65 widow small tax-advantage account, cash savings retirement planning in TX

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Powerfultools
Posts: 70
Joined: Wed May 31, 2017 10:31 am

65 widow small tax-advantage account, cash savings retirement planning in TX

Post by Powerfultools » Sun Mar 11, 2018 12:37 pm

Hi all,

I hope someone can help me find best plan of action. My mother will be 65 in two months. She is currently working for a school district as paraprofessional. She makes 13k year. She plans to retire next year at 66. She is currently receiving SS $700 per month on her account (started at 62). When she turns 66 FRA, she will switch SS to her husband SS (deceased) $2100 per month. In addition, when she retires she will receive a $250 small pension from teacher retirement system. Due to GPO, surviving spouse SS will be reduced to $1950. She sold her home 1 ago and has 220k cash at Ally. This all the money she has plus 5k in regular checking account. She is living in apartment, in good health and happy. She has never invested short of this past year, but is open to moderate risk (her husband was very risk adverse and did not invest)

Current situation:
She is contributing 100% paycheck to Roth 403b total stock fund (very low expenses) and using cash in Ally and her SS to pay living expenses. Her current total monthly expenses (includes everything) is $1900. Her total monthly income $1900 ($700 SS and $1200 monthly transfer from ally to replace work income going directly to Roth 403b). She is currently living at her means but is getting old and tried. She plans to switch to part time job at school district earning $400 monthly when she hits full retirement age 66. At 66, she will have $2150 (SS and pension) plus $400 part-time income for couple years in the near future. We are thinking of investing her 220k 50% total stock and 50% total bond and using a SWR of 4% starting 66.

She currently has:
220k at Ally
5k at bank-checking
8k at Roth 403b Vanguard
7 at Roth IRA Vanguard

The plan is to move 200k from Ally to taxable during the following year. 45k to total stock fund now and then 5k over the next 9 months. 55k to total bond fund and then 5k over the next 11 months and keep two years discretionary cash 16k (11k Ally and 5k checking).

With the information above, does anyone have a better suggestion/plan? I appreciate all thoughts and comments. Thanks in advance

User avatar
FiveK
Posts: 4856
Joined: Sun Mar 16, 2014 2:43 pm

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by FiveK » Sun Mar 11, 2018 1:23 pm

Powerfultools wrote:
Sun Mar 11, 2018 12:37 pm
With the information above, does anyone have a better suggestion/plan? I appreciate all thoughts and comments. Thanks in advance
It's a reasonable plan, which is the best one can do without hindsight glasses.

Wagnerjb
Posts: 7194
Joined: Mon Feb 19, 2007 8:44 pm
Location: Houston, Texas

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by Wagnerjb » Sun Mar 11, 2018 1:29 pm

Your plan makes sense to me.

It doesn't sound like your mother will need the distributions from the $220k in assets for living expenses, right? In one year she will have $2150 in retirement income plus $400 per month from work, and her total expenses are $1900 per month. Even after she stops working, she will not need to dip into her savings. Or is she planning to ramp up her spending?

If she doesn't need (or want) to dip into the $220k, then you might consider a more conservative investment strategy. There is nothing inherently wrong with a 50/50 asset allocation, but you also want to be sure your mother is truly comfortable with the effects of a potential stock market decline.

Best wishes.
Andy

User avatar
Watty
Posts: 13439
Joined: Wed Oct 10, 2007 3:55 pm

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by Watty » Sun Mar 11, 2018 1:53 pm

Powerfultools wrote:
Sun Mar 11, 2018 12:37 pm
She is living in apartment, in good health and happy.
How much does her apartment cost and how much would a similar condo cost(including monthly fees) in your area?

Depending on the numbers in your area buying a condo could be a good use of the money and she could have lower monthly expenses and she would not have to worry about rent increases. Eventually if she needs to move into assisted living then the condo could be sold and the home equity could be used for that. It would be the last source of funds to tap but if she ever needed to she could also get a reverse mortgage on the condo if she needs to when she is older.
Powerfultools wrote:
Sun Mar 11, 2018 12:37 pm
We are thinking of investing her 220k 50% total stock and 50% total bond and using a SWR of 4% starting 66.
For comparison the Vanguard Target Date Retirement income fund is only 30% stocks.

https://personal.vanguard.com/us/funds/ ... IntExt=INT

and the 2015 fund is 45% stocks.

https://personal.vanguard.com/us/funds/ ... irect=true

the Lifestragety funds only have 20% stocks in the income fund and 40% in the conservative growth fund.

https://investor.vanguard.com/mutual-fu ... estrategy/#/

These also have international stocks in them so they are more diversified.

