What to Do with Yearly Employer Bonus?

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agehibari
Posts: 27
Joined: Mon Feb 15, 2016 3:29 pm

What to Do with Yearly Employer Bonus?

Post by agehibari » Thu Jun 01, 2017 8:33 am

Hello all! My SO is receiving approx. 3k per year (before taxes, as far as we know) put straight into a TD Ameritrade account, where it sits as money market funds. Here's the situation for my SO:
Salary: 70k (basically already at the top of his earning capacity)
Age: 32
Bonus: 3k
Yearly Roth IRA contributions: $5,500 (no employer match for anything, so we just do roth because that's what we can afford to max)

So I'm wondering how we could wisely use the 3k he gets as a bonus every year. His boss will not consider moving the account somewhere else (like Vanguard). I don't know if we should start a 401k with that money or just invest it into index funds. We are currently saving for a down payment for a home, so it could also go toward a 20% down payment, maybe? What do you think would be best?
Happy to provide additional info if you need it!

ryman554
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Re: What to Do with Yearly Employer Bonus?

Post by ryman554 » Thu Jun 01, 2017 8:44 am

Use the bonus for extra savings. Don't rely on the bonus for needed expenses or as a future source of income. Treat it as a "surprise" every year and you will be well on your way.

As for what to do with it... do you have any debt? If so, pay it down. Do you have 3-6 month emergency fund? If not, add this money to that. Did you contribute to *both* roth accounts, assuming marriage? If not, do so. It sounds like you can withdraw the funds at any time. Move it to vanguard yourself. Or, since you are earmarking money for a down payment, then put this in that bucket. Get it out of TD and into your house fund -- which should be in CDs or a high-yield bank account, depending on the timeframe you are looking at.

It's all about your priorities.

If you will use (planned or emergency) the money in the next 3-5 years, then put is somewhere extremely safe.
If you have no specific future plans for the money other than "I want it to grow for the future", then invest according to your risk tolerance.

livesoft
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Re: What to Do with Yearly Employer Bonus?

Post by livesoft » Thu Jun 01, 2017 8:52 am

TD Ameritrade has many kinds of accounts, so we need to know what kind of account this is.

For instance, my spouse's employer has their 401(k) at TDAmeritrade. Profit sharing gets paid into that. It is a qualified plan and money just cannot be taken out and moved elsewhere.

I have a solo 401(k) at TDAmeritrade. We both have Roth IRAs, traditional IRAs and a joint taxable account at TDAmeritrade. I have an HSA at TDAmeritrade.

This is just to show you that you need to know the kind of account to know what one can do with it. I think it is unusual to have a bonus NOT paid out as a paycheck, so maybe this is not a standard bonus, but a profit-sharing or other kind of thing.

In our accounts, we signed up for the TDAmeritrade no-commission ETF deal, then we bought Vanguard ETFs with our money in those accounts.
Last edited by livesoft on Thu Jun 01, 2017 8:53 am, edited 1 time in total.
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IlliniDave
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Re: What to Do with Yearly Employer Bonus?

Post by IlliniDave » Thu Jun 01, 2017 8:53 am

At my employer we only get token profit sharing added to one of our biweekly checks. After taxes, the 401 contribution % is taken out and matched as if it were regular pay. The rest I move over to Vanguard and dump in the kitty. The amount has always been between 2% and 4% of base pay, so we're not talking about a game-changing amount of money here.
Don't do something. Just stand there!

agehibari
Posts: 27
Joined: Mon Feb 15, 2016 3:29 pm

Re: What to Do with Yearly Employer Bonus?

Post by agehibari » Thu Jun 01, 2017 9:17 am

ryman554 wrote:As for what to do with it... do you have any debt? If so, pay it down. Do you have 3-6 month emergency fund? If not, add this money to that. Did you contribute to *both* roth accounts, assuming marriage? If not, do so. It sounds like you can withdraw the funds at any time. Move it to vanguard yourself. Or, since you are earmarking money for a down payment, then put this in that bucket. Get it out of TD and into your house fund -- which should be in CDs or a high-yield bank account, depending on the timeframe you are looking at.
We do have debt -- he has 190k in student loans, and we are on a payment plan for forgiveness, as we've talked with other bogleheads and a number of financial-ites a LOT about how to handle that debt and came to the conclusion that preparing for the tax bomb is savvier. I was thinking that perhaps we could use this small account as the tax bomb savings, but my primary concern with that is that this account should be treated as an asset (assuming I'm understanding it right) when the insolvency evaluation comes.

