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[ { "docid": "293531", "title": "", "text": "\"Agree with Randy, if debt and debt reduction was all about math, nobody would be in debt. It is an emotional game. If you've taken care of the reasons you're in debt, changed your behaviors, then start focusing on the math of getting it done faster. Otherwise, if you don't have a handle on the behaviors that got you there, you're just going to get more rope to hang yourself with. I.e., makes sense to take a low-interest home equity loan to pay off high-interest credit card debt, but more likely than not, you'll just re-rack up the debt on the cards because you never fixed the behavior that put you into debt. Same thing here, if you opt not to contribute to \"\"pay off the cards\"\" without fixing the debt-accumulating behaviors, what you're going to do is stay in debt AND not provide for retirement. Take the match until you're certain you have your debt accumulation habits in check.\"" } ]

[ { "docid": "55954", "title": "", "text": "(Note: The OP does not state whether the employer-sponsored retirement savings are pre-tax or post-tax (such as a Roth 401(k)). The following answer assumes the more common case of a pre-tax plan.) This is a bad idea, IMHO. IRS Pub 970 lists exceptions to the 10% early withdrawal penalty for educational expenses. This doesn't include, as far as I can tell, student loan payments. So withdrawing from your retirement account would incur both income tax and penalties. Even if there were an exception, you'd still have to pay income taxes, which, depending on the amount and your income, could be at a higher marginal rate than you are currently paying. If you really want the debt gone as soon as possible, why not reduce the amount you contribute to the retirement plan (but not below the amount that gets you the maximum employer match) and use that money to increase your monthly payments to the student loan? Note that, if you do this, you will pay taxes on income that would have been tax-deferred in order to save money on interest, so there's still a trade-off. (One more thing: rather than rolling over to your new company's plan, you could roll over to a self-directed Traditional IRA.)" }, { "docid": "290647", "title": "", "text": "If you're looking for a purely financial answer (ignoring the social/environmental aspects) there are a few different ways you can look at it. For these types of improvements the simplest is a payback calculation. How long would it take you to recoup the initial costs? For example, if the entire installation cost $5,000 (including any tax credits), and you save $100 per month (I'm making both numbers up), you'll pay back your investment in 50 months, or about 4 years. (Note that if you borrow money to do the improvement, then your payback period is longer because you're reducing the amount that you're saving each month by paying interest.) If you're deciding between different uses for the money (like investing, or paying down other debt) then you can look at the return that you're getting. Using the same example, you are spending $5,000 and getting $100 per month back, for a 24% annual return ($1,200 / $5,000), which is better than you can get on almost anything but a 401(k) match (meaning don't stop your 401(k) contributions to do this either). The decision on whether or wait or not then becomes - will the price drop faster than the amount of savings you will realize. So if you will save $100 per month in your electric bill, is the price of the complete installation going down by more than $100 each month? If not, you'd be better off buying now and start paying back the investment sooner." }, { "docid": "240373", "title": "", "text": "\"Just like all employee benefits there is a focus on removing or limiting owners of businesses' ability to abuse tax preferences under the guise of an employee benefit. As you point out there is an overall plan maximum 401(k) for employer contributions and match contributions. There is a nondiscrimination test for FSA programs (there is also a nondiscrimination test for medical plans under sections 125 and 105(h)). Employer contributions are counted toward the total of HSA contributions. Why an HSA has a different maximum arrangement than 401(k) is anyone's guess. But the purpose of the limit is to prevent owners of companies from setting up plans that do little more than funnel tax free funds to themselves. An owner/employee could pay themselves a wage, contribute the maximum, then have the \"\"employer\"\" also match the maximum, so there are limits in place.\"" }, { "docid": "59327", "title": "", "text": "Every $1,000 you use to pay off a 26% interest rate card saves you $260 / year. Every $1,000 you use to pay off a 23% interest rate card saves you $230 / year. Every $1,000 you put in a savings account earning ~0.5% interest earns you $5 / year. Having cash on hand is good in case of emergencies, but typically if your debt is on high interest credit cards, you should consider paying off as much of it as possible. In your case you may want to keep only some small amount (maybe $500, maybe $1000, maybe $100) in cash for emergencies. Paying off your high interest debt should be a top priority for you. You may want to look on this site for help with budgeting, also. Typically, being in debt to credit card companies is a sign of living beyond your means. It costs you a lot of money in the long run." }, { "docid": "57526", "title": "", "text": "\"Yes, this is restricted by law. In plain language, you can find it on the IRS website (under the heading \"\"When Can a Retirement Plan Distribute Benefits?\"\"): 401(k), profit-sharing, and stock bonus plans Employee elective deferrals (and earnings, except in a hardship distribution) -- the plan may permit a distribution when you: •terminate employment (by death, disability, retirement or other severance from employment); •reach age 59½; or •suffer a hardship. Employer profit-sharing or matching contributions -- the plan may permit a distribution of your vested accrued benefit when you: •terminate employment (by death, disability, retirement or other severance from employment); •reach the age specified in the plan (any age); or •suffer a hardship or experience another event specified in the plan. Form of benefit - the plan may pay benefits in a single lump-sum payment as well as offer other options, including payments over a set period of time (such as 5 or 10 years) or a purchased annuity with monthly lifetime payments. Source: https://www.irs.gov/retirement-plans/plan-participant-employee/when-can-a-retirement-plan-distribute-benefits If you want to actually see it in the law, check out 26 USC 401(k)(2)(B)(i), which lists the circumstances under which a distribution can be made. You can get the full text, for example, here: https://www.law.cornell.edu/uscode/text/26/401 I'm not sure what to say about the practice of the company that you mentioned in your question. Maybe the law was different then?\"" }, { "docid": "461933", "title": "", "text": "\"So you are paying taxes on your contributions regardless, the timing is just different. I am failing to see why would a person get an IRA, instead of just putting the same amount of money into a mutual fund (like Vanguard) or something like that. What am I missing? You are failing to consider the time value of money. Getting $1 now is more valuable to you than a promise to get $1 in a year, even though the nominal amount is the same. With a certain amount of principal now, you can invest it and it will (likely) grow into a bigger amount of money (principal + earnings) at a later time, and we can consider the two to have approximately equivalent value (the principal now has the same value as the principal + earnings later). With pre-tax money in Traditional IRA, the principal + earnings are taxed once at the time of withdrawal. Assuming the same flat rate of tax at contribution and withdrawal, this is equivalent to Roth IRA, where the principal is taxed at the time of contribution, because the principal now has the same value as the principal + earnings later, so the same rate of tax on the two have the same value of tax, even though when you look at nominal amounts, it might seem you are paying a lot less tax with Roth IRA (since the earnings are never \"\"taxed\"\"). With actual numbers, if we take a $1000 pre-tax contribution to Traditional IRA, it grows at 5% for 10 years, and a 25% flat rate tax, we are left with $1000 * 1.05^10 * 0.75 = $1221.67. With the same $1000 pre-tax contribution (so after 25% tax it's a $750 after-tax contribution) to a Roth IRA, growing at the same 5% for 10 years, and no tax at withdrawal, we are left with $1000 * 0.75 * 1.05^10 = $1221.67. You can see they are equivalent even though the nominal amount of tax is different (the lower amount of tax paid now is equivalent to the bigger amount of tax later). With a taxable investment which you will not buy and sell until you take it out, you contribute with after-tax money, and when you take it out, the \"\"earnings\"\" portion is subject to capital-gains tax. But remember that the principal + earnings later is equivalent to the principal now, which is already all taxed once, and if we tax the \"\"earnings\"\" portion later, that is effectively taxing a portion of the money again. Another way to look at it is the contribution is just like the Roth IRA, but the withdrawal is worse because you have to pay capital-gains tax instead of no tax. You can take the same numbers as for the Roth IRA, $1000 * 0.75 * 1.05^10 = $1221.67, but where the $1221.67 - $750 = $471.67 is \"\"earnings\"\" and is taxed again at, say, a 15% capital-gains rate, so you lose another $70.75 in tax and are left with $1150.92. You would need a capital-gains tax rate of 0% to match the advantage of the pre-tax Traditional IRA or Roth IRA. After-tax money in Traditional IRA has a similar problem -- the contribution is after tax, but after it grows into principal + earnings, the \"\"earnings\"\" part is taxed again, except it is worse than the capital-gains case because it is taxed as regular income. Like above, you can take the same numbers as for the Roth IRA, $1000 * 0.75 * 1.05^10 = $1221.67, but where the $471.67 \"\"earnings\"\" is taxed again at 25%, so you lose another $117.92 in tax and are left with $1103.75. So although the nominal amount of tax paid is the same as for pre-tax money in Traditional IRA, it ends up being a lot worse. (Everything I said above about pre-tax money in Traditional IRA, after-tax money in Traditional IRA, and Roth IRA, also applies to pre-tax money in Traditional 401(k), after-tax money in Traditional 401(k), and Roth 401(k), respectively.) Regarding the question you raise in the title of your question, why someone would get contribute to a Traditional IRA if they already have a 401(k), the answer is, mostly, they wouldn't. First, note that if you merely have a 401(k) account but neither you nor your employer contributes to it during the year, then that doesn't prevent you from deducting Traditional IRA contributions for that year, so basically you can contribute to one or the other; so if you only want to contribute below the IRA contribution limit, and don't need the bigger 401(k) contribution limit, and the IRA's investment options are more attractive to you than your 401(k)'s, then it might make sense for you to contribute to only Traditional IRA. If you or your employer is already contributing to your 401(k) during the year, then you cannot deduct your Traditional IRA contributions unless your income is very low, and if your income is really that low, you are in such a low tax bracket that Roth IRA may be more advantageous for you. If you make a Traditional IRA contribution but cannot deduct it, it is a non-deductible Traditional IRA contribution, i.e. it becomes after-tax money in a Traditional IRA, which as I showed in the section above has much worse tax situation in the long run because its earnings are pre-tax and thus taxed again. However, there is one good use for non-deductible Traditional IRA contributions, and that is as one step in a \"\"backdoor Roth IRA contribution\"\". Basically, there is an income limit for being able to make Roth IRA contributions, but there is no income limit for being able to make Traditional IRA contributions or for being able to convert money from Traditional IRA to Roth IRA. So what you can do is make a (non-deductible) Traditional IRA contribution, and then immediately convert it to Roth IRA, and if you did not previously have any pre-tax money in Traditional IRAs, this achieves the same as a regular Roth IRA contribution, with the same tax treatment, but you can do it at any income level.\"" }, { "docid": "255277", "title": "", "text": "When you leave an employer, 401(k) loans are immediately due (or within 30 days or 60 days). So maybe they are waiting to see if you will pay off your loan. If you wanted to transfer the loan as well, you need to talk to your new 401(k) plan administrator to find out if this even possible. If they say No and you don't pay off the loan, it will count as a premature distribution from your old 401(k) plan and possibly be subject to excise tax in addition to income tax." }, { "docid": "507476", "title": "", "text": "If you're simply trading with your own money and have not incorporated, then you are not eligible for a solo 401(k). Nerdwallet has an excellent Q&A on the topic here for example. Solo 401(k) is only allowed to be funded with earned income, and capital gains are not earned income. From the IRS page on One Participant 401(k) plans: Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit Earned income is defined by the IRS here: But not including: Even more clearly, that page notes: There are two ways to get earned income: You work for someone who pays you or You own or run a business or farm Capital gains are certainly neither of these. Now, I have read several articles suggesting one way to go about using the Solo 401k. All of them suggest that you would need to incorporate in some fashion that would require a Schedule C tax return, though, and be trading with the company's money rather than your own, and then pay yourself a wage from that. In that case you would be eligible for a Solo 401(k), and you might even be better off as a result of all that maneuvering (even though you'll be taxed at a higher rate for any income you do keep, likely, and have to pay self-employment tax)." }, { "docid": "224434", "title": "", "text": "My answer would be yes. In addition, I'm not sure that anything requires you to roll your current 401(k) into a new one if you don't like the investment options. Keeping existing funds in your current 401(k) if you like their investment options might make sense for you (though they obviously wouldn't be adding funds once you're no longer an employee). As for the terms of the potential new 401(k), the matching percentage and vesting schedule match what I've seen at past employers. My current employer offers the same terms, but there's no vesting schedule." }, { "docid": "568784", "title": "", "text": "\"Can is fine, and other answered that. I'd suggest that you consider the \"\"should.\"\" Does your employer offer a matched retirement account, typically a 401(k)? Are you depositing up to the match? Do you have any higher interest short term debt, credit cards, car loan, student loan, etc? Do you have 6 months worth of living expenses in liquid funds? One point I like to beat a dead horse over is this - for most normal mortgages, the extra you pay goes to principal, but regardless of how much extra you pay, the next payment is still due next month. So it's possible that you are feeling pretty good that for 5 years you pay so much that you have just 10 left on the 30 year loan, but if you lose your job, you still risk losing the house to foreclosure. It's not like you can ask the bank for that money back. If you are as disciplined as you sound, put the extra money aside, and only when you have well over the recommended 6 months, then make those prepayments if you choose. To pull my comment to @MikeKale into my answer - I avoided this aspect of the discussion. But here I'll suggest that a 4% mortgage costs 3% after tax (in 25% bracket), and I'd bet cap gain rates will stay 15% for non-1%ers. So, with the break-even return of 3.5% (to return 3 after tax) and DVY yielding 3.33%, the questions becomes - do you think the DVY top yielders will be flat over the next 15 years? Any return over .17%/yr is profit. That said, the truly risk averse should heed the advise in original answer, then pre-pay. Update - when asked,in April 2012, the DVY I suggested as an example of an investment that beats the mortgage cost, traded at $56. It's now $83 and still yields 3.84%. To put numbers to this, a lump sum $100K would be worth $148K (this doesn't include dividends), and giving off $5700/yr in dividends for an after-tax $4800/yr. We happened to have a good 4 years, overall. The time horizon (15 years) makes the strategy low risk if one sticks to it.\"" }, { "docid": "426215", "title": "", "text": "\"Understand your own risk tolerance and discipline. From Moneychimp we can see different market results - This is a 15 year span, containing what was arguably one of the most awful decades going. A full 10 year period with a negative return. Yet, the 15 year return was a 6.65% CAGR. You'd net 5.65% after long term cap gains. Your mortgage is likely costing ~4% or 3% after tax (This is not applicable to my Canadian friends, I understand you don't deduct interest). In my not so humble opinion, I'd pay off the highest rate debts first (unlike The David followers who are happy to pay off tens of thousands of dollars in 0% interest debt before the large 18% debt) and invest at the highest rate I'd get long term. The problem is knowing when to flip from one to the other. Here's food for thought - The David insists on his use of the 12% long term market return. The last 100 years have had an average 11.96% return, but you can't spend average, the CAGR, the real compound rate was 10.06%. Why would he recommend paying off a sub 3% loan while using 12% for his long term planning (All my David remarks are not applicable to Canadian members, you all probably know better than to listen to US entertainers)? I am retired, and put my money where my mouth is. The $200K I still owe on my mortgage is offset by over $400K in my 401(k). The money went in at 25%/28% pretax, has grown over these past 20 years, and comes out at 15% to pay my mortgage each month. No regrets. Anyone starting out now, and taking a 30 year mortgage, but putting the delta to a 15 year mortgage payment into their 401(k) is nearly certain to have far more in the retirement account 15 years hence than their remaining balance on the loan, even after taxes are considered. Even more if this money helps them to get the full matching, which too many miss. All that said, keep in mind, the market is likely to see a correction or two in the next 15 years, one of which may be painful. If that would keep you up at night, don't listen to me. If a fixed return of 4% seems more appealing than a 10% return with a 15% standard deviation, pay the mortgage first. Last - if you have a paid off house but no job, the town still wants its property tax, and the utilities still need to be paid. If you lose your job with $400K in your 401(k)/IRA but have a $200K mortgage, you have a lot of time to find a new job or sell the house with little pressure from the debt collectors. (To answer the question in advance - \"\"Joe, at what mortgage rate do you pay it off first?\"\" Good question. I'd deposit to my 401(k) to grab matching deposits first, and then if the mortgage was anywhere north of 6%, prioritize that. This would keep my chances at near 100% of coming out ahead.)\"" }, { "docid": "422142", "title": "", "text": "The long term growth is not 6.5%, it's 10% give or take. But, that return comes with risk. A standard deviation of 14%. Does the 401(k) have a match? And are you getting the full match? If no match, or you already top it off, the 6.5% is a rate that I'd be happy to get on my money. So, I would pay it off faster. My highest rate debt is my 3.5% mortgage, which is 2.5% after tax. At 2.5%, I prefer to be a borrower, as that gap 2.5%-10% is pretty appealing, long term." }, { "docid": "315836", "title": "", "text": "With respect to the 401(k). Before taking a hardship withdrawal, one must first deplete the ability to take any 401(k) loans available. This is a regulation. The 401(k) loan limit is the lesser of $50k, 50% your vested balance, or $50k minus the highest loan balance within the last year. Here's the good news: it is not a taxable event; you can pay back over a maximum of 5 years; interest is low (usually 4.25% or so). The bad news: if you terminate employment then the loan balance must be repaid or else it becomes taxable income plus a 10% penalty. I suggest you consider eliminating the credit card debt via this option. Pay back as aggressively as possible and if/when you terminate you can take the 10% penalty - it will be far less of an impact than 25k accruing approximately 25% annually." }, { "docid": "333219", "title": "", "text": "\"All of the provided advice is great, but a slightly different viewpoint on debt is worth mentioning. Here are the areas that you should concentrate your efforts and the (rough) order you should proceed. Much of the following is predicated upon your having a situation where you need to get out of debt, and learn to better budget and control your spending. You may already have accomplished some of these steps, or you may prioritize differently. Many people advise prioritizing contributing to a 401(k) savings plan. But with the assumption that you need advise because you have debt trouble, you are probably paying absurd interest rates, and any savings you might have will be earning much lower rates than you are paying on consumer debt. If you are already contributing, continue the plan. But remember, you are looking for advice because your financial situation is in trouble, so you need to put out the fire (your present problem), and learn how to manage your money and plan for the future. Compose a budget, comprised of the following three areas (the exact percentages are fungible, fit them to your circumstances). Here is where planning can get fun, when you have freed yourself from debt, and you can make choices that resonate with your individual goals. Once you have \"\"put out the fire\"\" of debt, then you should do two things at the same time. As you pay off debt (and avoid further debt), you will find that saving for both independence and retirement become easier. The average American household may have $8000+ credit card debt, and at 20-30%, the interest payments are $150-200/month, and the average car payment is nearly $500/month. Eliminate debt and you will have $500-800/month that you can comfortably allocate towards retirement. But you also need to learn (educate yourself) how to invest your money to grow your money, and earn income from your savings. This is an area where many struggle, because we are taught to save, but we are not taught how to invest, choose investments wisely and carefully, and how to decide our goals. Investing needs to be addressed separately, but you need to learn how. Live in an affordable house, and pay off your mortgage. Consider that the payment on a mortgage on even a modest $200K house is over $1000/month. Combine saving the money you would have paid towards a mortgage payment with the money you would have paid towards credit card debt or a car loan. Saving becomes easy when you are freed from these large debts.\"" }, { "docid": "210972", "title": "", "text": "\"Getting a mortgage for the interest write-off is like buying packs of baseball cards for the gum. That said, I'd refer you to The correct order of investing as much of that question really overlaps with this. This question boils down to priorities, the best use of the funds. There are those who suggest that a mortgage brings risk. Of course it does, just not for the borrower, the risk is borne by the lender. Risk comes from lack of liquidity. Say your girlfriend buys the house with cash, and leaves little reserve. She loses her job, and it's great that she has no mortgage. But she does have every other cost life brings, including a tax bill that can turn into a house getting foreclosed on. The details that you didn't disclose are those needed to look at the rest of the \"\"priorities\"\" list. A fully funded 401(k) with appropriate balance, and no other debt? And a 1 year emergency fund? I wouldn't argue against buying the house with cash. No real savings and passing on the 401(k) matched deposit? I'd think carefully about the longterm impact of the cash purchase.\"" }, { "docid": "231662", "title": "", "text": "\"Before anything, I see that no one mentioned the one thing about 401(k) accounts that's just shy of magic - The matching deposit. In 2015, 42% of companies offered a dollar for dollar match on deposits. Can't beat that. (Note - to respond to Xalorous' comment, the $18K OP deposits can be nearly any percent of his income. The typical match is 'up to' 6% of gross income. If that's the case, the 401(k) deposits are doubled. But say he makes $100K. The $18K deposit will see a $6K match. This adds a layer of complexity to the answer that I preferred to avoid, as I show with no match at all, and no change in tax brackets, the deferral alone shows value to the investor.) On to the main answer - Let's pull out a spreadsheet - We start with $10,000, and assume the 25% bracket. This gives a choice of $10,000 in the 401(k) or $7500 in the taxable account. Next, let 20 years pass, with 10% return each year. The 401(k) sees the full 10% and after 20 years, $67K. The taxable account owner waits to get the 15% cap gain rate and adjusts portfolio, thus seeing an 8.5% return each year and carrying no ongoing gains. After 20 years of 8.5% returns, he has $38K net. The 401(k) owner on withdrawal pays the 25% tax and has $50K, still more than 25% more money that the taxable account. Because transactions within the account were all tax deferred. EDIT - With respect to davmp's comment, I'll offer the other extreme - In his comment, he (rightly) objected that I chose to trade every year, although I did assign the long term 15% cap gain rate, he felt the annual trade was my attempt to game the analysis. Above, I offer his extreme case, a 10% return each year, no trade, no dividend. Just a cap gain at the end. The 401(k) still wins. I also left the tax (on the 401(k)) at withdrawal at 25%, when in fact, much, if not all will be taxed at 15% or lower, which would put the net at $57K or 30% above the taxable account final withdrawal. The next issue I'd bring up is that the 401(k) is taken out at the top (marginal) tax rate, e.g. a single filer with taxable income over $37,650 (in 2016) would save 25% on that 401(k) deduction. Of course if the deduction pulls you under that line, I'd go Roth or taxable. But, withdrawals start at zero. Today, a single retiree has a standard deduction ($4050) and exemption ($6300) for a total $10,350 \"\"zero bracket\"\" with the next $9275 taxed at 10%. This points to needing $500K in pre tax accounts before withdrawals each year would get you past the 10% bracket. (This comes from the suggestion of using 4% as an annual withdrawal rate). Last - the tax discussion has 2 major points in time, deposit and withdrawal, of course. But, the answers here all ignore all the time in between. In between, you see that for any number of reasons, you'll drop from the 25% bracket to 15% that year. That's the time to convert a bit of money to Roth and 'top off' the 15% bracket. It can happen due to job loss, marriage with new spouse either not working or having lower income, new baby, house purchase, etc. Or in-between, a disability put you out of work. That permits you to take money out with no penalty, and little chance of paying even the 25% that you paid going in. This, from personal experience with a family member, funded a 401(k) with 28% money. Then divorced and disabled, able to take the $10K/yr to supplement worker's comp (non taxed) income.\"" }, { "docid": "243392", "title": "", "text": ">What makes you think anything would change? If they allowed Match money to be distributed tax free, they are missing out on a future tax revenue opportunity. I agree that it's highly unlikely that matching contributions would be made entirely tax-free. If anything, I would expect employer contributions to be treated the same way that after-tax (non-Roth) 401(k) contributions are treated today to the extent that they exceed the new contribution limits. It's also possible that only individual contribution limits will be reduced and employer contribution limits will remain much higher - I haven't seen any reporting on the latter. >I think the more likely way they would stick it to us is to sunset the Roth 401(k) all together and make plans go back to the old school pre-tax and after-tax only, where even the earnings on after-tax are taxed at distribution. I'm optimistic that Roth 401(k)s are here to stay. Trump's priorities seem to be centered around short-term budget characteristics with far less concern for the long-term (as is characteristic of populist administrations in general), and eliminating Roth 401(k)s would be unpopular and have a negligible impact on tax revenue in the short term." }, { "docid": "525322", "title": "", "text": "\"The same author wrote in that article “they have a trillion? Really?” But that’s what happens when ten million dollars compounds at 2% over 200 years. Really? 2% compounded over 200 years produces a return of 52.5X, multiply that by 10M and you have $525 million. The author is off by a factor of nearly 2000 fold. Let's skip this minor math error. The article is not about 401(k)s. His next line is \"\"The whole myth of savings is gone.\"\" And the article itself, \"\"10 Reasons You Have To Quit Your Job In 2014\"\" is really a manifesto about why working for the man is not the way to succeed long term. And in that regard, he certainly makes good points. I've read this author over the years, and respect his views. 9 of the 10 points he lists are clear and valuable. This one point is a bit ambiguous and falls into the overgeneraluzation \"\"Our 401(k) have failed us.\"\" But keep in mind, even the self employed need to save, and in fact, have similar options to those working for others. I have a Solo 401(k) for my self employment income. To be clear, there are good 401(k) accounts and bad. The 401(k) with fees above 1%/yr, and no matching, awful. The 401(k) I have from my job before I retired has an S&P index with .02%/yr cost. (That's $200/$million invested per year.) The 401(k) is not dead.\"" }, { "docid": "379911", "title": "", "text": "\"The error in the example is here: \"\"Now, if you contribute 5% to a Roth 401(k), your employer would match your after-tax 5% contribution. If the tax rate is 25%, that would be 5% of $60,000, which is $3,000. However, that $3,000 is put in to a traditional 401(k), so it is taxed when withdrawn. Assuming the tax rate is still 25% when you withdraw, you are only getting $2,250. Essentially you are giving up $750 of free money in this case.\"\" You set your contribution to Roth 401k as a function of the gross, 80,000. You choose 5% and contribute 4000 Your employer matches 4000. At the end of the year, your taxable income to the IRS is 80000, and you pay 30% or 24000. You have 80K-4K-24K to live on, or 52K If you chose the alternate regular 401k,then you contribute 4K, your income to the IRS is (80-4=) 76k, and you pay 30%, 22.8K in tax. You have 80-4-22.8 or 53.2K to live on. Or, to come at it the other way, you have 4000*30% =1200 extra tax reduction in your income this year. If the extra income in 401k versus extra current year tax in Roth IRA means you have to reduce less, like 2800K to the roth so you maintain a 53.2K lifestyle, then yes, the Roth IRA match is reduced. If you have the cash flow to prepay the current year tax and maximum-match contribution, you will get the full match based on your gross income.\"" } ]

[ { "docid": "249063", "title": "", "text": "I'd take the match, but I wouldn't contribute beyond your match, for two reasons:" } ]

