Help me plan my retirement

[OldShooter]

This all is very confusing. Should I get financial advisor? ...

Understandable. You have voluntarily jumped into the deep end of the pool by consulting this crowd. The resulting acronym storm plus a bunch of posts that sometimes contradict each other can certainly lead to near-drowning.

Please, stop with this temporarily and read the first of the three books I recommended in post #12: "The Coffee House Investor" by Bill Schultheis https://www.coffeehouseinvestor.com/ It's a very easy read. Bill will calm you down and show you that this isn't as hard as you think it is. He will even give you a recipe for pumpkin pie!

After reading that book, you may have all you need. Certainly you will be closer to answering your own question about hiring an advisor. You will also be much better equipped to read and understand the comments you have received here.

The strong bias in this group, too strong in my opinion, is very negative towards financial advisors, especially those who charge a percentage of your assets. That kind of advisor, paid based on "assets under management" (AUM) is almost certainly not an option for you because you do not have enough assets to interest them. You might find a by-the-hour advisor to be helpful, but I suggest that you hold off until you've read and understood Bill's advice. (Incidentally, Bill is a principal in an advisory firm.)

The majority of this group, especially those who post to a thread like this one, are people who run their own money. It is really not that hard; the industry likes to confuse and intimidate retail investors because confusion and fear leads to big fees. So ... after reading Bill's book I'd suggest reading the second book I mentioned.

After reading those two books you will be well-equipped to answer your own questions and, again, to re-read this thread and get more out of it.

Relax, take a deep breath, and disengage here for a while. Good luck!

 

[pacergal]

What is your current spend/budget?

Oldshooter has listed some good books--enjoy reading and learning from them!

I would max out pre tax retirement limits, then save post tax as much as you can, in whatever way you can. I would save in a low cost, broad based index fund(s) rather than individual stocks.
Allow yourself some fun, but avoid lifestyle creep as you get raises.

I am glad your health issues are improved.

 

[Out-to-Lunch]

This all is very confusing. Should I get financial advisor?

Please, stop with this temporarily and read the first of the three books I recommended in post #12: "The Coffee House Investor" by Bill Schultheis https://www.coffeehouseinvestor.com/ It's a very easy read. Bill will calm you down and show you that this isn't as hard as you think it is. He will even give you a recipe for pumpkin pie!

After reading that book, you may have all you need. Certainly you will be closer to answering your own question about hiring an advisor. You will also be much better equipped to read and understand the comments you have received here.

...

After reading those two books you will be well-equipped to answer your own questions and, again, to re-read this thread and get more out of it.

Relax, take a deep breath, and disengage here for a while. Good luck!

I agree with OldShooter's very good advice. Moreover, if you eventually do decide to consult a financial advisor, having read those books will greatly help you interact with the FA in a knowledgable manner.

 

[Ready2Go]

Well ..., er ..., it's a little more nuanced than that. There are warts and wrinkles, but basically the choice between an IRA and a Roth is a tax rate arbitrage decision. If you'll be withdrawing at a lower tax rate than you now pay then the IRA is the winner. If the same it's a wash and if the future tax rate is higher then the Roth wins. Don't know what your future tax rate will be? Welcome to the club.

It's more than that because of the earnings. If he puts $100k in ROTH 401k over the next 5 years. That could easily grow to $400k over 20 years. OP will pay tax on NONE of that growth. I'll trade the higher tax rate today for that tax-free growth. If OP can't do ROTH 401k, it's a moot point.

 

[mickeyd]

To OP: You have received great advice so far. Your income ($140k+) and your age indicates that you have about 20+ years to save/invest a bunch of money until you quit wo**ing. Geddie up!

BTW, what have you been spending your money on? A single guy who makes north of $140k should have around a million bucks or so saved.

 

[OldShooter]

... If he puts $100k in ROTH 401k over the next 5 years. That could easily grow to $400k over 20 years. OP will pay tax on NONE of that growth. I'll trade the higher tax rate today for that tax-free growth. If OP can't do ROTH 401k, it's a moot point.

Sure, but that's only half the story. Assume for a minute that the tax rate today and the future tax rate are the same. Let's say 30%.

