What to do after maxing out 401k, IRA, and HSA?

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Todd.M
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What to do after maxing out 401k, IRA, and HSA?

Post by Todd.M » Thu Feb 23, 2017 10:34 am

First of all I apologize if this question has been asked and answered already, this is my first time posting here.
My girlfriend and I are currently maxing out our 401ks, IRAs, and HSAs.
What’s next? Payoff the mortgage, other investments, or a combination of both?
Besides the mortgage we have no other debts.

Also, our employer offers a Roth option in their 401k.
We’ve both been contributing to the Roth option because the company match is pre-tax, and using the Roth option is a legal way of cramming more real money into the account.
Should I stop doing this, is this a bad idea from a tax advantage viewpoint?

Mortgage
7 years, $130k remaining at 3.75%

My stats:
Age: 39
Income: $70,000

IRA
Currently maxing out Roth
100% VTSAX
$11,000 in total

401k
Currently maxing out Roth
70% US large cap index
20% Employer stock
5% US Mid cap index
5% US Small cap index
$110,000 in total (50% roth, 30% company match, 20% pre-tax)
50% employer match up to 7%

HSA
Maxing out, current balance of $5,000.
Amount that’s available to invest is in VTSAX

The Girlfriend
Age: 34
Income: $155,000 w/ %15 bonus

IRA
Currently maxing out traditional
100% VTSAX
$11,000 in total

401k
Currently maxing out Roth
90% US large cap index
5% US Mid cap index
5% US Small cap index
$50,000 in total (70% roth, 30% company match)
50% employer match up to 7%

HSA
Not eligible

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Clever_Username
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Re: What to do after maxing out 401k, IRA, and HSA?

Post by Clever_Username » Thu Feb 23, 2017 12:24 pm

At 3.75% before deduction, I'm not sure I would pay off the mortgage faster -- but what level of debt and interest is comfortable is a personal matter. I'm fine with low-interest non-toxic debt.

Shortly after I started maxing out my accounts as above, I began shifting my emergency fund into Series I Bonds. Have you looked into those?

There's also more traditional taxable investing : expanding your portfolio into a non-tax advantaged account.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, [i]Layer Cake[/i]

DSInvestor
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Re: What to do after maxing out 401k, IRA, and HSA?

Post by DSInvestor » Thu Feb 23, 2017 12:30 pm

For your girlfriend, I'd suggest that she switch to Traditional 401k contributions. Her Traditional IRA contributions are likely to be non-deductible given her coverage by employer plan and high income. As such, she should consider backdoor into Roth IRA (i.e. Traditional IRA contributions and Roth conversion). She should check her tax returns to make sure that form 8606 is included to track her IRA basis (non-deductible contributions). If she can isolate her IRA basis, she'd be able to convert her IRA basis to Roth IRA for no tax cost.

I think Traditional 401k contributions would be a good idea for you as well. Keep making Roth IRA contributions for yourself. Use the tax savings (Fed and State) to invest tax efficiently in taxable, make extra principal payments, or any other financial priority.
Last edited by DSInvestor on Thu Feb 23, 2017 12:40 pm, edited 1 time in total.

mister37
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Re: What to do after maxing out 401k, IRA, and HSA?

Post by mister37 » Thu Feb 23, 2017 12:38 pm

What about things like emergency fund, new car fund, vacation fund, etc....? Are you planing to use your HSA as an additional retirement account? If so, then maybe a medical fund of some type, to cash flow any medical expenses? We are in a similar situation and this is where our 'extra cash' is going. Congrats, btw, it looks like you two are on your way to healthy retirement. :sharebeer
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Todd.M
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Re: What to do after maxing out 401k, IRA, and HSA?

Post by Todd.M » Thu Feb 23, 2017 1:33 pm

Thanks for all the advice so far!

First I should add that I have $50K in an online savings account earning 1% for our emergency fund.

I am not familiar with Series I Bonds, but will look into them. My IRA is with Vanguard, so I’ll look what they have. Thanks Clever_Username.

I have been looking into doing the backdoor Roth conversion for my girlfriends IRA. She rolled over a previous employers 401K into an IRA, so I will need to revisit that. Thanks DSInvestor.

