- I'm employed full time, my spouse part time.
Household gross income is typically $70-95k, taxable income <$50k.
Over the last couple of years we have finally started to fully max out all tax-advantaged accounts for retirement/FI.
We contribute enough towards retirement/FI accounts, and our family is large enough, that we typically incur a $0 tax bill, and get a fairly large return ($3-5k) each spring.
1) Start brokerage account vs saving for next year's Roth contribution?
At the beginning of 2021 I was able to do full contributions towards both my and my spouses' Roth's. It looks like by mid-2021 I'll have maxed out my 403(b), and perhaps my spouse will max out her 403(b) by the end of the year. Since I will have 'left over' retirement/FI money starting this summer, my question is whether or not to hold on to the extra to throw it all into our Roth's again at the beginning of 2022, or if I should finally open a taxable account. I'd likely be able to contribute fully to Roths in 2022 with or without 'saving up' in 2021. I'm hesitant to open a taxable account, in case I would want to move that money into the Roth in 2022 and incur a (possible) capital-gains tax. I think that if I were to move/sell from a taxable account after holding the shares for less than 12 months, it would be a short-term investment and higher capital gains tax rate, so if I contribute to a taxable account, I'd likely want to keep the money there for at least a little longer than 12 months. What should I be considering that I'm not? What would you do as far as accounts? I think eventually our income will be high enough that we'll want a taxable account, but I'm trying to hold off til it makes sense to have and keep one. What do you think?
2) How do I reduce my tax withholding so I'm not giving the government a free loan each year?
As noted above, we get a $3-5k tax return each year, and our federal tax liability has been $0 recently. I'd like to decrease my withholding (by increasing my allowances?), in order to have less tax withheld. The reason this has been difficult is because: my HR department doesn't give me clear instructions on how to make this change, and because I am skittish about reducing my withholding to $0, just in case I do have a tax liability at the end of the year. (Maybe this is silly, because I'd likely have cash on-hand to pay it?) What do you think? What have you done? How do you know how many 'allowances' to mark? I've used the IRS tax calculator, but it doesn't get specific enough about how to use allowances. Since we have 3 dependents, that's all that I've marked for allowances so far, but obviously too much tax is still being taken out. How would you proceed?
Thanks in advance for your thoughts and help.
Additional background per request:
About how much (in dollars) do you believe that you might be able to contribute annually to investing (total, all accounts)?
Somewhere in the neighborhood of$55-65k (income varies somewhat).
Generally speaking our annual expenses run about $48k
Do you have any debt? If so what types, amounts and interest rates?
Only the mortgage (about $320k left on 30-yr mortgage).
4.15% interest, but we may be moving in the next couple years so re-fi doesn't make much sense for us right now.
No credit card, and finished school debt last year (woohoo!)
How often is your paycheck?
What is your tax filing status?
Married filing jointly
What fund firm or brokerage are your Roth IRAs with?
Vanguard, as well as old 401ks that have been moved over to them
Current employer is through Fidelity
I suggest setting the deduction from payroll so that you reach the annual employee maximum ($19.5k) to both of your 403b accounts at the end of the year instead of mid-year. (Any employer match or employer contribution does not count toward that annual employee limit, it's extra.)
Yes - this hasn't been my approach (I've basically tried to save as much as possible as fast as possible), but I can see the smoothness/intuitiveness of this way of doing it.
Do your employers also offer a 457b plan? Is each employer a government or government agency? Or is each employer a non-profit or charity? (It makes a difference for a 457 plan.) (If offered a governmental 457b plan with decent fund options you can contribute to that too.)
It's a non-profit medical center. No 457b plan available.
We're currently 100% stocks (VTSAX or similar fidelity offerings). I'm aware of the bogglehead criticism of this, but this is what we're comfortable with right now. And we never sell. Ever.
Financial independence. Coast FI = 1.5m. FI = 2.0m. Fat FI = 2.5m.
Our household income may double or triple in the next 3 years, making our time horizion something like 6-8 years til Coast FI at least.
Current FI Savings?