• This site contains affiliate links. If you choose to make a purchase after clicking a link, Poker Chip Forum may receive a commission at no additional cost to you. Thank you for your support!

The Retirement Planning/ Investment/ Savings Thread (1 Viewer)

inca911 said:
529 Plan Additional Info
My company recently implemented a new benefit, enabling employees to convert unused PTO time into a 529 Plan. Here's a bit of background on 529 Plans that I put together for some more junior people who work on my teams, it might be useful to someone here.
  • The initial contribution made to a 529 Plan can be withdrawn at any time and for any purpose with no tax/penalty. That’s a basic tenet of a 529 plan. If you need the original principle back, it's readily available.
  • The primary benefit of the plan is that earnings growth on your contribution is not taxed when it is used for qualified educational expenses. Qualified expenses include: tuition/fees, books/supplies, computers/internet expenses, as well as room/board. The 529 plan can also be used to pay for K-12 private school tuition expenses.
  • If you use the appreciation/earnings for non-qualified expenses, there is a federal 10% penalty on top of normal income tax on those earnings. Reminder, this penalty does NOT apply to the initial contribution amount. Some states add a penalty on top of the federal one. MN doesn’t have a state penalty addition.
  • You can setup a 529 plan for one child, and transfer it to another family member if the first child doesn’t use it. As a tax shelter, the potential upside of untaxed growth outweighs the low probability of incurring the small penalty, in my opinion.
  • I believe the max annual contribution is $15k (single) / $30k (married) per each 529 Plan beneficiary without triggering the federal gift tax. This is something that is likely applicable if trying to gift to a grandchild (or grandchildren). I don’t have multiple plans, so double-check if you do have more than one beneficiary.
  • In the state of MN, one can write off $1500 (single) / $3000 (married) of your annual contribution on your MN income tax. The state income tax treatment varies by state, but that's another potential benefit. Note that if you do take a state tax write off and don’t use the money for qualified expenses in the future, the state of MN can claw back the write off.
    • MN doesn’t require a MN-based 529 Plan to qualify for the write off (some states require an in-state plan). I setup mine through Vanguard, which was a NV-based 529 plan.
As always, confirm with your financial advisor before making decisions! I had a good discussion with my financial planner a few months back. I can share some details on the benefits of partial Roth conversions, if there is interest in knowing more....
Click to expand...
Yep 529’s are fantastic. Texas doesn’t have one so I use New Hampshire for the federal benefits
 
I just wanted to bump this thread to get some of your thoughts on planning for tax minimization in retirement. I understand the benefits of the Roth IRA vs 401k drawdowns as there is no tax on the Roth but how can a post tax brokerage account be used to supplement income where you're paying long term capital gains tax instead of income tax?

It's also certain that my 401k balance will be far greater than my Roth IRA balance given the contribution limits so there will be a limit to the amount of Roth IRA income I can take anyway. And my post tax brokerage balance will also be far larger than the Roth, especially when I downsize the house.

In today's money, the income break point seems to be around $80k for married filing jointly (for single filers, $40k) where income above this is taxed at 22% vs 15% for long term capital gains and tax is only paid on the gains, not the principal. But also, if I keep my AGI below 80k then my capital gains tax is zero. From the first few posts by @inca911 if I keep my 401k drawdown to $25k and I supplement from the Roth and brokerage, am I effectively not paying any tax on the supplement if I keep my AGI below 80k? What happens if I want to take more than $80k a year; say $100k - does this trigger capital gains tax on the whole lot or only the amount above $80k?

Any rules of thumb to follow? Am I missing something?
 
Aim to maximize profits rather than minimize taxes. It is way too easy to get dazzled by the fancy tax calculations and fail to make enough money to pay taxes upon.

Do not assume retirement accounts are even the best way to minimize taxes. I ran numbers for myself and quit making contributions years ago, never again once I was not on a matching 401(K) plan. < please note that ultra high income people can use "retirement" accounts to shelter vast fortunes. If this is you, follow the advice of your tax team. Income taxes are for the little people and or suckers. >

The first $80,800 in long term gains / qualified dividends are exempt from federal taxation for a married couple. You will need a solid seven figure portfolio to earn more than $80,800 / yr and you can design your investments to generate no significant amount of interest or short term gains. I didn't find the need to play the IRA game. Everyone's situation is different. But please take a serious look at all the alternatives. And if your investment advisor isn't able to help with this or worse, has no clue about qualified dividends, then maybe the advice you are getting isn't that good.

