Clueless on taxes but have luxury of both 403b and 457 space

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Topic Author
BashDash
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Clueless on taxes but have luxury of both 403b and 457 space

Post by BashDash »

Emergency funds: 170k( see below in ally 1.5% NO PENALTY CD)

Debt:
no student, CC, or car debt ( two healthy cars, one of them just purchased new to drive forever)
rental condo debt: 155K at 4.5% currently being rented to lose 100$ per month. ( taxes 6k ). This was purchased for 315k and we have an all cash offer accepted to sell for 190k in a month. Don’t like being landlords anymore and feel this is best move. Please see my accidental landlord posts.
current residence debt: 230K at 4% ( taxes 10k)

Tax Filing Status: married, 2 small children
Tax Rate: Each of us have 106k salary but only one is working currently due to maternity. I am very confused on our tax rate; hence this post :)
State of Residence: NY
Age: Upper 30s
Desired Asset allocation: 60/40. 20 percent in international.

Taxable

10k in checking account.
160k in ally savings no penalty cd ( 1.5% )

110k in Merril Edge. I would say the whole account is probably yielding 4%. 30k of the 90k is earnings. DRIP is turned off. I am purchasing VTI occasionally with dividends through commission free trades. Thinking of liquidating this over time and indexing. Holding on to it is more emotional than intelligent. Most were purchased during 2008 sell off so most cost basis are very good with accidentally high dividends. I kind of look like it as a large cap fund ( very small though in 20 stocks )

Pension:
Percent of final average salary. NYSTR

College NY 529 plan
50K in vanguard funds and contributing 350$ per month.
Vanguard Institutional Total Stock Market Index Fund 70%
Vanguard Total International Stock Index Fund 30%

Tax Deferred:

His 403B with Security Benefit “Direct Invest”: 105k
48% Vanguard Total Stock Market Index Admiral (.04 ER)
12% Vanguard Total Stock Market International Index (.11ER)
40% Vanguard Total Bond Market Index Admiral (.05 ER)
New Contributions: $1100 a month for 12 months

Her 403B with Security Benefit “Direct Invest”: 75k
48% Vanguard Total Stock Market Index Admiral (.04 ER)
12% Vanguard Total Stock Market International Index (.11ER)
40% Vanguard Total Bond Market Index Admiral (.05 ER)
No current contributions due to maternity.

His NY 457 plan:18k ( recently started end of last calendar year.)
Same asset allocation as 403b. The fund names just changed from Vanguard to even lower fee Collective Trusts so I still need to research the exact names.
New Contributions: 18k per year max.

Her 457 plan: 6k
100% Vanguard Wellington VWENX (.18 ER)
Plan to max to the 18,000 per year but none made this calendar year due to maternity.

His and her Roth IRA: 12k each
Vanguard balanced index admiral

Other points of interest:
3k per year in deduction for flex dependent.
I am currently filing for state and federal as “married 1 exempt” although I’m embarrassed that I don’t quite understand what that means.


Questions and comments:
After being clueless for years about my tax advantaged space I know realize the luxury of having both 18k in the 403b and 18k in the 457 plan. I also ( thanks to bogleheads) searched out low fee providers throughout a muddled mess. I know want to somehow take advantage of it as best as possible and pay the least amount of taxes.

1)How can I do this best currently with only one income?
2) What about when my wife starts working again? Right now, my plan is to not have a plan and toss as much money in as possible in our 457. Right now, we can afford to deplete our bloated emergency fund.
3) Can the sale of this rental condo for a huge loss have any impact on the next few years?
4) Please let me know if there is any other info I should provide. I want to tackle this and learn just like I did when I was clueless on my 403b!

Would love to have the option of retiring at 55 when we can but we like our job and realize those would be our high income years.

Thanks again!
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czeckers
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Re: Clueless on taxes but have luxury of both 403b and 457 space

Post by czeckers »

Assuming she is not out for the entire year of 2017, your wife will still have some income for the tax year so she'll be able to contribute to her retirement accounts.

457 accounts are slightly different depending on whether the employer is a government employer or a non-profit. I know for a non-profit, the 457 is considered deferred compensation and could be subject to creditors should the employer declare bankruptcy. Thus, you always want to max out the 403b before you contribute to the 457. Some employers have that requirement anyway.

