Salary has accelerated to $425,000
- Thread starter underwrite
- Start date
copyright1997reloaded
Thinks s/he gets paid by the post
Does your company have a 409A plan? This is commonly known as an executive deferred compensation plan. If so, you may want to consider it as a way to lower current taxes, and typically the plans allow the money to be withdrawn (after you leave) over a ten year period and to grow (invested, but can be in 'safe' investments) while you are still working. These do have risks, one of which is that the money is typically repaid from the operating earnings of the company (and thus aren't granted ERISA protection).
JonB
Dryer sheet aficionado
I see you were targeting $250K total in the 529 accounts for 3 children. Is that right? Given the costs for college today, and the rate at which the costs are increasing, you may want to consider a higher target. $250K today covers 4 years at a top private university for one child. I am not sure if $250K would cover costs for 3 children at state schools today, let alone after a decade or more of inflation in university costs. Worth some more investigation I think.
Given your net worth, not sure there would be much needs based aid available, but maybe if your income is low when they are in school, there may be some help. It may be worth discussing with the financial aid offices at a few schools.
underwrite
Recycles dryer sheets
They do. I have a little bit in it, but decided against anything material as I believe the assets of such plans are unsecured in the case of a company bankruptcy. I know a lot of people use them though.
underwrite
Recycles dryer sheets
That's a valid point. I figure the $250k will probably take care of about 1.5 - 2 of the kids. I'll then cash flow the last 1 - 1.5 portion. As I get closer, if it appears college costs have kept rising quickly, I'll probably have to work an extra year. Education inflation has to slow down at some point....right? Lol.
From what I've seen in some other unrelated threads, I have to add my skepticism to this one. As a few other responders noted, I can't help but wonder if this a troll. This one shows many of the same "traits."
underwrite
Recycles dryer sheets
No. Just looking to bounce ideas off the group to see if I'm missing anything with my plan. I hesitated to throw out my salary as I knew it would invite skeptics, but I figured I'd get the best responses with full disclosure.
Dash man
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
No need to be ashamed of your salary. Keep working hard and you’ll eventually make a little more. [emoji12]
By my calculation, if we start with $1.16 mln as OP has now and compound returns at 6.25% each year, making a $175k contribution at the end of each year (I understand it'll probably come in monthly, but just to be conservative) we will end up with $3.253 mln at the end of 7 years. So, totally doable.
I'm not sure "compound returns at 6.25%" come with "I think the stock Market is overvalued currently and moved my 401(k) money into more conservative funds in January, within my 401(k)."
Joe, agree. I wasn't relating the two. Just saying that getting to the figure is doable with the current funds + future contributions + reasonable rate of return. Although, you're right that level of return will have to come at the expense of some higher risk.
underwrite
Recycles dryer sheets
Lol.
copyright1997reloaded
Thinks s/he gets paid by the post
Yes, they are unsecured, so it is a risk.
I was able to take advantage of one for a short period of time before retiring from mega-corp. I essentially deferred an entire years salary minus what I needed to max out my 401k contributions (and also leverage mega-corp's match).
If you think your employer will remain solvent, you should reconsider the plan. By doing so, you can spread out that high pay over the ten years after you leave, which (given your desired to FIRE) may be at a much lower tax rate than now. At 450K, you are in the 35% marginal (federal, joint). If you bring your 2018 pay down to a measly 165k
you can bring your marginal rate down to 22% (federal), resulting in substantial savings. One possible wrench in this is that you will have higher earnings (in terms of FAFSA). In my case, I was doubtful given my pension and assets whether my child (now 15) would be eligible for financial aid regardless of what I did.When I was doing this, one of my rationalizations was that executives of my mega-corp would do *EVERYTHING* in their power to pay out on 409A plan obligations. Why? Because their 409A payouts also depended on it.
You might end up spending more on your children than you expect. It’s really very difficult to say, and when it comes to raising children, the US economy is highly skilled in finding ways to separate you from your hard earned $$, and the education sector is best in class at that.
Two things you can do. First, decide now how you intend to contribute to their education and launching, and make that very clear to them. (Same advice applies to weddings). Second, keep your options open until you feel that phase is no longer a risk.
Yup. Relaxing the stated requirements opens up lots of possibilities.
May I ask why you don't have an after tax brokerage account? It seems odd that your portfolio mix is $800K pre-tax and $350k in non traditional investments. What is your AA mix in your 401k?
For me, when my total comp increased, I kept my 401k contributions consistent and diversified into after-tax brokerage, real estate, and deferred compensation.
For me, when my total comp increased, I kept my 401k contributions consistent and diversified into after-tax brokerage, real estate, and deferred compensation.
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underwrite
Recycles dryer sheets
Yes, they are unsecured, so it is a risk.
I was able to take advantage of one for a short period of time before retiring from mega-corp. I essentially deferred an entire years salary minus what I needed to max out my 401k contributions (and also leverage mega-corp's match).
If you think your employer will remain solvent, you should reconsider the plan. By doing so, you can spread out that high pay over the ten years after you leave, which (given your desired to FIRE) may be at a much lower tax rate than now. At 450K, you are in the 35% marginal (federal, joint). If you bring your 2018 pay down to a measly 165k
When I was doing this, one of my rationalizations was that executives of my mega-corp would do *EVERYTHING* in their power to pay out on 409A plan obligations. Why? Because their 409A payouts also depended on it.
Good points. I should start considering this particularly for the last 5 years prior to leaving. If I deferred $100k each year for the last 5 years (to be paid out for the 5-10 years post leaving the job), it would get me going and also get me closer to the social security bump I could receive at 62.
underwrite
Recycles dryer sheets
I had around $330k in etrade, but I'm moving most of that to real estate lending investments currently. I've rarely done anything with market timing, but don't feel at all comfortable with current stock market valuations. I know the general line is to buy index funds and ride out the market. I understand that and perhaps I'll be wrong in my timing. As far as the 401k goes, it was invested in vanguard index funds for the last decade or so. I've moved over half of that to the stable value fund for now. Warren Buffett says not to time markets....he says that, but has $100 billion+ in treasury bills currently.