I think 50% stocks is too aggressive. I would be consider just putting her money into one of these funds. Normally these are not ideal for a taxable account because of the tax issues and you would want to look into that but I suspect that she is in a low enough tax bracket that the tax efficiency would not be a big problem. These would also be easier for her to manage on her own if you get run over by the proverbial Mack truck and she needs to manage it herself when she is older.

She does not need the income yet and she is still pretty young for it but when she gets to be in her late 70's she might want to consider buying a single premium immediate annuity(SPIA) to provide her income for the rest of her life. FYI a SPIA is like buying a pension and it is the only type of annuity that most people should consider buying. The vast majority of things that are called "annuities" are pretty toxic and being sold because the salesperson gets a large commission.

User avatar
mhadden1
Posts: 298
Joined: Tue Mar 25, 2014 8:14 pm
Location: North Alabama

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by mhadden1 » Sun Mar 11, 2018 3:10 pm

I would consider using something like a 4% credit union CD for a goodly portion. I don't think your mom's ability to take risk is very high.

With her income I think she may get some benefit from the Earned Income Tax Credit - since tax time is coming up you could make sure about that.

You are kind to help her out.
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

delamer
Posts: 4812
Joined: Tue Feb 08, 2011 6:13 pm

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by delamer » Sun Mar 11, 2018 3:27 pm

I agree with the earlier comments that 50/50 is probably too aggressive, especially for someone your mother’s age who has not been in the market and has fairly limited assets.

My suggestion would be $50K total in cash equivalents and the rest in the aforementioned LifeStrategy Income or Conservative Growth Fund.

Powerfultools
Posts: 70
Joined: Wed May 31, 2017 10:31 am

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by Powerfultools » Mon Mar 12, 2018 7:29 am

Hi all. It appears 50/50 AA is too aggressive per comments. So I asked my mother what her goal(s) for investing the 220k is since her SS and small pension should make ends meet?”

Her responses:

1. To never go without the necessities (food, shelter, etc..)
2. Not to be a burden on others.
3. Have a little spending money for a few extras things. (she is very frugal).
4. Leave a little something for her two sons.

I believe she is more worried about losing money than making money. It appears her goal is preservation. I think her AA should aim to make enough from her investments for a 4% SWR. That 4% can be her extra money. In a good year (over 4% growth) she can take 4% and reinvest the overage, in a decent year ( any growth up to 4%) she can withdraw up to 4%, in a down year she will not withdraw from investments. The way I see it, 4% of 220k is $8,800 yearly/ $733 monthly which puts her near $2900 without a part-time job (her part-time job is as much for socializing as for money). In addition, I was thinking of placing 16k (two years worth of 4%SWR) in Ally(11k)/WF(5k)as a safety net for those ugly years when there could be a necessity.

What AA would you recommend for a 4% SWR? Do you feel two years of SWR is sufficient? I hope I am asking the right questions.

I am also learning how the Medicare world works (plans and supplementals) since she will be turning 65 in May and will drop her employer’s health insurance. Thank you all for your time. I feel blessed to have this helpful community! I don’t post often, there are so many experienced posters with great wealth of knowledge, but the things I learn on Bogleheads are definitely shared among my friends and coworkers, and we have greatly benefited from Bogleheads. I am grateful.

User avatar
Watty
Posts: 13439
Joined: Wed Oct 10, 2007 3:55 pm

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by Watty » Mon Mar 12, 2018 7:39 am

Powerfultools wrote:
Mon Mar 12, 2018 7:29 am
I am also learning how the Medicare world works (plans and supplementals) since she will be turning 65 in May and will drop her employer’s health insurance.
I would highly recommend the book "Medicare for Dummies" despite its title it is a very good book. Be sure you are looking at the most current edition.
Watty wrote:
Sun Mar 11, 2018 1:53 pm
How much does her apartment cost and how much would a similar condo cost(including monthly fees) in your area?

Depending on the numbers in your area buying a condo could be a good use of the money and she could have lower monthly expenses and she would not have to worry about rent increases.
What is the story on this?

