Discussion School me in saving for retirement

[T_Yamamoto]

The question I do have is, do I try to max out my 401k then so forth OR equally invest in 401k, ETFs, HSA, etc?

Currently I'm doing 6% to my 401k which isn't being matched YET (after 1 year, it'll be matched). HSA is being employer funded ($500 a year) with me putting in less than that per year.

 

[Herr Kutz]

This except for maybe the 100% stock market part. But it depends on what level of risk you are comfortable with.

He’s just entering the work force. I’ve been in for several years and I’m still at 100% stocks. If you’re an old man it might be wise to adjust that percentage, obviously.

OP, my regret was not maxing out my 401k the first few years; now I have a pile in normal savings as a result. When I first started I was just interested in saving 15% of salary total including company match, IRA, and 401k. Another semi-regret was staying on my parents health plan until (26) which was free for me but I couldn’t contribute to a HSA. I had no healthcare costs in that time period. Hindsight is 20/20.

 

[T_Yamamoto]

Did more research, seems like mutual funds are the way to go for me (very lazy, long term holds).

I will probably end up going the triple fund that's listed on boglehead.

 

[Herr Kutz]

Did more research, seems like mutual funds are the way to go for me (very lazy, long term holds).

I will probably end up going the triple fund that's listed on boglehead.

I think most of my funds are in Vanguard admiral shares that track the S&P500 (VFIAX?) and total stock market. The tickets escape me at this point. Part of my HSA is invested in slightly more conservative funds.

 

[Brainonska511]

Do all HSA's have an investment option? or do you have to pick one that offers this?

Wonder how many use a different HSA bank than the one offered by their comany...

I think it depends on who is offering the HSA. Most places offer some investment option if you want, often with some small or large fee attached.

I didn't bother with my company's HSA for one reason: it is only offered on a higher tier HDHP that would have cost me $1000+ more per year compared to the cheapest HDHP they offered.

Aren't all HSA's just an investment account? The difference is usually among the options that the bank or employer offer for investment, right? I also didn't know if you could partition money between investment and cash, like a money market account or something. I thought it was all just 100% invested into the funds that you pick, with zero withdrawal penalty and taxes when spent on (paying yourself back for) medical costs? So, there really isn't a reason to set any aside from interest-bearing funds, right?

From what I understand, many of HSAs have two components - a checking account and an investment account. In those cases, the pay yourself back part goes through the checking account.

The HSAs I've had only allowed the portion of the account over $1,000 to be invested, and it was something you had to actively elect to do (and you had options in where to put the invested amounts).

Depends on the bank. Some only allow amounts over $1000 to be invested, some (like Old National Bank [HSA Authority] - the provider I use) just require you to have $1000 in the bank, then you can invest 100% of it once you hit that initial threshold. My provider also charges $36/yr for the investment account. If I just went with the checking account, the HSA was effectively fee-free.

 

[T_Yamamoto]

From what I understand, many of HSAs have two components - a checking account and an investment account. In those cases, the pay yourself back part goes through the checking account.

Depends on the bank. Some only allow amounts over $1000 to be invested, some (like Old National Bank [HSA Authority] - the provider I use) just require you to have $1000 in the bank, then you can invest 100% of it once you hit that initial threshold. My provider also charges $36/yr for the investment account. If I just went with the checking account, the HSA was effectively fee-free.

First part, that was what I wanted to know. Thank you.

Second part, I'll need to do research to make sure my HSA provider doesn't charge me for having an investment account, since I'm not sure.

 

[Exterous]

The question I do have is, do I try to max out my 401k then so forth OR equally invest in 401k, ETFs, HSA, etc?

Depends on the fund options in your 401k, health plan and goals. By "ETFs" do you mean outside of a tax deferred account like a Roth IRA or Traditional IRA? Generally I would say use up all your tax advantaged space first unless you want to retire much earlier than 59.5 years old

 

[Brainonska511]

Second part, I'll need to do research to make sure my HSA provider doesn't charge me for having an investment account, since I'm not sure.

Most usually have some small fee, especially if you get one on your own.

But beside the fee, make sure they have a good selection of low cost (read: low expense ratio) funds to choose from. Old National/HSA Authority is a flat $36/year after opening the investment account, which was one of the cheapest I could find in the individual HSA market. Plus, they let you invest 100% of your funds after you meet the initial $1000 threshold (e.g., you could leave $5 in the checking portion and invest the rest).