You hypothesize a growth of 4x over 20 years. Consider an IRA where the person deposits (pretax) $143K. That's his alternative to paying the $43K income tax today and depositing $100k in a Roth. Now look at the IRA account as two pieces: "His" piece starts at $100K and grows 4x to $400K. Uncle Sam's piece starts at $43K and also grows 4x to $172K. So a total of 572K. Uncle Sam's piece remains at 30% of the total, which Uncle collects whenever the account owner takes money out. If he takes it out all at once, Uncle collects 30% x $572K, leaving $400K for the owner. That's the same amount he would have if he took the Roth route.

It really doesn't matter what the numbers are. With a conventional IRA, the account owner is basically acting as a custodian for Uncle's money, giving it to Uncle later rather than sooner. But unless tax rates change over the life of the IRA, the conventional IRA is a wash with the Roth.

There are complicating factors like the ever-changing rules on inherited retirement accounts and the effects that taxable income from an IRA can have on things like SS taxability, etc. So it is not a simple decision but the fundamental issue is whether the tax rate arbitrage is a winner or a loser. With a good crystal ball the decision would be easy.

 

[sourcream]

OldShooter, you missed the target entirely on this one. There is a middle ground between an independent contractor and a common law employee called a statutory employee. They are an independent contractor but are subject to withholding for social security rather than subject to self-employment tax and they receive a W-2 that is reported on Schedule C.

https://www.irs.gov/businesses/small-businesses-self-employed/statutory-employees



https://www.irs.gov/pub/irs-pdf/i1040sc.pdf

I do have an LLC too but they say i will be on w-2. How does this "statutory employee" thing benefit me? I wish I could invest more tax free.

 

[pb4uski]

As a self-employed person you can invest more tax free.

https://www.nerdwallet.com/blog/investing/retirement-plans-self-employed/

 

[sourcream]

To OP: You have received great advice so far. Your income ($140k+) and your age indicates that you have about 20+ years to save/invest a bunch of money until you quit wo**ing. Geddie up!

BTW, what have you been spending your money on? A single guy who makes north of $140k should have around a million bucks or so saved.

I was sick for 8 years...still not 100% but getting there. I have had huge expenses while being sick. Not all was paid by insurance.

 

[sourcream]

One thing I wanted to know is that if I pay max in 401k of employer and HSA too, then rest of the pay check I will get is after deducting all taxes. Since I did not invest any this year and no earning this year so far and it's already august, I could invest in traditional IRA too. How will I invest in traditional IRA or any other pre-tax schemes if tax already gets deducted from my paycheck before I get money?

 

[sourcream]

and how is Vanguard? I am working to sign up for Vanguard digital advisor.

 

[sourcream]

As a self-employed person you can invest more tax free.

https://www.nerdwallet.com/blog/investing/retirement-plans-self-employed/

I am on w-2 but a IT contractor to a bank. I do have LLC but they will cut all taxes and i will get a paycheck in my personal bank account not in LLC. so, am I self employed?

 

[sourcream]

Yes, but if you can put $19.5K in a 401(k), your taxable income won't be $145K, it will be $125.5K, so you'll be eligible for a Roth IRA. Plus, if you do exceed the income limits you can always do a backdoor Roth, which is what we do. You'd need to read up about it, but basically you contribute post-tax money to a traditional IRA, for which there is no income limit, then you convert that money to a Roth.

so, you mean if my income limit is high for roth IRA, I can put any amount of post tax money in traditional IRA at say, Vanguard and then convert that to Roth IRA before year ends? and do that every year?

 

[pb4uski]

I am on w-2 but a IT contractor to a bank. I do have LLC but they will cut all taxes and i will get a paycheck in my personal bank account not in LLC. so, am I self employed?

From what you have described you are a statutory employee, the employer will withhold SS and Medicare tax, but not income tax.

Employers are not required to withhold tax from the wages of statutory employees but are required to withhold and pay Social Security and Medicare tax for these employees.

https://www.thetaxadviser.com/issues/2010/dec/zimmerman-dec10.html

While I can't find anthing specifically on point, I believe that you could do a Solo 401(k) or a SEP IRA.

 

[The Cosmic Avenger]

so, you mean if my income limit is high for roth IRA, I can put any amount of post tax money in traditional IRA at say, Vanguard and then convert that to Roth IRA before year ends? and do that every year?

Yes, but I don't think you'll need to, as I mentioned. I would also recommend converting every month, since you will need to report and pay income tax on any gains in the traditional IRA, and so your choices are to pay tax on the profits (that you could avoid by moving them over), let it sit as cash and miss out on gains you would have in the Roth, or convert it right away. So I put the money in a core/cash position in the tIRA, then convert it as soon as I can. (Fidelity makes you wait a few days before you can actually move the funds, like banks do with funds deposited by check.)