I live in a relatively low cost of living area and there are condos available starting around $100K. If she can get something like that it could make sense.

Powerfultools
Posts: 70
Joined: Wed May 31, 2017 10:31 am

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by Powerfultools » Mon Mar 12, 2018 8:07 am

Watty wrote:
Mon Mar 12, 2018 7:39 am
Powerfultools wrote:
Mon Mar 12, 2018 7:29 am
I am also learning how the Medicare world works (plans and supplementals) since she will be turning 65 in May and will drop her employer’s health insurance.
I would highly recommend the book "Medicare for Dummies" despite its title it is a very good book. Be sure you are looking at the most current edition.
Watty wrote:
Sun Mar 11, 2018 1:53 pm
How much does her apartment cost and how much would a similar condo cost(including monthly fees) in your area?

Depending on the numbers in your area buying a condo could be a good use of the money and she could have lower monthly expenses and she would not have to worry about rent increases.
What is the story on this?

I live in a relatively low cost of living area and there are condos available starting around $100K. If she can get something like that it could make sense.
Hi Watty.

I will order the book from library (latest edition). Thank you!

He apartment currently runs $1040 plus electricity. That is usually $40 monthly.

I spoke to her about a Condo. Currently she has no interest in owning anything. She felt very “stuck” when she had a house. It was more related to maintenance and repairs, but it was a constant stress for her, the what if. I looked at condos in our area when she sold her home (my mother lives less than 2 miles from me and my brother) but one bedrooms were going around 160k. I found some condos less than five miles away for 120k but I think she just wanted to get out of homeownership right now. It appeared renting was currently cheaper, but I will be looking during the next housing down cycle. Looking forward (10-15 years if she cannot take care of herself) I will ask her if she would like to live with one of us ( my brother or I). It’s the least we can do, she did it for us for 18 years.

User avatar
FiveK
Posts: 4856
Joined: Sun Mar 16, 2014 2:43 pm

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by FiveK » Mon Mar 12, 2018 9:07 am

Powerfultools wrote:
Mon Mar 12, 2018 7:29 am
What AA would you recommend for a 4% SWR?
50/50 is not unreasonable.

Using historical statistics (e.g., see 199802retire - 6794_retirement-savings-choosing-a-withdrawal-rate-that-is-sustainable.pdf) something closer to 75/25 stock/bond might be preferable. Using 50/50 is then a compromise between "likely best" vs. "has never invested short of this past year."

But other asset allocations could also be described as "not unreasonable."

User avatar
mhadden1
Posts: 298
Joined: Tue Mar 25, 2014 8:14 pm
Location: North Alabama

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by mhadden1 » Mon Mar 12, 2018 10:24 am

Lately credit union CD specials pop up, 3% or even 4% for 5-7 years, federally insured. If rates rise as predicted a 5% CD might not be so far away. Could provide part of the floor for a 4% SWR.
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

delamer
Posts: 4812
Joined: Tue Feb 08, 2011 6:13 pm

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by delamer » Mon Mar 12, 2018 10:51 am

I can’t remember the specific source for this but I believe a sustainable 4% withdrawal rate requires a minimum 30% stock allocation. So the LifeStrategy Conservative Growth at 40% would be a good option.

Again, Consider setting $50,000 or so aside in cash. If she needed to buy a car at the same time she needed a dental implant, a small emergency fund could be wiped out quickly.

Powerfultools
Posts: 70
Joined: Wed May 31, 2017 10:31 am

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by Powerfultools » Mon Mar 12, 2018 12:28 pm

FiveK wrote:
Mon Mar 12, 2018 9:07 am
Powerfultools wrote:
Mon Mar 12, 2018 7:29 am
What AA would you recommend for a 4% SWR?
something closer to 75/25 stock/bond might be preferable. Using 50/50 is then a compromise between "likely best" vs. "has never invested short of this past year."
FiveK, that was exactly my thinking. 50/50 was the compromise. The dilemma is I see all types of research/literature stating anything from 25% to 75% Stock is the right choice. I feel paralyzed. If it was my money, I would choose 75% (but I am 45 YO and have no idea what I would think is appropriate when I turn 65), but when it’s someone else’s money, I pause.

rob65
Posts: 331
Joined: Mon May 09, 2016 1:30 pm

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by rob65 » Mon Mar 12, 2018 1:19 pm

Given the risk aversion, you might consider a CD ladder for some or even all of the fixed income portion. 2-year and 4-year "raise your rate" CDs at Ally are earning 2% with an option to change interest rates once on the 2-year and twice on the 4-year.