[ { "docid": "240373", "title": "", "text": "\"Just like all employee benefits there is a focus on removing or limiting owners of businesses' ability to abuse tax preferences under the guise of an employee benefit. As you point out there is an overall plan maximum 401(k) for employer contributions and match contributions. There is a nondiscrimination test for FSA programs (there is also a nondiscrimination test for medical plans under sections 125 and 105(h)). Employer contributions are counted toward the total of HSA contributions. Why an HSA has a different maximum arrangement than 401(k) is anyone's guess. But the purpose of the limit is to prevent owners of companies from setting up plans that do little more than funnel tax free funds to themselves. An owner/employee could pay themselves a wage, contribute the maximum, then have the \"\"employer\"\" also match the maximum, so there are limits in place.\"" }, { "docid": "59327", "title": "", "text": "Every $1,000 you use to pay off a 26% interest rate card saves you $260 / year. Every $1,000 you use to pay off a 23% interest rate card saves you $230 / year. Every $1,000 you put in a savings account earning ~0.5% interest earns you $5 / year. Having cash on hand is good in case of emergencies, but typically if your debt is on high interest credit cards, you should consider paying off as much of it as possible. In your case you may want to keep only some small amount (maybe $500, maybe $1000, maybe $100) in cash for emergencies. Paying off your high interest debt should be a top priority for you. You may want to look on this site for help with budgeting, also. Typically, being in debt to credit card companies is a sign of living beyond your means. It costs you a lot of money in the long run." }, { "docid": "231012", "title": "", "text": "I'd hazard that Jim is mostly worried that people are getting ripped off by high employer 401(k) fund fees. A lot of employers offer funds with fees over 1% a year. This sounds low-ish if you don't realize that the real (inflation-adjusted) return for the fund will probably average out to about 4%, so it's really something like a quarter of your earnings gone. With an IRA, you don't have to do that. You can get an IRA provider which offers good, cheap index funds and the like (cough Vanguard cough). Fund fees will probably be closer to 0.1%-ish. HOWEVER. The maximum IRA contribution in 2013 will be $5,500. The maximum for a 401(k) contribution will be $17,500. That extra capacity is enough to recommend a 401(k) over an IRA for many people. These people may be best served by putting money into the 401(k) and then rolling it over into a rollover IRA when they change jobs. Also, certain people have retirement plans which offer them good cheap index funds. These people probably don't need to worry quite as much. Finally, having two accounts is more complicated. Please contact someone who knows more about taxes than I am to figure out what limitations apply for contributing to both IRAs and 401(k)s in the same year." }, { "docid": "290647", "title": "", "text": "If you're looking for a purely financial answer (ignoring the social/environmental aspects) there are a few different ways you can look at it. For these types of improvements the simplest is a payback calculation. How long would it take you to recoup the initial costs? For example, if the entire installation cost $5,000 (including any tax credits), and you save $100 per month (I'm making both numbers up), you'll pay back your investment in 50 months, or about 4 years. (Note that if you borrow money to do the improvement, then your payback period is longer because you're reducing the amount that you're saving each month by paying interest.) If you're deciding between different uses for the money (like investing, or paying down other debt) then you can look at the return that you're getting. Using the same example, you are spending $5,000 and getting $100 per month back, for a 24% annual return ($1,200 / $5,000), which is better than you can get on almost anything but a 401(k) match (meaning don't stop your 401(k) contributions to do this either). The decision on whether or wait or not then becomes - will the price drop faster than the amount of savings you will realize. So if you will save $100 per month in your electric bill, is the price of the complete installation going down by more than $100 each month? If not, you'd be better off buying now and start paying back the investment sooner." }, { "docid": "175470", "title": "", "text": "I’m specifically curious as to how employer matches for Roth 401(k)s would work. Even if an employee contributes to a Roth 401(k), matching contributions by the employer must be treated as traditional 401(k) contributions. So even if the treatment of Roth accounts is unchanged, those of us who get an employer match on our Roth 401(k) contributions may still be impacted." }, { "docid": "315836", "title": "", "text": "With respect to the 401(k). Before taking a hardship withdrawal, one must first deplete the ability to take any 401(k) loans available. This is a regulation. The 401(k) loan limit is the lesser of $50k, 50% your vested balance, or $50k minus the highest loan balance within the last year. Here's the good news: it is not a taxable event; you can pay back over a maximum of 5 years; interest is low (usually 4.25% or so). The bad news: if you terminate employment then the loan balance must be repaid or else it becomes taxable income plus a 10% penalty. I suggest you consider eliminating the credit card debt via this option. Pay back as aggressively as possible and if/when you terminate you can take the 10% penalty - it will be far less of an impact than 25k accruing approximately 25% annually." }, { "docid": "426215", "title": "", "text": "\"Understand your own risk tolerance and discipline. From Moneychimp we can see different market results - This is a 15 year span, containing what was arguably one of the most awful decades going. A full 10 year period with a negative return. Yet, the 15 year return was a 6.65% CAGR. You'd net 5.65% after long term cap gains. Your mortgage is likely costing ~4% or 3% after tax (This is not applicable to my Canadian friends, I understand you don't deduct interest). In my not so humble opinion, I'd pay off the highest rate debts first (unlike The David followers who are happy to pay off tens of thousands of dollars in 0% interest debt before the large 18% debt) and invest at the highest rate I'd get long term. The problem is knowing when to flip from one to the other. Here's food for thought - The David insists on his use of the 12% long term market return. The last 100 years have had an average 11.96% return, but you can't spend average, the CAGR, the real compound rate was 10.06%. Why would he recommend paying off a sub 3% loan while using 12% for his long term planning (All my David remarks are not applicable to Canadian members, you all probably know better than to listen to US entertainers)? I am retired, and put my money where my mouth is. The $200K I still owe on my mortgage is offset by over $400K in my 401(k). The money went in at 25%/28% pretax, has grown over these past 20 years, and comes out at 15% to pay my mortgage each month. No regrets. Anyone starting out now, and taking a 30 year mortgage, but putting the delta to a 15 year mortgage payment into their 401(k) is nearly certain to have far more in the retirement account 15 years hence than their remaining balance on the loan, even after taxes are considered. Even more if this money helps them to get the full matching, which too many miss. All that said, keep in mind, the market is likely to see a correction or two in the next 15 years, one of which may be painful. If that would keep you up at night, don't listen to me. If a fixed return of 4% seems more appealing than a 10% return with a 15% standard deviation, pay the mortgage first. Last - if you have a paid off house but no job, the town still wants its property tax, and the utilities still need to be paid. If you lose your job with $400K in your 401(k)/IRA but have a $200K mortgage, you have a lot of time to find a new job or sell the house with little pressure from the debt collectors. (To answer the question in advance - \"\"Joe, at what mortgage rate do you pay it off first?\"\" Good question. I'd deposit to my 401(k) to grab matching deposits first, and then if the mortgage was anywhere north of 6%, prioritize that. This would keep my chances at near 100% of coming out ahead.)\"" }, { "docid": "58103", "title": "", "text": "\"The \"\"Deferral\"\" for the 401k means that you're not collecting your pay immediately, but instead diverting it to a retirement account (Roth 401k in this case). This article defines deferral well: What is the difference between a regular 401(k) deferral (pre-tax) and a Roth 401(k) deferral? Under either a regular 401(k) deferral or a Roth 401(k) deferral, you make a deferral contribution by electing to set aside part of your pay (by either a certain percentage or a certain dollar amount). For a regular 401(k) deferral, the taxable wages on your W-2 are reduced by the deferral contribution; therefore, you pay less current income tax. However, you will eventually pay tax on these contributions and earnings when the plan distributes the regular 401(k) deferrals and earnings to you. The result is that the tax on the regular 401(k) deferrals and earnings is only postponed. A Roth 401(k) deferral is an after-tax contribution, which means you must pay current income tax on the deferral. Since you have already paid tax on the deferral, you won’t pay tax on it again when you receive a distribution of your Roth 401(k) deferral. In addition, if you satisfy cer tain distribution conditions, then you won’t have to pay tax on the earnings either. This means that the distribution of the Roth 401(k) earnings can be tax free not just tax postponed. Traditionally, this deferred compensation typically was directed to a 401k, but now that Roth 401k is another available option, deferred compensation can be directed there as well.\"" }, { "docid": "422979", "title": "", "text": "The fact that you are planning to move abroad does not affect the decision to contribute to a 401(k). The reason for this is that after you leave your employer, you can roll all the money over from your 401(k) into a self-directed traditional IRA. That money can stay invested until retirement, and it doesn't matter where you are living before or after retirement age. So, when deciding whether or not to use a 401(k), you need to look at the details of your employer's plan: Does your employer offer a match? If so, you should definitely take advantage of it. Are there good investments available inside the 401(k)? Some plans offer very limited options. If you can't find anything good to invest in, you don't want to contribute anything beyond the match; instead, contribute to an IRA, where you can invest in a fund that you like. The other reason to use a 401(k) is that the contribution limits can be higher. If you want to invest more than you are allowed to in an IRA, the 401(k) might allow that. In your case, since there is no match, it is up to you whether you want to participate or not. An IRA will allow more flexibility in investing options. If you need to invest more than your IRA limit, the 401(k) might allow that. When you leave your employer, you should probably roll any 401(k) money into an IRA." }, { "docid": "55954", "title": "", "text": "(Note: The OP does not state whether the employer-sponsored retirement savings are pre-tax or post-tax (such as a Roth 401(k)). The following answer assumes the more common case of a pre-tax plan.) This is a bad idea, IMHO. IRS Pub 970 lists exceptions to the 10% early withdrawal penalty for educational expenses. This doesn't include, as far as I can tell, student loan payments. So withdrawing from your retirement account would incur both income tax and penalties. Even if there were an exception, you'd still have to pay income taxes, which, depending on the amount and your income, could be at a higher marginal rate than you are currently paying. If you really want the debt gone as soon as possible, why not reduce the amount you contribute to the retirement plan (but not below the amount that gets you the maximum employer match) and use that money to increase your monthly payments to the student loan? Note that, if you do this, you will pay taxes on income that would have been tax-deferred in order to save money on interest, so there's still a trade-off. (One more thing: rather than rolling over to your new company's plan, you could roll over to a self-directed Traditional IRA.)" }, { "docid": "379911", "title": "", "text": "\"The error in the example is here: \"\"Now, if you contribute 5% to a Roth 401(k), your employer would match your after-tax 5% contribution. If the tax rate is 25%, that would be 5% of $60,000, which is $3,000. However, that $3,000 is put in to a traditional 401(k), so it is taxed when withdrawn. Assuming the tax rate is still 25% when you withdraw, you are only getting $2,250. Essentially you are giving up $750 of free money in this case.\"\" You set your contribution to Roth 401k as a function of the gross, 80,000. You choose 5% and contribute 4000 Your employer matches 4000. At the end of the year, your taxable income to the IRS is 80000, and you pay 30% or 24000. You have 80K-4K-24K to live on, or 52K If you chose the alternate regular 401k,then you contribute 4K, your income to the IRS is (80-4=) 76k, and you pay 30%, 22.8K in tax. You have 80-4-22.8 or 53.2K to live on. Or, to come at it the other way, you have 4000*30% =1200 extra tax reduction in your income this year. If the extra income in 401k versus extra current year tax in Roth IRA means you have to reduce less, like 2800K to the roth so you maintain a 53.2K lifestyle, then yes, the Roth IRA match is reduced. If you have the cash flow to prepay the current year tax and maximum-match contribution, you will get the full match based on your gross income.\"" }, { "docid": "526383", "title": "", "text": "First off, great job on your finances so far. You are off on the right foot and have some sense of planning for the future. Also, it is a great question. First, I agree with @littleadv. Take advantage of your employer match. Do not drop your 401(k) contributions below that. Also, good job on putting your contributions into the Roth account. Second, I would ask: Are you out of debt? If not, put all your extra income towards paying off debt, and then you can work your plan. Third, time to do some math. What will your business look like? How much capital would you need to get started? Are there things you can do now on a part-time basis to start this business or prepare you to start the business? Come up with a figure, find some mutual funds that have a low beta, and back out how much money you need to save per month, so you have around that total. Then you have a figure. e.g. Assume you need $20,000, and you find a fund that has done 8% over the past 20 years. Then, you would need to save about $110/month to be ready to go in 10 years, or $273/month to go in about 5 years. (It's a time value of money calculation.) The house is really a long way off, but you could do the same kind of calculation. I feel that you think your income, and possibly locale, will change dramatically over the next few years. It might not be bad to double what you are saving for the business, and designate one half for the house." }, { "docid": "224434", "title": "", "text": "My answer would be yes. In addition, I'm not sure that anything requires you to roll your current 401(k) into a new one if you don't like the investment options. Keeping existing funds in your current 401(k) if you like their investment options might make sense for you (though they obviously wouldn't be adding funds once you're no longer an employee). As for the terms of the potential new 401(k), the matching percentage and vesting schedule match what I've seen at past employers. My current employer offers the same terms, but there's no vesting schedule." }, { "docid": "536262", "title": "", "text": "\"littleadv's first comment - check the note - is really the answer. But your issue is twofold - Every mortgage I've had (over 10 in my lifetime) allows early principal payments. The extra principal can only be applied at the same time as the regular payment. Think of it this way - only at that moment is there no interest owed. If a week later you try to pay toward only principal, the system will not handle it. Pretty simple - extra principal with the payment due. In fact, any mortgage I've had that offered a monthly bill or coupon book will have that very line \"\"extra principal.\"\" By coincidence, I just did this for a mortgage on my rental. I make these payments through my bank's billpay service. I noted the extra principal in the 'notes' section of the virtual check. But again, the note will explicitly state if there's an issue with prepayments of principal. The larger issue is that your friend wishes to treat the mortgage like a bi-weekly. The bank expects the full amount as a payment and likely, has no obligation to accept anything less than the full amount. Given my first comment above here is the plan for your friend to do 99% of what she wishes: Tell her, there's nothing magic about bi-weekly, it's a budget-clever way to send the money, but over a year, it's simply paying 108% of the normal payment. If she wants to burn the mortgage faster, tell her to add what she wishes every month, even $10, it all adds up. Final note - There are two schools of thought to either extreme, (a) pay the mortgage off as fast as you can, no debt is the goal and (b) the mortgage is the lowest rate you'll ever have on borrowed money, pay it as slow as you can, and invest any extra money. I accept and respect both views. For your friend, and first group, I'm compelled to add - Be sure to deposit to your retirement account's matched funds to gain the entire match. $1 can pay toward your 6% mortgage or be doubled on deposit to $2 in your 401(k), if available. And pay off all high interest debt first. This should stand to reason, but I've seen people keep their 18% card debt while prepaying their mortgage.\"" }, { "docid": "525322", "title": "", "text": "\"The same author wrote in that article “they have a trillion? Really?” But that’s what happens when ten million dollars compounds at 2% over 200 years. Really? 2% compounded over 200 years produces a return of 52.5X, multiply that by 10M and you have $525 million. The author is off by a factor of nearly 2000 fold. Let's skip this minor math error. The article is not about 401(k)s. His next line is \"\"The whole myth of savings is gone.\"\" And the article itself, \"\"10 Reasons You Have To Quit Your Job In 2014\"\" is really a manifesto about why working for the man is not the way to succeed long term. And in that regard, he certainly makes good points. I've read this author over the years, and respect his views. 9 of the 10 points he lists are clear and valuable. This one point is a bit ambiguous and falls into the overgeneraluzation \"\"Our 401(k) have failed us.\"\" But keep in mind, even the self employed need to save, and in fact, have similar options to those working for others. I have a Solo 401(k) for my self employment income. To be clear, there are good 401(k) accounts and bad. The 401(k) with fees above 1%/yr, and no matching, awful. The 401(k) I have from my job before I retired has an S&P index with .02%/yr cost. (That's $200/$million invested per year.) The 401(k) is not dead.\"" }, { "docid": "160780", "title": "", "text": "\"A fascinating view on this. The math of a 10% deposit and projected 10% return lead to an inevitable point when the account is worth 10X your income (nice) and the deposit, 10% of income only represents 1% of the account balance. The use of an IRA is neither here nor there, as your proposed deposit is still just 1% of your retirement account total. Pay off debt? For one with this level of savings, it should be assumed you aren't carrying any high interest debt. It really depends on your age and retirement budget. Our \"\"number\"\" was 12X our final income, so at 10X, we were still saving. For you, if you project hitting your number soon enough, I'd still deposit to the match, but maybe no more. It might be time to just enjoy the extra money. For others, their goal may be much higher and those extra years deposits are still needed. I'd play with a spreadsheet and see the impact of reduced retirement account deposits. Note - the question asks about funding the 401(k) vs paying down debt. I'd always advise to deposit to the match, but beyond that, one should focus on their high interest debt, especially by their 50's.\"" }, { "docid": "489729", "title": "", "text": "What's missing in your question, so Kate couldn't address, is the rest of your financial picture. If you have a fully funded emergency account, are saving for retirement, and have saved up the $15K for the car, buy in cash. If you tell me that if the day after you buy the car in cash, your furnace/AC system dies, that you'd need to pay for it with an $8K charge to a credit card, that's another story. You see, there's more than one rate at play. You get close to zero on you savings today. You have a 1.5% loan rate available. But what is your marginal cost of borrowing? The next $10K, $20K? If it's 18% on a credit card, I personally would find value in borrowing at sub-2.5% and not depleting my savings. On the other side, the saving side, does your company offer a 401(k) with company match? I find too many people obsessing over their 6% debt, while ignoring a 100% match of 4-6% of their gross income. For what it's worth, trying to place labels on debt is a bit pointless. Any use of debt should be discussed 100% based on the finances of the borrower." }, { "docid": "551145", "title": "", "text": "None of your options seem mutually exclusive. Ordinarily nothing stops you from participating in your 401(k), opening an IRA, qualifying for your company's pension, and paying off your debts except your ability to pay for all this stuff. Moreover, you can open an IRA anywhere (scottrade, vanguard, etrade, etc.) and freely invest in vanguard mutual funds as well as those of other companies...you aren't normally locked in to the funds of your IRA provider. Consider a traditional IRA. To me your marginal tax rate of 25% doesn't seem that great. If I were in your shoes I would be more likely to contribute to a traditional IRA instead of a Roth. This will save you taxes today and you can put the extra 25% of $5,500 toward your loans. Yes, you will be taxed on that money when you retire, but I think it's likely your rate will be lower than 25%. Moreover, when you are retired you will already own a house and have paid off all your debt, hopefully. You kind of need money now. Between your current tax rate and your need for money now, I'd say a traditional makes good sense. Buy whatever funds you want. If you want a single, cheap, whole-market fund just buy VTSAX. You will need a minimum of $10K to get in, so until then you can buy the ETF version, VTI. Personally I would contribute enough to your 401(k) to get the match and anything else to an IRA (usually they have more and better investment options). If you max that out, go back to the 401(k). Your investment mix isn't that important. Recent research into target date funds puts them in a poor light. Since there isn't a good benchmark for a target date fund, the managers tend to buy whatever they feel like and it may not be what you would prefer if you were choosing. However, the fund you mention has a pretty low expense ratio and the difference between that and your own allocation to an equity index fund or a blend of equity and bond funds is small in expectation. Plus, you can change your allocation whenever you want. You are not locked in. The investment options you mention are reasonable enough that the difference between portfolios is not critical. More important is optimizing your taxes and paying off your debt in the right order. Your interest rates matter more than term does. Paying off debt with more debt will help you if the new debt has a lower interest rate and it won't if it has a higher interest rate. Normally speaking, longer term debt has a higher interest rate. For that reason shorter term debt, if you can afford it, is generally better. Be cold and calculating with your debt. Always pay off highest interest rate debt first and never pay off cheap debt with expensive debt. If the 25 year debt option is lower than all your other interest rates and will allow you to pay off higher interest rate debt faster, it's a good idea. Otherwise it most likely is not. Do not make debt decisions for psychological reasons (e.g., simplicity). Instead, always chose the option that maximizes your ultimate wealth." }, { "docid": "406561", "title": "", "text": "\"The limit on SEP IRA is 25%, not 20%. If you're self-employed (filing on Schedule C), then it's taken on net earning, which in your example would be 25% of $90,000. (https://www.irs.gov/retirement-plans/retirement-plans-for-self-employed-people) JoeTaxpayer is correct as regards the 401(k) limits. The elective deferrals are per person - That's a cap in sum across multiple plans and across both traditional and Roth if you have those. In general, it's actually across other retirement plan types too - See below. If you're self-employed and set-up a 401(k) for your own business, the elective deferral is still aggregated with any other 401(k) plans in which you participate that year, but you can still make the employer contribution on your own plan. This IRS page is current a pretty good one on this topic: https://www.irs.gov/retirement-plans/one-participant-401k-plans Key quotes that are relevant: The business owner wears two hats in a 401(k) plan: employee and employer. Contributions can be made to the plan in both capacities. The owner can contribute both: •Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit: ◦$18,000 in 2015 and 2016, or $24,000 in 2015 and 2016 if age 50 or over; plus •Employer nonelective contributions up to: ◦25% of compensation as defined by the plan, or ◦for self-employed individuals, see discussion below It continues with this example: The amount you can defer (including pre-tax and Roth contributions) to all your plans (not including 457(b) plans) is $18,000 in 2015 and 2016. Although a plan's terms may place lower limits on contributions, the total amount allowed under the tax law doesn’t depend on how many plans you belong to or who sponsors those plans. EXAMPLE Ben, age 51, earned $50,000 in W-2 wages from his S Corporation in 2015. He deferred $18,000 in regular elective deferrals plus $6,000 in catch-up contributions to the 401(k) plan. His business contributed 25% of his compensation to the plan, $12,500. Total contributions to the plan for 2015 were $36,500. This is the maximum that can be contributed to the plan for Ben for 2015. A business owner who is also employed by a second company and participating in its 401(k) plan should bear in mind that his limits on elective deferrals are by person, not by plan. He must consider the limit for all elective deferrals he makes during a year. Notice in the example that Ben contributed more that than his elective limit in total (his was $24,000 in the example because he was old enough for the $6,000 catch-up in addition to the $18,000 that applies to everyone else). He did this by declaring an employer contribution of $12,500, which was limited by his compensation but not by any of his elective contributions. Beyond the 401(k), keep in mind that elective contributions are capped across different types of retirement plans as well, so if you have a SEP IRA and a solo 401(k), your total contributions across those plans are also capped. That's also mentioned in the example. Now to the extent that you're considering different types of plans, that's a whole question in itself - One that might be worth consulting a dedicated tax advisor. A few things to consider (not extensive list): As for payroll / self-employment tax: Looks like you will end up paying Medicare, including the new \"\"Additional Medicare\"\" tax that came with the ACA, but not SS: If you have wages, as well as self-employment earnings, the tax on your wages is paid first. But this rule only applies if your total earnings are more than $118,500. For example, if you will have $30,000 in wages and $40,000 in selfemployment income in 2016, you will pay the appropriate Social Security taxes on both your wages and business earnings. In 2016, however, if your wages are $78,000, and you have $40,700 in net earnings from a business, you don’t pay dual Social Security taxes on earnings more than $118,500. Your employer will withhold 7.65 percent in Social Security and Medicare taxes on your $78,000 in earnings. You must pay 15.3 percent in Social Security and Medicare taxes on your first $40,500 in self-employment earnings and 2.9 percent in Medicare tax on the remaining $200 in net earnings. https://www.ssa.gov/pubs/EN-05-10022.pdf Other good IRS resources:\"" } ]

[ { "docid": "79363", "title": "", "text": "Mathwise, I absolutely agree with the other answers. No contest, you should keep getting the match. But, just for completeness, I'll give a contrarian opinion that is generally not very popular, but does have some merit. If you can focus on just one main financial goal at a time, and throw every extra dollar you have at that one focus (i.e., getting out of debt, in your case), you will make better progress than if you're trying to do too many things at once. Also, there something incredibly freeing about being out of debt that has other beneficial impacts on your life. So, if you can bring a lot of focus to the credit card debt and get it paid off quickly, it may be worth deferring the 401(k) investing long enough to do that, even though it doesn't make as much mathematical sense. (This is essentially what Dave Ramsey teaches, BTW.)" } ]

