Author Topic: New, do I have the general idea down?  (Read 2663 times)

Stratus

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New, do I have the general idea down?
« on: August 30, 2016, 08:32:34 AM »
I finally started making good money, and am currently self-employed.  I want to start investing heavily and I think I get the main gist but want to hear from you all.  First, max out retirement plans.  At this point I qualify for Roth IRA, as well a Traditional IRA, and I believe I can also create a SEP IRA.  If that's the case, max those out.  After that, put excess money that is not needed into a taxable investment account.  I also intend to put money into an HSA to lower my tax burden, and am exploring rental homes in the future. 

I have not decided yet if I will use Vanguard or Betterment.  I will not have 100,000 right off to put into Betterment, so maybe Vanguard will be the better start, but I do like the idea of Betterment handling everything effortlessly.

Dmy0013

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Re: New, do I have the general idea down?
« Reply #1 on: August 30, 2016, 09:08:21 AM »
Im not american so I can't help you to much on what accounts to use...

Big questions though do you have any debt?  what are the interest rates?  Mortgage?  Car?

NV Teacher

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Re: New, do I have the general idea down?
« Reply #2 on: August 30, 2016, 10:24:40 AM »
What debts do you have?  What are your monthly obligations as far as rent/mortgage, utilities, etc.  Do you have a healthy emergency fund set aside that is easily accessible?  Like most things in life you need a balance in your money management to get the greatest reward.

Stratus

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Re: New, do I have the general idea down?
« Reply #3 on: August 30, 2016, 11:34:58 AM »
I have zero debts, six months of spending saved, and I rent a place with a friend only spending 500 a month.  I'm only concerned with investing now.

caracarn

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Re: New, do I have the general idea down?
« Reply #4 on: August 30, 2016, 11:52:25 AM »
Stratus, you have hit on the head what I believe the Betterment strategy offers even if you cannot hit the lower fee amount right away.  The difference is 0.2% in fees, but with the automated management I believe it more than pays for itself with the automated moves and wonderful record keeping when/if you do sell.  Sure you can rebalance your portfolio yourself, but calculating the optimal way to do that and what to sell is very difficult and time consuming.  I give a very strong vote for Betterment versus Vanguard and I have used both.

CowboyAndIndian

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Re: New, do I have the general idea down?
« Reply #5 on: August 30, 2016, 12:09:15 PM »
I finally started making good money, and am currently self-employed.  I want to start investing heavily and I think I get the main gist but want to hear from you all.  First, max out retirement plans.  At this point I qualify for Roth IRA, as well a Traditional IRA, and I believe I can also create a SEP IRA.  If that's the case, max those out.  After that, put excess money that is not needed into a taxable investment account.  I also intend to put money into an HSA to lower my tax burden, and am exploring rental homes in the future. 

I have not decided yet if I will use Vanguard or Betterment.  I will not have 100,000 right off to put into Betterment, so maybe Vanguard will be the better start, but I do like the idea of Betterment handling everything effortlessly.

Since you do not have any loans and you have a emergency stash this is what I would recommend

Put the max in your employers 401k. In this case, it would be your Individual 401k since you are self employed(Do you have an LLC?) With employers match,  you can put approx $53k in it (assuming you make enough). Talk to an accountant if you have any employees.You might have to give them the same employers match if you do.

The 401k gives you huge tax benefits, reducing your personal taxes.

If you manage to put the $53k into a 401k, I believe that you have crossed the limits for a Roth ($100k if I am not mistaken).

As I told my son today, preload your retirement/savings accounts when you are young so your dollars have a long time to work for  you!

Stratus

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Re: New, do I have the general idea down?
« Reply #6 on: August 30, 2016, 12:23:09 PM »
I finally started making good money, and am currently self-employed.  I want to start investing heavily and I think I get the main gist but want to hear from you all.  First, max out retirement plans.  At this point I qualify for Roth IRA, as well a Traditional IRA, and I believe I can also create a SEP IRA.  If that's the case, max those out.  After that, put excess money that is not needed into a taxable investment account.  I also intend to put money into an HSA to lower my tax burden, and am exploring rental homes in the future. 