User avatar
Epsilon Delta
Posts: 7422
Joined: Thu Apr 28, 2011 7:00 pm

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by Epsilon Delta » Mon Mar 12, 2018 3:01 pm

In addition the EITC mhadden suggested, the savers credit may also be in play. She could also consider taking some of the taxable Ally money and making a Roth contribution based on this years earnings. It probably isn't a huge win if she's paying low or zero taxes but it may save a little taxes later.

Also if she does not want to own a home, she should not buy a home. Even if the home cost is lower than renting, which it usually isn't considering the loss of flexibility that owning entails.

Dottie57
Posts: 3428
Joined: Thu May 19, 2016 5:43 pm

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by Dottie57 » Mon Mar 12, 2018 3:24 pm

Just a thought about income. I know annuities are not popular around here, but a single premium immediate (or deferred) annuity might be very good for OP''s mom. Going with a highly rated company who will pay out an income FOR LIFE might give some breathing room.


100k SPIA for a 65 year old female in Texas would generate about $6000 a yearfor life.
100k SPDA for a 65 with income starting in 5 years would generate about $8500 a year for life
100k SPIA purchase at 70 gives income of about $7000 a year for life.


The amounts may make mom's life a lot better.


http://immediateannuities.com.

User avatar
FiveK
Posts: 4856
Joined: Sun Mar 16, 2014 2:43 pm

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by FiveK » Mon Mar 12, 2018 3:28 pm

Epsilon Delta wrote:
Mon Mar 12, 2018 3:01 pm
She could also consider taking some of the taxable Ally money and making a Roth contribution based on this years earnings. It probably isn't a huge win if she's paying low or zero taxes but it may save a little taxes later.
+1

Might as well. At the least it will shelter whatever dividends/interest from possibly making some of the SS benefit taxable.

Based on the numbers in the OP, for 2017 there should be a $1000 saver's credit that goes mostly unused, and ~$150 earned income credit. 2017 is the last year for the EIC for her, due to age restrictions.

User avatar
mhadden1
Posts: 298
Joined: Tue Mar 25, 2014 8:14 pm
Location: North Alabama

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by mhadden1 » Mon Mar 12, 2018 5:47 pm

FiveK wrote:
Mon Mar 12, 2018 3:28 pm
2017 is the last year for the EIC for her, due to age restrictions.
I was not aware of this EITC detail but I am glad it came up - I help a widow friend with her taxes who currently qualifies - she is 63, and her DD, age 21, is a college junior. Looks like either her own age or DD's age/student status will bump her out of EITC in the next couple of years. Forewarned is forearmed I guess.
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

Powerfultools
Posts: 70
Joined: Wed May 31, 2017 10:31 am

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by Powerfultools » Mon Mar 12, 2018 8:20 pm

delamer wrote:
Mon Mar 12, 2018 10:51 am
I can’t remember the specific source for this but I believe a sustainable 4% withdrawal rate requires a minimum 30% stock allocation. So the LifeStrategy Conservative Growth at 40% would be a good option.

Again, Consider setting $50,000 or so aside in cash. If she needed to buy a car at the same time she needed a dental implant, a small emergency fund could be wiped out quickly.
Hi delamer, we are actually looking for a new car right now. We set 25k aside for this purchase separate from the total in the OP. The EM plan was 16k (11k ally/5k checking) but we could increase it to 20k. Thank you for the suggestion.

Powerfultools
Posts: 70
Joined: Wed May 31, 2017 10:31 am

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by Powerfultools » Tue Mar 13, 2018 9:21 am

FiveK wrote:
Mon Mar 12, 2018 3:28 pm
Epsilon Delta wrote:
Mon Mar 12, 2018 3:01 pm
She could also consider taking some of the taxable Ally money and making a Roth contribution based on this years earnings. It probably isn't a huge win if she's paying low or zero taxes but it may save a little taxes later.
+1

Might as well. At the least it will shelter whatever dividends/interest from possibly making some of the SS benefit taxable.

