Author Topic: Best place to stash cash without a 401k?  (Read 2555 times)

MisterOwl

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Best place to stash cash without a 401k?
« on: August 19, 2016, 03:48:48 PM »
Title says it all. I'm 23 and am working for a pretty good tech company. I am maxing out my IRA but do not have access to a 401k. I plan to transition to another company in a few years that will have one but am wondering if there are any other options I wasn't aware of. Preferably tax shielded ;D

seattlecyclone

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Re: Best place to stash cash without a 401k?
« Reply #1 on: August 19, 2016, 05:15:30 PM »
You can contribute to an HSA if you have a qualifying High Deductible Health Plan. Other than that, there aren't too many tax-sheltered options. You could consider setting up a 529 (kind of like a Roth IRA for college) if you intend to have kids someday.

But really, investing in a taxable account isn't all that bad. If your income is high enough you'll owe a little bit of tax every year from the dividends, but you don't pay tax on the capital gains until you sell.

randymarsh

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Re: Best place to stash cash without a 401k?
« Reply #2 on: August 19, 2016, 05:39:01 PM »
Side hustle where you open a Solo 401k. ;-)

capitalninja

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Re: Best place to stash cash without a 401k?
« Reply #3 on: August 19, 2016, 05:53:19 PM »
If you have any debt, pay that off. Guaranteed return on your cash completely risk free.

endleesss

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Re: Best place to stash cash without a 401k?
« Reply #4 on: August 23, 2016, 02:39:23 AM »
But really, investing in a taxable account isn't all that bad. If your income is high enough you'll owe a little bit of tax every year from the dividends, but you don't pay tax on the capital gains until you sell.
Agreed, you can also invest in something with no dividends so you don't pay anything till you sell.

jp_b

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Re: Best place to stash cash without a 401k?
« Reply #5 on: August 27, 2016, 11:45:26 AM »
You could also invest in tax exempt municipal bonds where you won't be taxed on dividends.  Return isn't as high but it's an option.  Vanguard offers a lot of options. 

MustacheAndaHalf

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Re: Best place to stash cash without a 401k?
« Reply #6 on: August 27, 2016, 11:56:17 AM »
"working for a pretty good tech company" ... "do not have access to a 401k."
Personally I find those statements contradictory - a good tech company should provide a 401(k) with company match.  If they can't even do that, their benefits and concern for employees must also be lower than the better tech companies - just my personal view.  The idea that you're leaving it soon suggests you might even agree, but I digress...

Right now the S&P 500 has 2% dividends.  That means with a $10,000 investment in the S&P 500 you would expect $200 in dividends per year.  If you make less than $400k / year, the IRS taxes you 15% on qualified dividends.  So the IRS would want $30 / year of your $10,000 investment.  Meanwhile if you pick the wrong place to invest, you could be paying 1% ($100 / year) in annual fees instead of 0.05% ($5 / year) at Vanguard.

As a tax strategy, buying and holding a passive index fund makes sense.  Where an active fund buys and sells, realizing capital gains, a passive fund makes every effort to avoid that (people selling / exiting the fund may require the fund sells stocks).

Spork

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Re: Best place to stash cash without a 401k?
« Reply #7 on: August 27, 2016, 12:06:38 PM »

Right now the S&P 500 has 2% dividends.  That means with a $10,000 investment in the S&P 500 you would expect $200 in dividends per year.  If you make less than $400k / year, the IRS taxes you 15% on qualified dividends.  So the IRS would want $30 / year of your $10,000 investment.  Meanwhile if you pick the wrong place to invest, you could be paying 1% ($100 / year) in annual fees instead of 0.05% ($5 / year) at Vanguard.


[ please correct me if I am wrong here... I am not a tax expert ]

Oh, but it's better than this.  For Single, they tax at 0% up to $37,650.  So if you only earned $10,000 $200, your tax is $0.  If you happen to earn $40,000 worth of dividends, THEN the extra $2350 is taxed at 15%.  In other words, $40,000 worth of dividend income would be taxed $352.

Edit: earnings were $200, not $10k.  Oops.
« Last Edit: August 27, 2016, 12:33:25 PM by Spork »

MustacheAndaHalf

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Re: Best place to stash cash without a 401k?
« Reply #8 on: August 27, 2016, 12:24:58 PM »
If you make less than $400k / year, the IRS taxes you 15% on qualified dividends.
For Single, they tax at 0% up to $37,650.  So if you only earned $10,000, your tax is $0.
Possible, but OP claimed to work at a "pretty good tech company".  I'd be surprised at a salary that low working in tech.

Spork

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Re: Best place to stash cash without a 401k?
« Reply #9 on: August 27, 2016, 12:36:59 PM »
If you make less than $400k / year, the IRS taxes you 15% on qualified dividends.
For Single, they tax at 0% up to $37,650.  So if you only earned $10,000, your tax is $0.
Possible, but OP claimed to work at a "pretty good tech company".  I'd be surprised at a salary that low working in tech.

No, you're right.  I am incorrectly looking at this from a FIRE perspective...

I was actually (mistakenly) thinking that the $37,650 applied to ONLY qualified dividends, not total income.   But it appears that is not the case.  Carry on.  Nothing to see here.

whodidntante

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Re: Best place to stash cash without a 401k?
« Reply #10 on: August 28, 2016, 07:35:37 PM »
IRA and HSA.  Stock index ETFs in a taxable account. 

Ask your company to add a 401k.  Make sure your total compensation is competitive.