Advice for a newbie

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Topic Author
Slipratchet
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Joined: Fri Jul 24, 2020 3:15 pm

Advice for a newbie

Post by Slipratchet » Fri Jul 24, 2020 3:45 pm

Hello everyone. I'm new here, and I've read through many form posts concerning "passive income", Real Estate, and REITs. The more I read the more lost and confused I get. So here's my situation: I'm 42, I work for for a city with a pension and 457 that I put 10% of gross income towards. About 5 years ago I changed jobs and decided to take disbursement of my original 401A and 457 to pay off my mortgage, and yes I payed income tax on both those plus a 10% penalty on my 401. At the time it seemed like the right thing to do; I hadn't even heard of this form back then, but I was mortgage free before the age of 40, and I'm still happy with my decision today. I am currently setting aside another 10% of my gross pay in a savings account for short term investing, 5 to 7 Yrs, I guess; not really sure if that's unrealistic or not. But I'd like to generate monthly supplementary income with that 10%. If I choose to get into the rental game, it could potentially be a lot of work, but I wouldn't have to worry about making mortgage payments. Is there a way to double your money in 5 to 7 yrs by say putting that money into the Vanguard S&P 500 Growth ETF (VOOG). If real estate would be the way to go, how does everyone here feel about the Bigger Pockets site? Sorry for being the 10,000,000th [person] (implied profanity removed by Mod Misenplace) that's asked this question, but I feel my real estate situation is different from the questions in all those other forum posts. I would really like to generate monthly income on the order of $800 to $1,000 / month with as little work as possible, but if I have to some work in to get there, that's fine too. Thanks.

Living Free
Posts: 507
Joined: Thu Jul 19, 2018 7:31 pm

Re: Advice for a newbie

Post by Living Free » Fri Jul 24, 2020 4:01 pm

Slipratchet wrote:
Fri Jul 24, 2020 3:45 pm
Hello everyone. I'm new here, and I've read through many form posts concerning "passive income", Real Estate, and REITs. The more I read the more lost and confused I get. So here's my situation: I'm 42, I work for for a city with a pension and 457 that I put 10% of gross income towards. About 5 years ago I changed jobs and decided to take disbursement of my original 401A and 457 to pay off my mortgage, and yes I payed income tax on both those plus a 10% penalty on my 401. At the time it seemed like the right thing to do; I hadn't even heard of this form back then, but I was mortgage free before the age of 40, and I'm still happy with my decision today. I am currently setting aside another 10% of my gross pay in a savings account for short term investing, 5 to 7 Yrs, I guess; not really sure if that's unrealistic or not. But I'd like to generate monthly supplementary income with that 10%. If I choose to get into the rental game, it could potentially be a lot of work, but I wouldn't have to worry about making mortgage payments. Is there a way to double your money in 5 to 7 yrs by say putting that money into the Vanguard S&P 500 Growth ETF (VOOG). If real estate would be the way to go, how does everyone here feel about the Bigger Pockets site? Sorry for being the 10,000,000th [person] (implied profanity removed by Mod Misenplace) that's asked this question, but I feel my real estate situation is different from the questions in all those other forum posts. I would really like to generate monthly income on the order of $800 to $1,000 / month with as little work as possible, but if I have to some work in to get there, that's fine too. Thanks.
Welcome Slipratchet,
I think you'd be better served by using the asking portfolio questions format: viewtopic.php?t=6212

But in any case, what is your goal for this passive income? What are your retirement plans otherwise? Just the pension? If you want to generate $800 per month from a vanilla bogleheads portfolio of mutual funds/exchange traded funds, particularly if using it early in life, I'd propose that you use a 3% annual withdrawal rate and that gets you ($800/month x12months)/3%= about $320k.

000
Posts: 571
Joined: Thu Jul 23, 2020 12:04 am

Re: Advice for a newbie

Post by 000 » Fri Jul 24, 2020 7:10 pm

Slipratchet wrote:
Fri Jul 24, 2020 3:45 pm
If I choose to get into the rental game, it could potentially be a lot of work, but I wouldn't have to worry about making mortgage payments.
What if your rentals sit empty? Are you willing to pay for the mortgage out of your other cashflow?
Slipratchet wrote:
Fri Jul 24, 2020 3:45 pm
Is there a way to double your money in 5 to 7 yrs by say putting that money into the Vanguard S&P 500 Growth ETF (VOOG).
Yes, it is possible but not guaranteed (it did double over the last 5.5 years for example). I personally do not tilt to growth.
Slipratchet wrote:
Fri Jul 24, 2020 3:45 pm
I would really like to generate monthly income on the order of $800 to $1,000 / month with as little work as possible, but if I have to some work in to get there, that's fine too. Thanks.
Many people have had success in real estate, but it is more work than an index fund.