Based on the numbers in the OP, for 2017 there should be a $1000 saver's credit that goes mostly unused, and ~$150 earned income credit. 2017 is the last year for the EIC for her, due to age restrictions.
Hi FiveK, I just reviewed her 2016 1040, she did receive EIC of $138, but I notice she did not receive savers credit. She contributed $6500 to Roth IRA. I have her 2016 form 5498. Is this actionable? Does she (I :happy ) need to amend? I have never amended before...

User avatar
FiveK
Posts: 4856
Joined: Sun Mar 16, 2014 2:43 pm

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by FiveK » Tue Mar 13, 2018 9:35 am

Powerfultools wrote:
Tue Mar 13, 2018 9:21 am
Hi FiveK, I just reviewed her 2016 1040, she did receive EIC of $138, but I notice she did not receive savers credit. She contributed $6500 to Roth IRA. I have her 2016 form 5498. Is this actionable? Does she (I :happy ) need to amend? I have never amended before...
Depends on whether the saver's credit would have made a difference.

What were the nonzero values (and corresponding line numbers) for lines 43-63 of the 2016 form 1040?

Powerfultools
Posts: 70
Joined: Wed May 31, 2017 10:31 am

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by Powerfultools » Tue Mar 13, 2018 9:43 am

FiveK wrote:
Tue Mar 13, 2018 9:35 am
Powerfultools wrote:
Tue Mar 13, 2018 9:21 am
Hi FiveK, I just reviewed her 2016 1040, she did receive EIC of $138, but I notice she did not receive savers credit. She contributed $6500 to Roth IRA. I have her 2016 form 5498. Is this actionable? Does she (I :happy ) need to amend? I have never amended before...
Depends on whether the saver's credit would have made a difference.

What were the nonzero values (and corresponding line numbers) for lines 43-63 of the 2016 form 1040?
Thanks for your quick reply.

nonzero values (and corresponding line numbers) for lines 43-63 of the 2016 form 1040:

43-63 were either zeros or not applicable (blank).

User avatar
FiveK
Posts: 4856
Joined: Sun Mar 16, 2014 2:43 pm

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by FiveK » Tue Mar 13, 2018 9:48 am

Powerfultools wrote:
Tue Mar 13, 2018 9:43 am
Thanks for your quick reply.

nonzero values (and corresponding line numbers) for lines 43-63 of the 2016 form 1040:

43-63 were either zeros or not applicable (blank).
In that case the amount of deductions and personal exemptions was enough to reduce her taxable income to $0, so she owed no tax at all. The saver's credit is "non-refundable," meaning that it can reduce tax owed but can't be used to generate a refund. Thus, no need to file an amended return.

The earned income credit is "refundable," meaning that even though no tax was owed, she can get a refund from that credit.

Powerfultools
Posts: 70
Joined: Wed May 31, 2017 10:31 am

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by Powerfultools » Tue Mar 13, 2018 9:52 am

FiveK wrote:
Tue Mar 13, 2018 9:48 am
Powerfultools wrote:
Tue Mar 13, 2018 9:43 am
Thanks for your quick reply.

nonzero values (and corresponding line numbers) for lines 43-63 of the 2016 form 1040:

43-63 were either zeros or not applicable (blank).
In that case the amount of deductions and personal exemptions was enough to reduce her taxable income to $0, so she owed no tax at all. The saver's credit is "non-refundable," meaning that it can reduce tax owed but can't be used to generate a refund. Thus, no need to file an amended return.

The earned income credit is "refundable," meaning that even though no tax was owed, she can get a refund from that credit.
I appreciate the explanation, FiveK. and EIC ends this year for her since she turns 65.

Powerfultools
Posts: 70
Joined: Wed May 31, 2017 10:31 am

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by Powerfultools » Wed Mar 14, 2018 6:51 pm

Epsilon Delta wrote:
Mon Mar 12, 2018 3:01 pm
She could also consider taking some of the taxable Ally money and making a Roth contribution based on this years earnings. It probably isn't a huge win if she's paying low or zero taxes but it may save a little taxes later.
I will work on her taxes in the next two weeks. She started contributing to her Roth 403b mid year (contributed around 6500 in 2017) and we plan to contribute 6500 to her Roth IRA 2017. She probably made close to 14k in 2017. I don’t have information in front me.

100% of her pay in 2018 is going to Roth 403b. Is that what is meant by Roth contribution based on this years earnings? Pardon my ignorance, but is there way to contribute more, like the 6500 to Roth IRA in 2018? She is already contributing all her pay to Roth 403b. Thanks everyone.