[ { "docid": "422979", "title": "", "text": "The fact that you are planning to move abroad does not affect the decision to contribute to a 401(k). The reason for this is that after you leave your employer, you can roll all the money over from your 401(k) into a self-directed traditional IRA. That money can stay invested until retirement, and it doesn't matter where you are living before or after retirement age. So, when deciding whether or not to use a 401(k), you need to look at the details of your employer's plan: Does your employer offer a match? If so, you should definitely take advantage of it. Are there good investments available inside the 401(k)? Some plans offer very limited options. If you can't find anything good to invest in, you don't want to contribute anything beyond the match; instead, contribute to an IRA, where you can invest in a fund that you like. The other reason to use a 401(k) is that the contribution limits can be higher. If you want to invest more than you are allowed to in an IRA, the 401(k) might allow that. In your case, since there is no match, it is up to you whether you want to participate or not. An IRA will allow more flexibility in investing options. If you need to invest more than your IRA limit, the 401(k) might allow that. When you leave your employer, you should probably roll any 401(k) money into an IRA." }, { "docid": "57526", "title": "", "text": "\"Yes, this is restricted by law. In plain language, you can find it on the IRS website (under the heading \"\"When Can a Retirement Plan Distribute Benefits?\"\"): 401(k), profit-sharing, and stock bonus plans Employee elective deferrals (and earnings, except in a hardship distribution) -- the plan may permit a distribution when you: •terminate employment (by death, disability, retirement or other severance from employment); •reach age 59½; or •suffer a hardship. Employer profit-sharing or matching contributions -- the plan may permit a distribution of your vested accrued benefit when you: •terminate employment (by death, disability, retirement or other severance from employment); •reach the age specified in the plan (any age); or •suffer a hardship or experience another event specified in the plan. Form of benefit - the plan may pay benefits in a single lump-sum payment as well as offer other options, including payments over a set period of time (such as 5 or 10 years) or a purchased annuity with monthly lifetime payments. Source: https://www.irs.gov/retirement-plans/plan-participant-employee/when-can-a-retirement-plan-distribute-benefits If you want to actually see it in the law, check out 26 USC 401(k)(2)(B)(i), which lists the circumstances under which a distribution can be made. You can get the full text, for example, here: https://www.law.cornell.edu/uscode/text/26/401 I'm not sure what to say about the practice of the company that you mentioned in your question. Maybe the law was different then?\"" }, { "docid": "244692", "title": "", "text": "\"One can generalize on Traditional vs Roth flavors of accounts, I suggest Roth for 15% money and going pretax to avoid 25% tax. If the student loan is much over 4%, it may make sense to put it right after emergency fund. For emergency fund priority - I'm assuming EF really requires 2 phases, the $2500 broken transmission/root canal bill, and the lose your job, or need a new roof level bills. I'm in favor of doing what let's you sleep well. I'm also quick to point out that if you owe $2500 at 18%, yet have $2500 in your emergency fund, you're really throwing away $450 in interest each year. There's an ongoing debate of \"\"credit card as emergency fund.\"\" No, I don't claim that your cards should be considered an emergency fund, per se, but I would prioritize knocking off the 18% debt as a high priority. Once that crazy interest debt is gone, fund the ER, and find a balance for savings and the next level ER, the 6-9mo of expenses one. One can choose to fund a Roth IRA, but keep the asset out of retirement calculations. It's simply an emergency account returning tax free interest, and if never used, it eventually is retirement money. A Roth permits withdrawal of deposited funds with no tax or penalty, just tracking it each year. This actually rubs some people the wrong way as it sounds like tapping your retirement account for emergencies. For my purpose, it's a tax free emergency fund. Not retirement, unless and until you are saving so much in the 401(k) you need more tax favored retirement money. I wrote an article some time ago, the Roth Emergency Fund which went into a bit more detail. Last - keep in mind, this is my opinion. I can intelligently argue my case, but at some point, it's up to the individual to do what feels right. Paying 18% debt off a bit slower, say 4 years instead of 3, in favor of funding the matched 401(k), to me, you run the numbers, watch the 401(k) balance grow by 2X your pretax deposits, and see that in year 3, your retirement account is jump-started and far, far more than your remaining 18% cards. Those who feel the opposite and wish to be debt free first are going to do what they want. And the truth is, if this lets you sleep better at night, I'm in favor of it.\"" }, { "docid": "493578", "title": "", "text": "\"If you're willing to do a little more work and bookkeeping than just putting money into the 401(k) I would recommend the following. I note that you said you chose some funds based on performance since the expense ratios are all high. I would recommend against chasing performance because active funds will almost always falter; honor the old saw: \"\"past performance is no guarantee of future returns\"\". Assuming the cash in your Ally account is an emergency fund, I would use it to pay off your credit card debt to avoid the interest payments. Use free cash flow in the coming months to bring the emergency fund balance back up to an acceptable level. If the Ally account is not an emergency fund, I would make it one! With no debt and an emergency fund for 3-12 months of living expenses (pick your risk tolerance), then you can concentrate on investing. Your 401(k) options are unfortunately pretty poor. With those choices I would invest this way: Once you fill up your choice of IRA, then you have the tougher decision of where to put any extra money you have to invest (if any). A brokerage account gives you the freedom of investment choices and the ability to easily pull out money in the case of a dire emergency. The 401(k) will give you tax benefits, but high fund expenses. The tax benefits are considerable, so if I were at a job where I plan on moving on in a few years, I'd fund the 401(k) up to the max with the knowledge that I'd roll the 401(k) into a rollover IRA in the (relatively) short term. If I saw myself staying at the employer for a long time (5+ years), I'd probably take the taxable account route since those high fund fees will add up over time. One you start building up a solid base, then I might look into having a small allocation in one of my accounts for \"\"play money\"\" to pick individual stocks, or start making sector bets.\"" }, { "docid": "335991", "title": "", "text": "I would always suggest rolling over 401(k) plans to traditional IRAs when possible. Particularly, assuming there is enough money in them that you can get a fee-free account at somewhere like Fidelity or Vanguard. This is for a couple of reasons. First off, it opens up your investment choices significantly and can allow you significantly reduced expenses related to the account. You may be able to find a superior offering from Vanguard or Fidelity to what your employer's 401(k) plan allows; typically they only allow a small selection of funds to choose from. You also may be able to reduce the overhead fees, as many 401(k) plans charge you an administrative fee for being in the plan separate from the funds' costs. Second, it allows you to condense 401(k)s over time; each time you change employers, you can rollover your 401(k) to your regular IRA and not have to deal with a bunch of different accounts with different passwords and such. Even if they're all at the same provider, odds are you will have to use separate accounts. Third, it avoids issues if your employer goes out of business. While 401(k) plans are generally fully funded (particularly for former employers who you don't have match or vesting concerns with), it can be a pain sometimes when the plan is terminated to access your funds - they may be locked for months while the bankruptcy court works things out. Finally, employers sometimes make it expensive for you to stay in - particularly if you do have a very small amount. Don't assume you're allowed to stay in the former employer's 401(k) plan fee-free; the plan will have specific instructions for what to do if you change employers, and it may include being required to leave the plan - or more often, it could increase the fees associated with the plan if you stay in. Getting out sometimes will save you significantly, even with a low-cost plan." }, { "docid": "531051", "title": "", "text": "I completely agree with Pete that a 401(k) loan is not the answer, but I have an alternate proposal: Reduce your 401(k) contribution down to the 4% that you get a match on. If you are cash poor now and have debts to be cleaned up, those need to be addressed before retirement savings. You'll have plenty of time to make up the lost savings after you get the debts paid off. If your company matches 50% (meaning you have to contribute 8% to get the 4% match), then consider temporarily stopping your 401(k) altogether. A 100% match is very hard to give up, but a 50% match is less difficult. You have plenty of years left ahead of you to make up the lost match. Plus, the pain of knowing you're leaving money on the table will incentivize you to get the loans paid as quickly as possible. It seems to me that I would be reducing middle to high interest debt while also saving myself $150 per month. No, you'd be deferring $150 per month for an additional two years, and not reducing debt at all, just moving it to a different lender. Interest rate is not your problem. Right now you're paying less than $30 per month in interest on these 3 loans and about $270 in principal, and at the current rate should have them paid off in about 2 years. You're wanting to extend these loans to 4 years by borrowing from your retirement savings. I would buckle down, reduce expenses wherever possible (cable? cell phone? coffee? movies? restaurants?) until you get these debts paid off. You make $70,000 per year, or almost $6,000 per month. I bet if you try hard enough you can come up with $1,100 fairly quickly. Then the next $1,200 should come twice as fast. Then attack the next $4,000. (You can argue whether the $1,200 should come first because of the interest rate, but in the end it doesn't matter - either one should be paid off very quickly, so the interest saved is negligible) Maybe you can get one of them paid off, get yourself some breathing room, then loosen up a little bit, but extending the pain for an additional two years is not wise. Some more drastic measures:" }, { "docid": "568784", "title": "", "text": "\"Can is fine, and other answered that. I'd suggest that you consider the \"\"should.\"\" Does your employer offer a matched retirement account, typically a 401(k)? Are you depositing up to the match? Do you have any higher interest short term debt, credit cards, car loan, student loan, etc? Do you have 6 months worth of living expenses in liquid funds? One point I like to beat a dead horse over is this - for most normal mortgages, the extra you pay goes to principal, but regardless of how much extra you pay, the next payment is still due next month. So it's possible that you are feeling pretty good that for 5 years you pay so much that you have just 10 left on the 30 year loan, but if you lose your job, you still risk losing the house to foreclosure. It's not like you can ask the bank for that money back. If you are as disciplined as you sound, put the extra money aside, and only when you have well over the recommended 6 months, then make those prepayments if you choose. To pull my comment to @MikeKale into my answer - I avoided this aspect of the discussion. But here I'll suggest that a 4% mortgage costs 3% after tax (in 25% bracket), and I'd bet cap gain rates will stay 15% for non-1%ers. So, with the break-even return of 3.5% (to return 3 after tax) and DVY yielding 3.33%, the questions becomes - do you think the DVY top yielders will be flat over the next 15 years? Any return over .17%/yr is profit. That said, the truly risk averse should heed the advise in original answer, then pre-pay. Update - when asked,in April 2012, the DVY I suggested as an example of an investment that beats the mortgage cost, traded at $56. It's now $83 and still yields 3.84%. To put numbers to this, a lump sum $100K would be worth $148K (this doesn't include dividends), and giving off $5700/yr in dividends for an after-tax $4800/yr. We happened to have a good 4 years, overall. The time horizon (15 years) makes the strategy low risk if one sticks to it.\"" }, { "docid": "333219", "title": "", "text": "\"All of the provided advice is great, but a slightly different viewpoint on debt is worth mentioning. Here are the areas that you should concentrate your efforts and the (rough) order you should proceed. Much of the following is predicated upon your having a situation where you need to get out of debt, and learn to better budget and control your spending. You may already have accomplished some of these steps, or you may prioritize differently. Many people advise prioritizing contributing to a 401(k) savings plan. But with the assumption that you need advise because you have debt trouble, you are probably paying absurd interest rates, and any savings you might have will be earning much lower rates than you are paying on consumer debt. If you are already contributing, continue the plan. But remember, you are looking for advice because your financial situation is in trouble, so you need to put out the fire (your present problem), and learn how to manage your money and plan for the future. Compose a budget, comprised of the following three areas (the exact percentages are fungible, fit them to your circumstances). Here is where planning can get fun, when you have freed yourself from debt, and you can make choices that resonate with your individual goals. Once you have \"\"put out the fire\"\" of debt, then you should do two things at the same time. As you pay off debt (and avoid further debt), you will find that saving for both independence and retirement become easier. The average American household may have $8000+ credit card debt, and at 20-30%, the interest payments are $150-200/month, and the average car payment is nearly $500/month. Eliminate debt and you will have $500-800/month that you can comfortably allocate towards retirement. But you also need to learn (educate yourself) how to invest your money to grow your money, and earn income from your savings. This is an area where many struggle, because we are taught to save, but we are not taught how to invest, choose investments wisely and carefully, and how to decide our goals. Investing needs to be addressed separately, but you need to learn how. Live in an affordable house, and pay off your mortgage. Consider that the payment on a mortgage on even a modest $200K house is over $1000/month. Combine saving the money you would have paid towards a mortgage payment with the money you would have paid towards credit card debt or a car loan. Saving becomes easy when you are freed from these large debts.\"" }, { "docid": "301616", "title": "", "text": "The managers of the 401(k) have to make their money somewhere. Either they'll make it from the employer, or from the employees via the expense ratio. If it's the employer setting up the plan, I can bet whose interest he'll be looking after. Regarding your last comment, I'd recommend looking outside your 401(k) for investing. If you get free money from your employer for contributing to your 401(k), that's a plus, but I wouldn't -- actually, I don't -- contribute anything beyond the match. I pay my taxes and I'm done with it." }, { "docid": "590310", "title": "", "text": "Alright, team! I found answers to part 1) and part 2) that I've quote below, but still need help with 3). The facts in the article below seem to point to the ability for the LLC to contribute profit sharing of up to 25% of the wages it paid SE tax on. What part of the SE tax is that? I assume the spirit of the law is to only allow the 25% on the taxable portion of the income, but given that I would have crossed the SS portion of SE tax, I am not 100%. (From http://www.sensefinancial.com/services/solo401k/solo-401k-contribution/) Sole Proprietorship Employee Deferral The owner of a sole proprietorship who is under the age of 50 may make employee deferral contributions of as much as $17,500 to a Solo 401(k) plan for 2013 (Those 50 and older can tack on a $5,500 annual catch-up contribution, bringing their annual deferral contribution to as much as $23,000). Solo 401k contribution deadline rules dictate that plan participant must formally elect to make an employee deferral contribution by Dec. 31. However, the actual contribution can be made up until the tax-filing deadline. Pretax and/or after-tax (Roth) funds can be used to make employee deferral contributions. Profit Sharing Contribution A sole proprietorship may make annual profit-sharing contributions to a Solo 401(k) plan on behalf of the business owner and spouse. Internal Revenue Code Section 401(a)(3) states that employer contributions are limited to 25 percent of the business entity’s income subject to self-employment tax. Schedule C sole-proprietors must base their maximum contribution on earned income, an additional calculation that lowers their maximum contribution to 20 percent of earned income. IRS Publication 560 contains a step-by-step worksheet for this calculation. In general, compensation can be defined as your net earnings from self-employment activity. This definition takes into account the following eligible tax deductions: (1) the deduction for half of self-employment tax and (2) the deduction for contributions on your behalf to the Solo 401(k) plan. A business entity’s Solo 401(k) contributions for profit sharing component must be made by its tax-filing deadline. Single Member LLC Employee Deferral The owner of a single member LLC who is under the age of 50 may make employee deferral contributions of as much as $17,500 to a Solo 401(k) plan for 2013 (Those 50 and older can tack on a $5,500 annual catch-up contribution, bringing their annual deferral contribution to as much as $23,000). Solo 401k contribution deadline rules dictate that plan participant must formally elect to make an employee deferral contribution by Dec. 31. However, the actual contribution can be made up until the tax-filing deadline. Pretax and/or after-tax (Roth) funds can be used to make employee deferral contributions. Profit Sharing Contribution A single member LLC business may make annual profit-sharing contributions to a Solo 401(k) plan on behalf of the business owner and spouse. Internal Revenue Code Section 401(a)(3) states that employer contributions are limited to 25 percent of the business entity’s income subject to self-employment tax. Schedule C sole-proprietors must base their maximum contribution on earned income, an additional calculation that lowers their maximum contribution to 20 percent of earned income. IRS Publication 560 contains a step-by-step worksheet for this calculation. In general, compensation can be defined as your net earnings from self-employment activity. This definition takes into account the following eligible tax deductions: (i) the deduction for half of self-employment tax and (ii) the deduction for contributions on your behalf to the Solo 401(k). A single member LLC’s Solo 401(k) contributions for profit sharing component must be made by its tax-filing deadline." }, { "docid": "255277", "title": "", "text": "When you leave an employer, 401(k) loans are immediately due (or within 30 days or 60 days). So maybe they are waiting to see if you will pay off your loan. If you wanted to transfer the loan as well, you need to talk to your new 401(k) plan administrator to find out if this even possible. If they say No and you don't pay off the loan, it will count as a premature distribution from your old 401(k) plan and possibly be subject to excise tax in addition to income tax." }, { "docid": "403934", "title": "", "text": "An activity which can help improve your credit score and actually make you money is stoozing. It's a little complicated but can be beneficial to do. Using either a credit card which allows fee free money withdrawals from cashpoints or building up debt using your credit card gives you access to your credit amount. You then use a long term 0% balance transfer card to transfer the debt which you pay off at the minimum rate. It's 0% so no costs are associated except for the initial fee paid for the balance transfer amount. The money that would have been used to pay off the credit amount (or money withdrawn from a cashpoint) can then be deposited in a savings account so you are now earning interest on the credit balance. Continuing to make monthly minimum payments via direct debit will help improve your credit rating and the savings money will earn interest. (it is also available if you suddenly need to pay off the 0% card)" }, { "docid": "296405", "title": "", "text": "\"Many employees don't contribute enough to maximize the match, so the cost to the employer is not the same. Under the 50% of 6% strategy an employee contributing 5% would get a 2.5% match not a 3% and that saves the company 0.5%. @TTT provided an excellent link in the comments below to a study titled \"\"How much employer 401(k) matching contributions do employees leave on the table?\"\" performed by Financial Engines, an independent financial advisory service. The information meaningful to this answer is on Page 5 (Page 7 of the PDF): 4,378,445 eligible employees were included in the study 1,077,775 of the eligible employees did not contribute enough for the full match; of them, 285,386 Received zero match funds 792,389 Received some match funds, but not the full match available So 792,389 or 18% of the employees studied contributed in to employer 401(k) plans but not enough to maximize their available match.\"" }, { "docid": "412", "title": "", "text": "The details of the 401(k) are critical to the decision. A high cost (the expenses charged within the) 401(k) - I would deposit only to the match, and I'd be sure to get the entire match offered. In which case, that $3000 might be good to have available if you start out with a tight budget. Low cost 401(k) w/match - a no-brainer, deposit what you can afford. Roth 401(k) w/match - same rules for expenses apply, with the added note to use Roth when getting started and in a lower bracket. Yes, it makes sense to have both. You should note, depositing to the Roth now is riskless. The account, not the investment. If you decide next year you didn't want it, you can withdraw the deposit with no penalty or tax. Edit to respond to updated question - there are two pieces to the Roth deposit issue. The deposit itself, which puts the $3000 earned income into tax sheltered account, and the choice to invest. These two are sequential and you can take your time in between. I'm not sure what you mean by the dividend timing. In an IRA or 401(k) the dividend isn't taxed, so it's a non-issue. In a cash account, you might quickly have a small tax issue, but this doesn't come into the picture in the tax deferred accounts." }, { "docid": "470826", "title": "", "text": "The company match is not earnings. My company deposits 5% of my income into my 401(k) and it appears nowhere except on the paperwork for the 401(k). To be clear, it doesn't appear on any paystub or W2." }, { "docid": "525322", "title": "", "text": "\"The same author wrote in that article “they have a trillion? Really?” But that’s what happens when ten million dollars compounds at 2% over 200 years. Really? 2% compounded over 200 years produces a return of 52.5X, multiply that by 10M and you have $525 million. The author is off by a factor of nearly 2000 fold. Let's skip this minor math error. The article is not about 401(k)s. His next line is \"\"The whole myth of savings is gone.\"\" And the article itself, \"\"10 Reasons You Have To Quit Your Job In 2014\"\" is really a manifesto about why working for the man is not the way to succeed long term. And in that regard, he certainly makes good points. I've read this author over the years, and respect his views. 9 of the 10 points he lists are clear and valuable. This one point is a bit ambiguous and falls into the overgeneraluzation \"\"Our 401(k) have failed us.\"\" But keep in mind, even the self employed need to save, and in fact, have similar options to those working for others. I have a Solo 401(k) for my self employment income. To be clear, there are good 401(k) accounts and bad. The 401(k) with fees above 1%/yr, and no matching, awful. The 401(k) I have from my job before I retired has an S&P index with .02%/yr cost. (That's $200/$million invested per year.) The 401(k) is not dead.\"" }, { "docid": "17166", "title": "", "text": "According to the 401K information from the IRS' website, it seems that you could seemingly get away with a salary as low as $53,000. It's tough, and I'd suggest speaking with an Accounting professional to get the clear answers, because as Brick's answer suggests, the IRS isn't super clear about it. An excerpt from a separate page regarding 401K contributions: The annual additions paid to a participant’s account cannot exceed the lesser of: There are separate, smaller limits for SIMPLE 401(k) plans. Example 1: Greg, 46, is employed by an employer with a 401(k) plan and he also works as an independent contractor for an unrelated business. Greg sets up a solo 401(k) plan for his independent contracting business. Greg contributes the maximum amount to his employer’s 401(k) plan for 2015, $18,000. Greg would also like to contribute the maximum amount to his solo 401(k) plan. He is not able to make further elective deferrals to his solo 401(k) plan because he has already contributed his personal maximum, $18,000. He has enough earned income from his business to contribute the overall maximum for the year, $53,000. Greg can make a nonelective contribution of $53,000 to his solo 401(k) plan. This limit is not reduced by the elective deferrals under his employer’s plan because the limit on annual additions applies to each plan separately. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits" }, { "docid": "149004", "title": "", "text": "You should try to take out other loans sufficient to pay off your 401(k) loan if you can. Maybe you can take out a home equity loan? You can also ask your bank about unsecured loans. You should also check the rules for your new employer's 401(k), if you're rolling over your 401(k). There's a small possibility that you could take out another loan right now and apply it to the previous loan balance. Or if you need to wait, you could use it to help pay off any temporary loans that were needed to avoid the distribution penalty." }, { "docid": "341493", "title": "", "text": "\"Another consideration is that you are going to wind up with money in the \"\"regular\"\" 401(k) no matter which one you contribute to. The employer match can't go into the Roth 401(k). So all employer matching funds go in with pre-tax dollars and will be deposited in a normal 401(k) account. Edit from JoeTaxpayer - 2013 brought with it the Roth 401(k) conversion the ability to convert from the traditional pretax side of your 401(k) account to the Roth side.\"" } ]

[ { "docid": "330058", "title": "", "text": "I would definitely be putting in enough to get the most out of the match. Only reasons I can think of not too would be: Other than that, not investing in the 401(k) is turning down free money. Edit based on feedback in comments. The only time I would advocate number 1 is if you are intensely committed to getting out of debt, were on a very tight budget and had eliminated all non-essential spending. In that situation only, I think the mental benefit of having that last debt paid off would be worth more than a few dollars in interest." } ]