In answer to your other questions, yes, we have an emergency fund, yes, we do contribute to both Roths (not married, but I contribute to my own and he maxes his himself), and as another poster said, I do think it's best to try to have Vanguard funds, so I may see if it's possible to hold those within this account.

agehibari
Posts: 27
Joined: Mon Feb 15, 2016 3:29 pm

Re: What to Do with Yearly Employer Bonus?

Post by agehibari » Thu Jun 01, 2017 9:19 am

livesoft wrote:This is just to show you that you need to know the kind of account to know what one can do with it. I think it is unusual to have a bonus NOT paid out as a paycheck, so maybe this is not a standard bonus, but a profit-sharing or other kind of thing.

In our accounts, we signed up for the TDAmeritrade no-commission ETF deal, then we bought Vanguard ETFs with our money in those accounts.
His boss has a history of doing everything in odd ways. It would be way easier to just give it via paycheck. :oops:

It's a bonus via commission; it's separate from his profit-sharing, and it's not put into a 401k. It's just sitting not doing anything in a TD account.

Jack FFR1846
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Re: What to Do with Yearly Employer Bonus?

Post by Jack FFR1846 » Thu Jun 01, 2017 9:24 am

If the TDAmeritrade account has access to ETFs, they're (in my opinion) the best place to hold Vanguard ETFs. I hold VTI at TDA myself using the free ETF sign up. Why do I say it's the best place to hold them? I get the great Vanguard ETF while enjoying 24/7 support at TDA, online chat, a website where everything is possible (yes, I know it's set up for traders and cluttered as a hoarder's house) and a phone call anytime of day or night is answered in less than a minute......or go to one of their brick and mortar offices.
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centrifuge41
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Re: What to Do with Yearly Employer Bonus?

Post by centrifuge41 » Thu Jun 01, 2017 9:41 am

Yeah, TD Ameritrade has fee-free ETFs, including a lot of Vanguard ETFs. Need to enroll before buying though. Should be an easy one-click option.

Of course, you may prioritize debt pay-down, or making sure the emergency fund is set. That's ok too.

livesoft
Posts: 57156
Joined: Thu Mar 01, 2007 8:00 pm

Re: What to Do with Yearly Employer Bonus?

Post by livesoft » Thu Jun 01, 2017 10:59 am

agehibari wrote:His boss has a history of doing everything in odd ways. It would be way easier to just give it via paycheck. :oops:
Well, one can set up ACH transfer to your checking account in about a day, so it is really not hard having at TD Ameritrade. So boss opened an account at TDAmeritrade with husband's SSN and personal information? Did husband sign something that said boss could do that?
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ryman554
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Re: What to Do with Yearly Employer Bonus?

Post by ryman554 » Fri Jun 02, 2017 9:56 am

agehibari wrote: In answer to your other questions, yes, we have an emergency fund, yes, we do contribute to both Roths (not married, but I contribute to my own and he maxes his himself), and as another poster said, I do think it's best to try to have Vanguard funds, so I may see if it's possible to hold those within this account.
This money should not be invested in risky funds. You are buying a house soon AND you are relying on loan forgiveness programs -- which aren't guaranteed, depending on if you decide to switch jobs.

I'm assuming you can get the money out of TD, so just ACH it over to your bank account.

If you really want vangaurd funds, then open an account at vanguard and deposit it once it reaches your bank.

agehibari
Posts: 27
Joined: Mon Feb 15, 2016 3:29 pm

Re: What to Do with Yearly Employer Bonus?

Post by agehibari » Fri Jun 02, 2017 10:07 am

ryman554 wrote:
agehibari wrote: In answer to your other questions, yes, we have an emergency fund, yes, we do contribute to both Roths (not married, but I contribute to my own and he maxes his himself), and as another poster said, I do think it's best to try to have Vanguard funds, so I may see if it's possible to hold those within this account.
This money should not be invested in risky funds. You are buying a house soon AND you are relying on loan forgiveness programs -- which aren't guaranteed, depending on if you decide to switch jobs.

I'm assuming you can get the money out of TD, so just ACH it over to your bank account.

If you really want vangaurd funds, then open an account at vanguard and deposit it once it reaches your bank.
"Soon" may be a little longer than average -- we refuse to buy until we have 20%, no matter how long that takes to save. So in the meantime, we'll stick to renting, and he's just doing his best to be great at his job and impress his boss so that he can move up in a small office with little upward mobility. It's one of those places where you either stay where you're at (the 70k, which is high-end average for his field) or you suddenly rocket up to 200k if you're the lucky 1%. He's doing his best to be the 1%. :)

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