There is also the Roth IRA/backdoor Roth option if you do not have any other IRA accounts. You can contribute directly to your own as well as your non-working spouse's Roth IRA up to the max of $5,500 ($6,500 age 50 and above). This starts to phase out at a household income of $118,000/yr. However, you can still do a backdoor contribution by first contributing to a non-tax deductible traditional IRA (after tax dollars), and rolling it over to a Roth IRA. There are some nuances about his process, but thefinancebuff.com has a really good article on it.

Note: I'm not a tax expert so you should confirm everything I've said on your own.
The Espresso portfolio: | | 20% US TSM, 20% Small Value, 10% US REIT, 10% Dev Int'l, 10% EM, 10% Commodities, 20% Inter-term US Treas | | "A journey of a thousand miles begins with a single step."
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czeckers
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Re: Clueless on taxes but have luxury of both 403b and 457 space

Post by czeckers »

BTW, it looks like you are living on a relatively small percentage of your income so tax-deferred accounts are great for you. You get to save on taxes at your current marginal rate. With two 6-figure incomes that's a good bit of tax savings. However, if your expenditures in retirement will be lower than your current income, you'll pay taxes at a much lower rate on the withdrawals.
The Espresso portfolio: | | 20% US TSM, 20% Small Value, 10% US REIT, 10% Dev Int'l, 10% EM, 10% Commodities, 20% Inter-term US Treas | | "A journey of a thousand miles begins with a single step."
Topic Author
BashDash
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Re: Clueless on taxes but have luxury of both 403b and 457 space

Post by BashDash »

Thanks for the reply! I was using the 457 because of the fact that in an emergency if I had to stop working before 59 then I would be able to access the money penalty free.

My wife is not working any of 2017 and possibly beginning of 2018.
Mudpuppy
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Re: Clueless on taxes but have luxury of both 403b and 457 space

Post by Mudpuppy »

BashDash wrote: Thu Sep 07, 2017 4:34 pm Thanks for the reply! I was using the 457 because of the fact that in an emergency if I had to stop working before 59 then I would be able to access the money penalty free.
That's fine. And if it is a government plan, you don't have to worry about creditors. Assets in a governmental 457(b) plan are held in trust for the employees. That means the assets belong to the employees and cannot be touched by the employer's creditors. On the other hand, assets in a non-governmental 457 plan (like a non-profit plan) belong to the employer and could be seized by the employer's creditors.
PaulF
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Re: Clueless on taxes but have luxury of both 403b and 457 space

Post by PaulF »

czeckers wrote: Thu Sep 07, 2017 2:30 pm There is also the Roth IRA/backdoor Roth option if you do not have any other IRA accounts. You can contribute directly to your own as well as your non-working spouse's Roth IRA up to the max of $5,500 ($6,500 age 50 and above). This starts to phase out at a household income of $118,000/yr. However, you can still do a backdoor contribution by first contributing to a non-tax deductible traditional IRA (after tax dollars), and rolling it over to a Roth IRA. There are some nuances about his process, but thefinancebuff.com has a really good article on it.
I think the phaseout starts at $186k for married filing jointly, and this is for MAGI (which will be a lot lower than your gross income, due to your deferrals).
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BL
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Re: Clueless on taxes but have luxury of both 403b and 457 space

Post by BL »

I assume you have a tax preparer since you say you don't know much about taxes. I would encourage you to visit this (or other CPA or enrolled agent) person ASAP to figure out the tax consequences before the end of the year in case there is something you can do this year to take advantage of it (assuming it is a loss) For instance, if you have CGs in funds you want to clean up, this may be the year to sell, or maybe it doesn't make any difference.

If you expect a pension, you may consider switching to Roth for some/all of your work accounts. Save on taxes now, or in retirement.

Get out last year's 1040 and see AGI, taxable income (Line 43, pg.2)
(look up tax bracket based on line 43), and total tax. Run a tax estimator such as Taxcaster, and do some "what-if's". Even if you have someone do your taxes, it is important to understand them so you can make smart decisions (January is too late for most decisions for the past year).

Governmental 457s are great, and give you options.
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BashDash
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Re: Clueless on taxes but have luxury of both 403b and 457 space

Post by BashDash »

Op here. Thanks for all the replies. I am grateful. Yes it is a governmental 457. The NYS deferred compensation plan. I checked out line 43 and it was 72k. This was with wife only working half year in 2016. In 2017 she won't work at all. We both make 104k exactly when working. I guess my main goal is to defer enough to keep us eligible for the Roth when we are both working.
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Peter Foley
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Re: Clueless on taxes but have luxury of both 403b and 457 space

Post by Peter Foley »

As to your tax bracket . . .