 

[zinfamous]

The question I do have is, do I try to max out my 401k then so forth OR equally invest in 401k, ETFs, HSA, etc?

Currently I'm doing 6% to my 401k which isn't being matched YET (after 1 year, it'll be matched). HSA is being employer funded ($500 a year) with me putting in less than that per year.

A regular investment savings account is a good idea if you have real plans, or at least think that you might, retire early...especially very early. Generally, it's best to max out your tax-advantaged accounts first, but if you plan to screw the man early on and live the life you want to live by your 30s or 40s, then you will need to start planning a stable balance between investment savings accounts and retirement accounts--you want access to your money well before retirement age, and you want to make sure it lasts until you can access the retirement funds--also consider opening up your own private tr or roth IRA (I think you already mentioned this).

When you get comfortable, and especially going into primarily stock-based funds, start looking into funds, like REITs and some others, that offer substantial, regular dividends. These tend to be better for tax-advantaged accounts (because otherwise you would eventually be paying substantial taxes on the accruing dividends each year), but if you pile up enough of them, a lot of people simply live off of dividends, and they are generally impervious to wild market forces, so you usually don't have to worry about income when we have gonzo markets like we do right now (the value of the stock may drop significantly, but the dividends almost always pay out at the same rate. Companies are usually very slow to adjust dividend rates. ...and all companies are different. So research is good. Boggleheads I think has some dedicated dividend people)

 

[Brainonska511]

When you get comfortable, and especially going into primarily stock-based funds, start looking into funds, like REITs and some others, that offer substantial, regular dividends. These tend to be better for tax-advantaged accounts (because otherwise you would eventually be paying substantial taxes on the accruing dividends each year), but if you pile up enough of them, a lot of people simply live off of dividends, and they are generally impervious to wild market forces, so you usually don't have to worry about income when we have gonzo markets like we do right now (the value of the stock may drop significantly, but the dividends almost always pay out at the same rate. Companies are usually very slow to adjust dividend rates. ...and all companies are different. So research is good. Boggleheads I think has some dedicated dividend people)

Another good option, especially as you start to move into higher tax brackets, are state municipal bond funds for the state you're living in. They are often tax exempt from both federal and state taxes, making them a decent place to stash some money in taxable accounts.

 

[T_Yamamoto]

Depends on the fund options in your 401k, health plan and goals. By "ETFs" do you mean outside of a tax deferred account like a Roth IRA or Traditional IRA? Generally I would say use up all your tax advantaged space first unless you want to retire much earlier than 59.5 years old

By ETFs I guess I mean what you mean, so stock brokerage accounts (so outside of 401k, IRAs, and HSA)

Most usually have some small fee, especially if you get one on your own.

But beside the fee, make sure they have a good selection of low cost (read: low expense ratio) funds to choose from. Old National/HSA Authority is a flat $36/year after opening the investment account, which was one of the cheapest I could find in the individual HSA market. Plus, they let you invest 100% of your funds after you meet the initial $1000 threshold (e.g., you could leave $5 in the checking portion and invest the rest).

My HSA is through BCBS, so it appear we don't have a fee for having it as an investment account.

A regular investment savings account is a good idea if you have real plans, or at least think that you might, retire early...especially very early. Generally, it's best to max out your tax-advantaged accounts first, but if you plan to screw the man early on and live the life you want to live by your 30s or 40s, then you will need to start planning a stable balance between investment savings accounts and retirement accounts--you want access to your money well before retirement age, and you want to make sure it lasts until you can access the retirement funds--also consider opening up your own private tr or roth IRA (I think you already mentioned this).

When you get comfortable, and especially going into primarily stock-based funds, start looking into funds, like REITs and some others, that offer substantial, regular dividends. These tend to be better for tax-advantaged accounts (because otherwise you would eventually be paying substantial taxes on the accruing dividends each year), but if you pile up enough of them, a lot of people simply live off of dividends, and they are generally impervious to wild market forces, so you usually don't have to worry about income when we have gonzo markets like we do right now (the value of the stock may drop significantly, but the dividends almost always pay out at the same rate. Companies are usually very slow to adjust dividend rates. ...and all companies are different. So research is good. Boggleheads I think has some dedicated dividend people)

Hmm, okay. I think my first plan of action is opening a IRA since I have a 401k, then slowly increase the amount of put into the IRA until it's at 6% and increase my HSA contribution.