And, yes I am planning to use my HSA as an additional retirement account. Thankyou mister37.

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Clever_Username
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Re: What to do after maxing out 401k, IRA, and HSA?

Post by Clever_Username » Thu Feb 23, 2017 1:47 pm

Todd.M wrote:Thanks for all the advice so far!

First I should add that I have $50K in an online savings account earning 1% for our emergency fund.

I am not familiar with Series I Bonds, but will look into them. My IRA is with Vanguard, so I’ll look what they have. Thanks Clever_Username.


I figured you had the emergency fund covered. Series I are only from treasury direct which ... isn't the greatest website in the world but works for what it is. https://www.bogleheads.org/wiki/I_savings_bonds has more information for you.

It's minorly annoying that when I want an updated profile snapshot I have to update the part of Vanguard where I tell about external investments, but that's not the end of the world.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, [i]Layer Cake[/i]

inbox788
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Re: What to do after maxing out 401k, IRA, and HSA?

Post by inbox788 » Thu Feb 23, 2017 1:58 pm

529
Taxable

Todd.M
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Re: What to do after maxing out 401k, IRA, and HSA?

Post by Todd.M » Thu Feb 23, 2017 2:05 pm

Thanks, I did look into Series I bonds after my last post and realized my error. Thanks again.

I should also add that Clark Howard may be responsible for my Roth choices. I enjoy his radio show, and he convinced me Roth was the way to go.

Todd.M
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Re: What to do after maxing out 401k, IRA, and HSA?

Post by Todd.M » Thu Feb 23, 2017 2:09 pm

Thankyou inbox788. 529…kids are not in my future, taxable is looking like the way to go.

centrifuge41
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Re: What to do after maxing out 401k, IRA, and HSA?

Post by centrifuge41 » Thu Feb 23, 2017 2:26 pm

Your gf contributes traditional IRA and immediately converts to Roth, correct? (Backdoor Roth IRA). I think 155k income is too much to contribute natively to a Roth IRA, even if 18k + 3350 is contributed to 401k and HSA.

In a way, Roth 401k does pack more money into the account than a Traditional 401k. But the fair comparison is:
Roth 401k vs [Traditional 401k + side account (invested tax deductions)]. The Traditional 401k might not lose. With Trad, you can choose when to convert from Trad to Roth (e.g. low income years), and the taxes for conversion can come from the side account.

You two may be slightly under-invested in small and mid caps. But that could be a preference thing. Employer stock allocation is a bit high, but that could be because of the way your plan is set up.

With 7 years left on the mortgage, and a 3.75% rate, is there a way to do a no (or super low) fee refinance to something like a ~3.25% 15 year? or a 5/1 arm or 7/1 or 5/5 arm?

That aside, taxable investing with total stock or total intl stock indices aren't a bad thing to do. PM me if you need more ideas.

Todd.M
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Re: What to do after maxing out 401k, IRA, and HSA?

Post by Todd.M » Thu Feb 23, 2017 2:48 pm

“Your gf contributes traditional IRA and immediately converts to Roth, correct? (Backdoor Roth IRA).”

No, I am not doing the Roth conversion for her yet. I looked into it but got confused when I found she had existing IRA money (previous employer 401k rollover). I’m going to look into it again and get it done.

Here’s my current thinking-
My girlfriend just paid off her last student loan so the money that was going there will now go into a taxable account with Vanguard, probably into an index fund, not sure which one yet.

Thanks for the advice centrifuge41.

DSInvestor
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Re: What to do after maxing out 401k, IRA, and HSA?

Post by DSInvestor » Thu Feb 23, 2017 2:57 pm

Todd.M wrote:“Your gf contributes traditional IRA and immediately converts to Roth, correct? (Backdoor Roth IRA).”

No, I am not doing the Roth conversion for her yet. I looked into it but got confused when I found she had existing IRA money (previous employer 401k rollover). I’m going to look into it again and get it done.


She should look at her tax returns for every year that she made Traditional IRA contributions to see if they were deductible or non-deductible. Non-Deductible contributions (IRA basis) should be tracked in form 8606. Once she knows her IRA basis, she can check to see if her 401k will accept an inbound rollover from IRA. If so, this would allow her to isolate her IRA basis, avoid proration of IRA basis, and convert all of her IRA basis to Roth IRA with no tax cost.