The top of the 15% federal bracket is $75,900 in taxable income. A standard deduction is $12,700 in 2017 and each exemption is $4050.

So with one of you working 104,00 AGI - (12700 + 16200) = $75,100. That is just under the top of the 15% bracket. If you itemize your deductions you probably are comfortably within the 15% bracket. Since this is temporary, I would do Roths while you are at this lower rate and then switch to tax deferred once your wife returns to work and you are in the 25% bracket.
livesoft
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Re: Clueless on taxes but have luxury of both 403b and 457 space

Post by livesoft »

I wonder if with your income, retirement contributions, and children that you would be able to take advantage of several tax credits including the EITC and thus pay no income taxes and actually have the government pay you money, too. You would probably have to contribute lots to your retirement accounts, but it would probably be worth it.

Just thinking about that alone should get you to stop being clueless about taxes and learn how they work.

Oh, BL mentioned both AGI and taxable income. They are different and on different lines on a Form 1040.
Last edited by livesoft on Sat Sep 09, 2017 5:14 pm, edited 1 time in total.
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Topic Author
BashDash
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Re: Clueless on taxes but have luxury of both 403b and 457 space

Post by BashDash »

Is it bad to do Roths and tax deferred like I have been doing? I was trying to make it a ritual for us to do roths every year like clockwork.
Topic Author
BashDash
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Re: Clueless on taxes but have luxury of both 403b and 457 space

Post by BashDash »

Livesoft: it's funny you mention EITC. I saw a post from the frugal professor regarding this and thought it might be an opportunity. I just need to dive in an educate myself.
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teen persuasion
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Re: Clueless on taxes but have luxury of both 403b and 457 space

Post by teen persuasion »

livesoft wrote: Sat Sep 09, 2017 5:12 pm I wonder if with your income, retirement contributions, and children that you would be able to take advantage of several tax credits including the EITC and thus pay no income taxes and actually have the government pay you money, too. You would probably have to contribute lots to your retirement accounts, but it would probably be worth it.

Just thinking about that alone should get you to stop being clueless about taxes and learn how they work.

Oh, BL mentioned both AGI and taxable income. They are different and on different lines on a Form 1040.
Not likely eligible for EITC, though it would be nice if they were - NY matches EITC at 30%. Their taxable investment income and interest would disqualify them, and it doesn't appear they could get line 7 wages AND AGI below ~$50k where EITC begins to phase out for 2 kids.

NY matches CTC at 33%, if the kids are old enough. For some strange reason, NY doesn't match on kids under 4. :confused
Topic Author
BashDash
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Re: Clueless on taxes but have luxury of both 403b and 457 space

Post by BashDash »

Maybe it won't be so hard to get to 50k? We were at 74k with my wife working half a year? I also have a huge loss coming from a sale of a condo. Haven't lived there in 5 years but purchased in 2007 for 320k and most likely selling for 190k ( yikes!).
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BL
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Re: Clueless on taxes but have luxury of both 403b and 457 space

Post by BL »

I believe you have to add depreciation back into cost basis when you sell. See a good tax person.
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BashDash
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Re: Clueless on taxes but have luxury of both 403b and 457 space

Post by BashDash »

This may be the year to unwind some of my taxable brokerage with capital gains and get the, into index funds. Also, the ny 529 lets me deduct up to 10k I'm thinking I can get really close to 50k. What would that mean if I can pull that off? I'm just thinking I can easily do 106k -36k in 403b/457 deductions and then go from there.
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teen persuasion
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Re: Clueless on taxes but have luxury of both 403b and 457 space

Post by teen persuasion »

Is your investment income > $3400? If yes, you are not eligible for EITC.

The contributions to NY529 will only reduce NY taxable income, not federal taxable income.
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CyclingDuo
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Re: Clueless on taxes but have luxury of both 403b and 457 space

Post by CyclingDuo »

BashDash wrote: Thu Sep 07, 2017 2:04 pm Emergency funds: 170k( see below in ally 1.5% NO PENALTY CD)

Debt:
no student, CC, or car debt ( two healthy cars, one of them just purchased new to drive forever)
rental condo debt: 155K at 4.5% currently being rented to lose 100$ per month. ( taxes 6k ). This was purchased for 315k and we have an all cash offer accepted to sell for 190k in a month. Don’t like being landlords anymore and feel this is best move. Please see my accidental landlord posts.
current residence debt: 230K at 4% ( taxes 10k)

Tax Filing Status: married, 2 small children
Tax Rate: Each of us have 106k salary but only one is working currently due to maternity. I am very confused on our tax rate; hence this post :)
State of Residence: NY
Age: Upper 30s
Desired Asset allocation: 60/40. 20 percent in international.