Another good option, especially as you start to move into higher tax brackets, are state municipal bond funds for the state you're living in. They are often tax exempt from both federal and state taxes, making them a decent place to stash some money in taxable accounts.

I'll do some research into those.

Main takeaways so far.

Open ROTH IRA. Invest until I max out my 401K, IRA, and HSA contribution, THEN transition to some kind of fund.

 

[s0me0nesmind1]

how the hell do i embed images in this stupid ass forum that's been redesigned 92347 times?

https://imgur.com/fb7Dtmh

https://imgur.com/u0ocDRI

Semi accurate - but a few things... This works for dumb people overall though.

As far as debt - if your debt is a reasonable interest rate - then you should NOT be paying it off. Perfect example: I have a car loan with 0.99% interest. Paying off that car loan early I actually LOSE money because my savings account gives me 2.00% interest for just leaving it in the bank. Similarly, even though your house might be 3.0% (or so) you have to consider and weigh your options, as the market could be returning 5-7%. Obviously you have to make your own judgements for that - but as an example, after the recession I would have totally diverted extra money from my home mortgage and put it into maxing out my 401k as much as humanly possible.

Also, since they mentioned in favor of "Snowball" method of paying off debt, I already know that advice is for complete morons.

 

[s0me0nesmind1]

I want to slow roll into maxing my contributions, so I'll increase it each year/whenever I feel comfortable, but that's the end goal.

Don't do that - and don't do the stupid annual increase thing. It's understandable if you want to allocate a slush fund first to cover rainy day stuff - but after that you should be socking away every dollar that you can.

What is your annual income (for you, or for you + your wife if you're married)? That is a big determining factor of your tax bracket - which can help determine decisions as well. (e.g. if you're paying 30% in taxes, putting money away in a traditional 401k is much smarter than putting it away in a ROTH 401k).

 

[s0me0nesmind1]

Max out 401k company matching, Max out HSA contribution, Max out IRA contribution, Max out 401k contribution

100% stock market

This is pretty simple - but pretty spot on. But just to go into WHY that is I'll explain a bit about HSAs.

HSAs are the only tax advantage account that is Triple Tax Advantage. That means, the income you input into the HSA has potential to not be taxed on putting it into the HSA, or on the returns of the HSA (interest), or upon taking it out if used for medical related expenses. There is no other tax advantage account that is as good as that. For example, traditional 401k is taxed on the OUTPUT (when you take it out later in life), and ROTH 401ks are taxed on the INPUT (before you put it in to the account).

You can max out your HSA every year and put it into investments - and then 30 years later take a good chunk of it out tax free with medical expenses that you have had over the last 30 years. Make sure to save any and all medical receipts / documents.

Yeah this seems to be the general case.

But when you invest the HSA, isn't it in ETFs (or whatever)? Wouldn't you have to sell shares in order to pay yourself back when you use it/using your HSA debit card (if you have one, I personally do).

That's just it - DONT use it to pay yourself back. This is just like a 401k or IRA investment account, you want the interest to stack upon itself. That won't happen if you're constantly taking money out of it.

When you have a medical expense, you can take that money out at that time - or 30 years later.

 

[s0me0nesmind1]

Aren't all HSA's just an investment account? The difference is usually among the options that the bank or employer offer for investment, right? I also didn't know if you could partition money between investment and cash, like a money market account or something. I thought it was all just 100% invested into the funds that you pick, with zero withdrawal penalty and taxes when spent on (paying yourself back for) medical costs? So, there really isn't a reason to set any aside from interest-bearing funds, right?

Not usually. Every employer I have had that offers an HSA initially puts it into a Savings account-type of fund. From there, there are typically ways to transfer it to an investment within the HSA website. I'm sure there are ways to setup automatic investment though.

One crucial point is that with HSAs you aren't held down by your employer (401ks) or only allowed to have 1 (IRAs) - you can open an HSA with any HSA-offering company and transfer your funds there if you don't like your employer's and keep both open. See Bogleheads: https://www.bogleheads.org/forum/viewtopic.php?t=33831

 

[s0me0nesmind1]

I need to look into how to do the backdoor roth IRA stuff because I stopped putting money into my Roth years ago when my wife and I started making more than you are allowed to make when contributing to a Roth. The quick research I did I never really figured out how to do the backdoor roth IRA stuff.