TIRA deduction will show up on 1040 line 32. Non-deductible TIRA contributions are in form 8606. If form 8606 is not found, they can be filed separately. Prior year form 8606 can be found in the Forms and Pubs section of IRS.GOV.

Todd.M
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Re: What to do after maxing out 401k, IRA, and HSA?

Post by Todd.M » Thu Feb 23, 2017 3:12 pm

DSInvestor – Once again thank you.

I have some homework to do.

TIAX
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Re: What to do after maxing out 401k, IRA, and HSA?

Post by TIAX » Thu Feb 23, 2017 3:12 pm

Todd.M wrote:Thankyou inbox788. 529…kids are not in my future, taxable is looking like the way to go.


If you or your girlfriend plan to go back to school, 529s could make sense (especially if there's a state tax deduction).

Todd.M
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Re: What to do after maxing out 401k, IRA, and HSA?

Post by Todd.M » Thu Feb 23, 2017 3:17 pm

TIAX-
She already has a doctorate degree, and I’m not that smart. So no at this time, but thank you for your input.

inbox788
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Re: What to do after maxing out 401k, IRA, and HSA?

Post by inbox788 » Thu Feb 23, 2017 4:51 pm

Todd.M wrote:Thankyou inbox788. 529…kids are not in my future, taxable is looking like the way to go.

Ever? A 529 is additional tax advantaged space that you may want to put retirement funds into and when you have kids in college, put any new funds into retirement. Having 20+ years of tax-free gains and potentially other benefits is worth considering ahead of taxable account that won't be tapped for 20+ or 40+ years. Don't over do it, but what starts as a small contribution may grow exponentially.

BW1985
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Re: What to do after maxing out 401k, IRA, and HSA?

Post by BW1985 » Thu Feb 23, 2017 4:57 pm

Check if either employer allows after-tax 401k contributions, those can later be rolled into a Roth IRA. I had this option at my last employer and didn't understand it until I left. :oops:

Or, taxable.
"Squirrels figured out how to save eons ago. They buried acorns. Some, they dug up, for food. Others, they let to sprout, in new oak trees. We could learn from squirrels." -john94549

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Toons
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Re: What to do after maxing out 401k, IRA, and HSA?

Post by Toons » Thu Feb 23, 2017 5:37 pm

7 years, $130k remaining at 3.75%

Put it behind you as soon as you can :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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Pranav
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Re: What to do after maxing out 401k, IRA, and HSA?

Post by Pranav » Thu Feb 23, 2017 6:13 pm

Toons wrote:7 years, $130k remaining at 3.75%

Put it behind you as soon as you can :happy


+1
Pranav

Todd.M
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Re: What to do after maxing out 401k, IRA, and HSA?

Post by Todd.M » Fri Feb 24, 2017 8:23 am

inbox788 – Thanks for your input, I’ll keep it in mind even though I don’t think we’ll ever have children.

BW1985,
MY employer does allow after-tax 401k contributions.
In my employer’s 401k I have 3 options: Pre-Tax, Roth, and After Tax. I went with Roth because in the “After Tax” option earnings will be taxed at the time you withdraw them. I have not heard of the practice you’re describing, please direct me to where I can research it. Thanks for your advice.

Toons and Pranav – I hate being in debt so paying early on the mortgage does appeal to me. Thanks

Todd.M
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Re: What to do after maxing out 401k, IRA, and HSA?

Post by Todd.M » Fri Feb 24, 2017 8:45 am

I’m considering opening a taxable account with Vanguard and inventing in VTSAX (Vanguard Total Stock Market Index Fund Admiral Shares). Please let me know if there are better options I should consider like the ETF of this fund or something that is more tax efficient.

centrifuge41
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Re: What to do after maxing out 401k, IRA, and HSA?

Post by centrifuge41 » Fri Feb 24, 2017 12:23 pm

BW1985 wrote:Check if either employer allows after-tax 401k contributions, those can later be rolled into a Roth IRA. I had this option at my last employer and didn't understand it until I left. :oops:

Or, taxable.