User avatar
FiveK
Posts: 4856
Joined: Sun Mar 16, 2014 2:43 pm

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by FiveK » Wed Mar 14, 2018 7:05 pm

Powerfultools wrote:
Wed Mar 14, 2018 6:51 pm
Pardon my ignorance, but is there way to contribute more, like the 6500 to Roth IRA in 2018? She is already contributing all her pay to Roth 403b. Thanks everyone.
See Roth 401k contribution affect earned income for Roth IRA? - Bogleheads.org. She may contribute both to the Roth 401k and a Roth IRA using "the same" income.

When you say "100% of her pay in 2018 is going to Roth 403b" - that is after SS and Medicare taxes are subtracted, correct?

Powerfultools
Posts: 70
Joined: Wed May 31, 2017 10:31 am

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by Powerfultools » Wed Mar 14, 2018 7:40 pm

FiveK wrote:
Wed Mar 14, 2018 7:05 pm
Powerfultools wrote:
Wed Mar 14, 2018 6:51 pm
Pardon my ignorance, but is there way to contribute more, like the 6500 to Roth IRA in 2018? She is already contributing all her pay to Roth 403b. Thanks everyone.
See Roth 401k contribution affect earned income for Roth IRA? - Bogleheads.org. She may contribute both to the Roth 401k and a Roth IRA using "the same" income.

When you say "100% of her pay in 2018 is going to Roth 403b" - that is after SS and Medicare taxes are subtracted, correct?
I read the link. I am so glad I ask this question. My take away from the link is that she can contribute to the Roth 403b and use the same earned income to contribute to Roth IRA. That’s great. Every little bit helps.
When you say "100% of her pay in 2018 is going to Roth 403b" - that is after SS and Medicare taxes are subtracted, correct?
When I wrote “100% of her pay” I am only speaking of her job at the school district where she makes 13k yearly. I am not including her SS and she has not started Medicare. 2018, I have her contributing 100% of her paycheck at the school district to Roth 403b which will be around 13k by the end of 2018. I ask because I am thinking about contributing 6500 to her 2017 and 2018 Roth IRA when I do her taxes. My brother had been doing her taxes for the past seven years and I will start doing them for her this year forward. Thanks for your help.

User avatar
FiveK
Posts: 4856
Joined: Sun Mar 16, 2014 2:43 pm

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by FiveK » Wed Mar 14, 2018 7:47 pm

Powerfultools wrote:
Wed Mar 14, 2018 7:40 pm
FiveK wrote:
Wed Mar 14, 2018 7:05 pm
When you say "100% of her pay in 2018 is going to Roth 403b" - that is after SS and Medicare taxes are subtracted, correct?
When I wrote “100% of her pay” I am only speaking of her job at the school district where she makes 13k yearly. I am not including her SS and she has not started Medicare. 2018, I have her contributing 100% of her paycheck at the school district to Roth 403b which will be around 13k by the end of 2018.
The reference to "SS and Medicare taxes" means the taxes withheld from pay, not SS and/or Medicare benefits one might receive.

Given that, is the "100%" before or after SS and Medicare taxes?

Powerfultools
Posts: 70
Joined: Wed May 31, 2017 10:31 am

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by Powerfultools » Wed Mar 14, 2018 7:55 pm

FiveK wrote:
Wed Mar 14, 2018 7:47 pm
Powerfultools wrote:
Wed Mar 14, 2018 7:40 pm
FiveK wrote:
Wed Mar 14, 2018 7:05 pm
When you say "100% of her pay in 2018 is going to Roth 403b" - that is after SS and Medicare taxes are subtracted, correct?
When I wrote “100% of her pay” I am only speaking of her job at the school district where she makes 13k yearly. I am not including her SS and she has not started Medicare. 2018, I have her contributing 100% of her paycheck at the school district to Roth 403b which will be around 13k by the end of 2018.
The reference to "SS and Medicare taxes" means the taxes withheld from pay, not SS and/or Medicare benefits one might receive.

Given that, is the "100%" before or after SS and Medicare taxes?
I understand now. She does not pay SS taxes with school district, instead her money goes to a pension plan TRS (teacher retirement system in Texas). She does pay Medicare taxes. So the 100% is after her Medicare taxes and other miscellaneous items such as dental, Eye, medical insurance are paid. Thanks for clarification. Does this sound correct? :happy

User avatar
FiveK
Posts: 4856
Joined: Sun Mar 16, 2014 2:43 pm

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by FiveK » Wed Mar 14, 2018 8:33 pm

Powerfultools wrote:
Wed Mar 14, 2018 7:55 pm
Does this sound correct? :happy
Yes!