 

[OldShooter]

I am on w-2 but a IT contractor to a bank. I do have LLC but they will cut all taxes and i will get a paycheck in my personal bank account not in LLC. so, am I self employed?

My guess is that you are employed by a help agency that supplies contract employees to the bank. If so, the bank pays the agency an hourly rate and considers you to be a "contractor." But you are actually employed by the agency as a regular W-2 employee. My company use to do this quite a bit; we would often send a candidate new employee to an agency and "hire" the employee from the agency for a couple of months. My strategy was "try before you buy." Other companies have different approaches. 3M used to have a sort of "circles of defense" strategy where there was a layer of part-time W-2 employees, then a next layer of contractors, then finally the regular 3M W-2 employees. In a downturn they hoped to be able to shed enough people from the first two layers that their "real" employees would be safe. Another common strategy is to staff a big project using contractors, then RIF them when the project is over.

If in fact you are hired by an agency then "rented" to the bank, any 401K or other opportunities you may have will come from the agency and not the bank. And, you are not "self-employed." To the IRS you are just a guy with a job -- an employee of the agency.

But on this matter as in most, an ounce of facts trumps a barrel of internet theories. Find out from whomever cuts that W-2 what your legal relationship is. Ask for it in writing. They, or other agency employees, should also be able to tell you what your retirement savings options. are.

 

[sourcream]

You asked if you should get a Financial Advisor. If you decide to do that, I'd recommend one who won't harass you to manage your assets. You just need some guidance on how much to save, and where, and how to mange a HSA with a high-deductible health care plan.

I'd suggest you find a FEE ONLY planner and sit down with them for a couple of hours. This was recommended to me from folks here on this board, and has saved us a boatload of money. It's given me confidence to manage our portfolio, with just an tune-up from her every couple of years. I found ours here:

https://www.napfa.org/

Feel free to check back in here if you have questions about what they're trying to convince you to do. Managing your money is a great deal FOR THEM. Advising you on how to manage your money is a great deal FOR YOU. JMHO, of course.

any idea how much do they charge?

 

[sourcream]

how do you create w-4 so that maximum tax is not withheld?

I have created this pdf on IRS site for withholding after using their tool but how to translate it to w-4 to give it to my employer?

https://drive.google.com/file/d/1PP7CAYGjBBlng5-SnQDrJZgpVZAJ-_f6/view?usp=sharing

 

[sourcream]

What is your current spend/budget?

Oldshooter has listed some good books--enjoy reading and learning from them!

I would max out pre tax retirement limits, then save post tax as much as you can, in whatever way you can. I would save in a low cost, broad based index fund(s) rather than individual stocks.
Allow yourself some fun, but avoid lifestyle creep as you get raises.

I am glad your health issues are improved.

Max 2k per month as of now

 

[mickeyd]

and how is Vanguard? I am working to sign up for Vanguard digital advisor.

I have invested with VG for 15+ years and can envision much further joy and excitement with them If you love low cost, VG is for you.

 

[sourcream]

I have invested with VG for 15+ years and can envision much further joy and excitement with them If you love low cost, VG is for you.

I tried opening account with them and they said they could not verify my identity and asking me to mail full application with proof of identity. Now that could take days!

 

[cnocmmz]

Live as cheaply as you can, but not so much that you never have any fun.

I agree with most of what has been said. Eat Rice and beans (figure of speech) and don't forget to have some fun along the way. In 20 years or so you will be in good shape. Things will happen along the way, i.e if you remarry and/or have children. Biggest advice is to not let $$$$ clould your judgments in life. Be smart, thirty and happy. Believe it or not, you can have all three!
I wish you all the best on your journey, and, for a lot of us here, if we were 41 years old again....Well you know the rest

 

[sourcream]

I agree with most of what has been said. Eat Rice and beans (figure of speech) and don't forget to have some fun along the way. In 20 years or so you will be in good shape. Things will happen along the way, i.e if you remarry and/or have children. Biggest advice is to not let $$$$ clould your judgments in life. Be smart, thirty and happy. Believe it or not, you can have all three!
I wish you all the best on your journey, and, for a lot of us here, if we were 41 years old again....Well you know the rest

Thanks

 

[sourcream]

bad news. My start date at new job is unknown as bank just put a hiring freeze. ;(
Expectation is that I will start with them when it lifts but no ETA for it.