he expects, and before making any promises run all of the numbers and see what's doable/worth it to you. 

Caring for your aging parent and supporting the church will move back your retirement date significantly.  If you get married and have kids, your future spouse will have a large impact as well.  If she's the type who likes big houses, fancy clothes, and nice cars, you'll probably be working until you're in your 60's.  If she's frugal and your dad doesn't have any large expenses (which he very well might), you can probably quit in your 40's.

Also, don't discount things like restaurants as not being a big deal financially.  Small expenses add up over time.  http://www.mrmoneymustache.com/2011/04/15/getting-started-3-eliminate-short-termitis-the-bankruptcy-disease/


Emergo

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Thanks again for everyones input. I'm working on it.

Question: does anyone recommend a podcast i can listen to? MMM doesnt have one, as far as i know? Podcast for beginners or one that will share useful info. I like to listen in my car on the way to work. (50 min commute)

Emergo

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Also, i know MMM provided a list of his favorite books, but is there an end all, be all MMM book? Would be useful on my vacation train ride coming up next week.

ooeei

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Also, i know MMM provided a list of his favorite books, but is there an end all, be all MMM book? Would be useful on my vacation train ride coming up next week.

You could always start from the beginning on the blog :P

Emergo

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Also, i know MMM provided a list of his favorite books, but is there an end all, be all MMM book? Would be useful on my vacation train ride coming up next week.

You could always start from the beginning on the blog :P

I don't have a tablet to view his blog, only my phone. And i dont want to be on my phone during the whole ride. Otherwise... thats a lot of pages to print lol

norabird

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Your Money or Your Life and the Millionaire Next Door are good general books to start with about expenses and attitudes towards money. You could probably read Warren Buffett bios or David Swensen's books for a general investing take.

MDM

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Also, i know MMM provided a list of his favorite books, but is there an end all, be all MMM book? Would be useful on my vacation train ride coming up next week.

Another list of three "starter" books you might be able to borrow from your local library:
A Random Walk Down Wall Street by Burton Malkiel
The Millionaire Next Door by Thomas Stanley/William Danko
The Four Pillars of Investing by William Bernstein

Emergo

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Cool, any podcasts?

AmandaS1989

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Maybe Listen Money Matters podcasts would be to your liking. I think they're on iTunes as well as their website

Emergo

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Did a lot of one on one counseling with my friend on the terms mentioned in this thread, and i feel more enlightened now. Im still struggling to decide which IRA is best for me though. Boarder says ira roth because of my income post tax... but im not sure what that means. I looked at madfientists method of go traditional now and convert to roth ira later, which makes sense. But im still on the bubble.

My friend also didnt know anything about HSA, which i read is the ultimate retirement account because its tax free all the way and you can pay it anytime and get reimbursed for it pre tax. And it grows... ahhh i dont understand that.

Im getting there guys! Slowly but surely. Understanding everything now.

Emergo

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Me and my friend just dissected HSA a bit from the mad fientist website. And i get it kinda..

So i put in 3000 every year, and for every medical expense i do i can get reimbursed at any time i want, so i can keep that in my HSA and at my retirement, all the reimbursements I have will likely equal or outweigh the tax from when i withdraw all the money i had that was growing in HSA
 Correct? So it sounds like a loophole, and the only way anyone who does this will get screwed is if they change the rule to doing reimbursements allowable up til one year on the receipts.

boarder42

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Re: The Emergo Zero to Hero Progress Thread... Thanks to YOU!
« Reply #88 on: November 13, 2015, 06:41:38 AM »
You're good to go Traditional IRA.  you're income after maxing a 401k and HSA will put you in the ballpark to go traditional. 

Emergo

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Re: The Emergo Zero to Hero Progress Thread... Thanks to YOU!
« Reply #89 on: November 13, 2015, 10:41:19 AM »
Turns out my company does not have HSA. Bummer. I guess thats a huge loss for me, huh?

Emergo

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Re: The Emergo Zero to Hero Progress Thread... Thanks to YOU!
« Reply #90 on: November 13, 2015, 10:42:09 AM »
You're good to go Traditional IRA.  you're income after maxing a 401k and HSA will put you in the ballpark to go traditional.

Now that I dont have an option for HSA, dont go traditional? Thanks boarder. Youre the bomb.com.

boarder42

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Re: The Emergo Zero to Hero Progress Thread... Thanks to YOU!
« Reply #91 on: November 13, 2015, 11:39:11 AM »
You're good to go Traditional IRA.  you're income after maxing a 401k and HSA will put you in the ballpark to go traditional.

Now that I dont have an option for HSA, dont go traditional? Thanks boarder. Youre the bomb.com.

your company doesnt  have to have an HSA option.  you can do your own HSA as long as youre on the high deductible health plan at work.