[ { "docid": "395376", "title": "", "text": "Withdrawing from your 401(k) may include a 10% withdrawal penalty. There are ways to avoid the withdrawal penalty for early disbursements. The idea is to reduce your interest expense by leveraging free loans (0% APR purchases). This will help you pay down your debt more. If you have 0% APR on purchases, you can make purchases on things you already buy. Then use that money towards other debt, while making monthly payments on the 0% APR card. This way, you pay off the credit card before the 0% APR changes. You can then rinse and repeat on another 0% APR card offer. If your credit score is 800, you can do this multiple times. Citi Simplicity gives you 18 months 0% APR. Chase Slate and Chase Freedom gives you 15 months 0% APR. Others typically give you 12 months or less." }, { "docid": "231012", "title": "", "text": "I'd hazard that Jim is mostly worried that people are getting ripped off by high employer 401(k) fund fees. A lot of employers offer funds with fees over 1% a year. This sounds low-ish if you don't realize that the real (inflation-adjusted) return for the fund will probably average out to about 4%, so it's really something like a quarter of your earnings gone. With an IRA, you don't have to do that. You can get an IRA provider which offers good, cheap index funds and the like (cough Vanguard cough). Fund fees will probably be closer to 0.1%-ish. HOWEVER. The maximum IRA contribution in 2013 will be $5,500. The maximum for a 401(k) contribution will be $17,500. That extra capacity is enough to recommend a 401(k) over an IRA for many people. These people may be best served by putting money into the 401(k) and then rolling it over into a rollover IRA when they change jobs. Also, certain people have retirement plans which offer them good cheap index funds. These people probably don't need to worry quite as much. Finally, having two accounts is more complicated. Please contact someone who knows more about taxes than I am to figure out what limitations apply for contributing to both IRAs and 401(k)s in the same year." }, { "docid": "255277", "title": "", "text": "When you leave an employer, 401(k) loans are immediately due (or within 30 days or 60 days). So maybe they are waiting to see if you will pay off your loan. If you wanted to transfer the loan as well, you need to talk to your new 401(k) plan administrator to find out if this even possible. If they say No and you don't pay off the loan, it will count as a premature distribution from your old 401(k) plan and possibly be subject to excise tax in addition to income tax." }, { "docid": "120706", "title": "", "text": "I like the way you framed this question. There is no single right answer for what to do with your savings, but there are some choices that are wrong in the sense that they are dominated by other choices you could make. Of the choices you listed, there are two that fall into that category. The ones that seem like a bad idea to me are: Putting it into your Roth 401(k). You can't do this directly anyhow, but you could do it indirectly by increasing your contributions and using the growth fund to cover the hole in your budget, but that's a lot of work for a relatively small gain. You would essentially be exchanging one long-term investment for another long-term investment. You would pay capital gains taxes on the investment when you sell it today, in order to not pay taxes on its earnings when you eventually withdraw it. There is some benefit there, but it's a long way off, not that large, and probably not worth the effort. Things that might change your mind: If your 401(k) was a traditional 401(k) (paying tax at capital gains rate today to get a deduction at your normal income rate is likely to be a win). You're not contributing enough to get the full company match (always try to get that match if you can). Putting it into your emergency fund. Once again, you are likely to pay capital gains tax if you do this, and you will be putting it into an investment that is likely to get a lower return than your current one. It isn't really necessary to incur these costs, since if you encounter an emergency that you can't cover with your existing emergency fund, you could always liquidate the growth fund then, when you know you need it. Now, a growth fund is going to be more volatile than what you would normally want for an emergency fund, but the risk isn't that bad, if you think about it. Say your emergency comes up and you find that the growth fund is down 20% (which would be a pretty horrible run). That's $600 less that you have to deal with the situation. Keep in mind that you already have $2000 (and building) in your current emergency fund. Is that $600 going to make the difference between meeting the need and not? It's not likely. Better to leave the investment where it is and keep building your emergency fund week by week. Things that might change your mind: Your level of risk aversion (if having that money in a more risky investment is keeping you up at night, move it). You face significant job uncertainty (if you have reason to think your job is at risk, it might be a good idea to top off that emergency fund sooner rather than later.) Your other two choices both seem like solid options under the right circumstances. If it were me, I'd leave the investment in place rather than use it to pay off the student loan. The investment is likely (though of course not guaranteed) to earn more than the interest rate even on the highest-rate loan, especially when you consider that the interest on the student loan is probably tax deductible. Moreover, the size of the investment isn't enough to fully repay the loan, so putting it toward the loan won't even improve your cash flow for some time to come. However, there is always a chance that the investment will perform poorly and some people prefer the guaranteed return from paying off the loan. It depends on your personal risk tolerance. The one thing I would recommend is to think of putting the money toward the loan not as a debt repayment, but as a fixed-income investment with a yield equal to your loan's interest rate. If you would still consider buying it then, then go ahead. If not, then stick with what you've got. In my experience people get way too emotional about debt; try to take that emotion out of your decision making if you can." }, { "docid": "551145", "title": "", "text": "None of your options seem mutually exclusive. Ordinarily nothing stops you from participating in your 401(k), opening an IRA, qualifying for your company's pension, and paying off your debts except your ability to pay for all this stuff. Moreover, you can open an IRA anywhere (scottrade, vanguard, etrade, etc.) and freely invest in vanguard mutual funds as well as those of other companies...you aren't normally locked in to the funds of your IRA provider. Consider a traditional IRA. To me your marginal tax rate of 25% doesn't seem that great. If I were in your shoes I would be more likely to contribute to a traditional IRA instead of a Roth. This will save you taxes today and you can put the extra 25% of $5,500 toward your loans. Yes, you will be taxed on that money when you retire, but I think it's likely your rate will be lower than 25%. Moreover, when you are retired you will already own a house and have paid off all your debt, hopefully. You kind of need money now. Between your current tax rate and your need for money now, I'd say a traditional makes good sense. Buy whatever funds you want. If you want a single, cheap, whole-market fund just buy VTSAX. You will need a minimum of $10K to get in, so until then you can buy the ETF version, VTI. Personally I would contribute enough to your 401(k) to get the match and anything else to an IRA (usually they have more and better investment options). If you max that out, go back to the 401(k). Your investment mix isn't that important. Recent research into target date funds puts them in a poor light. Since there isn't a good benchmark for a target date fund, the managers tend to buy whatever they feel like and it may not be what you would prefer if you were choosing. However, the fund you mention has a pretty low expense ratio and the difference between that and your own allocation to an equity index fund or a blend of equity and bond funds is small in expectation. Plus, you can change your allocation whenever you want. You are not locked in. The investment options you mention are reasonable enough that the difference between portfolios is not critical. More important is optimizing your taxes and paying off your debt in the right order. Your interest rates matter more than term does. Paying off debt with more debt will help you if the new debt has a lower interest rate and it won't if it has a higher interest rate. Normally speaking, longer term debt has a higher interest rate. For that reason shorter term debt, if you can afford it, is generally better. Be cold and calculating with your debt. Always pay off highest interest rate debt first and never pay off cheap debt with expensive debt. If the 25 year debt option is lower than all your other interest rates and will allow you to pay off higher interest rate debt faster, it's a good idea. Otherwise it most likely is not. Do not make debt decisions for psychological reasons (e.g., simplicity). Instead, always chose the option that maximizes your ultimate wealth." }, { "docid": "345895", "title": "", "text": "\"I have never double-answered till now. This loan can't be taken out of context. By the way, how much is it? What rate? \"\"Debt bad.\"\" Really? Line the debt up. This is the highest debt you have. But, you work for a company that offers a generous match, i.e. the match to your 401(k). Now, it's a choice, pay off 6% debt or deposit that money to get an immediate 100% return. Your question has validity. In the end, we can tell you when to pay off the debt. After - The issue is that you are quoting a third party without having the discussion or ever being privy to it. In court, this is called 'hearsay.' The best we can do is offer both sides of the issue and priority for the payments. Welcome to Money.SE, nice first question.\"" }, { "docid": "301194", "title": "", "text": "\"I assume you get your information from somewhere where they don't report the truth. I'm sorry if mentioning Fox News offended you, it was not my intention. But the way the question is phrased suggests that you know nothing about what \"\"pension\"\" means. So let me explain. 403(b) is not a pension account. Pension account is generally a \"\"defined benefit\"\" account, whereas 403(b)/401(k) and similar - are \"\"defined contribution\"\" accounts. The difference is significant: for pensions, the employer committed on certain amount to be paid out at retirement (the defined benefit) regardless of how much the employee/employer contributed or how well the account performed. This makes such an arrangement a liability. An obligation to pay. In other words - debt. Defined contribution on the other hand doesn't create such a liability, since the employer is only committed for the match, which is paid currently. What happens to your account after the employer deposited the defined contribution (the match) - is your problem. You manage it to the best of your abilities and whatever you have there when you retire - is yours, the employer doesn't owe you anything. Here's the problem with pensions: many employers promised the defined benefit, but didn't do anything about actually having money to pay. As mentioned, such a pension is essentially a debt, and the retiree is a debt holder. What happens when employer cannot pay its debts? Employer goes bankrupt. And when bankrupt - debtors are paid only part of what they were owed, and that includes the retirees. There's no-one raiding pensions. No-one goes to the bank with a gun and demands \"\"give me the pension money\"\". What happened was that the employers just didn't fund the pensions. They promised to pay - but didn't set aside any money, or set aside not enough. Instead, they spent it on something else, and when the time came that the retirees wanted their money - they didn't have any. That's what happened in Detroit, and in many other places. 403(b) is in fact the solution to this problem. Instead of defined benefit - the employers commit on defined contribution, and after that - it's your problem, not theirs, to have enough when you're retired.\"" }, { "docid": "333219", "title": "", "text": "\"All of the provided advice is great, but a slightly different viewpoint on debt is worth mentioning. Here are the areas that you should concentrate your efforts and the (rough) order you should proceed. Much of the following is predicated upon your having a situation where you need to get out of debt, and learn to better budget and control your spending. You may already have accomplished some of these steps, or you may prioritize differently. Many people advise prioritizing contributing to a 401(k) savings plan. But with the assumption that you need advise because you have debt trouble, you are probably paying absurd interest rates, and any savings you might have will be earning much lower rates than you are paying on consumer debt. If you are already contributing, continue the plan. But remember, you are looking for advice because your financial situation is in trouble, so you need to put out the fire (your present problem), and learn how to manage your money and plan for the future. Compose a budget, comprised of the following three areas (the exact percentages are fungible, fit them to your circumstances). Here is where planning can get fun, when you have freed yourself from debt, and you can make choices that resonate with your individual goals. Once you have \"\"put out the fire\"\" of debt, then you should do two things at the same time. As you pay off debt (and avoid further debt), you will find that saving for both independence and retirement become easier. The average American household may have $8000+ credit card debt, and at 20-30%, the interest payments are $150-200/month, and the average car payment is nearly $500/month. Eliminate debt and you will have $500-800/month that you can comfortably allocate towards retirement. But you also need to learn (educate yourself) how to invest your money to grow your money, and earn income from your savings. This is an area where many struggle, because we are taught to save, but we are not taught how to invest, choose investments wisely and carefully, and how to decide our goals. Investing needs to be addressed separately, but you need to learn how. Live in an affordable house, and pay off your mortgage. Consider that the payment on a mortgage on even a modest $200K house is over $1000/month. Combine saving the money you would have paid towards a mortgage payment with the money you would have paid towards credit card debt or a car loan. Saving becomes easy when you are freed from these large debts.\"" }, { "docid": "526383", "title": "", "text": "First off, great job on your finances so far. You are off on the right foot and have some sense of planning for the future. Also, it is a great question. First, I agree with @littleadv. Take advantage of your employer match. Do not drop your 401(k) contributions below that. Also, good job on putting your contributions into the Roth account. Second, I would ask: Are you out of debt? If not, put all your extra income towards paying off debt, and then you can work your plan. Third, time to do some math. What will your business look like? How much capital would you need to get started? Are there things you can do now on a part-time basis to start this business or prepare you to start the business? Come up with a figure, find some mutual funds that have a low beta, and back out how much money you need to save per month, so you have around that total. Then you have a figure. e.g. Assume you need $20,000, and you find a fund that has done 8% over the past 20 years. Then, you would need to save about $110/month to be ready to go in 10 years, or $273/month to go in about 5 years. (It's a time value of money calculation.) The house is really a long way off, but you could do the same kind of calculation. I feel that you think your income, and possibly locale, will change dramatically over the next few years. It might not be bad to double what you are saving for the business, and designate one half for the house." }, { "docid": "568784", "title": "", "text": "\"Can is fine, and other answered that. I'd suggest that you consider the \"\"should.\"\" Does your employer offer a matched retirement account, typically a 401(k)? Are you depositing up to the match? Do you have any higher interest short term debt, credit cards, car loan, student loan, etc? Do you have 6 months worth of living expenses in liquid funds? One point I like to beat a dead horse over is this - for most normal mortgages, the extra you pay goes to principal, but regardless of how much extra you pay, the next payment is still due next month. So it's possible that you are feeling pretty good that for 5 years you pay so much that you have just 10 left on the 30 year loan, but if you lose your job, you still risk losing the house to foreclosure. It's not like you can ask the bank for that money back. If you are as disciplined as you sound, put the extra money aside, and only when you have well over the recommended 6 months, then make those prepayments if you choose. To pull my comment to @MikeKale into my answer - I avoided this aspect of the discussion. But here I'll suggest that a 4% mortgage costs 3% after tax (in 25% bracket), and I'd bet cap gain rates will stay 15% for non-1%ers. So, with the break-even return of 3.5% (to return 3 after tax) and DVY yielding 3.33%, the questions becomes - do you think the DVY top yielders will be flat over the next 15 years? Any return over .17%/yr is profit. That said, the truly risk averse should heed the advise in original answer, then pre-pay. Update - when asked,in April 2012, the DVY I suggested as an example of an investment that beats the mortgage cost, traded at $56. It's now $83 and still yields 3.84%. To put numbers to this, a lump sum $100K would be worth $148K (this doesn't include dividends), and giving off $5700/yr in dividends for an after-tax $4800/yr. We happened to have a good 4 years, overall. The time horizon (15 years) makes the strategy low risk if one sticks to it.\"" }, { "docid": "299819", "title": "", "text": "How old are you? With $15k, I assume late twenties. Do you still use your credit cards? or is this just past accumulated debt? (paying them off will do you no good if you just run them back up again.) Does your employer match you contributions? How much? Are you fully vested in their contributions? In general, it is not a good idea, but under the right circumstances it isn't a bad idea." }, { "docid": "341493", "title": "", "text": "\"Another consideration is that you are going to wind up with money in the \"\"regular\"\" 401(k) no matter which one you contribute to. The employer match can't go into the Roth 401(k). So all employer matching funds go in with pre-tax dollars and will be deposited in a normal 401(k) account. Edit from JoeTaxpayer - 2013 brought with it the Roth 401(k) conversion the ability to convert from the traditional pretax side of your 401(k) account to the Roth side.\"" }, { "docid": "470826", "title": "", "text": "The company match is not earnings. My company deposits 5% of my income into my 401(k) and it appears nowhere except on the paperwork for the 401(k). To be clear, it doesn't appear on any paystub or W2." }, { "docid": "171196", "title": "", "text": "The best option for maximizing your money long-term is to contribute to the 401(k) offered by your employer. If you park your inheritance in a savings account you can draw on it to augment your income while you max out your contributions to the 401(k). You will get whatever the employer matches right off the bat and your gains are tax deferred. In essence you will be putting your inheritance into the 401(k) and forcing your employer to match at whatever rate they do. So if your employer matches at 50 cents on the dollar you will turn your 50 thousand into 75 thousand." }, { "docid": "243392", "title": "", "text": ">What makes you think anything would change? If they allowed Match money to be distributed tax free, they are missing out on a future tax revenue opportunity. I agree that it's highly unlikely that matching contributions would be made entirely tax-free. If anything, I would expect employer contributions to be treated the same way that after-tax (non-Roth) 401(k) contributions are treated today to the extent that they exceed the new contribution limits. It's also possible that only individual contribution limits will be reduced and employer contribution limits will remain much higher - I haven't seen any reporting on the latter. >I think the more likely way they would stick it to us is to sunset the Roth 401(k) all together and make plans go back to the old school pre-tax and after-tax only, where even the earnings on after-tax are taxed at distribution. I'm optimistic that Roth 401(k)s are here to stay. Trump's priorities seem to be centered around short-term budget characteristics with far less concern for the long-term (as is characteristic of populist administrations in general), and eliminating Roth 401(k)s would be unpopular and have a negligible impact on tax revenue in the short term." }, { "docid": "422421", "title": "", "text": "First, read my answer here: Oversimplify it for me: the correct order of investing For me, the answer to your question comes down to how badly you want to get rid of your student loan debt. I recommend that you get rid of it as fast as possible, and that you sacrifice a little in your budget temporarily to make that happen. If that is what you want, here is what I would do. Following the steps in my other answer, I would pay off the student loans first. Cash out your non-retirement growth fund to jump start that, then challenge yourself to take as much of your paycheck as you can and throw it at the debt. Figure out how many months it will take before the debt is gone. Once the debt is gone, you won't have those monthly payments anymore and you won't be continually losing money in interest to the bank. At that point, you can build up your cash savings, invest in your employer's 401(k) plan for retirement, and start saving toward other long-term saving goals (car, house, etc.) To address some of your other concerns: If you cash out the non-retirement fund, you'll probably owe some capital gains tax. (Although, on a $3k investment, the long term rate won't add up to very much, depending on your tax bracket and cost basis.) You can't use the money from your non-retirement fund to invest in your 401(k). You can only contribute to your 401(k) via payroll deduction. To explicitly answer your question, your non-retirement fund is not bound by the limitations of retirement funds, meaning that you can cash it out and use it however you like without penalty, only paying perhaps a few hundred dollars of capital gains tax at tax time next year. Think of it as another source of cash for you." }, { "docid": "147889", "title": "", "text": "With a match, the 401(k) becomes the priority, up to that match, often ahead of other high interest debt. Without the match, the analysis is more about the cost within the 401(k). The 401(k) is a tax deferred account (let's not go on a tangent to Roth 401(k)) so ideally, you'd be skimming off money at 25% and saving it till you retire, so some of it is taxed at 0, 10, 15%. If the fees in the 401(k) are say 1.5% between the underlying funds and management fee, it doesn't take long to wipe out the potential 10 or 15% you are trying to gain. Yes, there's a risk that cap gain rates go away, but with today's tax law, the long term rate is 15%. So that money put into a long term low cost ETF will have reinvested dividends taxed at 15% and upon sale, a 15% rate on the gains. There are great index ETFs with sub - .1% annual cost. My simple answer is - If the total cost in that 401(k) is .5% or higher, I'd pass. Save the money in an outside account, using IRAs as best you can. (The exact situation needs to be looked at very carefully. In personal finance, there's a lot of 'grey'. For example, a frequent job changer can view the 401(k) as a way of saving pretax, knowing the fee will only last 2 years, and will end with a transfer to the IRA)" }, { "docid": "392924", "title": "", "text": "\"First of all, you need to stop using the card completely. Yes, that means you lose out on cash back, double miles, whatever, but that's how you got to this mess in the first place. Switch to a cash budget until you can consistently spend less than you bring home. Keep better track of your expenses, build an emergency fund, and learn to save for expenses rather than borrow for them until you have your spending under control. If you can't cut your expenses any more, consider ways to increase your income (more hours at work, part-time jobs, sell stuff, etc.) Assuming that the employer match is 1-to-1 up to 4%, and you're saving an additional 7 percent to get to 15% total, I would definitely lower your contribution down to 4%, get the card paid off, and ONLY bump your contribution back up once you can safely pay off the card each month and know how much you can contribute. It is not wise to put 15% in retirement if that causes you to spend more than your net take-home pay. Your \"\"13%\"\" in your Roth is not guaranteed by any means, but the interest you pay on your credit card is. I would even be tempted to cut your retirement completely until the debt is paid, but more for motivational reasons that mathematical: I would be more concerned about living within your income at this point than getting a company match. I believe the benefits of spending wisely will outweigh a temporary loss in matched retirement funds in the long run.\"" }, { "docid": "464080", "title": "", "text": "\"Given that the 6 answers all advocate similar information, let me offer you the alternate scenario - You earn $60K and have an employer offering a 50% match on all deposits. All deposits. (Note, I recently read a Q&A here describing such an offer. If I see it again, I'll link). Let the thought of the above settle in. You think about the fact that $42K isn't a bad salary, and decide to deposit 30%, to gain the full match on your $18K deposit. Now, you budget to live your life, pay your bills, etc, but it's tight. When you accumulate $2000, and a strong want comes up (a toy, a trip, anything, no judgement) you have a tough decision. You think to yourself, \"\"after the match, I am literally saving 45% of my income. I'm on a pace to have the ability to retire in 20 years. Why do I need to save even more?\"\" Your budget has enough discretionary spending that if you have a $2000 'emergency', you charge it and pay it off over the next 6-8 months. Much larger, and you know that your super-funded 401(k) has the ability to tap a loan. Your choice to turn away from the common wisdom has the recommended $20K (about 6 months of your spending) sitting in your 401(k), pretax deposited as $26K, and matched to nearly $40K, growing long term. Note: This is a devil's advocate answer. Had I been the first to answer, it would reflect the above. In my own experience, when I got married, we built up the proper emergency fund. As interest rates fell, we looked at our mortgage balance, and agreed that paying down the loan would enable us to refinance and save enough in mortgage interest that the net effect was as if we were getting 8% on the money. At the same time as we got that new mortgage, the bank offered a HELOC, which I never needed to use. Did we somehow create high risk? Perhaps. Given that my wife and I were both still working, and had similar incomes, it seemed reasonable.\"" } ]

[ { "docid": "91183", "title": "", "text": "\"There is a very simple calculation that will answer the question: Is the expected ROI of the 401K including the match greater than the interest rate of your credit card? Some assumptions that don't affect the calculation, but do help illustrate the points. You have 30 years until you can pull out the 401K. Your credit card interest rate is 20% compounded annually. The minimum payoffs are being disregarded, because that would legally just force a certain percentage to credit card. You only have $1000. You can either pay off your credit card or invest, but not both. For most people, this isn't the case. Ideally, you would simply forego $1000 worth of spending, AND DO BOTH Worked Example: Pay $1000 in Credit Card Debt, at 20% interest. After 1 year, if you pay off that debt, you no longer owe $1200. ROI = 20% (Duh!) After 30 years, you no longer owe (and this is pretty amazing) $237,376.31. ROI = 23,638% In all cases, the ROI is GUARANTEED. Invest $1000 in matching 401k, with expected ROI of 5%. 2a. For illustration purposes, let's assume no match After 1 year, you have $1050 ($1000 principal, $0 match, 5% interest) - but you can't take it out. ROI = 5% After 30 years, you have $4321.94, ROI of 332% - assuming away all risk. 2b. Then, we'll assume a 50% match. After 1 year, you have $1575 ($1000 principle, $500 match, 5% interest) - but you can't take it out. ROI = 57% - but you are stuck for a bit After 30 years, you have $6482.91, ROI of 548% - assuming away all risk. 2c. Finally, a full match After 1 year, you have $2100 ($1000 principle, $1000 match, 5% interest) - but you can't take it out. ROI = 110% - but again, you are stuck. After 30 years, you have $8643.89, ROI of 764% - assuming away all risk. Here's the summary - The interest rate is really all that matters. Paying off a credit card is a guaranteed investment. The only reason not to pay off a 20% credit card interest rate is if, after taxes, time, etc..., you could earn more than 20% somewhere else. Note that at 1 year, the matching funds of a 401k, in all cases where the match exceeded 20%, beat the credit card. If you could take that money before you could have paid off the credit card, it would have been a good deal. The problem with the 401k is that you can't realize that gain until you retire. Credit Card debt, on the other hand, keeps growing until you pay it off. As such, paying off your credit card debt - assuming its interest rate is greater than the stock market (which trust me, it almost always is) - is the better deal. Indeed, with the exception of tax advantaged mortgages, there is almost no debt that has an interest rate than is \"\"better\"\" than the market.\"" } ]