Taxable

10k in checking account.
160k in ally savings no penalty cd ( 1.5% )

110k in Merril Edge. I would say the whole account is probably yielding 4%. 30k of the 90k is earnings. DRIP is turned off. I am purchasing VTI occasionally with dividends through commission free trades. Thinking of liquidating this over time and indexing. Holding on to it is more emotional than intelligent. Most were purchased during 2008 sell off so most cost basis are very good with accidentally high dividends. I kind of look like it as a large cap fund ( very small though in 20 stocks )

Pension:
Percent of final average salary. NYSTR

College NY 529 plan
50K in vanguard funds and contributing 350$ per month.
Vanguard Institutional Total Stock Market Index Fund 70%
Vanguard Total International Stock Index Fund 30%

Tax Deferred:

His 403B with Security Benefit “Direct Invest”: 105k
48% Vanguard Total Stock Market Index Admiral (.04 ER)
12% Vanguard Total Stock Market International Index (.11ER)
40% Vanguard Total Bond Market Index Admiral (.05 ER)
New Contributions: $1100 a month for 12 months

Her 403B with Security Benefit “Direct Invest”: 75k
48% Vanguard Total Stock Market Index Admiral (.04 ER)
12% Vanguard Total Stock Market International Index (.11ER)
40% Vanguard Total Bond Market Index Admiral (.05 ER)
No current contributions due to maternity.

His NY 457 plan:18k ( recently started end of last calendar year.)
Same asset allocation as 403b. The fund names just changed from Vanguard to even lower fee Collective Trusts so I still need to research the exact names.
New Contributions: 18k per year max.

Her 457 plan: 6k
100% Vanguard Wellington VWENX (.18 ER)
Plan to max to the 18,000 per year but none made this calendar year due to maternity.

His and her Roth IRA: 12k each
Vanguard balanced index admiral

Other points of interest:
3k per year in deduction for flex dependent.
I am currently filing for state and federal as “married 1 exempt” although I’m embarrassed that I don’t quite understand what that means.


Questions and comments:
After being clueless for years about my tax advantaged space I know realize the luxury of having both 18k in the 403b and 18k in the 457 plan. I also ( thanks to bogleheads) searched out low fee providers throughout a muddled mess. I know want to somehow take advantage of it as best as possible and pay the least amount of taxes.

1)How can I do this best currently with only one income?
2) What about when my wife starts working again? Right now, my plan is to not have a plan and toss as much money in as possible in our 457. Right now, we can afford to deplete our bloated emergency fund.
3) Can the sale of this rental condo for a huge loss have any impact on the next few years?
4) Please let me know if there is any other info I should provide. I want to tackle this and learn just like I did when I was clueless on my 403b!

Would love to have the option of retiring at 55 when we can but we like our job and realize those would be our high income years.

Thanks again!
We just wanted to point out how well you are doing! Kudos and great job on your financial picture at this point in your lives.

MAGI for married filed jointly has to be $186K or less to get the full ROTH IRA, and then phases out how much you can contribute over that. MAGI includes rental income/losses and your dividend income in your taxable. Obviously, the best way to keep this low when your wife is working again is to max out the pre-tax contributions to the 403b and 457 plans. You are both allowed to max out $18K in each, for a grand total of $72K for your household. Even if your combined salaries would be $200-$210K, the pre-tax deductions of $72K will take you down under the threshold of the current $186K and allow you to contribute the max to a ROTH IRA for both of you in addition to your 403b/457 plans.

Your upcoming real estate sale at a loss will be taken this calendar year as a deduction (sense it was an investment property) providing plenty of "cover" to lower your taxes with the capital loss - especially on one salary this year. Good time to take those stock gains in the taxable if that is something you really want to do and move the money into tax efficient TSM and or Total International. At the very least - it could be used to "restart" your cost basis for all or most of those investments. 8-) If you own Berkshire Hathaway (no dividends), hang on to that as it is a great cost efficient investment in taxable.

All in all, the 2017 tax burden is going to be minimal if not a refund. Obviously, you need to run all of the numbers for that. Hopefully, you have all receipts of any remodel/improvements you have done on the rental property over the years. You will want to include those in the loss.

