Author Topic: Where to put extra money after IRAs  (Read 2387 times)

WorkingHarder

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Where to put extra money after IRAs
« on: August 05, 2016, 12:36:00 PM »
Hello!  First time post, long time lurker.  I'll give you a quick summary of me and then get to my question. 
30 years old with a wife and little kids (13 years until college). Plan to retire at 40.  Have about 500k net worth right now.  You guys are going to hate on the distribution of my assets, but here goes.

Assets:
Rental house = $170k (paid off)
Mine and wife's tIRAs = $29k (90% stock index funds)
Primary Residence = $835k
Ally savings acct (1% int) = $100k

Liabilities:
Mortgage on primary = 640k (3.75% rate, 30 year)

Income/yr probably around $600k.

I work for a small company so no 401k, and then I have a side job that I own and operate.  Buying another business soon, so that's why I have so much in a savings account.    We have maxed our IRAs this year.  So now where should I put my money?  I was planning on putting it in a 529 for kids colleges.  My accountant mentioned a SEP IRA, but if all my money is tied up in SEP IRA and tIRA, I won't be able to get to it when I turn 40 without penalties, right?  So should I open a taxable account now so that I can access the money at age 40 penalty free?  Or open a 529 and start saving for colleges?  I need help! Thank you!!!


Rollin

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Re: Where to put extra money after IRAs
« Reply #1 on: August 06, 2016, 05:35:43 AM »
I don't know about the rest of your situation (that you described above), but I'd consider that $100k going into a Vanguard account and let it start working for you. I have maxed out my pre-tax stuff for years, optimized our spending (including getting the best mortgages and insurance policies, etc.) and a along with that put the big cash left over in a 60/40 stocks/bond taxable VG account (of course your AA could be different). I have some emergency cash at the Lake Michigan Credit Union earning 3% (max up to $14,500), but it does take a little bit of work to get that (4 sign ins/month, a direct deposit/month, and 10 debit card transactions/month).

I know you might get a few face punches for some of what you described, but overall thumbs up - and the fact that you are asking the question gets you extra points from me!

seattlecyclone

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Re: Where to put extra money after IRAs
« Reply #2 on: August 06, 2016, 05:51:09 PM »
My accountant mentioned a SEP IRA, but if all my money is tied up in SEP IRA and tIRA, I won't be able to get to it when I turn 40 without penalties, right?

Have you read this blog post or this forum post yet? They cover some ways to get the money out of your traditional retirement accounts without paying the 10% early withdrawal tax.

Also read this Mad Fientist post. It touches on some of these same topics and also shows that saving in pre-tax retirement accounts can pay off even if you can't arrange things to make the penalty-avoidance techniques work for you and you end up needing to pay the penalty.

WorkingHarder

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Re: Where to put extra money after IRAs
« Reply #3 on: August 06, 2016, 10:04:54 PM »
Very cool SeattleCyclone.  Thanks for the detailed response and links.  Will check those out.

Thanks as well Rollin.  Can't put the 100k in vanguard because I am about to spend it all on a new business.  Then my plan is to even out my assets by putting all extra money into index funds.

Thanks all!  I think I have my question answered. :)

csdreaming

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Re: Where to put extra money after IRAs
« Reply #4 on: August 06, 2016, 10:16:02 PM »
The market right now is at a peak. I would just put that extra money into the mortgage. Or, in your case, keep it if needed for the business.

You can set up a solo 401K with Vanguard.

> So should I open a taxable account now so that I can access the money at age 40 penalty free?

Isn't it at age 62?

Regardless, if you want early access your money you may want to look into using the Roth option in the 401K. You can withdraw the Roth contributions at any time which is very useful as a second savings account.

Also if you setup a retirement account a restriction is placed on how much you can contribute to a tIRA so you have to use a Roth IRA.

Greenpez

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Re: Where to put extra money after IRAs
« Reply #5 on: August 07, 2016, 08:21:05 AM »
The market right now is at a peak. I would just put that extra money into the mortgage. Or, in your case, keep it if needed for the business.
 contributions at any time which is very useful as a second savings account.


 How do you know this??

boarder42

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Re: Where to put extra money after IRAs
« Reply #6 on: August 07, 2016, 08:31:05 AM »
Welcome. You need to learn alot.

1 markets hit all time high all the time trying to time markets is dumb. Invest your money in an index fund and forget about it.

2.  All money in retirement funds is accessible thru multiple avenues prior to 60. And even paying the 10% penalty is actually more beneficial than using taxable.

3. You need to either learn tax law and exploit it for your own gain or hire an accountant to do it for you. I'd learn it bc I don't trust other people. And most accounts I've met learn from me.

100k at -2% interest is how you should be looking at that money bc inflation avgs 3%. So your losing your buying power

Here's a madfientist post or 2 on why to save in tax advantaged accounts and a math analysis on why even the 10% penalty is better than taxable.

http://www.madfientist.com/how-to-access-retirement-funds-early/#ck_modal2

http://www.madfientist.com/retire-even-earlier/

To answer the title of you post research the sep IRA and 401k and figure out which retirement saved you the most in taxes then max that. Next fund a taxable account at vanguard and put it in vtsax


mathjak107

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Re: Where to put extra money after IRAs
« Reply #7 on: August 07, 2016, 09:57:14 AM »
The market right now is at a peak. I would just put that extra money into the mortgage. Or, in your case, keep it if needed for the business.
 contributions at any time which is very useful as a second savings account.


 How do you know this??

easy ,  i retired last year , i just made back what we spent since retiring  and stand where we did  15 months ago  .  that means something has to spoil this for us .
« Last Edit: August 07, 2016, 09:59:46 AM by mathjak107 »

mathjak107

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Re: Where to put extra money after IRAs
« Reply #8 on: August 07, 2016, 10:04:30 AM »
you could use a brokerage account .

but the advantages are a mixed bag depending on personal situation .

that can be a great move if you are in the zero percent capital gains brackets  . if you plan on passing to heirs you may be able to pass equity's tax free .

if you trade you can write off losses .

the mixed bag is the fact you can get lower capital gains  taxes on it . depending on distributions , turnover and dividends  even a cash flow as low as 1% over the long term can un-do any tax advantage difference compared to being deferred in a tax deferred account .

even using a tax advantaged fund may create a tax torpedo down the road . if you make changes in retirement in your holdings the pent up gains over decades can create all kinds of tax havoc and penalty's elsewhere .

if you have a whole life policy and money you did not want to commit to stocks , many of these policy's have pretty decent minimum interest rates . mine was around 4% .

well you can actually over fund these and any money over funded  can not have any fees or charges taken out .

this money can grow tax free at that minimum rate and eventually you can borrow it out , never pay it back and basically have all that compounding tax free .

check what is called the mec limits . that is the max the irs lets you over fund before they no longer consider it life insurance but a modified endowment contract .
« Last Edit: August 07, 2016, 10:25:32 AM by mathjak107 »