[ { "docid": "255277", "title": "", "text": "When you leave an employer, 401(k) loans are immediately due (or within 30 days or 60 days). So maybe they are waiting to see if you will pay off your loan. If you wanted to transfer the loan as well, you need to talk to your new 401(k) plan administrator to find out if this even possible. If they say No and you don't pay off the loan, it will count as a premature distribution from your old 401(k) plan and possibly be subject to excise tax in addition to income tax." }, { "docid": "171196", "title": "", "text": "The best option for maximizing your money long-term is to contribute to the 401(k) offered by your employer. If you park your inheritance in a savings account you can draw on it to augment your income while you max out your contributions to the 401(k). You will get whatever the employer matches right off the bat and your gains are tax deferred. In essence you will be putting your inheritance into the 401(k) and forcing your employer to match at whatever rate they do. So if your employer matches at 50 cents on the dollar you will turn your 50 thousand into 75 thousand." }, { "docid": "463892", "title": "", "text": "Your employer's matching contribution is calculated based on the dollar amounts you end up putting in. The nature of your 401(k) contribution—whether pre-tax or Roth after-tax—doesn't matter with respect to how their match gets calculated, and their match always goes into a pre-tax account, even if you are contributing after-tax. The onus is on you to choose a contribution amount that maximizes your employer match regardless of the nature of your contribution. Maximizing your employer match using Roth after-tax contributions will eat up more of your annual gross salary, but as long as you are willing to do that then you won't leave free employer match money on the table. Roth after-tax contributions don't get the tax deduction inherent in a pre-tax contribution. The tradeoff is that you end up with less take-home pay per period if you contribute the same number of dollars on a Roth after-tax basis to your 401(k) as opposed to on a pre-tax basis. For instance, to make a maximum $18,000 Roth after-tax contribution to a 401(k), it's going to cost you a lot more than $18,000 of your annual gross salary to net the same $18,000 number. (On the flip side, the Roth money is worth more in retirement than pre-tax money, because it won't be subject to taxes then.) However, 401(k) plan contribution amounts are almost always expressed as a percentage of gross salary, i.e. in pre-tax terms, even when electing to make after-tax contributions! So when electing after-tax, one is implicitly accepting that the contribution will cost more than the percentage of gross salary, because you'll need to pay the tax on a gross amount that would yield the same number of dollars but as an after-tax amount." }, { "docid": "299819", "title": "", "text": "How old are you? With $15k, I assume late twenties. Do you still use your credit cards? or is this just past accumulated debt? (paying them off will do you no good if you just run them back up again.) Does your employer match you contributions? How much? Are you fully vested in their contributions? In general, it is not a good idea, but under the right circumstances it isn't a bad idea." }, { "docid": "345895", "title": "", "text": "\"I have never double-answered till now. This loan can't be taken out of context. By the way, how much is it? What rate? \"\"Debt bad.\"\" Really? Line the debt up. This is the highest debt you have. But, you work for a company that offers a generous match, i.e. the match to your 401(k). Now, it's a choice, pay off 6% debt or deposit that money to get an immediate 100% return. Your question has validity. In the end, we can tell you when to pay off the debt. After - The issue is that you are quoting a third party without having the discussion or ever being privy to it. In court, this is called 'hearsay.' The best we can do is offer both sides of the issue and priority for the payments. Welcome to Money.SE, nice first question.\"" }, { "docid": "315836", "title": "", "text": "With respect to the 401(k). Before taking a hardship withdrawal, one must first deplete the ability to take any 401(k) loans available. This is a regulation. The 401(k) loan limit is the lesser of $50k, 50% your vested balance, or $50k minus the highest loan balance within the last year. Here's the good news: it is not a taxable event; you can pay back over a maximum of 5 years; interest is low (usually 4.25% or so). The bad news: if you terminate employment then the loan balance must be repaid or else it becomes taxable income plus a 10% penalty. I suggest you consider eliminating the credit card debt via this option. Pay back as aggressively as possible and if/when you terminate you can take the 10% penalty - it will be far less of an impact than 25k accruing approximately 25% annually." }, { "docid": "333219", "title": "", "text": "\"All of the provided advice is great, but a slightly different viewpoint on debt is worth mentioning. Here are the areas that you should concentrate your efforts and the (rough) order you should proceed. Much of the following is predicated upon your having a situation where you need to get out of debt, and learn to better budget and control your spending. You may already have accomplished some of these steps, or you may prioritize differently. Many people advise prioritizing contributing to a 401(k) savings plan. But with the assumption that you need advise because you have debt trouble, you are probably paying absurd interest rates, and any savings you might have will be earning much lower rates than you are paying on consumer debt. If you are already contributing, continue the plan. But remember, you are looking for advice because your financial situation is in trouble, so you need to put out the fire (your present problem), and learn how to manage your money and plan for the future. Compose a budget, comprised of the following three areas (the exact percentages are fungible, fit them to your circumstances). Here is where planning can get fun, when you have freed yourself from debt, and you can make choices that resonate with your individual goals. Once you have \"\"put out the fire\"\" of debt, then you should do two things at the same time. As you pay off debt (and avoid further debt), you will find that saving for both independence and retirement become easier. The average American household may have $8000+ credit card debt, and at 20-30%, the interest payments are $150-200/month, and the average car payment is nearly $500/month. Eliminate debt and you will have $500-800/month that you can comfortably allocate towards retirement. But you also need to learn (educate yourself) how to invest your money to grow your money, and earn income from your savings. This is an area where many struggle, because we are taught to save, but we are not taught how to invest, choose investments wisely and carefully, and how to decide our goals. Investing needs to be addressed separately, but you need to learn how. Live in an affordable house, and pay off your mortgage. Consider that the payment on a mortgage on even a modest $200K house is over $1000/month. Combine saving the money you would have paid towards a mortgage payment with the money you would have paid towards credit card debt or a car loan. Saving becomes easy when you are freed from these large debts.\"" }, { "docid": "559370", "title": "", "text": "First, what country are you in? Canada doesn't offer a mortgage interest tax deduction, the US does. This changes the math a bit, and in the US, the current after tax cost of a mortgage is below our long term inflation rate. Is the mortgage your only debt? I've seen people religiously pay extra each month to their 6% mortgage while carrying 18% interest debt on credit cards. Next, there are company matched retirement plans, in the US, a 401(k) plan, where if you put up to 6% or so of your pay into the account, it's effectively doubled upon deposit. I'd be sure not to miss such an opportunity. After these considerations, prepaying is equal to buying a risk free fixed instrument. If that appeals to you, and you've considered the above first, go for it. Keep in mind, money paid to the mortgage isn't easily borrowed back, short of a HELOC. I'd strongly advise that your emergency fund be fully funded (6 months worth of spending) before starting to make extra mortgage payments." }, { "docid": "551145", "title": "", "text": "None of your options seem mutually exclusive. Ordinarily nothing stops you from participating in your 401(k), opening an IRA, qualifying for your company's pension, and paying off your debts except your ability to pay for all this stuff. Moreover, you can open an IRA anywhere (scottrade, vanguard, etrade, etc.) and freely invest in vanguard mutual funds as well as those of other companies...you aren't normally locked in to the funds of your IRA provider. Consider a traditional IRA. To me your marginal tax rate of 25% doesn't seem that great. If I were in your shoes I would be more likely to contribute to a traditional IRA instead of a Roth. This will save you taxes today and you can put the extra 25% of $5,500 toward your loans. Yes, you will be taxed on that money when you retire, but I think it's likely your rate will be lower than 25%. Moreover, when you are retired you will already own a house and have paid off all your debt, hopefully. You kind of need money now. Between your current tax rate and your need for money now, I'd say a traditional makes good sense. Buy whatever funds you want. If you want a single, cheap, whole-market fund just buy VTSAX. You will need a minimum of $10K to get in, so until then you can buy the ETF version, VTI. Personally I would contribute enough to your 401(k) to get the match and anything else to an IRA (usually they have more and better investment options). If you max that out, go back to the 401(k). Your investment mix isn't that important. Recent research into target date funds puts them in a poor light. Since there isn't a good benchmark for a target date fund, the managers tend to buy whatever they feel like and it may not be what you would prefer if you were choosing. However, the fund you mention has a pretty low expense ratio and the difference between that and your own allocation to an equity index fund or a blend of equity and bond funds is small in expectation. Plus, you can change your allocation whenever you want. You are not locked in. The investment options you mention are reasonable enough that the difference between portfolios is not critical. More important is optimizing your taxes and paying off your debt in the right order. Your interest rates matter more than term does. Paying off debt with more debt will help you if the new debt has a lower interest rate and it won't if it has a higher interest rate. Normally speaking, longer term debt has a higher interest rate. For that reason shorter term debt, if you can afford it, is generally better. Be cold and calculating with your debt. Always pay off highest interest rate debt first and never pay off cheap debt with expensive debt. If the 25 year debt option is lower than all your other interest rates and will allow you to pay off higher interest rate debt faster, it's a good idea. Otherwise it most likely is not. Do not make debt decisions for psychological reasons (e.g., simplicity). Instead, always chose the option that maximizes your ultimate wealth." }, { "docid": "525322", "title": "", "text": "\"The same author wrote in that article “they have a trillion? Really?” But that’s what happens when ten million dollars compounds at 2% over 200 years. Really? 2% compounded over 200 years produces a return of 52.5X, multiply that by 10M and you have $525 million. The author is off by a factor of nearly 2000 fold. Let's skip this minor math error. The article is not about 401(k)s. His next line is \"\"The whole myth of savings is gone.\"\" And the article itself, \"\"10 Reasons You Have To Quit Your Job In 2014\"\" is really a manifesto about why working for the man is not the way to succeed long term. And in that regard, he certainly makes good points. I've read this author over the years, and respect his views. 9 of the 10 points he lists are clear and valuable. This one point is a bit ambiguous and falls into the overgeneraluzation \"\"Our 401(k) have failed us.\"\" But keep in mind, even the self employed need to save, and in fact, have similar options to those working for others. I have a Solo 401(k) for my self employment income. To be clear, there are good 401(k) accounts and bad. The 401(k) with fees above 1%/yr, and no matching, awful. The 401(k) I have from my job before I retired has an S&P index with .02%/yr cost. (That's $200/$million invested per year.) The 401(k) is not dead.\"" }, { "docid": "507476", "title": "", "text": "If you're simply trading with your own money and have not incorporated, then you are not eligible for a solo 401(k). Nerdwallet has an excellent Q&A on the topic here for example. Solo 401(k) is only allowed to be funded with earned income, and capital gains are not earned income. From the IRS page on One Participant 401(k) plans: Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit Earned income is defined by the IRS here: But not including: Even more clearly, that page notes: There are two ways to get earned income: You work for someone who pays you or You own or run a business or farm Capital gains are certainly neither of these. Now, I have read several articles suggesting one way to go about using the Solo 401k. All of them suggest that you would need to incorporate in some fashion that would require a Schedule C tax return, though, and be trading with the company's money rather than your own, and then pay yourself a wage from that. In that case you would be eligible for a Solo 401(k), and you might even be better off as a result of all that maneuvering (even though you'll be taxed at a higher rate for any income you do keep, likely, and have to pay self-employment tax)." }, { "docid": "127664", "title": "", "text": "\"Your employment status is not 100% clear from the question. Normally, consultants are sole-proprietors or LLC's and are paid with 1099's. They take care of their own taxes, often with schedule C, and they sometimes can but generally do not use \"\"employer\"\" company 401(k). If this is your situation, you can contact any provider you want and set up your own solo 401(k), which will have great investment options and no fees. I do this, through Fidelity. If you are paid with a W2, you are not a consultant. You are an employee and must use your employer's 401(k). Figure out what you are. If you are a consultant, open a solo 401(k) at the provider of your choice. Make sure beforehand that they allow incoming rollovers. Roll all of your previous 401(k)s and IRA's into it. When you have moved your 401(k) to a better provider, you won't be paying any extra fees, but you will not recoup any fees your original provider charged. I'm not sure why you mention a Roth IRA. If you try to roll your 401(k) into a Roth instead of a traditional IRA or 401(k), be aware that you will be taxed on everything you roll. ---- Edit: a little info about IRA's in response to your comment ---- Tax advantaged retirement accounts come in two flavors: one is managed by your company and the money is taken out of your paycheck. This is usually a 401(k) or 403(b). You can contribute up to $18K per year and your company can also contribute to it. The other flavor is an IRA. You can contribute $5,500 per year to this for you and $5,500 for your spouse. These are outside of your company and you make the deposits yourself. You choose your own provider, so competition has driven prices way down. You can have both a 401(k) and an IRA and contribute the max to both (though at high incomes you lose the ability to deduct IRA contributions). These accounts are tax advantaged because you only pay taxes once. With a regular brokerage account, you pay income tax in the year in which you earn money, then you pay tax every year on dividends and any capital gains that have been realized by selling. There are two types of tax-advantaged accounts: Traditional IRA or Traditional 401(k). You do not pay income tax on this money in the year you earn it, nor do you pay capital gains tax. Instead you pay tax only in the year in which you take the money out (in retirement). Roth IRA or Roth 401(k). You do pay income tax on money on this money in the year in which you earn it. But then you don't pay tax on any gains or withdrawals ever again. When you leave your job (and sometimes at other times) you can move your money out of a 401(k) into your IRA, where you can do a better job managing it. You can also move money from your IRA into a 401(k) if your 401(k) provider will allow you to. Whether traditional or Roth is better depends on your tax rate now and your tax rate at retirement. However, if you choose to move money from a traditional account into a Roth account, you must pay tax on it in that year as if it was income because traditional and Roth accounts are taxed at different times. For that reason, if you are just trying to move money out of your 401(k) to save on fees, the logical place to put it is in a traditional IRA. Moving money from a traditional to a Roth may make sense, for example, if your tax rate is temporarily low this year, but that would be a separate decision from the one you are looking at. You can always roll your traditional IRA into a Roth later if that does become the case. Otherwise, there's no reason to think your traditional 401(k) should be rolled into a Roth IRA according to what you have described.\"" }, { "docid": "417257", "title": "", "text": "You might want to bring this fancy new IRS rule to your employer's attention. If your employer sets it up, an After-Tax 401(k) Plan allows employees to contribute after-tax money above the $18k/year limit into a special 401(k) that allows deferral of tax on all earnings until withdrawal in retirement. Now, if you think about it, that's not all that special on its own. Since you've already paid tax on the contribution, you could imitate the above plan all by yourself by simply investing in things that generate no income until the day you sell them and then just waiting to sell them until retirement. So basically you're locking up money until retirement and getting zero benefit. But here's the cool part: the new IRS rule says you can roll over these contributions into a Roth 401(k) or Roth IRA with no extra taxes or penalties! And a Roth plan is much better, because you don't have to pay tax ever on the earnings. So you can contribute to this After-Tax plan and then immediately roll over into a Roth plan and start earning tax-free forever. Now, the article I linked above gets some important things slightly wrong. It seems to suggest that your company is not allowed to create a brand new 401(k) bucket for these special After-Tax contributions. And that means that you would have to mingle pre-tax and post-tax dollars in your existing Traditional 401(k), which would just completely destroy the usefulness of the rollover to Roth. That would make this whole thing worthless. However, I know from personal experience that this is not true. Your company can most definitely set up a separate After-Tax plan to receive all of these new contributions. Then there's no mingling of pre-tax and post-tax dollars, and you can do the rollover to Roth with the click of a button, no taxes or penalties owed. Now, this new plan still sits under the overall umbrella of your company's total retirement plan offerings. So the total amount of money that you can put into a Traditional 401(k), a Roth 401(k), and this new After-Tax 401(k) -- both your personal contributions and your company's match (if any) -- is still limited to $53k per year and still must satisfy all the non-discrimination rules for HCEs, etc. So it's not trivial to set up, and your company will almost certainly not be able to go all the way to $53k, but they could get a lot closer than they currently do." }, { "docid": "422421", "title": "", "text": "First, read my answer here: Oversimplify it for me: the correct order of investing For me, the answer to your question comes down to how badly you want to get rid of your student loan debt. I recommend that you get rid of it as fast as possible, and that you sacrifice a little in your budget temporarily to make that happen. If that is what you want, here is what I would do. Following the steps in my other answer, I would pay off the student loans first. Cash out your non-retirement growth fund to jump start that, then challenge yourself to take as much of your paycheck as you can and throw it at the debt. Figure out how many months it will take before the debt is gone. Once the debt is gone, you won't have those monthly payments anymore and you won't be continually losing money in interest to the bank. At that point, you can build up your cash savings, invest in your employer's 401(k) plan for retirement, and start saving toward other long-term saving goals (car, house, etc.) To address some of your other concerns: If you cash out the non-retirement fund, you'll probably owe some capital gains tax. (Although, on a $3k investment, the long term rate won't add up to very much, depending on your tax bracket and cost basis.) You can't use the money from your non-retirement fund to invest in your 401(k). You can only contribute to your 401(k) via payroll deduction. To explicitly answer your question, your non-retirement fund is not bound by the limitations of retirement funds, meaning that you can cash it out and use it however you like without penalty, only paying perhaps a few hundred dollars of capital gains tax at tax time next year. Think of it as another source of cash for you." }, { "docid": "412", "title": "", "text": "The details of the 401(k) are critical to the decision. A high cost (the expenses charged within the) 401(k) - I would deposit only to the match, and I'd be sure to get the entire match offered. In which case, that $3000 might be good to have available if you start out with a tight budget. Low cost 401(k) w/match - a no-brainer, deposit what you can afford. Roth 401(k) w/match - same rules for expenses apply, with the added note to use Roth when getting started and in a lower bracket. Yes, it makes sense to have both. You should note, depositing to the Roth now is riskless. The account, not the investment. If you decide next year you didn't want it, you can withdraw the deposit with no penalty or tax. Edit to respond to updated question - there are two pieces to the Roth deposit issue. The deposit itself, which puts the $3000 earned income into tax sheltered account, and the choice to invest. These two are sequential and you can take your time in between. I'm not sure what you mean by the dividend timing. In an IRA or 401(k) the dividend isn't taxed, so it's a non-issue. In a cash account, you might quickly have a small tax issue, but this doesn't come into the picture in the tax deferred accounts." }, { "docid": "160780", "title": "", "text": "\"A fascinating view on this. The math of a 10% deposit and projected 10% return lead to an inevitable point when the account is worth 10X your income (nice) and the deposit, 10% of income only represents 1% of the account balance. The use of an IRA is neither here nor there, as your proposed deposit is still just 1% of your retirement account total. Pay off debt? For one with this level of savings, it should be assumed you aren't carrying any high interest debt. It really depends on your age and retirement budget. Our \"\"number\"\" was 12X our final income, so at 10X, we were still saving. For you, if you project hitting your number soon enough, I'd still deposit to the match, but maybe no more. It might be time to just enjoy the extra money. For others, their goal may be much higher and those extra years deposits are still needed. I'd play with a spreadsheet and see the impact of reduced retirement account deposits. Note - the question asks about funding the 401(k) vs paying down debt. I'd always advise to deposit to the match, but beyond that, one should focus on their high interest debt, especially by their 50's.\"" }, { "docid": "422979", "title": "", "text": "The fact that you are planning to move abroad does not affect the decision to contribute to a 401(k). The reason for this is that after you leave your employer, you can roll all the money over from your 401(k) into a self-directed traditional IRA. That money can stay invested until retirement, and it doesn't matter where you are living before or after retirement age. So, when deciding whether or not to use a 401(k), you need to look at the details of your employer's plan: Does your employer offer a match? If so, you should definitely take advantage of it. Are there good investments available inside the 401(k)? Some plans offer very limited options. If you can't find anything good to invest in, you don't want to contribute anything beyond the match; instead, contribute to an IRA, where you can invest in a fund that you like. The other reason to use a 401(k) is that the contribution limits can be higher. If you want to invest more than you are allowed to in an IRA, the 401(k) might allow that. In your case, since there is no match, it is up to you whether you want to participate or not. An IRA will allow more flexibility in investing options. If you need to invest more than your IRA limit, the 401(k) might allow that. When you leave your employer, you should probably roll any 401(k) money into an IRA." }, { "docid": "3104", "title": "", "text": "\"To answer the first part of your question: yes, I've done that! I did even a bit more. I once had a job that I wasn't sure I'd keep and the economy wasn't great either. In case my next employer wouldn't let me contribute to a 401(k) from day one, and because I didn't want to underfund my retirement and be stuck with a higher tax bill - I \"\"front-loaded\"\" my 401(k) contributions to be maxed out before the end of the year. (The contribution limits were lower than $16,500/year back then :-)) As for the reduced cash flow - you need of course a \"\"buffer\"\" account containing several months worth of living expenses to afford maxing out or \"\"front-loading\"\" 401(k) contributions. You should be paying your bills out of such buffer account and not out of each paycheck. As for the reduced cash flow - I think large-scale 401(k)/IRA contributions can crowd out other long-term saving priorities such as saving for a house down payment and the trade-off between them is a real concern. (If they're crowding out basic and discretionary consumer expenses, that's a totally different kind of problem, which you don't seem to have, which is great :-)) So about the trade-off between large-scale 401(k) contributions and saving for the down payment. I'd say maxing out 401(k) can foster the savings culture that will eventually pay its dividends. If, after several years of maxing out your 401(k) you decide that saving for the house is the top priority, you'll see money flow to the money-market account marked for the down payment at a substantial monthly rate, thanks to that savings culture. As for the increasing future earnings - no. Most people I've known for a long time, if they saved 20% when they made $20K/year, they continued to save 20% or more when they later made $100K/year. People who spent the entire paycheck while making $50K/year, always say, if only I got a raise to $60K/year, I'd save a few thousand. But they eventually graduate to $100K/year and still spend the entire paycheck. It's all about your savings culture. On the second part of your question - yes, Roth is a great tool, especially if you believe that the future tax rates will be higher (to fix the long-term budget deficits). So, contributing to 401(k) to maximize the match, then max out Roth, as others suggested, is a great advice. After you've done that, see what else you can do: more 401(k), saving for the house, etc.\"" }, { "docid": "379911", "title": "", "text": "\"The error in the example is here: \"\"Now, if you contribute 5% to a Roth 401(k), your employer would match your after-tax 5% contribution. If the tax rate is 25%, that would be 5% of $60,000, which is $3,000. However, that $3,000 is put in to a traditional 401(k), so it is taxed when withdrawn. Assuming the tax rate is still 25% when you withdraw, you are only getting $2,250. Essentially you are giving up $750 of free money in this case.\"\" You set your contribution to Roth 401k as a function of the gross, 80,000. You choose 5% and contribute 4000 Your employer matches 4000. At the end of the year, your taxable income to the IRS is 80000, and you pay 30% or 24000. You have 80K-4K-24K to live on, or 52K If you chose the alternate regular 401k,then you contribute 4K, your income to the IRS is (80-4=) 76k, and you pay 30%, 22.8K in tax. You have 80-4-22.8 or 53.2K to live on. Or, to come at it the other way, you have 4000*30% =1200 extra tax reduction in your income this year. If the extra income in 401k versus extra current year tax in Roth IRA means you have to reduce less, like 2800K to the roth so you maintain a 53.2K lifestyle, then yes, the Roth IRA match is reduced. If you have the cash flow to prepay the current year tax and maximum-match contribution, you will get the full match based on your gross income.\"" } ]

[ { "docid": "155053", "title": "", "text": "\"There is not a special rate for short-term capital gains. Only long-term gains have a special rate. Short-term gains are taxed at your ordinary-income rate (see here). Hence if you're in the 25% bracket, your short-term gain would be taxed at 25%. The IRA withdrawal, as you already mentioned, would be taxed at 25%, plus a 10% penalty, for 35% total. Thus the bite on the IRA withdrawal is larger than that on a non-IRA withdrawal. As for the estimated tax issue, I don't think there will be a significant difference there. The reason is that (traditional) IRA withdrawals count as ordinary taxable income (see here). This means that, when you withdraw the funds from your IRA, you will increase your income. If that increase pushes you too far beyond what your withholding is accounting for, then you owe estimated tax. In other words, whether you get the money by selling stocks in a taxable account or by withdrawing them from an IRA, you still increase your taxable income, and thus potentially expose yourself to the estimated tax obligation. (In fact, there may be a difference. As you note, you will pay tax at the capital gains rate on gains from selling in a taxable account. But if you sell the stocks inside the IRA and withdraw, that is ordinary income. However, since ordinary income is taxed at a higher rate than long-term capital gains, you will potentially pay more tax on the IRA withdrawal, since it will be taxed at the higher rate, if your gains are long-term rather than short term. This is doubly true if you withdraw early, incurring the extra 10% penalty. See this question for some more discussion of this issue.) In addition, I think you may be somewhat misunderstanding the nature of estimated tax. The IRS will not \"\"ask\"\" you for a quarterly estimated tax when you sell stock. The IRS does not monitor your activity and send you a bill each quarter. They may indeed check whether your reported income jibes with info they received from your bank, etc., but they'll still do that regardless of whether you got that income by selling in a taxable account or withdrawing money from an IRA, because both of those increase your taxable income. Quarterly estimated tax is not an extra tax; it is just you paying your normal income tax over the course of the year instead of all at once. If your withholdings will not cover enough of your tax liability, you must figure that out yourself and pay the estimated tax (see here); if you don't do so, you may be assessed a penalty. It doesn't matter how you got the money; if your taxable income is too high relative to your withheld tax, then you have to pay the estimated tax. Typically tax will be withheld from your IRA distribution, but if it's not withheld, you'll still owe it as estimated tax.\"" } ]

