Author Topic: Investment options for side hustle?  (Read 506 times)

samanil

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Investment options for side hustle?
« on: February 07, 2021, 08:20:09 PM »
Hi Mustachians,

I work as a carpenter full time, and am aiming to max out both my 401k and Roth IRA this year through that income (total income there is 60k). I also have side hustle income, which is from delivering food on my bike.  I'm guessing my side hustle income will be around 10k, and I'd like to invest all of that.

Can any seasoned veterans give me some guidance on my account options for investing the side hustle income? There's obviously my taxable account, as well as a solo 401k and sep IRA. The latter two are confusing to me so any clarification there would be much appreciated.

Also, I am wondering if at a certain point it is actually preferable to invest in a taxable account over a tax sheltered one, as you need a substantial chunk that you can live off for 5 years while you wait for your Roth IRA conversion ladder money to "season".

Thanks!

Kroaler

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Re: Investment options for side hustle?
« Reply #1 on: February 11, 2021, 08:06:56 AM »
Not what you asked for, but of you have the carpenter skill set.... I'd be doing that full time +.

I believe someone could make a killing just building permitted decks.

Again completely not what you asked for, but that observation jumped out at me as everyone I know is always hunting a skilled carpenter.   

Kroaler

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Re: Investment options for side hustle?
« Reply #2 on: February 11, 2021, 08:08:49 AM »
I felt bad for not helping.

Does this help any?

https://forum.mrmoneymustache.com/investor-alley/investment-order/

ChpBstrd

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Re: Investment options for side hustle?
« Reply #3 on: February 11, 2021, 10:24:25 AM »
There's not really a difference between side hustle income and career income. The IRS certainly draws no distinction.

You'll probably just be living off more of your side hustle pay and saving more of your work pay.

It sounds like you work for an employer (i.e. you have a 401k). If you could find a way to be self-employed, a SEP-IRA could be an option for you, which would change your maximum pre-tax savings to the lessor of 25% income or $57k. Depending on your specific numbers, that could be a bigger amount than the $19,500 you can put in a 401k. Of course there are a lot more considerations than that, including benefits, unemployment insurance, and social security.

Otherwise, just plow all remaining savings after maxing out your 401k and Roth into a taxable account. That's optimal.

BicycleB

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Re: Investment options for side hustle?
« Reply #4 on: February 11, 2021, 02:25:31 PM »
Re the tradeoff between tax advantaged accounts (like 401k) vs "taxable" savings aka "cash take home pay", there's an individual consideration.

If you will have many years of FIRE before Social Security draw, you have lots of time where most withdrawals can be made at very low tax rates. That suggests focusing on tax advantaged accounts, except when building your 5 years of expenses for Roth ladder.

So when to build up the 5 years of expenses? I'd do it gradually, so I could keep my tax rate low, never needing to have a high income high year during the buildup sequence.

Can you save after-tax money and still keep your marginal income tax rate 12% or less?

samanil

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Re: Investment options for side hustle?
« Reply #5 on: February 21, 2021, 11:02:01 PM »
Not what you asked for, but of you have the carpenter skill set.... I'd be doing that full time +.

I believe someone could make a killing just building permitted decks.

Again completely not what you asked for, but that observation jumped out at me as everyone I know is always hunting a skilled carpenter.

You've got a good point. The thing with carpentry though is that it is pretty physically and mentally taxing, so at a certain point you need to stop. Working as a bike courier is much more of a simple flow like going on a hike, where you're just cruising along. So they are complimentary in that regard. Nonetheless in the future I would like to pick up side jobs and make way more money. But I think I'll always enjoy cruising around town on my for a bit of cash.