You should and still can go Trad IRA you're only making 4k above the max so if you put 18k in your 401k you can still go trad IRA, regardless of if you setup an HSA or not

Emergo

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Re: The Emergo Zero to Hero Progress Thread... Thanks to YOU!
« Reply #92 on: November 13, 2015, 12:05:01 PM »
You're good to go Traditional IRA.  you're income after maxing a 401k and HSA will put you in the ballpark to go traditional.

Now that I dont have an option for HSA, dont go traditional? Thanks boarder. Youre the bomb.com.

your company doesnt  have to have an HSA option.  you can do your own HSA as long as youre on the high deductible health plan at work.

You should and still can go Trad IRA you're only making 4k above the max so if you put 18k in your 401k you can still go trad IRA, regardless of if you setup an HSA or not

Okay, i'm on a high deductible plan and i just now checked this website on how to get my own HSA

https://personal.vanguard.com/us/whatweoffer/overview/healthsavings

They recommend a certain company and I go there and use HSA and invest in Vanguard. Seems like everything I invest in is Vanguard. Hmm.

boarder42

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Re: The Emergo Zero to Hero Progress Thread... Thanks to YOU!
« Reply #93 on: November 13, 2015, 12:12:12 PM »
its not "in vanguard" its "with" vanguard.  their funds are conglomerations of different stocks in the stock market.

rubybeth

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Me and my friend just dissected HSA a bit from the mad fientist website. And i get it kinda..

So i put in 3000 every year, and for every medical expense i do i can get reimbursed at any time i want, so i can keep that in my HSA and at my retirement, all the reimbursements I have will likely equal or outweigh the tax from when i withdraw all the money i had that was growing in HSA
 Correct? So it sounds like a loophole, and the only way anyone who does this will get screwed is if they change the rule to doing reimbursements allowable up til one year on the receipts.

If I'm reading your summary right, no, that's not how it works. :)

The current maximum for a single HSA is $3,350: http://www.shrm.org/hrdisciplines/benefits/articles/pages/2016-hsa-limits.aspx

It's money set aside pre-tax (or, if you fund it yourself and not through your employer, you get a tax deduction on your taxes). You can only fund it if you have a High Deductible Health Plan (HDHP).

You can use it to reimburse yourself for qualifying medical expenses, at any time (even if you don't have a HDHP at some point). So if you get a prescription for $20 and want it to be paid for tax-free, you can reimburse yourself right away (or use the HSA debit card to pay for it outright; I prefer putting medical expenses on my credit card for the rewards, then reimbursing myself later). Or you can wait and total up all your receipts for as long as you want (hold onto the documentation; this can be audited by the IRS so you must keep receipts to show legitimate qualifying medical expenses). You could save receipts for many years until you decide to retire early, and then reimburse yourself as a way to get tax-free money. It's not taxed, ever, as long as it's used for medical expenses.

Funds in an HSA can also be invested, so the funds can grow like funds in an IRA, 401k, or taxable investment account. It helps if you can get your funds into a low-fee index fund. Some HSAs may require you to keep some of the funds in cash to be readily accessible to pay for a medical cost. For mine, that's the first $2,000. If my cash amount drops below that, some of the investment will be sold to make up the difference so I always have $2,000 in 'cash.'

If you use the HSA funds for expenses other than qualifying medical expenses, you will be taxed.

Emergo

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Hey guys,

So my maxing of 401k has begun. Im living off 1700ish a month now. I have an emergency savings of 10k, should i go ahead and put 5.5k of that to IRA before the year ends? So it can grow faster? And then whatever leftover i have to a non retirement account through vanguard and get an etf? Since i probably wont be able to buy much?

I called vanguard and asked questions. It was very helpful. Still debating traditional ira to roth... all i know is that i can convert traditional to roth later on and maximize my savings that way....

Btw when next year starts, its gonna be difficult to put in 500 a month to my ira account with just 1700 leftover from maxing my 401k. Because from that 1700, subtract my monthly payments and its only 800? Minus the 500 from ira account... ouch!

But after maxing my 401k thats me having 50% saving rate. Which is pretty good...
« Last Edit: December 02, 2015, 06:48:13 AM by Emergo »

boarder42

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300 a month depending what you have in those 900 dollars worth of monthly payments is tons of spending money.

boarder42

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Also you're an engineer. You should be seeing dramatic raises over the first few years of your career.

Emergo

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Ill only get 5k per year raises and probably cap off at 90k. Unless i do something major career wise.

boarder42

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Re: Latest: put 5.5k of savings into traditional or roth ira before yr ends?
« Reply #99 on: December 02, 2015, 07:07:50 AM »
You have until tax day in April to fund your IRA for 2015 just an FYI