By the way, the qualified dividend exclusion is indexed so inflation has less impact on the decision.
 
Is everyone grabbing ibonds for some of the conservative portion of your portfolio? They've been paying a pretty great yield for the last 6 months and guaranteed to pay great for at least the next 6. You can buy 10k worth for everyone in your family.
 
I agree with @DrStrange 's post.

I think that saving in retirement plans vs taxable accounts is not really that important of a decision. The act of saving/investing anywhere over a long period of time is the important decision. I do max out my 401(k) with a Roth Contribution, as tax free growth is a real advantage to me.

When we say diversification, most of us think about diversification in investment holding, but I think it's also smart to do a little of all kinds of savings as a type of diversification...tax diversification. You really don't know how the government is going to change its mind about taxation in the future and what they're going to do..

If you are more than a few years out from retirement, I think your target for income needs and tactical drawdown decisions are pretty hard to game out accurately and you have to continually reevaluate in those last few years.
 
My name Jimmy. I bwot my backpack. I like Yoda and turtles. That is the equivalent of what I would tell my financial advisor on the first day, IF I HAD ONE. Ok, so now that you know that, I obviously have NO CLUE. I will be heavily "invested" in this thread for the next few years as I am LATE in the game. I will explain why I am where I am, soon. Basically, I need help! Also, I trust most of you smart fellas. This community is wonderful! SO many smart people in so many areas....
 
Last edited:
Big Jilm said:
My name Jimmy. I bwot my backpack. I like Yoda and turtles. That is the equivalent of what I would tell my financial advisor on the first day, IF I HAD ONE. Ok, so now that you know that, I obviously have NO CLUE. I will be heavily "invested" in this thread for the next few years as I am LATE in the game. I will explain why I am where I am, soon. Basically, I need help! Also, I trust most of you smart fellas. This community is wonderful! SO many smart people in so many areas....
Click to expand...
You will get some great advice in this thread, but if you are looking for additional information and a forum dedicated to saving for retirement, here ya go: https://www.bogleheads.org/forum/index.php
 
Thanks guys. No doubt that saving is the most important factor and I can reasonably safely say that I have no real concerns there. I'm also saving with the assumption that I'll get nothing from Social Security - although this is probably a very conservative assumptions, I would bet that the authorities would take away social security benefits for those who have savings or 401k balances above a certain threshold way before they increase capital gains tax.

Perhaps I'm over thinking it but being a salaried employee, there is almost nothing I can do to minimize taxes now. It just seems to me that capital gains is some of the lowest taxes you can pay so a strategy to maximize income from capital gains may be preferential at certain income levels. If you're in the 50k/yr bracket then it's clear that 401k drawdowns are the most beneficial but if you're in the $200k/yr bracket then capital gains are probably better.

I think I fall in that segment where it's not clear, somewhere in the middle. And also in the segment where spending money on a professional to sort this out may cost a sizeable chuck of any savings (I have no real data here, I'm just guessing).

So no longer perhaps but I'm definitely over thinking this...
 
Thoughts on adding Bitcoin holdings to my 401k portfolio? In theory it sounds like a risk that can pay off huge dividends by the time I'd see any payouts (more than 30 years from now), but given the potential dividends, wouldn't I get absolutely crushed in taxes once I start withdrawing?
 
Darson said:
Thanks guys. No doubt that saving is the most important factor and I can reasonably safely say that I have no real concerns there. I'm also saving with the assumption that I'll get nothing from Social Security - although this is probably a very conservative assumptions, I would bet that the authorities would take away social security benefits for those who have savings or 401k balances above a certain threshold way before they increase capital gains tax.

Perhaps I'm over thinking it but being a salaried employee, there is almost nothing I can do to minimize taxes now. It just seems to me that capital gains is some of the lowest taxes you can pay so a strategy to maximize income from capital gains may be preferential at certain income levels. If you're in the 50k/yr bracket then it's clear that 401k drawdowns are the most beneficial but if you're in the $200k/yr bracket then capital gains are probably better.

I think I fall in that segment where it's not clear, somewhere in the middle. And also in the segment where spending money on a professional to sort this out may cost a sizeable chuck of any savings (I have no real data here, I'm just guessing).

So no longer perhaps but I'm definitely over thinking this...
Click to expand...
No one has the 20/30/40 year in the future crystal ball on tax policy and inflation. I think the important thing as was mentioned above is (in addition to just saving) to have some diversification from a tax rules perspective. Right now capital gains looks like a great option, but in 25 years when the "eat the rich" government takes power and decides taxing wages is regressive, you'll love having multiple options.