Best guide you can find:
https://www.bogleheads.org/wiki/Backdoor_Roth_IRA

 

[T_Yamamoto]

Don't do that - and don't do the stupid annual increase thing. It's understandable if you want to allocate a slush fund first to cover rainy day stuff - but after that you should be socking away every dollar that you can.

What is your annual income (for you, or for you + your wife if you're married)? That is a big determining factor of your tax bracket - which can help determine decisions as well. (e.g. if you're paying 30% in taxes, putting money away in a traditional 401k is much smarter than putting it away in a ROTH 401k).

My takehome is a little over 31k a year, I'm single (for now), so I should be in a pretty low bracket for taxes.

This is pretty simple - but pretty spot on. But just to go into WHY that is I'll explain a bit about HSAs.

HSAs are the only tax advantage account that is Triple Tax Advantage. That means, the income you input into the HSA has potential to not be taxed on putting it into the HSA, or on the returns of the HSA (interest), or upon taking it out if used for medical related expenses. There is no other tax advantage account that is as good as that. For example, traditional 401k is taxed on the OUTPUT (when you take it out later in life), and ROTH 401ks are taxed on the INPUT (before you put it in to the account).

You can max out your HSA every year and put it into investments - and then 30 years later take a good chunk of it out tax free with medical expenses that you have had over the last 30 years. Make sure to save any and all medical receipts / documents.

That's just it - DONT use it to pay yourself back. This is just like a 401k or IRA investment account, you want the interest to stack upon itself. That won't happen if you're constantly taking money out of it.

When you have a medical expense, you can take that money out at that time - or 30 years later.

Duly noted.

 

[Herr Kutz]

Not usually. Every employer I have had that offers an HSA initially puts it into a Savings account-type of fund. From there, there are typically ways to transfer it to an investment within the HSA website. I'm sure there are ways to setup automatic investment though.

One crucial point is that with HSAs you aren't held down by your employer (401ks) or only allowed to have 1 (IRAs) - you can open an HSA with any HSA-offering company and transfer your funds there if you don't like your employer's and keep both open. See Bogleheads: https://www.bogleheads.org/forum/viewtopic.php?t=33831

Are you saying I can open an individual HSA and transfer funds from my company HSA to the individual HSA? The investing options and fees are not so good on my company's HSA provider.

Note: I would not be adding any "additional" funds to the individual HSA since that is taken care of through payroll and I realize I that would put me over the max contribution limits.

 

[purbeast0]

Best guide you can find:
https://www.bogleheads.org/wiki/Backdoor_Roth_IRA

Wow okay thanks I did not realize it was that easy. The other stuff I read was confusing as to how you convert. But I already have a traditional IRA at Vanguard with rollover 401k's in it as well as my roth IRA there. I guess I'd have to open a new traditional IRA though if I wanted to use it to convert since the one I have has pretax money in it. Then once I open the new traditional IRA, I can transfer money from my bank account to the traditional IRA, and once it goes through, I can move it to the Roth IRA? Can I have more than 1 traditional IRA open with Vanguard?

 

[s0me0nesmind1]

Are you saying I can open an individual HSA and transfer funds from my company HSA to the individual HSA? The investing options and fees are not so good on my company's HSA provider.

Note: I would not be adding any "additional" funds to the individual HSA since that is taken care of through payroll and I realize I that would put me over the max contribution limits.

To my knowledge and based on my link: Yes - I could open an account with HSABank right now as long as I have a qualified HDHP... regardless of me already having an HSA with my employer. Though I'm not a legal expert so don't take my word as a final say.

The reason I haven't done it myself? Not enough funds. I barely have $13k in mine so I'm not anxious to invest I suppose.

 

[Sonikku]

I tend to roll my eyes at simplistic charts like this but… this one is pretty good.

What do I do if I'm already broke by the "Essential Items" bubble?

 

[IronWing]

What do I do if I'm already broke by the "Essential Items" bubble?

Buy another video card.

 

[Sonikku]

But mining crashed.

 

[IronWing]

But mining crashed.

So play video games with it.

 

[s0me0nesmind1]

What do I do if I'm already broke by the "Essential Items" bubble?

Find a flow chart on learning to utilize tax benefits to the best of your ability.... There are definitely plenty that I never get to even glance at knowing that having an income of > $50k kicks me out of practically all of them.