Again - you guys are doing great! Congratulations on the child - and the amount you have set aside already in the 529! Well done for sure.

Going forward, once the maternity leave is over, if you can swing all the pre-tax deductions of $72K in the 403b/457 accounts, as well as max out the ROTH IRA's and still have enough to live very comfortably - you are well on your way to your age 55 FIRE goal. You mention upper 30's, so let's say you are age 39 now and that 55 is 16 years away. Even if your income did not go up, that would be contributions of $83K per year (403b/457/Roth) for both of you until age 49, and then $109K the last five years (due to the current $24K limit and $6500 limit for age 50 and above). The first 11 years would be $913K in contributions, the last 5 years would be $545K for a grand total of $1,458,000 in principal alone. This is on top of the half a million+ you have already established. Add in returns and things look rather smooth sailing if you stay on track to hit your goal.
"Save like a pessimist, invest like an optimist." - Morgan Housel | "Pick a bushel, save a peck!" - Grandpa
Topic Author
BashDash
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Re: Clueless on taxes but have luxury of both 403b and 457 space

Post by BashDash »

Wow cyclingduo thanks for such a detailed response and kind words. When I saw you responded I was intrigued and honored. I follow a lot of your posts as you advocate for low fees in the education retirement system. I have become passionate about that too. I also always like your approach to living life while you are working and saving for things in taxable to enjoy like travel and life in general.

Your post gave us some confidence during a time where we were lacking a little. Selling a condo and taking a 100k plus loss is quite emotional blow. Although it is definetly a good decision and will free us up from liabilities and also 300-400$ a month in loss! ( plus aggravation!)

I'm a little daunted by possibly saving 72k per year plus the roths. I'm wondering if we can afford our daily life and travel? Our plan recently has been just max and then figure everything else out later.

I've been considering stopping the 529 contributions or lowering and using the ROTH as that vehicle for college. Gives us flexibility. Not sure if 11k a year would be enough for two kids? Maybe. Maybe not though. Or maybe just cash flow it thru working. I/we will be at high earning years around that time and we like our jobs so it wouldn't be a big deal to work past 55. Even just one of us could.

I'm a little nervous about unwinding my taxable stocks. I made a few posts on that a while back but I have to investigate my current tax situation. Its not going to be as easy as just sell and buy and I pay no capital gains taxes right? Brkb is one of my stocks like you mentioned. So is: sbux waste management, Deere, dunkin, Home Depot, visa MasterCard, cedar fair, Verizon, diageo, apple, alibaba, Disney, VTI, And Nike.

It wouldn't be so emotional to just switch to index USA and international because I just don't think my picks will beat the market. I did purchase during 2008 crisis on purpose so I have cap gains.

Thanks again for your detailed response. Keep on advocating for the teachers. Your most recent 403b New Jersey post was amazing.
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CyclingDuo
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Re: Clueless on taxes but have luxury of both 403b and 457 space

Post by CyclingDuo »

BashDash wrote: Sun Sep 10, 2017 6:58 pmYour post gave us some confidence during a time where we were lacking a little. Selling a condo and taking a 100k plus loss is quite emotional blow. Although it is definetly a good decision and will free us up from liabilities and also 300-400$ a month in loss! ( plus aggravation!)

Understood on the emotional blow. We took a capital loss in the dot.com bubble aftermath. :shock: Sounds like you will be fine and recover with the lesson learned.

I'm a little daunted by possibly saving 72k per year plus the roths. I'm wondering if we can afford our daily life and travel? Our plan recently has been just max and then figure everything else out later.

Well, there is no need to set aside that much each year as daily life, travel, family experiences, etc.. are super important. Finding a good balance is key. We only get one chance to enjoy this journey called life, so removing the goal of FIRE at 55 gives you plenty of leeway to meet all of your goals. If you are going to work beyond 55, then you really don't need to be super saving all of that right now for retirement to the detriment of your household cash flow. Just dial in a solid 50/20/30 budget and enjoy. Some years you can save more than 25%, others dial it back. I'm 55 and still enjoy my work, so have no plans to pull the plug on that for however long I can stay at it. My wife has a definite target set for her, but I am not setting any target just yet. We bumped up our savings last year (25% of gross) and this year (64% of gross) to be more towards super-saving due to the college years finally winding down for our children, and becoming official empty nesters in August of this year freeing up our cash flow. So we bumped it up simply because we could. Having Summers off certainly makes it easier to extend the working career as we've been practicing retirement every Summer for decades. 8-) That's a huge benefit to teaching worth its weight in gold. Find your balance of saving and living life - and just keep having at it.