Me, I've got 401k, roth 401k, traditional IRA, traditional brokerage, government bonds, 529 plan for the kiddos, and crypto. Do hold some real estate investments in my brokerage account, but that's one area I'd want to diversify. I'm anti precious metals, but that's another option for some too.
 
JMC9389 said:
Thoughts on adding Bitcoin holdings to my 401k portfolio? In theory it sounds like a risk that can pay off huge dividends by the time I'd see any payouts (more than 30 years from now), but given the potential dividends, wouldn't I get absolutely crushed in taxes once I start withdrawing?
Click to expand...

I think it's a bigger risk to NOT be investing in bitcoin than it is to invest in bitcoin.
 
MrCatPants said:
No one has the 20/30/40 year in the future crystal ball on tax policy and inflation. I think the important thing as was mentioned above is (in addition to just saving) to have some diversification from a tax rules perspective. Right now capital gains looks like a great option, but in 25 years when the "eat the rich" government takes power and decides taxing wages is regressive, you'll love having multiple options.

Me, I've got 401k, roth 401k, traditional IRA, traditional brokerage, government bonds, 529 plan for the kiddos, and crypto. Do hold some real estate investments in my brokerage account, but that's one area I'd want to diversify. I'm anti precious metals, but that's another option for some too.
Click to expand...

Currently I'm 50% real estate (not including the property I plan to retire in), 30% pre-tax (401k, HSA etc), 18% post tax (Roth IRA, brokerage, crypto) and 2% cash. Those percentages will change (it was more like 45% real estate a few years ago). The only thing I don't have a lot of is bonds.

This leads to another rabbit hole - I read somewhere that bonds are best held in the 401k as the interest is taxed on withdrawal whereas interest on Bonds held in a post tax account are taxed every year. Something I know nothing about!
 
MrCatPants said:
Agree. I'm a skeptic still, but having a few percentage points of your portfolio in it I think is reasonable.
Click to expand...
I’ve read a fair amount on crypto and listened to even more and I still don’t get it and generally agree that Buffet is probably correct: “By the paranoid, for the paranoid.”

That said, it represents the ultimate hedge and there are a lot of people speculating in it so there’s potential upside short and ultra-long term.

What to do, what to do? #FOMO
 
BNM said:
Did you buy through treasury direct.gov? The website looks just - step above above dos 1.0.

That’s 9.25% annually for up to 30 years? That’s pretty impressive.
Click to expand...
Series I bond rates adjust every 6 months and is tied to inflation which is why the rate is very high right now. Minimum hold period is 12 months, and there's a 3 month interest penalty for withdrawing before 5 years.
 
kaida said:
Series I bond rates adjust every 6 months and is tied to inflation which is why the rate is very high right now. Minimum hold period is 12 months, and there's a 3 month interest penalty for withdrawing before 5 years.
Click to expand...
Fully correct. but with where inflation is likely going to be for the next year or two, figured it's a pretty good rate of risk free return at a time when capital markets are probably going to be under further pressure.

Also - 10k max in purchases per year, so it's limited.
 
BNM said:
Did you buy through treasury direct.gov? The website looks just - step above above dos 1.0.

That’s 9.25% annually for up to 30 years? That’s pretty impressive.
Click to expand...
yes - I did a bunch of googling to make sure it was legit. Looks very poorly designed.
 
  • Like
Reactions: BNM
MrCatPants said:
Fully correct. but with where inflation is likely going to be for the next year or two, figured it's a pretty good rate of risk free return at a time when capital markets are probably going to be under further pressure.

Also - 10k max in purchases per year, so it's limited.
Click to expand...

Totally agree that I bonds are a great position right now. I expect inflation will be high for the near term, even with the Fed bumping rates. Too many external factors in play right now.

I procrastinated and by the time I tried to create an account to make the April cutoff to lock in the 7.12% rate as well, I ran into the account verification roadblock which required me to go jump through some hoops at a bank. My wife was able to create her account and fund immediately. I suspect it's because she works for a financial institution so they have more of her info on file.
 
MrCatPants said:
Fully correct. but with where inflation is likely going to be for the next year or two, figured it's a pretty good rate of risk free return at a time when capital markets are probably going to be under further pressure.

