Help with Understanding How to Handle Bonus

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Topic Author
oktax
Posts: 142
Joined: Thu Dec 29, 2016 3:59 pm

Re: Help with Understanding How to Handle Bonus

Post by oktax »

dratkinson wrote: Sat Nov 18, 2017 10:16 pm [quote=oktax post_id=3623738 time=<a href="tel:1511021336">1511021336</a> user_id=115588]...

So it sounds like a good compromise and our best course would be to open and fund Roth IRAs up to the max we can for 2017 (given the phaseout). And I understand we can do this by the April filing deadline and have it count as 2017 contributions. We can still pay off the loans by next month and open Roths for 2017 that way.

And then next year the plan will be to buy a car with cash and get a nice down payment together for a house (we rent now and live in an affordable area). I'll try to find a compromise between upping retirement contributions (at least enough to 401k to get us out of Roth phaseout territory) and fully fund Roths for next year. Then once we are in the house we start maxing all tax advantaged space the following year. Thoughts on this plan? Thanks all.
Sounds good.

After you max out all of your tax-advantaged accounts, then you can also begin taxable investing for retirement. Taxable investing is just like tax-advantaged investing, but in your case you'd substitute an intermediate-term national municipal bond fund for the 3-fund portfolio's recommended TBM. Vanguard's IT national muni fund is VWITX/VWIUX.

A nice feature of VWITX is that it's a daily-accrual fund. A daily-accrual muni fund (not ETF) is exempt from IRS 6mo holding period requirement to protect tax-exempt dividends. Meaning shares are easy to sell (only simple CG reporting required) so it can perform multiple duties:
--no contribution limit, so can skew tax-advantaged accounts to equities for more tax-sheltered growth,
--to save for short-term goals (home projects, vacation, new car,...) instead of taxable CDs/savings,
--as last/largest formal EF tier, less CG consequence and more immune to market noise than equities,
--as dry powder to use during market correction.

See "Loss on mutual fund shares held 6 months or less": https://www.bogleheads.org/wiki/Tax_los ... harvesting


Didn't see a mention of your home state. Depending upon your home state and if available, a single-state muni fund may be triple-tax exempt: federal, state, city.


New car. If available, many report being happier with a 0% car loan than a cash purchase---it lets them hang on to their money longer. Might be able to find one at the end of this calendar year easier than at the beginning of next year---manufacturers' trying to move inventory at the end of the year.
[/quote]

Thanks! Great advice. Yes, we'll definitely have excess funds for taxable investing. I'll keep the muni bond fund in mind when we get to that point.

As to the car purchase, my plan was to buy a 2-3 year old Camry. I don't believe that same kind of financing is available for a used car. Am I correct? I did plan on buying from a dealer, so I assume they'd finance it if I wanted. But I thought the really nice financing terms were only available on new vehicles.
User avatar
dratkinson
Posts: 6108
Joined: Thu Jul 26, 2007 6:23 pm
Location: Centennial CO

Re: Help with Understanding How to Handle Bonus

Post by dratkinson »

oktax wrote: Mon Nov 20, 2017 7:31 am...

As to the car purchase, my plan was to buy a 2-3 year old Camry. I don't believe that same kind of financing is available for a used car. Am I correct? I did plan on buying from a dealer, so I assume they'd finance it if I wanted. But I thought the really nice financing terms were only available on new vehicles.
Don't know as it's been a while since I looked for car financing.

A current topic on car financing might have some ideas.
See "Why pay cash for a car": viewtopic.php?f=1&t=232148
d.r.a., not dr.a. | I'm a novice investor; you are forewarned.
Post Reply