[ { "docid": "197576", "title": "", "text": "First of all depending on the type of IRA you may not have to pay taxes on withdrawals in the US at all. If you are withdrawing your principle from a Roth IRA then you don't owe taxes. Only when you withdraw the gains do you pay taxes on it. You have two options for withdrawals: Lump Sum Withdrawal: If you take a lump sum withdrawal you will owe taxes to the US (30% for non-resident aliens of the US), and according to DTAA; Article 23, you will file your taxes with India declaring your IRA or 401(k) withdrawal proceeds and claim credit on the taxes you paid to the US. Monthly Pension Withdrawal: You can also receive monthly pension payments and you will only be taxed in the country in which you are a resident of. This is according to DTAA, Article 20. You would then have to submit necessary documentation to your payer in the US so that they do not withhold any taxes in the US. Just as a side note it might be just better to keep the money where it is and let it grow or roll it over to a Roth IRA if you are currently in a lower tax bracket for maximum savings of your principle. Here is a link with more detailed information of what I provided you: http://articles.economictimes.indiatimes.com/2012-01-25/news/30663129_1_taxable-income-nri-401k-plan" }, { "docid": "344283", "title": "", "text": "\"While @JB's \"\"yes\"\" is correct, a few more points to consider: There is no tax penalty for withdrawing any time from a taxable investment, that is, one not using specific tax protections like 401k/IRA or ESA or HSA. But you do pay tax on any income or gain distributions you receive from a taxable investment in a fund (except interest on tax-exempt aka \"\"municipal\"\" bonds), and any net capital gains you realize when selling (or technically redeeming for non-ETF funds). Just like you do for dividends and interest and gains on non-fund taxable investments. Many funds have a sales charge or \"\"load\"\" which means you will very likely lose money if you sell quickly typically within at least several months and usually a year or more, and even some no-load funds, to discourage rapid trading that makes their management more difficult (and costly), have a \"\"contingent sales charge\"\" if you sell after less than a stated period like 3 months or 6 months. For funds that largely or entirely invest in equities or longer term bonds, the share value/price is practically certain to fluctuate up and down, and if you sell during a \"\"down\"\" period you will lose money; if \"\"liquid\"\" means you want to take out money anytime without waiting for the market to move, you might want funds focussing on short-term bonds, especially government bonds, and \"\"money market\"\" funds which hold only very short bonds (usually duration under 90 days), which have much more stable prices (but lower returns over the longer term).\"" }, { "docid": "109305", "title": "", "text": "\"IRA is a tax-deferred account. I.e.: you're not paying any taxes on the income within the account (as long as you don't withdraw it) and you can deduct the investment (with certain limitation on how much, depending on your total AGI). It is taxed when you withdraw it - at ordinary rates for the \"\"traditional\"\" IRA and with 0% rate for ROTH, as long as the withdrawal is qualified (if not qualified - you pay ordinary rate tax for ROTH and additional 10% tax for both on the taxable amounts). The details are a bit complicated (there's deductible IRA, non-deductible IRA, roll-overs, etc etc), but that's the basic. Regular investment accounts are taxed currently on any income, but you get the \"\"better\"\" capital gains rates on many things. So which one is better depends how long your investment is going to be, what is your tax situation now, and what you anticipate it to be later when you retire.\"" }, { "docid": "468047", "title": "", "text": "Don't let tax considerations be the main driver. That's generally a bad idea. You should keep tax in mind when making the decision, but don't let it be the main reason for an action. selling the higher priced shares (possibly at a loss even) - I think it's ok to do that, and it doesn't necessarily have to be FIFO? It is OK to do that, but consider also the term. Long term gain has much lower taxes than short term gain, and short term loss will be offsetting long term gain - means you can lose some of the potential tax benefit. any potential writeoffs related to buying a home that can offset capital gains? No, and anyway if you're buying a personal residence (a home for yourself) - there's nothing to write off (except for the mortgage interest and property taxes of course). selling other investments for a capital loss to offset this sale? Again - why sell at a loss? anything related to retirement accounts? e.g. I think I recall being able to take a loan from your retirement account in order to buy a home You can take a loan, and you can also withdraw up to 10K without a penalty (if conditions are met). Bottom line - be prepared to pay the tax on the gains, and check how much it is going to be roughly. You can apply previous year refund to the next year to mitigate the shock, you can put some money aside, and you can raise your salary withholding to make sure you're not hit with a high bill and penalties next April after you do that. As long as you keep in mind the tax bill and put aside an amount to pay it - you'll be fine. I see no reason to sell at loss or pay extra interest to someone just to reduce the nominal amount of the tax. If you're selling at loss - you're losing money. If you're selling at gain and paying tax - you're earning money, even if the earnings are reduced by the tax." }, { "docid": "580534", "title": "", "text": "It is a very complex question to answer and it really depends. However, here are some points to consider and verify with your accountant or tax expert. First, if you exercise now, the downside is that you may be subject to Alternative Minimum Tax (AMT) based on the theoretical gain on the stock (current price minus your strike price) when you file your tax return. The other obvious downside is that if the company goes nowhere, you are stuck with the stock and potentially lose money. The benefit is that the clock starts ticking for long-term capital gains so if you sell after 1 year from the exercise date (or your company gets sold) then the gain would be taxed as long-term capital gain which is taxed at a lower rate. If your company were to get sold, the gains are not necessarily taxed as ordinary income. If it is a cash transaction then most likely (unless you have exercised and held the stock for over a year). However, if it is a stock sale, then you may end up getting stock of the company that acquires your company. In that situation, the tax event would be when you sell the new shares vs. the time of company sale. Finally, whether to exercise or not also depends on how you feel about the prospects of the company. If you think they will be sold or of more value down the road then exercising makes sense. If you are not sure then you could hedge your bets by only exercising a portion of it. You should definitely consult with a financial advisor or a tax consultant regarding these matters." }, { "docid": "257835", "title": "", "text": "The easiest way to deal with risks for individual stocks is to diversify. I do most of my investing in broad market index funds, particularly the S&P 500. I don't generally hold individual stocks long, but I do buy options when I think there are price moves that aren't supported by the fundamentals of a stock. All of this riskier short-term investing is done in my Roth IRA, because I want to maximize the profits in the account that won't ever be taxed. I wouldn't want a particularly fruitful investing year to bite me with short term capital gains on my income tax. I usually beat the market in that account, but not by much. It would be pretty easy to wipe out those gains on a particularly bad year if I was investing in the actual stocks and not just using options. Many people who deal in individual stocks hedge with put options, but this is only cost effective at strike prices that represent losses of 20% or more and it eats away the gains. Other people or try to add to their gains by selling covered call options figuring that they're happy to sell with a large upward move, but if that upward move doesn't happen you still get the gains from the options you've sold." }, { "docid": "170717", "title": "", "text": "In the US, the key to understanding the benefits of retirement accounts is to understand capital gains taxes and how they work. Retirement accounts are designed for making investments throughout your career, then after several decades of contributions, withdrawing that money to pay for your needs when your full-time employment has concluded. Normally when you invest money in a brokerage account, if the value of your investment increases, and you sell in less than a year, those investments are considered short-term gains and taxed as ordinary income. If you hold that same investment for over a year, the same investment is taxed at a lower capital gains rate (depending on which tax bracket you are in during that year, the amount due could be up to 20%, but much lower than your regular income tax rate). When you place your money in a retirement account, you are choosing to either pay the tax due on the income when you put it in the account, or put the money in tax free and pay the tax when you withdraw (these are called tax-deferred accounts). When you have money invested several decades, the raw dollar amount increases greatly, but inflation is also reducing the value of those dollars. Imagine you bought some bonds that payed 4% over 40 years, but inflation was 2% during those same years. When you sell those bonds 40 years later, you will owe capital gains on the entire gain even though half of the gain came from inflation. Retirement accounts allow you to buy and sell according to your investment needs and goals without any consideration about whether the gains are short-term or long-term, and they also allow you to pay taxes just once, either when you put it in, or when you take it out, with no worries about whether you're paying taxes on inflated gains." }, { "docid": "538410", "title": "", "text": "Lazy man's budget. Four separate accounts for timing of expenses: short (monthly; utilities etc.), medium (quarterly+; property taxes), long (yearly+; house improvements) and retirement. Set target levels for each account, to cover 1 full cycle. The short target is smallest; it should comfortably cover a month. For me each target is about 10x larger than the last. (Cycles & targets for a homeowner w/ family; YMMV). All income goes in short term. When an account gets above target level, the excess gets swept up to the next longer term account. That's all I keep firm track of; takes just a few minutes a month. Watching the account balances vs. their targets (and how short some of them are of target) keeps me focused on spending, and thinking about how much I can sweep (or can't) next paycheck." }, { "docid": "537916", "title": "", "text": "\"Do I have to pay the stock investment income tax if I bought some stocks in 2016, it made some profits but I didn't sell them at the end of 2016? You pay capital gains taxes only when you sell the stocks. When you sell the stock within a year you will pay the short term capital gains rate which is the same rate as your ordinary income. If the stock pays dividends, however, you will have to pay taxes in the year that the dividend was paid out to you. I bought some stocks in 2011, sold them in 2012 and made some gains. Which year of do I pay the tax for the gains I made? You would pay in 2012, likely at the short term gain rate. I bought some stocks, sold them and made some gains, then use the money plus the gains to buy some other stocks before the end of the same year. Do I have to pay the tax for the gains I made in that year? Yes. There is a specific exception called the \"\"Wash Sale Rule\"\", but that would only apply if you lost money on the original sale and bought a substantially similar or same stock within 30 days. Do I get taxed more for the money I made from buying and selling stocks, even if the gains is only in hundreds? More than what? You pay taxes based on the profit you make from the investment. If you held it less than a year it is the same tax rate as your regular income. If you held it longer you pay a lower tax rate which is usually lower than your regular tax rate.\"" }, { "docid": "94496", "title": "", "text": "First of all, there are some differences between the retirement accounts that you mentioned regarding taxes. Traditional IRA and 401(k) accounts allow you to make pre-tax contributions, giving you an immediate tax deduction when you contribute. Roth IRA, Roth 401(k) are funded with after tax money, and a non-retirement account is, of course, also funded with after tax money. So if you are looking for the immediate tax deduction, this is a point in favor of the retirement accounts. Roth IRA & Roth 401(k) accounts allow the investment to grow tax-free, which means that the growth is not taxed, even when taking the investment out at retirement. With Traditional IRA and 401(k) accounts, you need to pay tax on the gains realized in the account when you withdraw the money, just as you do with a non-retirement account. This is a point in favor of the Roth retirement accounts. To answer your question about capital gains, yes, it is true that you do not have a capital gain until an investment is sold. So, discounting the contribution tax deductions of the retirement accounts, if you only bought individual stocks that never paid a dividend, and never sold them until retirement, you are correct that it really wouldn't matter if you had it in a regular brokerage account or in a traditional IRA. However, even people dedicated to buy-and-hold rarely actually buy only individual stocks and hold them for 30 years. There are several different circumstances that will generally happen in the time between now and when you want to withdraw the money in retirement that would be taxable events if you are not in a retirement account: If you sell an investment and buy a different one, the gains would be taxable. If you want to rebalance your holdings, this also involves selling a portion of your investments. For example, if you want to maintain an 80% stock/20% bond ratio, and your stock values have gone up to 90%, you might want to sell some stock and buy bonds. Or if you are getting closer to retirement, you might decide to go with a higher percentage of bonds. This would trigger capital gains. Inside a mutual fund, anytime the management sells investments inside the fund and realizes capital gains, these gains are passed on to the investors, and are taxable. (This happens more often with managed funds than index funds, but still happens occasionally with index funds.) Dividends earned by the investments are taxable. Any of these events in a non-retirement account would trigger taxes that need to be paid immediately, even if you don't withdraw a cent from your account." }, { "docid": "59600", "title": "", "text": "It is really hard to tell where you should withdraw money from. So instead, I'll give you some pointers to make it easier for you to make the decision for yourself, while keeping the answer useful to others as well. I have 3 401ks, ... and some has post tax, non Roth money Why keeping 3 401ks? You can roll them over into an IRA or the one 401k which is still active (I assume here you're not currently employed with 3 different employers). This will also help you avoiding fees for too low balances on your IRAs. However, for the 401k with after tax (not Roth) balance - read the next part carefully. Post tax amounts are your basis. Generally, it is not a good idea to keep post-tax amounts in 401k/IRA, you usually do post-tax contributions to convert them to Roth ASAP. Withdrawing from 401k with basis may become a mess since you'll have to account for the basis portion of each withdrawal. Especially if you pool it with IRAs, so that one - don't rollover, keep it separately to make that accounting easier. I also have several smaller IRAs and Roth IRAs, Keep in mind the RMD requirements. Roth IRAs don't have those, and are non-taxable income, so you would probably want to keep them as long as possible. This is relevant for 401k as well. Again, consolidating will help you with the fees. I'm concerned about having easily accessible cash for emergencies. I suggest keeping Roth amounts for this purpose as they're easily accessible and bear no taxable consequence. Other than emergencies don't touch them for as long as you can. I do have some other money in taxable investments For those, consider re-balancing to a more conservative style, but beware of the capital gains taxes if you have a lot of gains accumulated. You may want consider loss-harvesting (selling the positions in the red) to liquidate investments without adverse tax consequences while getting some of your cash back into the checking account. In any case, depending on your tax bracket, capital gains taxes are generally lower (down to 0%) than ordinary income taxes (which is what you pay for IRA/401k withdrawals), so you would probably want to start with these, after careful planning and taking the RMD and the Social Security (if you're getting any) into account." }, { "docid": "545184", "title": "", "text": "As far as I know, there is no direct equivalent. An IRA is subject to many rules. Not only are there early withdrawal penalties, but the ability to deduct contributions to an IRA phases out with one's income level. Qualified withdrawals from an IRA won't have penalties, but they will be taxed as income. Contributions to a Roth IRA can be made post-tax and the resulting gains will be tax free, but they cannot be withdrawn early. Another tax-deductable investment is a 529 plan. These can be withdrawn from at any time, but there is a penalty if the money is not used for educational purposes. A 401K or similar employer-sponsored fund is made with pre-tax dollars unless it is designated as a Roth 401K. These plans also require money to be withdrawn specifically for retirement, with a 10% penalty for early withdrawal. Qualifying withdrawals from a regular retirement plan are taxed as income, those from a Roth plan are not (as with an IRA). Money can be made harder to get at by investing in all of the types of funds you can invest in using an IRA through the same brokers under a different type of account, but the contribution will be made with post-tax, non-deductable dollars and the gains will be taxed." }, { "docid": "561999", "title": "", "text": "\"You cannot get \"\"your investment\"\" out and \"\"leave only the capital gains\"\" until they become taxable at the long-term rate. When you sell some shares after holding them for less than a year, you have capital gains on which you will have to pay taxes at the short-term capital gains rate (that is, at the same rate as ordinary income). As an example, if you bought 100 shares at $70 for a net investment of $7000, and sell 70 of them at $100 after five months to get your \"\"initial investment back\"\", you will have short-term capital gains of $30 per share on the 70 shares that you sold and so you have to pay tax on that $30x70=$2100. The other $4900 = $7000-$2100 is \"\"tax-free\"\" since it is just your purchase price of the 70 shares being returned to you. So after paying the tax on your short-term capital gains, you really don't have your \"\"initial investment back\"\"; you have something less. The capital gains on the 30 shares that you continue to hold will become (long-term capital gains) income to you only when you sell the shares after having held them for a full year or more: the gains on the shares sold after five months are taxable income in the year of sale.\"" }, { "docid": "328073", "title": "", "text": "You don't have to wait. If you sell your shares now, your gain can be considered a capital gain for income tax purposes. Unlike in the United States, Canada does not distinguish between short-term vs. long-term gains where you'd pay different rates on each type of gain. Whether you buy and sell a stock within minutes or buy and sell over years, any gain you make on a stock can generally be considered a capital gain. I said generally because there is an exception: If you are deemed by CRA to be trading professionally -- that is, if you make a living buying and selling stocks frequently -- then you could be considered doing day trading as a business and have your gains instead taxed as regular income (but you'd also be able to claim additional deductions.) Anyway, as long as your primary source of income isn't from trading, this isn't likely to be a problem. Here are some good articles on these subjects:" }, { "docid": "587727", "title": "", "text": "\"IRAs have huge tax-advantages. You'll pay taxes when you liquidate gold and silver. While volatile, \"\"the stock market has never produced a loss during any rolling 15-year period (1926-2009)\"\" [PDF]. This is perhaps the most convincing article for retirement accounts over at I Will Teach You To Be Rich. An IRA is just a container for your money and you may invest the money however you like (cash, stocks, funds, etc). A typical investment is the purchase of stocks, bonds, and/or funds containing either or both. Stocks may pay dividends and bonds pay yields. Transactions of these things trigger capital gains (or losses). This happens if you sell or if the fund manager sells pieces of the fund to buy something in its place (i.e. transactions happen without your decision and high turnover can result in huge capital gains). In a taxable account you will pay taxes on dividends and capital gains. In an IRA you don't ever pay taxes on dividends and capital gains. Over the life of the IRA (30+ years) this can be a huge ton of savings. A traditional IRA is funded with pre-tax money and you only pay tax on the withdrawal. Therefore you get more money upfront to invest and more money compounds into greater amounts faster. A Roth IRA you fund with after-tax dollars, but your withdrawals are tax free. Traditional versus Roth comparison calculator. Here are a bunch more IRA and 401k calculators. Take a look at the IRA tax savings for various amounts compared to the same money in a taxable account. Compounding over time will make you rich and there's your reason for starting young. Increases in the value of gold and silver will never touch compounded gains. So tax savings are a huge reason to stash your money in an IRA. You trade liquidity (having to wait until age 59.5) for a heck of a lot more money. Though isn't it nice to be assured that you will have money when you retire? If you aren't going to earn it then, you'll have to earn it now. If you are going to earn it now, you may as well put it in a place that earns you even more. A traditional IRA has penalties for withdrawing before retirement age. With a Roth you can withdraw the principal at anytime without penalty as long as the account has been open 5 years. A traditional IRA requires you take out a certain amount once you reach retirement. A Roth doesn't, which means you can leave money in the account to grow even more. A Roth can be passed on to a spouse after death, and after the spouse's death onto another beneficiary. more on IRA Required Minimum Distributions.\"" }, { "docid": "422119", "title": "", "text": "Lots of good answers. I'll try and improve by being more brief. For each option you will pay different taxes: Index Fund: Traditional IRA Roth IRA You can see that the Roth IRA is obviously better than investing in a taxable account. It may not be as obvious that the traditional IRA is better as well. The reason is that in the traditional account you can earn returns on the money that otherwise would have gone to the government today. The government taxes that money at the end, but they don't take all of it. In fact, for a given investment amount X and returns R, the decision of Roth vs Traditional depends only on your tax rate now vs at retirement because X(1-tax)(1+R_1)(1+R_2)...(1+R_n) = X(1+R_1)(1+R_2)...(1+R_n)(1-tax) The left hand side is what you will have at retirement if you do a Roth and the right hand side is what you will have at retirement if you do traditional. Only the tax rate differences between now and retirment matter here. An index fund investment is like the left hand side but has some additional tax terms on your capital gains. It's clearly worse than either." }, { "docid": "438038", "title": "", "text": "\"You don't want to do that. DON'T LIE TO THE IRS!!! We live overseas as well and have researched this extensively. You cannot make $50k overseas and then say you only made $45k to put $5k into retirement. I have heard from some accountants and tax attorneys who interpret the law as saying that the IRS considers Foreign Earned Income as NOT being compensation when computing IRA contribution limits, regardless of whether or not you exclude it. Publication 590-A What is Compensation (scroll down a little to the \"\"What Is Not Compensation\"\" section). Those professionals say that any amounts you CAN exclude, not just ones you actually do exclude. Then there are others that say the 'can' is not implied. So be careful trying to use any foreign-earned income to qualify for retirement contributions. I haven't ran across anyone yet who has gotten caught doing it and paid the price, but that doesn't mean they aren't out there. AN ALTERNATIVE IN CERTAIN CASES: There are two things you can do that we have found to have some sort of taxable income that is preferably not foreign so that you can contribute to a retirement account. We do this by using capital gains from investments as income. Since our AGI is always zero, we pay no short or long term capital gains taxes (as long as we keep short term capital gains lower than $45k) Another way to contribute to a Roth IRA when you have no income is to do an IRA Rollover. Of course, you need money in a tax-deferred account to do this, but this is how it works: I always recommend those who have tax-deferred IRA's and no AGI due to the FEIE to roll over as much as they can every year to a Roth IRA. That really is tax free money. The only tax you'll pay on that money is sales tax when you SPEND IT!! =)\"" }, { "docid": "235855", "title": "", "text": "\"It's not so much a matter of your age as it is a matter of what your current tax rate is vs. what your tax rate will be when you take out the money. As long as your current tax rate is lower than what you anticipate it will be when you withdraw the money, it makes sense to pay the tax now. Of course you can't know for certain what your tax rate will be when you take out your money, but the answer for most people is going to be \"\"higher than it is now\"\". Some reasons why: As you age you start to lose deductions (home mortgage gets paid off, kids grow up and move out). You likely won't gain any new deductions that would lower your tax rate as you age, you'll only lose them. Tax rates now are historically low, and budget deficits are high. That means that higher tax rates are almost certainly coming. So unless your circumstances are very unusual, I would pretty much always recommend saving after-tax dollars. Now that I've said that, I'll throw a small wrench into that plan - when you save with a Roth IRA, you are paying taxes today with the anticipation that you won't have to pay taxes later. But this may not necessarily be the case: The government could decide to tax Roth IRA gains in the future (would be a very unpopular move, but if they decided to do it, who's to stop them?) The government could change the tax system by lowering income tax rates and creating a VAT, or instituting something like the \"\"Flat Tax\"\". Your Roth money is exempt from income tax, but not from a VAT or national sales tax. So, you also need to consider the possibility of those things happening and how that would affect you. Ten years ago nobody would have dreamed of the US having a VAT, but now it looks more and more possible.\"" }, { "docid": "10089", "title": "", "text": "Congratulations on deciding to save for retirement. Since you cite Dave Ramsey as the source of your 15% number, what does he have to say about where to invest the money? If you want to have instantaneous penalty-free access to your retirement money, all you need to do is set up one or more ordinary accounts that you think of as your retirement money. Just be careful not to put the money into CDs since Federal law requires a penalty of three months interest if you cash in the CD before its maturity date (penalty!) or put the money into those pesky mutual funds that charge a redemption fee (penalty!) if you take the money out within x months of investing it where x can be anywhere from 3 to 24 or more. In Federal tax law (and in most state tax laws as well) a retirement account has special privileges accorded to it in that the interest, dividends, capital gains, etc earned on the money in your retirement account are not taxed in the year earned (as they would be in a non-retirement account), but the tax is either deferred till you withdraw money from the account (Traditional IRAs, 401ks etc) or is waived completely (Roth IRAs, Roth 401ks etc). In return for this special treatment, penalties are imposed (in addition to tax) if you withdraw money from your retirement account before age 59.5 which presumably is on the distant horizon for you. (There are some exceptions (including first-time home buying and extraordinary medical expenses) to this rule that I won't bother going into). But You are not required to invest your retirement money into such a specially privileged retirement account. It is perfectly legal to keep your retirement money in an ordinary savings account if you wish, and pay taxes on the interest each year. You can invest your retirement money into municipal bonds whose interest is free of Federal tax (and usually free of state tax as well if the municipality is located in your state of residence) if you like. You can keep your retirement money in a sock under your mattress if you like, or buy a collectible item (e.g. a painting) with it (this is not permitted in an IRA), etc. In short, if you are concerned about the penalties imposed by retirement accounts on early withdrawals, forgo the benefits of these accounts and put your retirement money elsewhere where there is no penalty for instant access. If you use a money management program such as Mint or Quicken, all you need to do is name one or more accounts or a portfolio as MyRetirementMoney and voila, it is done. But those accounts/portfolios don't have to be retirement accounts in the sense of tax law; they can be anything at all." } ]

[ { "docid": "321015", "title": "", "text": "\"Bottom line is this: there's no \"\"short term capital gains tax\"\" in the US. There's only long term capital gains tax, which is lower than the regular (aka ordinary) tax rates. Short term capital gains are taxed using the ordinary tax rates, depending on your bracket. So if you're in the 25% bracket - your short term gains are taxed at 25%. You're describing two options: For the case #1 you'll pay 25% tax (your marginal rate) + 10% penalty (flat rate), total 35%. For the case #2 you'll pay 25% tax (your marginal rate) + 0% penalty. Total 25%. Thus, by withdrawing from IRA you'll be 10% worse than by realizing capital gains. In addition, if you need $10K - taking it from IRA will make the whole amount taxable. While realizing capital gains from a taxable account will make only the gains taxable, the original investment amount is yours and had been taxed before. So not only there's a 10% difference in the tax rate, there's also a significant difference in the amount being taxed. Thus, withdrawing from IRA is generally not a good idea, and you will never be better off with withdrawing from IRA than with cashing out taxable investments (from tax perspective). That's by design.\"" } ]