It would have been surprising if the payroll software had allowed it, but just wanted to make sure she wouldn't have to cough up unpaid SS/Medicare taxes when filing. Appears all is well on that front.

Powerfultools
Posts: 70
Joined: Wed May 31, 2017 10:31 am

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by Powerfultools » Wed Mar 14, 2018 8:37 pm

FiveK wrote:
Wed Mar 14, 2018 8:33 pm
Powerfultools wrote:
Wed Mar 14, 2018 7:55 pm
Does this sound correct? :happy
Yes!

It would have been surprising if the payroll software had allowed it, but just wanted to make sure she wouldn't have to cough up unpaid SS/Medicare taxes when filing. Appears all is well on that front.
Great! Great! Great! The help here on Bogleheads is incredible. Thanks.

Powerfultools
Posts: 70
Joined: Wed May 31, 2017 10:31 am

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by Powerfultools » Fri Mar 16, 2018 5:56 am

mhadden1 wrote:
Mon Mar 12, 2018 10:24 am
Lately credit union CD specials pop up, 3% or even 4% for 5-7 years, federally insured. If rates rise as predicted a 5% CD might not be so far away. Could provide part of the floor for a 4% SWR.
Can someone educate or point me to thread(s) where I can learn more about CD ladders and on how they can help in my mother’s case (65YO). I read the wiki and a few threads on how to create a CD ladder, but I am not fully understanding when it is appropriate to choose a CD ladder over total bond fund. I was planning to use total bond fund because it is simple to buy, it doesn’t require much thinking/understanding of rates (I am a novice) and it is the bond fund most use in 3 fund portfolio. If the difference is significant between a CD ladder and total bond fund. I will definitely educate myself. Thanks.

User avatar
mhadden1
Posts: 298
Joined: Tue Mar 25, 2014 8:14 pm
Location: North Alabama

Re: 65 widow small tax-advantage account, cash savings retirement planning in TX

Post by mhadden1 » Fri Mar 16, 2018 1:14 pm

Powerfultools wrote:
Fri Mar 16, 2018 5:56 am
mhadden1 wrote:
Mon Mar 12, 2018 10:24 am
Lately credit union CD specials pop up, 3% or even 4% for 5-7 years, federally insured. If rates rise as predicted a 5% CD might not be so far away. Could provide part of the floor for a 4% SWR.
not fully understanding when it is appropriate to choose a CD ladder over total bond fund ... total bond fund ... is simple to buy, it doesn’t require much thinking/understanding of rates ... and it is the bond fund most use in 3 fund portfolio.
My very basic thoughts about choosing between CDs and Total Bond Market. In the end I think low ability to take risk would favor CDs quite a bit, but using either or both is not at all bad.

CDs:
-- Most are covered by federal deposit insurance. :happy
-- Value does not go down nominally, which is very good when the ability to take risk is low.
:happy
-- Over a period of time inflation can erode the real value if the
interest rate is too low to compensate. :( TBM probably not quite so subject to this problem since the bonds it holds change over time.
-- Usually have an early withdrawal penalty. Rising interest rates could induce an early withdrawal and
reinvestment of the funds to take advantage. :|
-- Longer term rates are normally higher - a ladder strategy gets the higher long-term rates along
with periodic non-penalized access to the funds. :happy
-- Ladder needs to be monitored and maintained. :(
-- A keen observer might notice that sometimes, CD rates are a little higher than the market
would indicate for taking essentially no risk. Small extra :moneybag

Total Bond Market:
-- Rising interest rates make the value go down :( , falling rates make it go up. :happy
-- Variability not so good with low ability to take risk. :(
-- As OP knows, using TBM cuts through issues with general understanding of a bond fund's
holdings, strategy, likely response to interest rate changes ... not trivial at all. :happy
-- Can absorb large investments, typically very liquid. :happy
-- As OP knows, for simplicity BHs often get fixed income exposure with this one fund. 8-)

Personally I hold some TBM, an intermediate US Treasury fund, and a few CDs. Maybe in the future I will simplify a bit.
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

Post Reply