I've been considering stopping the 529 contributions or lowering and using the ROTH as that vehicle for college. Gives us flexibility. Not sure if 11k a year would be enough for two kids? Maybe. Maybe not though. Or maybe just cash flow it thru working. I/we will be at high earning years around that time and we like our jobs so it wouldn't be a big deal to work past 55. Even just one of us could.

Yes, $11K a year for two kids should be enough! Your base is already $50k, and you will get a decade to 15 years+ of growth, dividend reinvestment to hopefully match any inflation in tuition between now and when they begin college. If you feel you are saving too much and want to cash flow more of it at the time, that's always an option to cut back a bit on your current savings. Especially during a year when you only have one income. The main thing is to figure out a budget that really works for you on the dual income as the maternity leave will soon transition back to a dual income household.

I'm a little nervous about unwinding my taxable stocks. I made a few posts on that a while back but I have to investigate my current tax situation. Its not going to be as easy as just sell and buy and I pay no capital gains taxes right? Brkb is one of my stocks like you mentioned. So is: sbux waste management, Deere, dunkin, Home Depot, visa MasterCard, cedar fair, Verizon, diageo, apple, alibaba, Disney, VTI, And Nike.

It wouldn't be so emotional to just switch to index USA and international because I just don't think my picks will beat the market. I did purchase during 2008 crisis on purpose so I have cap gains.

Holding individual stocks doesn't mean the goal has to be "beating the market". Most have a diverse portfolio with the idea of marking or matching the market (pretty much the same as index investing). The capital loss of real estate will offset any stock sale capital gains. So if you have $100k+ in the real estate loss, you could offset that with $100k in cap gains and owe nothing to the IRS. Even if you wanted to hold the same exact stocks (which you could buy right back due to taking gains as opposed to losses on the stocks), it would be a time to utilize the loss to offset the gains and "reset" for a new cost basis. That's a gift worth taking and absolutely helps remove the emotional blow of the real estate loss. :beer It's also a good time to really evaluate the basket of stocks you are holding and compare it to any shopping list of index funds or other stocks you feel would be worthwhile for future growth. (Disclaimer: we own Apple, Berkshire, Verizon, and Home Depot from your list.)

Thanks again for your detailed response. Keep on advocating for the teachers. Your most recent 403b New Jersey post was amazing.

I ride bikes with a couple of higher up bean counters who work at Voya. Believe me, they get an earful from me including mentioning every ride how much less we pay for our funds at TIAA and VALIC than Voya charges. :mrgreen:
"Save like a pessimist, invest like an optimist." - Morgan Housel | "Pick a bushel, save a peck!" - Grandpa
Topic Author
BashDash
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Joined: Mon Nov 28, 2016 11:31 am

Re: Clueless on taxes but have luxury of both 403b and 457 space

Post by BashDash »

Thanks again for another detailed reply!

It is nice to get a response that we are doing really well. One of the difficult things about reading Bogleheads sometimes is seeing people my age with like 600-700k in their retirement accounts along with another 400-500k in their taxable. It makes us actually feel very behind!


I think we should lower our 529 plan or nix them completely and use our roth as our college vehicle. Flexibility is key!

One quick question. You ran some numbers getting us close to 1.5 million around age 55 if maxing everything. Would you consider a pension into this at all? We would both be NYS tier 4 teachers. I know a pension is not guaranteed but should it play into our thinking at all?

https://www.nystrs.org/Active-Members/S ... Milestones

Thanks for staying on top of your bike partners. I paid unnecessary fees to VOYA for 14 years :(.
Mudpuppy
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Re: Clueless on taxes but have luxury of both 403b and 457 space

Post by Mudpuppy »

BashDash wrote: Tue Sep 12, 2017 11:43 am It is nice to get a response that we are doing really well. One of the difficult things about reading Bogleheads sometimes is seeing people my age with like 600-700k in their retirement accounts along with another 400-500k in their taxable. It makes us actually feel very behind!
Those folks are definitely the extreme outliers in the retirement data set. Even you and your family are outliers because you have more than a few thousand saved. To put things in a more realistic perspective, the average 30-something has less than $70k saved for retirement, and the median account balance is <$10k, according to a study published this spring: https://www.cnbc.com/2017/04/07/how-muc ... y-age.html

For an even more sobering perspective, the average American cannot deal with an emergency $2000 bill without having to put it on credit cards. You could deal with something 10x that expensive with just your cash and taxable savings.