[ { "docid": "523521", "title": "", "text": "\"You have several questions in your post so I'll deal with them individually: Is taking small sums from your IRA really that detrimental? I mean as far as tax is concerned? Percentage wise, you pay the tax on the amount plus a 10% penalty, plus the opportunity cost of the gains that the money would have gotten. At 6% growth annually, in 5 years that's more than a 34% loss. There are much cheaper ways to get funds than tapping your IRA. Isn't the 10% \"\"penalty\"\" really to cover SS and the medicare tax that you did not pay before putting money into your retirement? No - you still pay SS and medicare on your gross income - 401(k) contributions just reduce how much you pay in income tax. The 10% penalty is to dissuade you from using retirement money before you retire. If I ... contributed that to my IRA before taxes (including SS and medicare tax) that money would gain 6% interest. Again, you would still pay SS and Medicare, and like you say there's no guarantee that you'll earn 6% on your money. I don't think you can pay taxes up front when making an early withdrawal from an IRA can you? This one you got right. When you file your taxes, your IRA contributions for the year are totaled up and are deducted from your gross income for tax purposes. There's no tax effect when you make the contribution. Would it not be better to contribute that $5500 to my IRA and if I didn't need it, great, let it grow but if I did need it toward the end of the year, do an early withdrawal? So what do you plan your tax withholdings against? Do you plan on keeping it there (reducing your withholdings) and pay a big tax bill (plus possibly penalties) if you \"\"need it\"\"? Or do you plan to take it out and have a big refund when you file your taxes? You might be better off saving that up in a savings account during the year, and if at the end of the year you didn't use it, then make an IRA contribution, which will lower the taxes you pay. Don't use your IRA as a \"\"hopeful\"\" savings account. So if I needed to withdrawal $5500 and I am in the 25% tax bracket, I would owe the government $1925 in taxes+ 10% penalty. So if I withdrew $7425 to cover the tax and penalty, I would then be taxed $2600 (an additional $675). Sounds like a cat chasing it's tail trying to cover the tax. Yes if you take a withdrawal to pay the taxes. If you pay the tax with non-retirement money then the cycle stops. how can I make a withdrawal from an IRA without having to pay tax on tax. Pay cash for the tax and penalty rather then taking another withdrawal to pay the tax. If you can't afford the tax and penalty in cash, then don't withdraw at all. based on this year's W-2 form, I had an accountant do my taxes and the $27K loan was added as earned income then in another block there was the $2700 amount for the penalty. So you paid 25% in income tax for the earned income and an additional 10% penalty. So in your case it was a 35% overall \"\"tax\"\" instead of the 40% rule of thumb (since many people are in 28% and 35% tax brackets) The bottom line is it sounds like you are completely unorganized and have absolutely no margin to cover any unexpected expenses. I would stop contributing to retirement today until you can get control of your spending, get on a budget, and stop trying to use your IRA as a piggy bank. If you don't plan on using the money for retirement then don't put it in an IRA. Stop borrowing from it and getting into further binds that force you to make bad financial decisions. You don't go into detail about any other aspects (mortgage? car loans? consumer debt?) to even begin to know where the real problem is. So you need to write everything down that you own and you owe, write out your monthly expenses and income, and figure out what you can cut if needed in order to build up some cash savings. Until then, you're driving across country in a car with no tires, worrying about which highway will give you the best gas mileage.\"" }, { "docid": "366560", "title": "", "text": "Your question is missing too much to be answered directly. Instead - here are some points to consider. Short term gains taxed at your marginal rates, whereas long term gains have preferable capital gains rates (up to 20% tax rate, instead of your marginal rate). So if you're selling at gain, you might want to consider to sell FIFO and pay lower capital gains tax rate instead of the short term marginal rate. If you're selling at loss and have other short term gains, you would probably be better selling LIFO, so that the loss could offset other short term gains that you might have. If you're selling at loss and don't have short term gains to offset, you can still offset your long term gains with short term losses, but the tax benefit will be lower. In this case - FIFO might be a better choice again. If you're selling at loss, beware of the wash sale rules, as you might not be able to deduct the loss if you buy/sell within too short a window." }, { "docid": "396097", "title": "", "text": "You might be confusing two different things. An advantage of investing over a long term is the compounding of returns. Those returns can be interest, dividends, or capital gains. The mix between them depends on what you invest it and how you invest in it. This advantage applies whether your investment is in a taxable brokerage account or in a tax-advantaged 401K or IRA. So, start investing early so that you have longer for this compounding of returns to happen. The second thing is the tax deferral you get from 401(k) or IRAs. If you invest in a ordinary taxable account, then you have to pay taxes on your interest and dividends for the year in which they occur. You also have to pay taxes on any capital gains which you realize during the year. These yearly tax payments are then money that you don't get the benefit of compounding on. With 401(k) and IRAs, you don't have to pay taxes during these intermediate years." }, { "docid": "170717", "title": "", "text": "In the US, the key to understanding the benefits of retirement accounts is to understand capital gains taxes and how they work. Retirement accounts are designed for making investments throughout your career, then after several decades of contributions, withdrawing that money to pay for your needs when your full-time employment has concluded. Normally when you invest money in a brokerage account, if the value of your investment increases, and you sell in less than a year, those investments are considered short-term gains and taxed as ordinary income. If you hold that same investment for over a year, the same investment is taxed at a lower capital gains rate (depending on which tax bracket you are in during that year, the amount due could be up to 20%, but much lower than your regular income tax rate). When you place your money in a retirement account, you are choosing to either pay the tax due on the income when you put it in the account, or put the money in tax free and pay the tax when you withdraw (these are called tax-deferred accounts). When you have money invested several decades, the raw dollar amount increases greatly, but inflation is also reducing the value of those dollars. Imagine you bought some bonds that payed 4% over 40 years, but inflation was 2% during those same years. When you sell those bonds 40 years later, you will owe capital gains on the entire gain even though half of the gain came from inflation. Retirement accounts allow you to buy and sell according to your investment needs and goals without any consideration about whether the gains are short-term or long-term, and they also allow you to pay taxes just once, either when you put it in, or when you take it out, with no worries about whether you're paying taxes on inflated gains." }, { "docid": "444568", "title": "", "text": "There are some great answers on this site similar to what you asked, with either a non-jurisdictional or a US-centric focus. I would read those answers as well to give yourself more points of view on early investing. There are a few differences between Canada and the US from an investing perspective that you should also then consider, namely tax rules, healthcare, and education. I'll get Healthcare and Education out of the way quickly. Just note the difference in perspective in Canada of having government healthcare; putting money into health-savings plans or focusing on insurance as a workplace benefit is not a key motivating factor, but more a 'nice-to-have'. For education, it is more common in Canada for a student to either pay for school while working summer / part-time jobs, or at least taking on manageable levels of debt [because it is typically not quite as expensive as private colleges in the US]. There is still somewhat of a culture of saving for your child's education here, but it is not as much of a necessity as it may be in the US. From an investing perspective, I will quickly note some common [though not universal] general advice, before getting Canadian specific. I have blatantly stolen the meat of this section from Ben Miller's great answer here: Oversimplify it for me: the correct order of investing Once you have a solid financial footing, some peculiarities of Canadian investing are below. For all the tax-specific plans I'm about to mention, note that the banks do a very good job here of tricking you into believing they are complex, and that you need your hand to be held. I have gotten some criminally bad tax advice from banking reps, so at the risk of sounding prejudiced, I recommend that you learn everything you can beforehand, and only go into your bank when you already know the right answer. The 'account types' themselves just involve a few pages of paperwork to open, and the banks will often do that for free. They make up their fees in offering investment types that earn them management fees once the accounts are created. Be sure to separate the investments (stocks vs bonds etc.) vs the investment vehicles. Canada has 'Tax Free Savings Accounts', where you can contribute a certain amount of money every year, and invest in just about anything you want, from bonds to stocks to mutual funds. Any Income you earn in this account is completely tax free. You can withdraw these investments any time you want, but you can't re-contribute until January 1st of next year. ie: you invest $5k today in stocks held in a TFSA, and they grow to $6k. You withdraw $6k in July. No tax is involved. On January 1st next year, you can re-contribute a new $6K, and also any additional amounts added to your total limit annually. TFSA's are good for short-term liquid investments. If you don't know for sure when you'll need the money, putting it in a TFSA saves you some tax, but doesn't commit you to any specific plan of action. Registered Retirement Savings Plans allow you to contribute money based on your employment income accrued over your lifetime in Canada. The contributions are deducted from your taxable income in the year you make them. When you withdraw money from your RRSP, the amount you withdraw gets added as additional income in that year. ie: you invest $5k today in stocks held in an RRSP, and get a $5k deduction from your taxable income this year. The investments grow to $6k. You withdraw $6k next year. Your taxable income increases by $6k [note that if the investments were held 'normally' {outside of an RRSP}, you would have a taxable gain of only 50% of the total gain; but withdrawing the amount from your RRSP makes the gain 100% taxable]. On January 1st next year, you CANNOT recontribute this amount. Once withdrawn, it cannot be recontributed [except for below items]. RRSP's are good for long-term investing for retirement. There are a few factors at play here: (1) you get an immediate tax deduction, thus increasing the original size of investment by deferring tax to the withdrawal date; (2) your investments compound tax-free [you only pay tax at the end when you withdraw, not annually on earnings]; and (3) many people expect that they will have a lower tax-rate when they retire, than they do today. Some warnings about RRSP's: (1) They are less liquid than TFSA's; you can't put money in, take it out, and put it in again. In general, when you take it out, it's out, and therefore useless unless you leave it in for a long time; (2) Income gets re-characterized to be fully taxable [no dividend tax credits, no reduced capital gains tax rate]; and (3) There is no guarantee that your tax rate on retirement will be less than today. If you contribute only when your tax rate is in the top bracket, then this is a good bet, but even still, in 30 years, tax rates might rise by 20% [who knows?], meaning you could end up paying more tax on the back-end, than you saved in the short term. Home Buyer Plan RRSP withdrawals My single favourite piece of advice for young Canadians is this: if you contribute to an RRSP at least 3 months before you make a down payment on your first house, you can withdraw up to $25k from your RRSP without paying tax! to use for the down payment. Then over the next ~10 years, you need to recontribute money back to your RRSP, and you will ultimately be taxed when you finally take the money out at retirement. This means that contributing up to 25k to an RRSP can multiply your savings available for a down payment, by the amount of your tax rate. So if you make ~60k, you'll save ~35% on your 25k deposited, turning your down payment into $33,750. Getting immediate access to the tax savings while also having access to the cash for a downpayment, makes the Home Buyer Plan a solid way to make the most out of your RRSP, as long as one of your near-term goals is to own your own home. Registered Pension Plans are even less liquid than RRSPs. Tax-wise, they basically work the same: you get a deduction in the year you contribute, and are taxed when you withdraw. The big difference is that there are rules on when you are allowed to withdraw: only in retirement [barring specific circumstances]. Typically your employer's matching program (if you have one) will be inside of an RPP. Note that RPP's and RRSP's reduce your taxes on your employment paycheques immediately, if you contribute through a work program. That means you get the tax savings during the year, instead of all at once a year later on April 30th. *Note that I have attempted at all times to keep my advice current with applicable tax legislation, but I do not guarantee accuracy. Research these things yourself because I may have missed something relevant to your situation, I may be just plain wrong, and tax law may have changed since I wrote this to when you read it." }, { "docid": "468047", "title": "", "text": "Don't let tax considerations be the main driver. That's generally a bad idea. You should keep tax in mind when making the decision, but don't let it be the main reason for an action. selling the higher priced shares (possibly at a loss even) - I think it's ok to do that, and it doesn't necessarily have to be FIFO? It is OK to do that, but consider also the term. Long term gain has much lower taxes than short term gain, and short term loss will be offsetting long term gain - means you can lose some of the potential tax benefit. any potential writeoffs related to buying a home that can offset capital gains? No, and anyway if you're buying a personal residence (a home for yourself) - there's nothing to write off (except for the mortgage interest and property taxes of course). selling other investments for a capital loss to offset this sale? Again - why sell at a loss? anything related to retirement accounts? e.g. I think I recall being able to take a loan from your retirement account in order to buy a home You can take a loan, and you can also withdraw up to 10K without a penalty (if conditions are met). Bottom line - be prepared to pay the tax on the gains, and check how much it is going to be roughly. You can apply previous year refund to the next year to mitigate the shock, you can put some money aside, and you can raise your salary withholding to make sure you're not hit with a high bill and penalties next April after you do that. As long as you keep in mind the tax bill and put aside an amount to pay it - you'll be fine. I see no reason to sell at loss or pay extra interest to someone just to reduce the nominal amount of the tax. If you're selling at loss - you're losing money. If you're selling at gain and paying tax - you're earning money, even if the earnings are reduced by the tax." }, { "docid": "585422", "title": "", "text": "\"The different things in each calculator are showing you a bunch of different things. In the \"\"Roth IRA calculator\"\", it is comparing what you would have in the end after contributing and withdrawing from a Roth IRA, with what you would have in the end with a taxable account (i.e. an investment outside of any IRAs). In the \"\"Traditional IRA calculator\"\", the \"\"IRA after taxes\"\" shows you what you would have in the end after contributing and withdrawing from a pre-tax Traditional IRA. The \"\"IRA before taxes\"\" simply shows the same amount before you pay the taxes on withdrawal, which is not a useful number. So if you want to compare Roth IRA vs. Traditional IRA, you want to compare the \"\"Roth IRA\"\" from the Roth IRA Calculator and the \"\"IRA after taxes\"\" from the Traditional IRA calculator, but there are some things you need to be aware of to make a fair comparison, because if you just plug in the same numbers you are going to get a very unfair comparison (it will look like Roth IRA is a lot \"\"better\"\" even though it's not). The Roth IRA contribution is after-tax, whereas a (pre-tax) Traditional IRA contribution is pre-tax, and an after-tax dollar is much more than a pre-tax dollar, so if you put in the same nominal contribution amount, you are actually contributing much \"\"more\"\" from your wallet in the Roth IRA case. To make a fair comparison, you would need to start with the same pre-tax amount, and put in a Roth IRA contribution amount that corresponds to the equivalent amount after taxes. So for example, a $5000 pre-tax amount with 25% taxes is equivalent to $5000 * 0.75 = $3750, so you would put in $5000 for Traditional IRA contribution vs. $3750 for Roth IRA contribution. Note that if you have the same flat tax rate at contribution and at withdrawal, (pre-tax) Traditional IRA and Roth IRA are exactly the same, and you can see this by putting in 25% for the \"\"Retirement tax rate\"\" in the Traditional IRA calculator (we already assumed 25% tax rate for Roth IRA when calculating the contribution). You will see that Traditional IRA would be better in a lower retirement tax rate (e.g. 15%), whereas Roth IRA would be higher in a higher retirement tax rate.\"" }, { "docid": "553253", "title": "", "text": "E.g. I buy 1 stock unit for $100.00 and sell it later for $150.00 => income taxes arise. Correct. You pay tax on your gains, i.e.: the different between net proceeds and gross costs (proceeds sans fees, acquisition costs including fees). I buy 1 stock unit for $150.00 and sell it later for $100.00 => no income taxes here. Not correct. The loss is deductible from other capital gains, and if no other capital gains - from your income (up to $3000 a year, until exhausted). Also, there are two different tax rate sets for capital gains: short term (holding up to 1 year) and long term (more than that). Short term capital gains tax matches ordinary income brackets, whereas long term capital gains tax brackets are much lower." }, { "docid": "258658", "title": "", "text": "There is a process called a backdoor IRA. You now have effectively made a Roth IRA contribution in a year where technically you aren't eligible. You do not have to pay taxes on earnings with a Roth IRA. You are limited to the normal annual contribution to the IRA (Roth or traditional). If you don't convert your traditional IRA contribution to a Roth IRA, then you are right. That gains nothing except enhanced protection in bankruptcy. Only do this if you are taking advantage of the Roth rollover. I'm ignoring rolling over a 401k into an IRA, as that doesn't increase the amount you can contribute. This does. You can contribute the full $18,000 to the 401k and still make a full contribution to the backdoor IRA. This is the tax advantaged form of an IRA. This avoids double taxation. Let's assume that your investment can go into something with a 5% annual return and you pay a 25% tax rate (doesn't matter as it drops out). You are going to invest for thirty years and then withdraw. You initially have $1000 before taxes. With a regular investment: You now have $2867.74. With a pre-tax IRA. You now have $3241.45 (it is not an accident that this is almost the same as the amount before the capital gains tax in the example without an IRA). You avoided the $373.72 capital gains tax. Even though you paid a lot more tax, you paid it out of the gains from investing the original $250 that you would have paid in tax. This helps you even more if the capital gains tax goes up in the future. Or if your tax bracket changes. If you currently are in the 25% bracket but retire in the 15% bracket, these numbers will get even better in your favor. If you currently are in the 15% bracket and worry that you might retire in the 25% bracket, consider a Roth instead. It also avoids double taxation but its single taxation is at your current rate rather than your future rate." }, { "docid": "499286", "title": "", "text": "Is the Grant Date or the Vest Date used when determining the 12-month cutoff for long-term and short-term capital gains? You don't actually acquire the stock until it's vested, so that is the date and price used to determine your cost basis and short-term/long-term gain/loss. The grant date really has no tax bearing. If you held the stock (time between vesting and sale) for more than one year you will owe long-term CG tax, if less than one year you will owe short-term CG tax." }, { "docid": "318321", "title": "", "text": "My understanding is that losses are first deductible against any capital gains you may have, then against your regular income (up to $3,000 per year). If you still have a loss after that, the loss may be carried over to offset capital gains or income in subsequent years As you suspect, a short term capital loss is deductible against short term capital gains and long term losses are deductible against long term gains. So taking the loss now MIGHT be beneficial from a tax perspective. I say MIGHT because there are a couple scenarios in which it either may not matter, or actually be detrimental: If you don't have any short term capital gains this year, but you have long term capital gains, you would have to use the short term loss to offset the long term gain before you could apply it to ordinary income. So in that situation you lose out on the difference between the long term tax rate (15%) and your ordinary income rate (potentially higher). If you keep the stock, and sell it for a long term loss next year, but you only have short-term capital gains or no capital gains next year, then you may use the long term loss to offset your short-term gains (first) or your ordinary income. Clear as mud? The whole mess is outlined in IRS Publication 550 Finally, if you still think the stock is good, but just want to take the tax loss, you can sell the stock now (to realize the loss) then re-buy it in 30 days. This is called Tax Loss Harvesting. The 30 day delay is an IRS requirement for being allowed to realize the loss." }, { "docid": "197576", "title": "", "text": "First of all depending on the type of IRA you may not have to pay taxes on withdrawals in the US at all. If you are withdrawing your principle from a Roth IRA then you don't owe taxes. Only when you withdraw the gains do you pay taxes on it. You have two options for withdrawals: Lump Sum Withdrawal: If you take a lump sum withdrawal you will owe taxes to the US (30% for non-resident aliens of the US), and according to DTAA; Article 23, you will file your taxes with India declaring your IRA or 401(k) withdrawal proceeds and claim credit on the taxes you paid to the US. Monthly Pension Withdrawal: You can also receive monthly pension payments and you will only be taxed in the country in which you are a resident of. This is according to DTAA, Article 20. You would then have to submit necessary documentation to your payer in the US so that they do not withhold any taxes in the US. Just as a side note it might be just better to keep the money where it is and let it grow or roll it over to a Roth IRA if you are currently in a lower tax bracket for maximum savings of your principle. Here is a link with more detailed information of what I provided you: http://articles.economictimes.indiatimes.com/2012-01-25/news/30663129_1_taxable-income-nri-401k-plan" }, { "docid": "257274", "title": "", "text": "\"There are ways to mitigate, but since you're not protected by a tax-deferred/advantaged account, the realized income will be taxed. But you can do any of the followings to reduce the burden: Prefer selling either short positions that are at loss or long positions that are at gain. Do not invest in stocks, but rather in index funds that do the rebalancing for you without (significant) tax impact on you. If you are rebalancing portfolio that includes assets that are not stocks (real-estate, mainly) consider performing 1031 exchanges instead of plain sale and re-purchase. Maximize your IRA contributions, even if non-deductible, and convert them to Roth IRA. Hold your more volatile investments and individual stocks there - you will not be taxed when rebalancing. Maximize your 401K, HSA, SEP-IRA and any other tax-advantaged account you may be eligible for. On some accounts you'll pay taxes when withdrawing, on others - you won't. For example - Roth IRA/401k accounts are not taxed at all when withdrawing qualified distributions, while traditional IRA/401k are taxed as ordinary income. During the \"\"low income\"\" years, consider converting portions of traditional accounts to Roth.\"" }, { "docid": "459589", "title": "", "text": "Yes, you may make non-deductible contributions to an IRA. The main benefit of a non-deductible IRA is tax-deferred earnings. If the investment pays out dividends, they will be kept in the IRA (whether you take them in cash and put them in a Cash Management Account, or you automatically reinvest them). You do not get taxed on these earnings until you withdraw from the IRA during retirement. If your income at that time is significantly lower than your income while you're working, you will be in a lower tax bracket (unless tax rates change drastically between now and then), so the taxes you pay on these earnings will be lower than if you'd invested outside the IRA and paid taxes along the way. You also get the benefit of compounding of the tax-deferred earnings. There's one caveat -- when you withdraw from the IRA, all the growth is treated as ordinary income. Even if some of it is capital gains, it will be taxed at your ordinary income rate, not your capital gains rate. So this is most beneficial for investments that produce dividends. If you have a mix of deductible and non-deductible contributions to your IRA, the tax on the principle portion of your withdrawals is pro-rated based on the ratio of deductible to total contributions. This ensures that you eventually get taxed for the deductible portion (it's not really tax-free, it's tax-deferred), but don't get taxed twice for the non-deductible portion. Another option, if your 401(k) plan allows it, is to make after-tax contributions to the 401(k). At the end of the year, you can make an in-service distribution of these contributions and their earnings from the 401(k) to a Roth Conversion IRA. This allows you to contribute to a Roth IRA even if you're above the income limit for normal Roth IRA contributions. You can also do this even if you're also making non-deductible contributions to your regular IRA." }, { "docid": "519123", "title": "", "text": "\"I had been pondering this recently myself too. This question motivated me to do a little research. It appears that what happens is that (take a deep breath) the capital gain does push you into the next tax bracket, but the capital gain is always interpreted as the \"\"last\"\" income you received, so that if your non-capital-gains income is less than the threshold, it will all be taxed in the lower bracket, and only your capital gain will be taxed in the higher bracket (but it will be taxed at the capital-gains rate of that higher bracket). In short, a capital gain can only push capital gains into higher capital-gains tax brackets; it cannot push ordinary income into higher ordinary-income tax brackets. In addition, the amount of the capital gain is taxed in a marginal fashion, such that any portion of the gain that will \"\"fit\"\" into a lower bracket will be taxed at a lower level, with only the topmost portion of any gain being taxed at the top rate. This site is one claiming this: Will capital gain or dividend income push my other income into a higher tax bracket? No, the tax rates apply first to your “ordinary income” (income from sources other than long-term capital gains or qualifying dividends) so these items that are taxed at special rates won’t push your other income into a higher tax bracket. If my ordinary income puts me in the 15% tax bracket, can I receive an unlimited amount of long-term capital gain at the 0% rate? No, the 0% rate applies only to the amount of long-term capital gain and dividend income needed to “fill up” the 15% tax bracket. For example, if your ordinary income is $4,000 below the figure that would put you in the 25% bracket and you have a $10,000 long-term capital gain, you’ll pay 0% on $4,000 of your capital gain and 15% on the rest. There are several Bogleheads forum threads (here, here, here and here) that also touch on the same issue. The last of those links to the IRS capital gains worksheet. I traced through the logic and I believe it confirms this. Here's how it works: (In conclusion, we now know Mitt Romney's secret.)\"" }, { "docid": "60929", "title": "", "text": "\"In a Traditional IRA contributions are often tax-deductible. For instance, if a taxpayer contributes $4,000 to a traditional IRA and is in the twenty-five percent marginal tax bracket, then a $1,000 benefit ($1,000 reduced tax liability) will be realized for the year. So that's why they tax you as income, because they didn't tax that income before. If a taxpayer expects to be in a lower tax bracket in retirement than during the working years, then this is one advantage for using a Traditional IRA vs a Roth. Distributions are taxed as ordinary income. So it depends on your tax bracket UPDATE FOR COMMENT: Currently you may have heard on the news about \"\"the fiscal cliff\"\" - CNBC at the end of the year. This is due to the fact that the Bush tax-cuts are set to expire and if they expire. Many tax rates will change. But here is the info as of right now: Dividends: From 2003 to 2007, qualified dividends were taxed at 15% or 5% depending on the individual's ordinary income tax bracket, and from 2008 to 2012, the tax rate on qualified dividends was reduced to 0% for taxpayers in the 10% and 15% ordinary income tax brackets. After 2012, dividends will be taxed at the taxpayer's ordinary income tax rate, regardless of his or her tax bracket. - If the Bush tax cuts are allowed to expire. - Reference - Wikipedia Capital Gains tax rates can be seen here - the Capital Gains tax rate is relative to your Ordinary Income tax rate For Example: this year long term gains will be 0% if you fall in the 15% ordinary tax bracket. NOTE: These rates can change every year so any future rates might be different from the current year.\"" }, { "docid": "422119", "title": "", "text": "Lots of good answers. I'll try and improve by being more brief. For each option you will pay different taxes: Index Fund: Traditional IRA Roth IRA You can see that the Roth IRA is obviously better than investing in a taxable account. It may not be as obvious that the traditional IRA is better as well. The reason is that in the traditional account you can earn returns on the money that otherwise would have gone to the government today. The government taxes that money at the end, but they don't take all of it. In fact, for a given investment amount X and returns R, the decision of Roth vs Traditional depends only on your tax rate now vs at retirement because X(1-tax)(1+R_1)(1+R_2)...(1+R_n) = X(1+R_1)(1+R_2)...(1+R_n)(1-tax) The left hand side is what you will have at retirement if you do a Roth and the right hand side is what you will have at retirement if you do traditional. Only the tax rate differences between now and retirment matter here. An index fund investment is like the left hand side but has some additional tax terms on your capital gains. It's clearly worse than either." }, { "docid": "159462", "title": "", "text": "You are missing something very significant. The money in a traditional IRA (specifically, a deductible traditional IRA; there is not really any reason to keep a nondeductible traditional IRA anymore) is pre-tax. That means when you pay tax on it when you take it out, you are paying tax on it for the first time. If you take ordinary money to invest it in stocks, and then pay capital gains tax on it when you take it out, that is post-tax money to begin with -- meaning that you have already paid (income) tax on it once. Then you have to pay tax again on the time-value growth of that money (i.e. that growth is earned from money that is already taxed). That means you are effectively paying tax twice on part of that money. If that doesn't make sense to you, and you think that interest, capital gains, etc. is the first time you're paying tax on the money because it's growth, then you have a very simplistic view of money. There's something called time value of money, which means that a certain amount of money is equivalent to a greater amount of money in the future. If you invest $100 now and end up with $150 in the future, that $150 in the future is effectively the same money as the $100 now. Let's consider a few examples. Let's say you have $1000 of pre-tax income you want to invest and withdraw a certain period of time later in retirement. Let's say you have an investment that grows 100% over this period of time. And let's say that your tax rate now and in the future is 25% (and for simplicity, assume that all income is taxed at that rate instead of the tax bracket system). And capital gains tax is 15%. You see a few things: Traditional IRA and Roth IRA are equivalent if the tax rates are the same. This is because, in both cases, you pay tax one time on the money (the only difference between paying tax now and later is the tax rate). It doesn't matter that you're paying tax only on the principal for the Roth and on the principal plus earnings for Traditional, because the principal now is equivalent to the principal plus earnings in the future. And you also see that investing money outside fares worse than both of them. That is because you are paying tax on the money once plus some more. When you compare it against the Roth IRA, the disadvantage is obvious -- in both cases you pay income tax on the principal, but for Roth IRA you pay nothing on the earnings, whereas for the outside stock, you pay some tax on the earnings. What may be less obvious is it is equally disadvantageous compared to a Traditional IRA; Traditional and Roth IRA are equivalent in this comparison. 401(k)s and IRAs have a fundamental tax benefit compared to normal money investment, because they allow money to be taxed only one time. No matter how low the capital gains tax rate it, it is still worse because it is a tax on time-value growth from money that is already taxed." }, { "docid": "76530", "title": "", "text": "\"All transactions within an IRA are irrelevant as far as the taxation of the distributions from the IRA are concerned. You can only take cash from an IRA, and a (cash) distribution from a Traditional IRA is taxable as ordinary income (same as interest from a bank, say) without the advantage of any of the special tax rates for long-term capital gains or qualified dividends even if that cash was generated within the IRA from sales of stock etc. In short, just as with what is alleged to occur with respect to Las Vegas, what happens within the IRA stays within the IRA. Note: some IRA custodians are willing to make a distribution of stock or mutual fund shares to you, so that ownership of the 100 shares of GE, say, that you hold within your IRA is transferred to you in your personal (non-IRA) brokerage account. But, as far as the IRS is concerned, your IRA custodian sold the stock as the closing price on the day of the distribution, gave you the cash, and you promptly bought the 100 shares (at the closing price) in your personal brokerage account with the cash that you received from the IRA. It is just that your custodian saved the transaction fees involved in selling 100 shares of GE stock inside the IRA and you saved the transaction fee for buying 100 shares of GE stock in your personal brokerage account. Your basis in the 100 shares of GE stock is the \"\"cash_ that you imputedly received as a distribution from the IRA, so that when you sell the shares at some future time, your capital gains (or losses) will be with respect to this basis. The capital gains that occurred within the IRA when the shares were imputedly sold by your IRA custodian remain within the IRA, and you don't get to pay taxes on that at capital gains rates. That being said, I would like to add to what NathanL told you in his answer. Your mother passed away in 2011 and you are now 60 years old (so 54 or 55 in 2011?). It is likely that your mother was over 70.5 years old when she passed away, and so she likely had started taking Required Minimum Distributions from her IRA before her death. So, You should have been taking RMDs from the Inherited IRA starting with Year 2012. (The RMD for 2011, if not taken already by your mother before she passed away, should have been taken by her estate, and distributed to her heirs in accordance with her will, or, if she died intestate, in accordance with state law and/or probate court directives). There would not have been any 10% penalty tax due on the RMDs taken by you on the grounds that you were not 59.5 years old as yet; that rule applies to owners (your mom in this case) and not to beneficiaries (you in this case). So, have you taken the RMDs for 2012-2016? Or were you waiting to turn 59.5 before taking distributions in the mistaken belief that you would have to pay a 10% penalty for early wthdrawal? The penalty for not taking a RMD is 50% of the amount not distributed; yes, 50%. If you didn't take RMDs from the Inherited IRA for years 2012-2016, I recommend that you consult a CPA with expertise in tax law. Ask the CPA if he/she is an Enrolled Agent with the IRS: Enrolled Agents have to pass an exam administered by the IRS to show that they really understand tax law and are not just blowing smoke, and can represent you in front of the IRS in cases of audit etc,\"" } ]

[ { "docid": "437100", "title": "", "text": "\"This is not intended as legal advice, and only covers general knowledge I have on the subject of wills as a result of handling my own finances. Each state of the USA has its own laws on wills and trusts. You can find these online. For example, in Kentucky I found state laws here: http://www.lrc.ky.gov/krs/titles.htm and Title XXXIV is about wills and trusts. I would recommend reading this, and then talking to a lawyer if it is not crystal clear. Generally, if a lawyer does not draft your will, then either (1) you have no will, or (2) you use a form or computer program to make a will, that must then be properly witnessed before it is valid. If you don't have it witnessed properly, then you have no will. In some states you can have a holographic will, which means a will in your own handwriting. That's when you have that 3am heart attack, and you get out a pad of paper and write \"\"I rescind all former wills hereby bequeathing everything to my mistress Samantha, and as to the rest of you go rot in hell. \"\" One issue with these is that they have to get to court somehow, and someone has to verify the handwriting, and there are often state laws about excluding a current spouse, so you can guess for yourself whether that one might disappear in the fireplace when another family member finds it next to the body or if a court would give it validity. And there can be logic or grammar problems with do it yourself wills, made in your own handwriting, without experience or good references on how to write things out. Lawyers who have done a bunch of these know what is clear and makes sense. (1) In Tennessee, where I live, an intestate's property, someone who died with no will, is divided according to the law. The law looks to find a spouse or relatives to divide the property, before considering giving it to the state. That might be fine for some people. It happened once in my family, and was resolved in court with minimal red tape. But it really depends on the person. Someone in the middle of an unfinalized divorce, for instance, probably needs a will help to sort out who gets what. (2) A form will is valid in Tennessee if it is witnessed properly. That means two witnesses, who sign in yours' and each others' presence. In theory they can be called to testify that the signature is valid. In practice, I don't know if this happens as I am not a lawyer. I have found it difficult to find witnesses who will sign a form will, and it is disconcerting to have to ask friends or coworkers for this sort of favor as most people learn never to sign anything without reading it. But a lawyer often has secretaries that do it... There is a procedure and a treaty for international wills, which I know about from living overseas. To streamline things, you can get the witnesses to each sign an affidavit after they signed the will. The affidavit is sworn written testimony of what happened, that they saw the person sign their will and sign in each others' presence, when, where, no duress, etc. If done correctly, this can be sufficient to prove the will without calling on witnesses. There is another option (3) you arrange your affairs so that most of your funds are disbursed by banks or brokers holding your accounts. Option (3) is really cheap, most stock brokers and banks will create a Transfer-On-Death notice on your account for free. The problem with this is that you also need to write out a letter that explains to your heirs how to get this money, and you need to make sure that they will get the letter if you are dead. Also, you can't deal with physical goods or appoint a guardian for children this way. The advantage of a lawyer is that you know the document is correct and according to local law and custom, and also the lawyer might provide additional services like storing the will in his safe. You can get personalized help that you can not get with a form or computer program.\"" } ]