Also - 10k max in purchases per year, so it's limited.
Click to expand...
Plenty of ways to increase the limit by taking advantage of gifting. Gifting to kids, wife, etc. Gifting both ways as well. I picked up mucho ibonds last year
 
nezara said:
Plenty of ways to increase the limit by taking advantage of gifting. Gifting to kids, wife, etc. Gifting both ways as well. I picked up mucho ibonds last year
Click to expand...
One can also purchase bonds for a trust or LLC / other business entity.
 
kaida said:
Totally agree that I bonds are a great position right now. I expect inflation will be high for the near term, even with the Fed bumping rates. Too many external factors in play right now.

I procrastinated and by the time I tried to create an account to make the April cutoff to lock in the 7.12% rate as well, I ran into the account verification roadblock which required me to go jump through some hoops at a bank. My wife was able to create her account and fund immediately. I suspect it's because she works for a financial institution so they have more of her info on file.
Click to expand...
So, are you-all at or near retirement? Or do you think there will be a recession along with the high inflation? My understanding is that, broadly speaking, inflation generally doesn’t depress corporate earnings. So, in theory, a successful company will continue to generate value and potentially provide a higher return.

Thoughts?
 
I retired early. Even so, I have more money now than I had at the start of retirement. 2009 was bad, this time around things will be more manageable.

Inflation restructures how businesses conduct their affairs. Holding inventories becomes a form of inflation protection. More so if supply chain shortages are in play. Businesses will delay paying their bills if high inflation leads to high interest rates. This leads to tougher terms for commercial credit. Sometimes dries up credit lines completely.

High interest rates / inflation lowers earning multiples. Also leads companies to have higher requirements for capital spending. Companies will prefer more debt vs equity and more tangible assets vs liquidity.

Sure - we can say successful companies will find a way trough inflation / high interest situations. That doesn't mean their stocks will emerge unscathed. And not every company will be successful, especially not start ups or businesses needing capital.

The equity markets will be damaged by higher interest rates no matter how well the companies navigate the situation. Expect the ride to be bumpy.
 
I’m guessing the housing market will soften quite a bit in some places. I’m already seeing that in my target area (San Diego) with my cousin real estate agent scouring the county. Since I won’t be a borrower in this, higher rates can only help. Brother and I are looking hard with a plan to start making offers in 2023.

@DrStrange pm me your phone number. Have a few questions for you and we should catch up anyway.
 
Sharing an opportunity with those of you looking for a fantastic short-term inflation hedge. As of 02May, the current variable interest rate for Federal Series I savings bonds is 9.62% for bonds purchased from May-Oct2022. The interest on these bonds is compounded semi-annually. Inflation this year is estimated to be nearly 9%, which is why the Series I bond has such a high variable rate (i.e., the variable bond yield is based on the Consumer Price Index). You cannot access the money during the first year from purchase, so your money will be tied up if you go this route. If you redeem the bond during the first five years (i.e., after the locked 12 month period), you forfeit the most recent three months of interest to do so. That said, this was a no-brainer for me rather than have additional cash in my bank account. I forego being able to access it, but I have enough buffer to not need it for at least 15 months.

My current plan is to hold at least 15 months to gain the high interest rate advantage, rather than have excess in a low interest savings account. Reminder that this is not a liquid asset. While I do expect the variable rate on this bond to come down fairly quickly (i.e., anticipating really only earning ~4.8% for the first six months period before it adjusts), using this federally-backed option certainly merits a look.
 
Last edited:
inca911 said:
Sharing an opportunity with those of you looking for a fantastic short-term inflation hedge. As of 02May, the current variable interest rate for Federal Series I savings bonds is 9.62% for bonds purchased from May-Oct2022. The interest on these bonds is compounded semi-annually. Inflation this year is estimated to be nearly 9% , which is why the Series I bond has such a high variable rate (i.e., yield is based on the Consumer Price Index). You cannot access the money during the first year from purchase, so your money will be tied up if you go this route. If you redeem the bond during the first five years (i.e., after the locked 12 month period), you forfeit three months of interest to do so. That said, this was a no-brainer for me rather than have additional cash in my bank account. I forego being able to access it, but I have enough buffer to not need it for at least 15 months.

My current plan is to hold at least 15 months to gain the high interest rate advantage, rather than have excess in a low interest savings account. Reminder that this is not a liquid asset. While I do expect the variable rate on this bond to come down fairly quickly (i.e., anticipating only 4.8% for the first six months period before it adjusts), using this federally-backed option certainly merits a look.
Click to expand...
It's where I stuck 10k of my poker bankroll - better than it just sitting in a segregated account.
 

Create an account or login to comment

You must be a member in order to leave a comment

Create account

Create an account and join our community. It's easy!

Register

Log in

Already have an account? Log in here.

Back
Top Bottom