You're doing just fine.
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CyclingDuo
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Re: Clueless on taxes but have luxury of both 403b and 457 space

Post by CyclingDuo »

BashDash wrote: Tue Sep 12, 2017 11:43 am Thanks again for another detailed reply!

It is nice to get a response that we are doing really well. One of the difficult things about reading Bogleheads sometimes is seeing people my age with like 600-700k in their retirement accounts along with another 400-500k in their taxable. It makes us actually feel very behind!

As Mudpuppy points out, those you reference are more "the exception" than the rule. Many of those are a result of a career with a higher income, and or inheritance, etc... . You are doing quite well, so don't fret.

I think we should lower our 529 plan or nix them completely and use our roth as our college vehicle. Flexibility is key!

Not a bad plan to use the ROTH as well.

One quick question. You ran some numbers getting us close to 1.5 million around age 55 if maxing everything. Would you consider a pension into this at all? We would both be NYS tier 4 teachers. I know a pension is not guaranteed but should it play into our thinking at all?

Yes it should play into your thinking.

That projection was based on principal alone of maxing out your 403b's/457's/and ROTH IRAs. It did not include pensions.

Pensions and SS cannot be sold, so you have to think of them as sources of steady income you will receive every month in retirement. Looks like your pensions include COLA, so they will act like - at least in theory - a TIPS Bond. Although it is so long off until the day you retire, any stab at guessing your annual needs/expenses is going to be a bit wild to figure out at this point - especially with little children and your current household needs/expenses. However, as you age and get more years under your belt in life, figuring out what your annual needs/expenses are going to be should become less of a wild guess as it is at this point. At that point, you will utilize a formula where you know that the pensions and SS will cover a certain amount, and that the amount not covered by the pensions and SS will be met with an annual amount withdrawn from your investment portfolio. Your dual pension, and dual SS most likely will meet a lot of your needs giving you plenty of flexibility with your other investments.

https://www.nystrs.org/Active-Members/S ... Milestones

Nice payout at that 30 years of credit!!

If you are a Tier 2, 3 or 4 member, you can retire without an age-related reduction to your pension factor when you attain 30 years of credit or reach age 62.

If you retire under Tier 4, you will receive an additional 1.5% per year toward your pension factor for each year of credit beyond 30 years.


Thanks for staying on top of your bike partners. I paid unnecessary fees to VOYA for 14 years :(.

So you are one of those that helped pay for their fancy carbon bikes? :mrgreen:
"Save like a pessimist, invest like an optimist." - Morgan Housel | "Pick a bushel, save a peck!" - Grandpa
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BashDash
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Re: Clueless on taxes but have luxury of both 403b and 457 space

Post by BashDash »

I'm a little confused on what a pension factor is? This has something to do with my final average salary of my highest salaries? Thanks!
Mudpuppy
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Re: Clueless on taxes but have luxury of both 403b and 457 space

Post by Mudpuppy »

BashDash wrote: Thu Sep 14, 2017 1:48 pm I'm a little confused on what a pension factor is? This has something to do with my final average salary of my highest salaries? Thanks!
In simple terms, a pension factor is the multiplier for the years of service credit which determines your overall pension percentage. Let's say you have a 2% pension factor for 25 years of service. That means your pension would be 2x25 = 50% of your average salary for purposes of pension calculations.

NYSTRS makes it more complicated, because the pension factor depends on when you were hired (what tier of the pension plan you're in), how many years of service credit you have, and your age at retirement. Refer to pages 22-32 of https://www.nystrs.org/NYSTRS/media/PDF ... ndbook.pdf
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BashDash
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Re: Clueless on taxes but have luxury of both 403b and 457 space

Post by BashDash »

Thanks Mudpuppy! Wow I was just scanning those pages and my head started spinning. Not quite as confusing as the 403b prospectus' I had to scan through last year though :). Thanks to BH's for helping me sort this stuff out.


Thanks again.
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BashDash
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Re: Clueless on taxes but have luxury of both 403b and 457 space

Post by BashDash »

Found this post from one of my favorite blogs.

http://www.millionaireeducator.com/2016 ... money.html


I am a little confused on how to find the "sweet spot" of paying taxes. These will be very different when my wife is working compared to right now with just me. Is there a part of my paycheck I should look to help me? I guess it makes sense that we find out family budget. Don't want to over contribute and not be able to afford daily life. Yes we have 36k avail to defer but that seems a little unrealistic to defer like the author of the post. Especially in a pretty HCOL area we live.