[ { "docid": "73520", "title": "", "text": "\"> I've never in my adult life been dependent on anyone. Now I can tell I am talking to a kid. Speaking in absolutes. Yes, I am sure you make your own electricity, grow your own food, refine your own gas, and sow up your own boo-boos. What? \"\"But I *pay* for it....\"\" Are you oblivious to how much of that is subsidized through the government. Who do you think built the infrastructure? How do you think the companies that laid that pipe, built those transformers were paid? I tell you what, name me five modern and common products that *do not* have their foundation in a government invention or government R&D project... If you can do that in the next five minutes, then I will concede your point, and I will reserve my place at this \"\"no government, commercial only\"\" Utopia which doesn't currently exist but I am sure that you will one day create...\"" }, { "docid": "569565", "title": "", "text": "\"I thought the other answers had some good aspect but also some things that might not be completely correct, so I'll take a shot. As noted by others, there are three different types of entities in your question: The ETF SPY, the index SPX, and options contracts. First, let's deal with the options contracts. You can buy options on the ETF SPY or marked to the index SPX. Either way, options are about the price of the ETF / index at some future date, so the local min and max of the \"\"underlying\"\" symbol generally will not coincide with the min and max of the options. Of course, the closer the expiration date on the option, the more closely the option price tracks its underlying directly. Beyond the difference in how they are priced, the options market has different liquidity, and so it may not be able to track quick moves in the underlying. (Although there's a reasonably robust market for option on SPY and SPX specifically.) Second, let's ask what forces really make SPY and SPX move together as much as they do. It's one thing to say \"\"SPY is tied to SPX,\"\" but how? There are several answers to this, but I'll argue that the most important factor is that there's a notion of \"\"authorized participants\"\" who are players in the market who can \"\"create\"\" shares of SPY at will. They do this by accumulating stock in the constituent companies and turning them into the market maker. There's also the corresponding notion of \"\"redemption\"\" by which an authorized participant will turn in a share of SPY to get stock in the constituent companies. (See http://www.spdrsmobile.com/content/how-etfs-are-created-and-redeemed and http://www.etf.com/etf-education-center/7540-what-is-the-etf-creationredemption-mechanism.html) Meanwhile, SPX is just computed from the prices of the constituent companies, so it's got no market forces directly on it. It just reflects what the prices of the companies in the index are doing. (Of course those companies are subject to market forces.) Key point: Creation / redemption is the real driver for keeping the price aligned. If it gets too far out of line, then it creates an arbitrage opportunity for an authorized participant. If the price of SPY gets \"\"too high\"\" compared to SPX (and therefore the constituent stocks), an authorized participant can simultaneously sell short SPY shares and buy the constituent companies' stocks. They can then use the redemption process to close their position at no risk. And vice versa if SPY gets \"\"too low.\"\" Now that we understand why they move together, why don't they move together perfectly. To some extent information about fees, slight differences in composition between SPY and SPX over time, etc. do play. The bigger reasons are probably that (a) there are not a lot of authorized participants, (b) there are a relatively large number of companies represented in SPY, so there's some actual cost and risk involved in trying to quickly buy/sell the full set to capture the theoretical arbitrage that I described, and (c) redemption / creation units only come in pretty big blocks, which complicates the issues under point b. You asked about dividends, so let me comment briefly on that too. The dividend on SPY is (more or less) passing on the dividends from the constituent companies. (I think - not completely sure - that the market maker deducts its fees from this cash, so it's not a direct pass through.) But each company pays on its own schedule and SPY does not make a payment every time, so it's holding a corresponding amount of cash between its dividend payments. This is factored into the price through the creation / redemption process. I don't know how big of a factor it is though.\"" }, { "docid": "270683", "title": "", "text": "Well, that's a loaded question. You're assuming the goals that QE is attempting to accomplish are desirable. I advocate the abolition of central banking. I believe it causes more problems that it solves. Booms and busts have actually happened more frequently after the creation of the Fed (in the US). The QE scheme is designed to keep the central banking model afloat at the expense of the 99%. I don't believe there needs to be an alternative, because I don't believe this type of manipulation should ever be done. It invites obvious corruption, pushes legitimate problems down the road and creates an even bigger problem for future generations to deal with." }, { "docid": "219606", "title": "", "text": "No matter what kind of contract you create for your partnership it will cost money to enforce it. Breaking the law is, well, against the law to begin with. You don't need to get a signed contract promising that they won't break the law. You could possibly get them to sign something that states if the contract is breached or laws are broken by one party, they forfeit their shares in the venture, but again you'll have to prove it and lawyers cost money. if the venture is paying you both then he/she will have the same capitol for legal defense. In some cases you can propose a trial period in partnerships. You can try doing business as separate entities for 1-2 years after which you can merge. After two years working together there should be some trust built up. If not, you shouldn't do business with this person anyway. Just my two cents. To be clear, I'm not a lawyer. You should probably ask a lawyer about this, actually." }, { "docid": "234862", "title": "", "text": "According to McKinsey, the consultancy, it took six months for the US economy to recover its pre-recession jobs level after the 1982 downturn. Following the 1991 recession, that had risen to 15 months. After 2001, it took 39 months – meaning that the economy required almost the full business cycle to regain the jobs total bequeathed by the previous one. Following the Great Recession of 2008, McKinsey forecast that the economy would take 60 months to reach the pre-downturn jobs level. That now looks optimistic. In December 2007, the US economy employed 146m people. Four years later, it languishes at 140m. At the current rate of job creation it will take another two and a half years to regain 2007 levels – taking the replacement cycle to as much as 78 months. This is destruction minus the creativity. Even that understates the problem, since in that time the population will have risen by more than 10m. “I know companies that employ senior engineers whose only job is to find ways to reduce the headcount,” says Carl Camden, chief executive of Kelly Services, a booming staffing agency based in Michigan. “The name of the game everywhere is to reduce permanent headcount and we are still only at the early stages of this trend.” The second problem stems from the first – America is employing a decreasing proportion of its people. At the start of the recession, the employment-to-population rate was 62.7 per cent. The rate is now 58.5 per cent. Last month, unemployment fell from 9 per cent to 8.6 per cent. On the surface, this looked like a welcome leap in job creation. In reality, more than half of the fall was accounted for by a decrease in the numbers “actively seeking” work. The 315,000 who dropped out of the labour market far exceeded the 120,000 new jobs. According to government statistics, if the same number of people were seeking work today as in 2007, the jobless rate would be 11 per cent. Some have moved from claiming unemployment benefits to disability benefits, and have thus permanently dropped out of the labour force. Others have fallen back on the charity of relatives. Others still have ended up in prison. In 1982 there were just over 500,000 in jail; today there are 2.5m – more than the combined population of Atlanta, Boston, Seattle and Kansas City, according to the Economic Mobility Project of the Pew Center, a Washington-based think-tank. Finally, a growing share of whatever jobs the economy is still managing to create is in the least productive areas. Of the five occupations forecast by the Bureau of Labor Statistics to be the fastest growing between now and 2018, none requires a degree. These are registered nurses, “home health aides”, customer service representatives, food preparation workers and “personal home care aides”. Manufacturing is nowhere in the top 20, and such jobs cannot replace the pay and conditions once typical of that sector. “The food preparation industry cannot sustain a middle class,” says Dan DiMicco, chief executive of Nucor, one of America’s two remaining big steel companies, whose company motto is “a nation that builds and makes things”. The tides are not with Mr DiMicco. According to a study this year by Michael Spence, a Nobel Prize-winning economist from Stanford University, and Sandile Hlatshwayo, all net job creation since 1990 has been in the “non-tradable sector”. Between 1990 and 2008, the US added 27.3m jobs, of which almost every one was in services. Almost half were in healthcare or the public sector – both areas in which productivity growth is virtually zero. Conversely, manufacturing’s impressive productivity growth has tracked its shrinking headcount. If there is an explanation as to why middle-class incomes have stagnated in the past generation, this is it: whatever jobs the US is able to create are in the least efficient sectors – the types that neither computers nor China have yet found a way of eliminating. That trend is starting to lap at the feet of more highly educated American workers. And, as the shift continues, higher-paying jobs are also increasingly at risk, argue Prof Spence and Ms Hlatshwayo. What, then, can be done to revitalise the increasingly sclerotic jobs market? If the answer were simple, it would have been on everyone’s lips a long time ago. Unfortunately, there is no precedent for the challenges America faces, and thus little consensus among economists or policymakers on the best remedies. However, almost everyone agrees on how to ensure the situation does not deteriorate. Top of the list is a better education system for all stages of life. Alas, rebooting an increasingly mediocre school system is easier said than done. Nor is permanent reskillling realistic for large chunks of the workforce. There may be lessons to be learnt from nations such as Germany, particularly on vocational education, but there is little federal appetite to apply them. “Every American is going to have to get used to the idea of a completely different work style,” says Mr Camden, whose company farms out hundreds of thousands of temporary workers around the world, from lawyers to office assistants. “What you learnt in college five years ago may already be obsolete.” Perhaps inevitably, given the fiscal climate, education and training budgets have gone in the wrong direction in the past few years. State schools and vocational community colleges derive much of their funding from local property taxes. That model brings two big disadvantages. First, it means community colleges are victims of “zip code apartheid” – the lower the property values in an area, the less money there is to train the workforce or educate the children. Second, it deprives communities of the fiscal stabilisers that they need during a prolonged home foreclosures crisis. The areas worst hit by the housing crisis have experienced some of the steepest education cuts. By contrast, some of the best community colleges have kept their heads well above water. But most budgets have taken a nosedive at a time when demand for retraining has surged. “It is absurd that we withdraw support from the community colleges just when they most need it,” says Prof Autor. Economists also agree on the need for a panoply of other measures – from higher spending on infrastructure, with the quality of roads and airports now rapidly approaching second world status, to a more sensible immigration policy that encourages the most talented foreign students to remain in the US. Most also call for far higher public spending on research and development, as well as better private incentives. The US now has one of the least generous R&D tax credits in the developed world. Taken together, these reforms would have an impact – but few believe they would transform the picture. “The truth is that we don’t know how to fix the US labour market – we are in uncharted territory,” says Peter Orszag, Mr Obama’s former budget director, now a vice-chairman of Citi. “It would help to spend more on retraining and on infrastructure and to have a more rational immigration system. But these wouldn’t fundamentally transform the situation for the middle class ... It is not yet clear what, if anything, could.”" }, { "docid": "268078", "title": "", "text": "\"Because this question seems like it will stick around, I will flesh out my comments into an actual answer. I apologize if this does not answer your question as-asked, but I believe these are the real issues at stake. For the actual questions you have asked, I have paraphrased and bolded below: Firstly, don't do a real estate transaction without talking to a lawyer at some stage [note: a real estate broker is not a lawyer]. Secondly, as with all transactions with family, get everything in writing. Feelings get hurt when someone mis-remembers a deal and wants the terms to change in the future. Being cold and calculated now, by detailing all money in and out, will save you from losing a brother in the future. \"\"Should my brother give me money as a down payment, and I finance the remainder with the bank?\"\" If the bank is not aware that this is what is happening, this is fraud. Calling something a 'gift' when really it's a payment for part ownership of 'your' house is fraud. There does not seem to be any debate here (though I am not a lawyer). If the bank is aware that this is what is happening, then you might be able to do this. However, it is unlikely that the bank will allow you to take out a mortgage on a house which you will not fully own. By given your brother a share in the future value in the house, the bank might not be able to foreclose on the whole house without fighting the brother on it. Therefore they would want him on the mortgage. The fact that he can't get another mortgage means (a) The banks may be unwilling to allow him to be involved at all, and (b) it becomes even more critical to not commit fraud! You are effectively tricking the bank into thinking that you have the money for a down payment, and also that your brother is not involved! Now, to the actual question at hand - which I answer only for use on other transactions that do not meet the pitfalls listed above: This is an incredibly difficult question - What happens to your relationship with your brother when the value of the house goes down, and he wants to sell, but you want to stay living there? What about when the market changes and one of you feels that you're getting a raw deal? You don't know where the housing market will go. As an investment that's maybe acceptable (because risk forms some of the basis of returns). But with you getting to live there and with him taking only the risk, that risk is maybe unfairly on him. He may not think so today while he's optimistic, but what about tomorrow if the market crashes? Whatever the terms of the agreement are, get them in writing, and preferably get them looked at by a lawyer. Consider all scenarios, like what if one of you wants to sell, does the other have the right to delay, or buy you out. Or what if one if you wants to buy the other out? etc etc etc. There are too many clauses to enumerate here, which is why you need to get a lawyer.\"" }, { "docid": "395011", "title": "", "text": "\"I am not a lawyer nor a tax accountant, so if such chimes in here I'll gladly defer. But my understanding is: If you're romantically involved and living together you're considered a \"\"household\"\" and thus your finances are deemed shared for tax purposes. Any money your partner gives you toward paying the bills is not considered \"\"rent\"\" but \"\"her contribution to household expenses\"\". (I don't know the genders but I'll call your partner \"\"her\"\" for convenience.) This is not income and is not taxed. On the off chance that the IRS actually investigated your arrangement, don't call any money she gives you \"\"rent\"\": call it \"\"her contribution to living expenses\"\". If you were two (or more) random people sharing a condo purely for economic reasons, i.e. you are not a family in any sense but each of you would have trouble affording a place on your own, it's common for all the room mates to share the rent or mortgage, utilities, etc, but for one person to collect all the money and write one check to the landlord, etc. Tax law does not see this as the person who writes the check collecting rent from the others, it's just a book-keeping convenience, and so there is no taxable transaction. (Of course the landlord owes taxes on the rental income, but that's not your problem.) In that case it likely would be different if one person outright owned the place and really was charging the others rent. But then he could claim deductions for all the expenses of maintaining it, including depreciation, so if it really was a case of room mates sharing expenses, the taxable income would likely be just about zero anyway. So short answer: If you really are a \"\"couple\"\", there are no taxable transactions here. If the IRS should actually question it, don't refer to it as \"\"collecting rent\"\" or any other words that imply this is a business arrangement. Describe it as a couple sharing expenses. (People sometimes have created tax problems for themselves by their choice of words in an audit.) But the chance that you would ever be audited over something like this is probably remote. I suppose that if at some point you break up, but you continue to live together for financial reasons (or whatever reasons), that could transform this into a business relationship and that would change my answer.\"" }, { "docid": "146135", "title": "", "text": "I think that some of that might have to do with not being confortable with accepting systems of rules that people just make up and accept. In the case of relativity, things are based on observation and governed by logic which shouldn't have any contradictions. To understand the creation/destruction of money, it requires understanding how a set of made up rules were implemented and lead to a state where the rules no longer work or seem to form a contradiction, IMO. I wouldn't say it's harder to understand than relativity, I would just say that understanding it requires seeing that, unlike physics, not everything was played exactly by the rules." }, { "docid": "203683", "title": "", "text": "\"I agree with all that was said here, but I have to add something. Another point I will add is \"\"stimulus: while you still can.\"\" At some point you can no longer take on more debt even if you wanted to. If global and domestic investors think you are going to be a risky investment then they cut you off. The people who argue that Greece shouldn't be implementing austerity don't seem to understand the situation they are in. Far fewer wanted to lend money to them even before they started their \"\"haircut\"\" shanigans. People think the government should spend more, but how are they supposed to do that if no one wants to lend more money? They also criticize Germany and co. for insisting on austerity. What they sometimes seem to forget is that Germany doesn't have an infinite supply of money to bail out Greece. They have their own bills to pay and any politician who was dumping ever larger amounts of money into Greece would be looking at being voted out or even assassinated if they let things get too bad for the German people (I am being a little hyperbole here to make a point, but I honestly feel it is a very real possibility in this kind of economic climate). At this point there is no reason to discuss whether Greece should choose to spend more money, because that choice is no longer even available to them. We are not as bad off as Greece right now. We should spend more money but we need results. We need to identify the structural problems ailing our economy and get them fixed with the money we have. Direct spending isn't always a great idea if it is done in a nonsensical way. People defending the bike paths and other shit argue that all spending is good in a depression. I am not against bike paths and roads, because they can certainly create jobs and generate value to the economy. But every dollar you spend on them is one dollar that can't be spent on the biggest problems (assuming of course that kind of infrastructure isn't one of those). After spending trillions of dollars on spending, our GDP is still growing at only 2%. It was increasing about 3.5% every year from 1947-2012. Our jobs creation rate is still less than half the 250,000 jobs a month we created in the last 10-20 years (can't remember the exact number). We definitely need to spend differently to address the problems and get people back to work. As curtiscarlson said, we need middle class jobs. We particularly need those among America's youth so they can move out of their parents' houses and buy their own, which could really help the housing economy and create jobs for the lower class in turn and get us out of this depression. My thoughts are that we should use stimulus in new new industries such as those in high tech. I intentionally stated that very broadly, because we have many millenials who need to get to work. Investing in different high growth industries could create jobs for people in any number of occupations. But if we don't do that while people still want to lend us money then we are going to be fucked in a few years when we are out of options and land in the same position as Greece. edit:let me clarify the infrastructure thing. There was a town that spent millions rebuilding a sidewalk that was five years old that no one in the community wanted. Everyone there thought it was a nonsensical way of spending tax dollars and would have thought that money could have been better spent in another community that really needed problems resolved. Wouldn't it have made more sense to spend money somewhere where it was needed? then you could have created jobs AND created lasting value to an economy by fixing a structural problem that was holding the economy back. Why don't our politicians realize this?\"" }, { "docid": "192591", "title": "", "text": "\"I also spend countless hours of my own time studying. It's the only way to continue to move forward in the tech world. I have to disagree with you on this point: \"\"Given the fact that tech is ever evolving, no one should ever be surprised to find out that there are long hours involved\"\" That's is the complete opposite of what should happen. Evolving technology should make our lives easier. I see that in my current position which allows me to telecommute whenever I feel like it. Hell I could probably move across the country and maintain my current position. We're pretty much post startup mode at this point though. My last position was for a fortune 100 shipping company. Was required to work 12 hour swing shifts. Required to be on 8 am meetings when I worked 6pm-6am. Why? Because \"\"fuck you\"\" that's why (this is the reasoning coming from my manager). Also I find it crazy that so many people have an issue with the use of the word fuck. What are we children? The fucking point of the post is to slap you in the fucking face. I also find it much more entertaining to read then your standard business journal. \"\"Sadly, her reputation with prospective employers might be influenced by her choice of words in the interest of \"\"fucking glory.\"\"\"\" When you clear of half a million I don't think you are exactly on the job hunt. Even if she was someone would be stupid to not hire her the second she walked in the door on the track record of creating successful products. Also I personally have had ups and downs trying to escape working for others. I made my employer over 75k last quarter alone. They don't pay me that much a year. From dec-feb of last year I made double my yearly salary online. I've also lost more than I care to mention investing in new ideas. I'm young and stupid. I didn't need to recklessly spend the money the way I did but somethings you learn the hardway. The point is that if you own the product/business you reap the rewards. That also means possible taking a hit for losses, but if you succeed it is going to be well worth it. This idea isn't for everyone. Business/product creators need people who want to work hourly while they earn the big bucks. I'm starting to see that I need to build my own dreams not some investors.\"" }, { "docid": "67457", "title": "", "text": "I came here asking for advice because google gave me conflicting answers. I don't need a lawyer to tell me which licenses I need, I just need somebody with experience, which it's obvious you don't have for 2 reasons. 1) You would have told me already and 2) joining existing firms will result in DNC agreements which I don't want. I'd appreciate a little bit more respect and knowledgeable answers than just putting me down for asking a simple question to clarify my confusion. I am new to this sub and your attitude does not make me feel welcomed here nor to other people I'd imagine that may be new as well." }, { "docid": "505753", "title": "", "text": "I disagree. We had significantly less debt during the opening stages of WWII than we have now. I have no doubt that if we had more debt back then it would have factored into our contribution to the war effort, just as our current level of debt is factoring into our contribution to the powder keg sh*t basket that is the middle east right now. That's my point! You can't create infinite money, so if you've already created a crap ton of money, it will affect your decision to create another crap ton of money! Idk whether it's a straw man or not but we both think the govt can do more. If you disagree with me that there are limits to how much the government can spend, then I am just at a loss, honestly. I want to know, concretely and in precise terms, what the limits are in real time so that we can adjust our policy response accordingly" }, { "docid": "305878", "title": "", "text": "People should actually be able to ask anything they want for something they do. I am sure it was agreed before the case started they would get a percentage of the settlement. Too bad could not just give them 16 million in ticket master credit though. How many clients do the lawyers have? Hundred-thousands? I am sure it is also more than one lawyer, not to mention their clerks etc. Look at when the claim filed, 2003? So 9 years almost of working on a case? I know they have not worked totally on this case but still. This price seems totally reasonable to me. Even if it is not reasonable the clients agreed to it." }, { "docid": "144033", "title": "", "text": "The Creation/Redemption mechanism is how shares of an ETF are created or redeemed as needed and thus is where there can be differences in what the value of the holdings can be versus the trading price. If the ETF is thinly traded, then the difference could be big as more volume would be where the mechanism could kick in as generally there are blocks required so the mechanism usually created or redeemed in lots of 50,000 shares I believe. From the link where AP=Authorized Participant: With ETFs, APs do most of the buying and selling. When APs sense demand for additional shares of an ETF—which manifests itself when the ETF share price trades at a premium to its NAV—they go into the market and create new shares. When the APs sense demand from investors looking to redeem—which manifests itself when the ETF share price trades at a discount—they process redemptions. So, suppose the NAV of the ETF is $20/share and the trading price is $30/share. The AP can buy the underlying securities for $20/share in a bulk order that equates to 50,000 shares of the ETF and exchange the underlying shares for new shares in the ETF. Then the AP can turn around and sell those new ETF shares for $30/share and pocket the gain. If you switch the prices around, the AP would then take the ETF shares and exchange them for the underlying securities in the same way and make a profit on the difference. SEC also notes this same process." }, { "docid": "163353", "title": "", "text": "\"What are the options available for safe, short-term parking of funds? Savings accounts are the go-to option for safely depositing funds in a way that they remain accessible in the short-term. There are many options available, and any recommendations on a specific account from a specific institution depend greatly on the current state of banks. As you're in the US, If you choose to save funds in a savings account, it's important that you verify that the account (or accounts) you use are FDIC insured. Also be aware that the insurance limit is $250,000, so for larger volumes of money you may need to either break up your savings into multiple accounts, or consult a Accredited Investment Fiduciary (AIF) rather than random strangers on the internet. I received an inheritance check... Money is a token we exchange for favors from other people. As their last act, someone decided to give you a portion of their unused favors. You should feel honored that they held you in such esteem. I have no debt at all and aside from a few deferred expenses You're wise to bring up debt. As a general answer not geared toward your specific circumstances: Paying down debt is a good choice, if you have any. Investment accounts have an unknown interest rate, whereas reducing debt is guaranteed to earn you the interest rate that you would have otherwise paid. Creating new debt is a bad choice. It's common for people who receive large windfalls to spend so much that they put themselves in financial trouble. Lottery winners tend to go bankrupt. The best way to double your money is to fold it in half and put it back in your pocket. I am not at all savvy about finances... The vast majority of people are not savvy about finances. It's a good sign that you acknowledge your inability and are willing to defer to others. ...and have had a few bad experiences when trying to hire someone to help me Find an AIF, preferably one from a largish investment firm. You don't want to be their most important client. You just want them to treat you with courtesy and give you simple, and sound investment advice. Don't be afraid to shop around a bit. I am interested in options for safe, short \"\"parking\"\" of these funds until I figure out what I want to do. Apart from savings accounts, some money market accounts and mutual funds may be appropriate for parking funds before investing elsewhere. They come with their own tradeoffs and are quite likely higher risk than you're willing to take while you're just deciding what to do with the funds. My personal recommendation* for your specific circumstances at this specific time is to put your money in an Aspiration Summit Account purely because it has 1% APY (which is the highest interest rate I'm currently aware of) and is FDIC insured. I am not affiliated with Aspiration. I would then suggest talking to someone at Vanguard or Fidelity about your investment options. Be clear about your expectations and don't be afraid to simply walk away if you don't like the advice you receive. I am not affiliated with Vanguard or Fidelity. * I am not a lawyer, fiduciary, or even a person with a degree in finances. For all you know I'm a dog on the internet.\"" }, { "docid": "120500", "title": "", "text": "\"Old question, but in the comments of the accepted answer, I believe Nate Eldredge is correct and littleadv is incorrect. Nate copied the actual quote from the IRS guidelines, quoted below: An expense is ordinary if it is common and accepted in your trade, business, or profession. An expense is necessary if it is appropriate and helpful to your business. An expense doesn't have to be required to be considered necessary. Noise cancelling headphones certainly count as \"\"appropriate and helpful to your business\"\" in the software industry, especially with the trend of open office layouts. And because of the ubiquitous distractions inherent in the aforementioned office space, noise cancelling headphones are becoming quite \"\"common and accepted\"\" for use by developers. I'd be more hesitant about the keyboard and monitor, as presumably the employer is providing those already. As using your own could be said to just be a personal preference over those provided, the argument that providing your own version is \"\"appropriate and helpful\"\" is a little more shaky. I am not a tax lawyer, so don't come after me if you get audited, but my guess from reading the actual IRS guidelines is noise cancelling headphones: probably, keyboard and monitor: maybe.\"" }, { "docid": "297644", "title": "", "text": "\"Yes, very prohibitive. A common thing I was doing over 8 years ago was SHA1(MD5(\"\"username\"\")+\"\"password\"\")), in fact. The problem with this method is that later one we wanted the users to be able to change their username, so instead we started doing something like this: SHA256(MD5(\"\"timestamp of account creation\"\")+SHA-1(\"\"password\"\")+CustomSieve(\"\"password\"\"+\"\"password\"\")) CustomSieve was a script that used every even character's ASCII binary representation to modify the string itself. Like my own hashing function that was not good enough for professional use, but unique enough that it drastically changed the final SHA-256 hash. Most people would probably say this was overkill, but I didn't want to just be sending two hex hashes into a SHA256 in case some day someone created a rainbow table specifically designed to crack hashes of hashes. The timestamp of account creation was stored with the username in it's own table and accessing that table was logged differently and audited separately, so a hacker would have to be doing some really weird things in order to get that info.\"" }, { "docid": "544663", "title": "", "text": "\"This is more of a long comment but may answer user's situation too. I have dealt with joint mortgages before in 3 states in the US. Basically in all three states if one party wants to sell, the home goes up for sale. This can be voluntary or it can go up via auction (not a great choice). In 2 of the 3 states the first person to respond to the court about the property, the other party pays all legal fees. Yes you read this right. In one case I had an ex who was on my mortgage, she had no money invested in the house ($0 down and still in college with no job). [If she wasn't on the mortgage I wouldn't have gotten loan - old days of dumb rules] When we split her lawyer was using the house as a way to extort other money from me. Knowing the state's laws I already filed a petition for the property but put it on hold with the clerk. Meaning that no one else could file but if someone tried mine would no longer be on hold. My ex literally spent thousands of dollars on this attorney and they wanted to sell the house and get half the money from the house. So sale price minus loan amount divided between us. This is the law in almost every state if there is no formal contract. I was laughing because she wanted what would be maybe 50-75K for paying no rent, no money down, and me paying for her college. Finally I broke her attorney down (I didn't lawyer up but had many friends who were lawyers advising). After I told her lawyer she wasn't getting anything - might have said it in not a nice way - her lawyer gave me her break down. To paraphrase she said, \"\"We are going to file now. My assistant is in the court clerk's office. You can tell the court whatever you want. Maybe they will give you a greater percentage since you put the money down and paid for everything but you are taking that chance. But you will pay for your lawyer and you will need one. And you will pay for me the entire time. And this will be a lengthy process. You would be better served to pay my client half now.\"\" Her office was about 2 blocks from court. I laughed at her and simply told her to have her assistant do whatever she wanted. I then left to go to clerk's office to take the hold off. She had beat me to the office (I moved my car out of her garage). By the time I got there she was outside yelling at her assistant, throwing a hissy fit, and papers were flying everywhere. We \"\"settled\"\" the next day. She got nothing other than the things she had already stolen from me. If I wouldn't have known about this loophole my ex would have gotten or cost me through attorney's fees around 40-50K for basically hiring a lawyer. My ex didn't really have any money so I am pretty sure lawyer was getting a percent. Moral of the story: In any contract like this you always want to be the one bringing in the least amount of money. There are no laws that I know of in any country where the person with the least amount on a contract will come out worse (%-wise). Like I said in the US the best case scenario that I know of for joint property is that the court pays out the stakeholder all of their contributions then it splits things 50/50. This is given no formal contract that the court upholds. Don't even get me started with hiring attorneys because I have seen the courts throw out so many property contracts it isn't even funny. One piece of advice on a contract if you do one. Make it open and about percentages. Party A contributes 50K, Party B 10K, Party A will pay this % of mortgage and maintenance and will get this % when home is sold. I have found the more specific things are the more loopholes for getting out of them. There are goofy ass laws everywhere that make no sense. Why would the person first filing get their lawyers paid for??? The court systems in almost all countries can have their comical corners. You will never be able to write a contract that covers everything. If the shower handle breaks, who pays for it? There is just too many one-off things with a house. You are in essence getting in a relationship with this person. I hear others say it is a business transaction. NO. You are living with this person. There is no way to make it purely business. For you to be happy with this outcome both of you must remain somewhat friends and at the very least civil with each other. To add on to the previous point, the biggest risk is this other person's character and state of mind. They are putting in the most money so you don't exactly have a huge money risk. You do have a time and a time-cost risk. Your time or the money you do have in this may be tied up in trying to get your money out or house sold. A jerk could basically say that you get nothing, and make you traverse the court system for a couple years to get a few thousand back. And that isn't the worst case scenario. Always know your worst case scenario. Yours is this dude is in love with you. When he figures out 2-3 years later after making you feel uncomfortable the entire time that you are not in love with him, he starts going nuts. So he systematically destroys your house. Your house worth plummets, you want out, you can't sell the house for price of loan, lenders foreclose or look to sue you, you pay \"\"double rent\"\" because you can't live with the guy, and you have to push a scooter to get to work. That is just the worst case scenario. Would I do this if I were 25 and had no family? Yea, why not if I trusted the other person and was friends with them? If it were just a co-worker? That is really iffy with me. Edit: Author said he will not be living with the person. So wording can be changed to say \"\"potentially\"\" in front of living with him in my examples.\"" }, { "docid": "407378", "title": "", "text": "I am not a lawyer or a tax accountant, but from the description provided it sounds to me like you have created two partnerships: one in which you share 50% of Bob's revenue, and another in which you share 50% of the revenue from the first partnership. If this is the case, then each partnership would need to file form K-1 and issue a copy to the partners of that partnership. I think, but I'm not sure, that each partnership would need an Employer Identification Number (EIN; you can apply for and receive these online with the IRS). You would only pay tax on the portion of profits that are assigned to you on the K-1. (If you've accidentally created a partnership without thinking through all the ramifications, you probably want to straighten this out. You can be held liable for the actions of your partners.) On the other hand, if your contract with Bob explicitly makes you a contractor and not a partner, then Bob should probably be issuing a 1099 to you. Similarly for you and Joe -- if your contract with Joe makes him a subcontractor, then you may need to get an EIN and issue him a 1099 at the end of the year. The money you pay to Joe is a business expense, and would be deducted from the profits you show on your Schedule C. In my opinion, it would be worth the $200 fee paid to a good CPA to make sure you get this right." } ]