I have not decided yet if I will use Vanguard or Betterment.  I will not have 100,000 right off to put into Betterment, so maybe Vanguard will be the better start, but I do like the idea of Betterment handling everything effortlessly.

Since you do not have any loans and you have a emergency stash this is what I would recommend

Put the max in your employers 401k. In this case, it would be your Individual 401k since you are self employed(Do you have an LLC?) With employers match,  you can put approx $53k in it (assuming you make enough). Talk to an accountant if you have any employees.You might have to give them the same employers match if you do.

The 401k gives you huge tax benefits, reducing your personal taxes.

If you manage to put the $53k into a 401k, I believe that you have crossed the limits for a Roth ($100k if I am not mistaken).

As I told my son today, preload your retirement/savings accounts when you are young so your dollars have a long time to work for  you!

I do not have a 401k, an LLC, or employees. I'm a contract pilot, I will be setting up an LLC to protect myself from any possible issues that could arise in my work. I may just have to talk to an accountant as you have suggested.

CowboyAndIndian

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Re: New, do I have the general idea down?
« Reply #7 on: August 30, 2016, 12:35:54 PM »
I do not have a 401k, an LLC, or employees. I'm a contract pilot, I will be setting up an LLC to protect myself from any possible issues that could arise in my work. I may just have to talk to an accountant as you have suggested.

If you are a contract pilot, do you get a 1099 or a W2 at the end of the year?

I am a consultant and no company directly hires consultants due to the Microsoft fiasco about 20 years ago. There is always an intermediate company between you and the company actually paying for the services.

The intermediate company may have a corp-corp business relationship with you (ie. 1099) or the intermediate company employs you and takes a x% cut of your contract(ie W2).

In the 1099 case, you can set up a Individual 401k or a SEP-IRA. You will need to talk to your accountant as which of the two is better for you. In the W-2 case, you are limited to the 401k offered by the intermediate company as well as an regular Roth or IRA if eligible.

Not really sure about what contracting mechanisms you would have as a contract pilot.

It might make sense to talk to a decent tax CFA.

(FWIW, I am a software engineer, not a tax accountant or a CFA)

Stratus

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Re: New, do I have the general idea down?
« Reply #8 on: August 30, 2016, 01:23:25 PM »
I do not have a 401k, an LLC, or employees. I'm a contract pilot, I will be setting up an LLC to protect myself from any possible issues that could arise in my work. I may just have to talk to an accountant as you have suggested.

If you are a contract pilot, do you get a 1099 or a W2 at the end of the year?

I am a consultant and no company directly hires consultants due to the Microsoft fiasco about 20 years ago. There is always an intermediate company between you and the company actually paying for the services.

The intermediate company may have a corp-corp business relationship with you (ie. 1099) or the intermediate company employs you and takes a x% cut of your contract(ie W2).

In the 1099 case, you can set up a Individual 401k or a SEP-IRA. You will need to talk to your accountant as which of the two is better for you. In the W-2 case, you are limited to the 401k offered by the intermediate company as well as an regular Roth or IRA if eligible.

Not really sure about what contracting mechanisms you would have as a contract pilot.

It might make sense to talk to a decent tax CFA.

(FWIW, I am a software engineer, not a tax accountant or a CFA)

So far this year, only one company had me fill out a W-2 and withheld nothing from me for taxes.  In general, I just invoice whoever I fly for and wait for a check.

CowboyAndIndian

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Re: New, do I have the general idea down?
« Reply #9 on: August 30, 2016, 04:38:42 PM »
So far this year, only one company had me fill out a W-2 and withheld nothing from me for taxes.  In general, I just invoice whoever I fly for and wait for a check.

Then you probably will get  1099(s).

You should get prepared with the LLC, setup a 401k plan (I use Schwab), bank account etc. The hardest part, surprisingly is the name of the LLC :-)

But first, get in touch with a CPA. May cost around $500 to incorporate an LLC,

Also, If your jobs are all over the place, you should consider setting up residency in a low tax area (FL or TX etc). In that case, set up your LLC at that location.

Let us know how it goes....