I guess I need to find a balance where I can support my family's daily life while paying the least tax possible.

Thanks to all for helping me brainstorm and your patience with some of my very novice questions.
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CyclingDuo
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Re: Clueless on taxes but have luxury of both 403b and 457 space

Post by CyclingDuo »

BashDash wrote: Tue Sep 19, 2017 5:00 pm Found this post from one of my favorite blogs.

http://www.millionaireeducator.com/2016 ... money.html


I am a little confused on how to find the "sweet spot" of paying taxes.

Run them using the standard deduction and exemptions. Then run them using the itemized deductions version to see which hits your 'sweet spot'. We've usually done better with itemized deductions as a dual income household with two children, as we typically give at least 5% of our gross income to charities each year.

These will be very different when my wife is working compared to right now with just me. Is there a part of my paycheck I should look to help me? I guess it makes sense that we find out family budget. Don't want to over contribute and not be able to afford daily life. Yes we have 36k avail to defer but that seems a little unrealistic to defer like the author of the post. Especially in a pretty HCOL area we live.

Yes, you do not want to over-save and be left with too little for daily life. Luckily, through your HR you can increase or decrease the amount you have deducted pre-tax from your paycheck that goes into the 403/457. Probably wise to start out at a respectable percentage (say 20%) of your gross income. See how that works for a month or two with the daily life budget. If you have plenty left over at the end of the month, then contact HR to change the amount that is being deducted. Keep adjusting up until you find the "sweet spot" of how much each can contribute. Maybe it won't be the full $18K each. Maybe it will only be $7K each, or $10K, or $15K. No worries as you have to pay for your daily life now as well as save for the retirement. You might even be able to adjust the amount you have deducted online. I know I have to go into HR and fill out an actual form and sign it before they make adjustments. My wife can simply make a phone call to her HR and do it over the phone.

I guess I need to find a balance where I can support my family's daily life while paying the least tax possible.

Yup.

Thanks to all for helping me brainstorm and your patience with some of my very novice questions.
"Save like a pessimist, invest like an optimist." - Morgan Housel | "Pick a bushel, save a peck!" - Grandpa
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BashDash
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Re: Clueless on taxes but have luxury of both 403b and 457 space

Post by BashDash »

OP here. Back with more info. Seems it was very easy to get the info I need. I am having trouble posting this in a easy to read fashion....On a normal year with no maternity this would be exactly doubled.



Type Gross Net Pay Medi Wages MediCare FICA Wages FICA Fed Wages Federal State Wages State
Calendar Year 2017 90,998.45 29,968.63 80,418.97 1,166.07 80,418.97 4,985.93 52,088.97 5,542.09 52,088.97 2,624.18
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FiveK
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Re: Clueless on taxes but have luxury of both 403b and 457 space

Post by FiveK »

BashDash wrote: Wed Oct 11, 2017 11:11 am I am having trouble posting this in a easy to read fashion....

Code: Select all

 Type     Gross   Net Pay Medi Wages  MediCare FICA Wages     FICA  Fed Wages  Federal State Wages    State  
 2017 90,998.45 29,968.63  80,418.97  1,166.07  80,418.97 4,985.93  52,088.97 5,542.09   52,088.97 2,624.18
Took a stab at reformatting. $80,418.97 does lead to $1,166.07 in Medicare tax and $4,985.93, so that makes sense.

"Federal" is your federal withholding on $52,088.97, and "State" is your state withholding on $52,088.97 - correct?

You can get from $90,998.45 gross to $80,418.97 if you have $10,579.48 in pre-tax medical insurance, HSAs, etc.

You can get from $80,418.97 FICA wages to $52,088.97 in "Fed/state wages" if you have $28,330 in 403b/457 contributions.

Don't know how you get from $52,088.97 to $29,968.63 Net Pay. Subtracting the four taxes (total $14,318.32) only gets down to $37,770.65.

Comments/thoughts?
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BashDash
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Re: Clueless on taxes but have luxury of both 403b and 457 space

Post by BashDash »

Thanks for the formatting!

My childcare does get taken out of my paycheck but I don't think it is "pretax". I do use the Wage Works medical and dependent care option that takes out the money pretax. I'm trying to think of other things.
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