Yeah, we call it the "mega backdoor Roth IRA". It is astoundingly good if it works well.
Ideal case (assuming no 401k company match for simplicity):
You load 18k into Trad/Roth 401k a year.
You load additional 36k into after-tax 401k a year.
Your plan allows in-service withdrawal so you can port that 36k from after-tax 401k to traditional (non-deductible IRA)
Then, you convert that IRA to Roth IRA before any (significant) gains occur

Then, that $ can grow tax-free, and be withdrawn tax-free! Way better than taxable investing, where you leak dividends every year (tax costs of ~0.3% or greater a year), and you also have to pay 15% capital gains tax (assuming brackets 25-35) when you sell.

Todd.M
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Re: What to do after maxing out 401k, IRA, and HSA?

Post by Todd.M » Fri Feb 24, 2017 1:49 pm

Thanks centrifuge41,
I was total unaware this existed, looking into it…

I am allowed to make non-roth after-tax contributions.
RSP is what my employer calls our retirement account.
It seems like it allows in-service non-hardship distribution…

WHAT IF I ROLL OVER RSP FUNDS?
A rollover is a direct or indirect transfer of all or a portion of an RSP withdrawal or distribution to another eligible
retirement plan.

Money that you roll over from the RSP generally won’t be taxed until you take it out of the other plan. However, if you roll
over amounts other than Roth contributions and earnings into a Roth IRA, you may be subject to current tax. This kind of
rollover, called a conversion, is explained more fully below.

Rollovers are also available to beneficiaries, but special rules may apply.

DIRECT VERSUS INDIRECT ROLLOVERS

If you elect a direct rollover — the RSP will make your withdrawal or distribution payable directly to the other retirement
program. No taxes will be withheld from any portion of the withdrawal or distribution that is directly rolled over (or from any
non-taxable portion that is paid to you).

If you don’t elect a direct rollover — 20% must automatically be withheld from the taxable portion of your withdrawal
or distribution for federal income taxes. You can still roll over the taxable portion within 60 days of receipt to avoid taxes;
however, keep in mind that you’ll need to make up, from your personal funds, the 20% withheld if you want to roll over the
entire taxable amount. When you file your annual tax return, your withholdings for the year will include the 20% withheld
from your RSP withdrawal or distribution. You may also be able to roll over the non-taxable portion of a distribution that is
paid to you (within 60 days of receipt).

ROTH CONVERSIONS
It’s possible to use a rollover to “convert” amounts in the RSP into Roth contributions in a Roth IRA.

For example, assume your account balance consists of pre-tax contributions, after-tax contributions, Company Matching
Contributions and earnings on all these amounts. If you no longer work for the Company (or any affiliate) you could take a
distribution of your entire account balance and roll it directly into a Roth IRA. You would have to pay taxes currently on the
earnings, your pre-tax contributions and the Company Matching Contributions (but not the after-tax contributions, since
those would have been taxed when contributed to the plan). However, the 10% early distribution tax and mandatory 20%
withholding wouldn’t apply, and a subsequent qualified distribution from the Roth IRA would be free from federal income
taxes, including any post-rollover earnings.

It is also possible to take a withdrawal or distribution and split it into two rollovers, one to a Roth IRA and the other to a
regular IRA. This could allow you to convert your after-tax RSP contributions to Roth contributions in a Roth IRA, while
avoiding current tax on the rest of your withdrawal or distribution which would be rolled over to the regular IRA. (Different
rules may apply if you have any existing regular IRAs when you do this kind of conversion.)

Note that a rollover of Roth contributions and earnings is not a conversion, and is subject to the regular rules described
above. For example, if a non-qualified Roth distribution is paid to you from the RSP, you’ll be taxed unless you roll the taxable
portion to another eligible retirement plan within 60 days.

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wander
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Re: What to do after maxing out 401k, IRA, and HSA?

Post by wander » Fri Feb 24, 2017 6:48 pm

Your income is not too high, either Roth or regular 401k is fine. Your gf's income is better with regular 401k. I think you can only contribute $3,350 - $3,400 for single HSA.

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