Help! no access to 401k

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emedina
Posts: 1
Joined: Sat Jan 23, 2016 9:53 am

Help! no access to 401k

Postby emedina » Sat Jan 23, 2016 9:59 am

hi all,

I have been recently catapulted into high income ($185K) plus bonus (Approx $80k) but my employer does not have a 401K. I am getting creamed with taxes. I think a lot of traditional investment vehicles may not help me because of income limits. Someone told me wholelife insurance is rich man's IRA?

thanks in advance

Geologist
Posts: 1049
Joined: Fri Jan 02, 2009 7:35 pm

Re: Help! no access to 401k

Postby Geologist » Sat Jan 23, 2016 10:54 am

Probably whole life insurance will be the IRA (or other benefit) for the agent who sells it, but not for the person who buys it. It is generally not a good investment, so be very wary of anyone pushing that to you.

I think the object in life is to maximize after-tax income, not minimize taxes, so keep that in mind. This means you don't want to substitute paying high fees or other costs for paying taxes.

Geologist
Posts: 1049
Joined: Fri Jan 02, 2009 7:35 pm

Re: Help! no access to 401k

Postby Geologist » Sat Jan 23, 2016 11:15 am

To add to what I said. You can contribute to what is called the "backdoor Roth IRA." This doesn't reduce current taxes, but creates a Roth IRA to save for retirement, which will be tax-free. You can invest in municipal bonds and stock index funds that have low taxable distributions. All of this will minimize taxes going forward (it also assumes you are saving a chunk of your newly high income).

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grabiner
Advisory Board
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Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: Help! no access to 401k

Postby grabiner » Sat Jan 23, 2016 11:25 am

With no 401(k), there is no need for a backdoor Roth. If neither you nor your spouse has an employer plan, then you can deduct IRA contributions regardless of income, and that is likely to be better than a Roth IRA in a high tax bracket.
David Grabiner

jpelder
Posts: 545
Joined: Mon Jan 26, 2015 3:56 pm
Location: Charlotte, NC

Re: Help! no access to 401k

Postby jpelder » Sat Jan 23, 2016 11:36 am

Also, look into a high-deductible health plan and use your HSA as an additional retirement account. Do a search for "HSA" to see how to do that

Hulk
Posts: 171
Joined: Mon Oct 12, 2015 1:08 pm

Re: Help! no access to 401k

Postby Hulk » Sat Jan 23, 2016 11:54 am

Agree with some others. Do a backdoor Roth, HSA (as a stealth IRA) and taxable. You still need to save 15-25% of your income, depending on your circumstances, even in a taxable account

Dont do whole life, its a rip.

How are you paid? If its 1099 just set up an individual 401k. If its W2, Id look into seeing how much it would cost to set up. I have a small business with less than 25 employees/partners and we do an "investment only" or "non-prototype" 401k. It think it is only about 6k/year to administer which is pretty cheap per person, and we have unlimited investment options so all my stuff is in Admiral share index funds :D

inbox788
Posts: 3848
Joined: Thu Mar 15, 2012 5:24 pm

Re: Help! no access to 401k

Postby inbox788 » Sat Jan 23, 2016 11:58 am

emedina wrote:hi all,

I have been recently catapulted into high income ($185K) plus bonus (Approx $80k) but my employer does not have a 401K. I am getting creamed with taxes. I think a lot of traditional investment vehicles may not help me because of income limits. Someone told me wholelife insurance is rich man's IRA?

thanks in advance


How old are you? Nearing retirement, the catch up contribution limits up the max a little.

PiNo
Posts: 1
Joined: Sun Jul 16, 2017 1:54 pm

Re: Help! no access to 401k

Postby PiNo » Sun Jul 16, 2017 2:19 pm

I would be interested to know how this worked out for you? Similarly, I found myself paying way too much in taxes. I maxed out both mine and my wife's 401k which is great, but because of the two major market haircuts in 2001 (tech stocks) and 2008, there will not be enough based on the 4% per year payout in retirement. I researched for a good year on whole life. My term insurance premiums went sky high as I moved into my early 50's. I know a lot of people do not like WL, but I started one for both me and my wife. We instantly received life insurance and I know the first few years, there will be no growth, but I can borrow out of the policy at any time and it does not effect my cash value. I put in special riders for paid up additions and term. The best part of it is that it grows tax free and the death benefit is tax free. Our 401k's (if anything left when we go) will get a huge haircut, but the WL will go to my children completely tax free. These two vehicles combined together will provide options for me and my family.

Nate79
Posts: 854
Joined: Thu Aug 11, 2016 6:24 pm
Location: Portland, OR

Re: Help! no access to 401k

Postby Nate79 » Sun Jul 16, 2017 4:19 pm

Whole life is the rich mans garbage pile. These products are absolute junk for everyone.

NYC_Guy
Posts: 123
Joined: Fri Mar 10, 2017 2:23 pm
Location: New York

Re: Help! no access to 401k

Postby NYC_Guy » Sun Jul 16, 2017 7:14 pm

Nate79 wrote:Whole life is the rich mans garbage pile. These products are absolute junk for everyone.


Not true. There's a proper use for them. But you need to have a very specific set of conditions to make proper use of them. WCI has a god set of materials on it. As an aside and to be responsive to the OP, $185k + $80k bonus is not likely to lead to those conditions being satisfied.

mhalley
Posts: 4690
Joined: Tue Nov 20, 2007 6:02 am

Re: Help! no access to 401k

Postby mhalley » Sun Jul 16, 2017 8:06 pm

I think I have heard Clark Howard say that whole life might start to make sens above 400k income, you are still a way of from that.

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badbreath
Posts: 381
Joined: Mon Jul 18, 2016 7:50 pm

Re: Help! no access to 401k

Postby badbreath » Sun Jul 16, 2017 8:22 pm

One other option is a taxable account which has no limitations on investment.

www.bogleheads.org/wiki/Tax-efficient_fund_placement
“While money can’t buy happiness, it certainly lets you choose your own form of misery.” Groucho Marx


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