Topic Author
Slipratchet
Posts: 15
Joined: Fri Jul 24, 2020 3:15 pm

Re: Advice for a newbie

Post by Slipratchet » Sat Jul 25, 2020 4:59 pm

Living Free wrote:
Fri Jul 24, 2020 4:01 pm
Slipratchet wrote:
Fri Jul 24, 2020 3:45 pm
Hello everyone. I'm new here, and I've read through many form posts concerning "passive income", Real Estate, and REITs. The more I read the more lost and confused I get. So here's my situation: I'm 42, I work for for a city with a pension and 457 that I put 10% of gross income towards. About 5 years ago I changed jobs and decided to take disbursement of my original 401A and 457 to pay off my mortgage, and yes I payed income tax on both those plus a 10% penalty on my 401. At the time it seemed like the right thing to do; I hadn't even heard of this form back then, but I was mortgage free before the age of 40, and I'm still happy with my decision today. I am currently setting aside another 10% of my gross pay in a savings account for short term investing, 5 to 7 Yrs, I guess; not really sure if that's unrealistic or not. But I'd like to generate monthly supplementary income with that 10%. If I choose to get into the rental game, it could potentially be a lot of work, but I wouldn't have to worry about making mortgage payments. Is there a way to double your money in 5 to 7 yrs by say putting that money into the Vanguard S&P 500 Growth ETF (VOOG). If real estate would be the way to go, how does everyone here feel about the Bigger Pockets site? Sorry for being the 10,000,000th [person] (implied profanity removed by Mod Misenplace) that's asked this question, but I feel my real estate situation is different from the questions in all those other forum posts. I would really like to generate monthly income on the order of $800 to $1,000 / month with as little work as possible, but if I have to some work in to get there, that's fine too. Thanks.
Welcome Slipratchet,
I think you'd be better served by using the asking portfolio questions format: viewtopic.php?t=6212

But in any case, what is your goal for this passive income? What are your retirement plans otherwise? Just the pension? If you want to generate $800 per month from a vanilla bogleheads portfolio of mutual funds/exchange traded funds, particularly if using it early in life, I'd propose that you use a 3% annual withdrawal rate and that gets you ($800/month x12months)/3%= about $320k.
What I was going to do was just buy shares in that Vanguard fund or maybe a different one with the 10% gross I've been putting in my savings account, so I would be continually adding to it while it grows with interest. Then at the end of 5 to 7 yrs I guess I would sell off the shares and use that money for a real estate investment or maybe I should let it grow. Perhaps I should sit down with a financial planner and hash out some sort of plan to make this happen? I'm really not sure how to approach this. I've been putting away about $165 a pay check. I just feel it would grow better in an index fund rather than my savings account. I do realize that "passive income" isn't always passive; sometimes you have to put work in. I'm just trying to limit the amount of work I need to put in. My original plans were to accumulate as many rental properties as I could before I retire so I would have a steady stream of income from them along with my pension and 457, but I know a lot of people on this form kind of frown on the real estate thing because it's not really the Boglehead way. Perhaps instead of rental properties flipping would be a better income venture. I don't know; just throwing out ideas.

Topic Author
Slipratchet
Posts: 15
Joined: Fri Jul 24, 2020 3:15 pm

Re: Advice for a newbie

Post by Slipratchet » Sat Jul 25, 2020 5:02 pm

000 wrote:
Fri Jul 24, 2020 7:10 pm
Slipratchet wrote:
Fri Jul 24, 2020 3:45 pm
If I choose to get into the rental game, it could potentially be a lot of work, but I wouldn't have to worry about making mortgage payments.
What if your rentals sit empty? Are you willing to pay for the mortgage out of your other cashflow?
Slipratchet wrote:
Fri Jul 24, 2020 3:45 pm
Is there a way to double your money in 5 to 7 yrs by say putting that money into the Vanguard S&P 500 Growth ETF (VOOG).
Yes, it is possible but not guaranteed (it did double over the last 5.5 years for example). I personally do not tilt to growth.
Slipratchet wrote:
Fri Jul 24, 2020 3:45 pm
I would really like to generate monthly income on the order of $800 to $1,000 / month with as little work as possible, but if I have to some work in to get there, that's fine too. Thanks.
Many people have had success in real estate, but it is more work than an index fund.
Hi, thanks for your input. If the unit is empty I won't have to worry about the mortgage because a few years ago I took disbursement from my original 401 and 457 plans and payed my mortgage off with it.

If not growth; than what?

Topic Author
Slipratchet
Posts: 15
Joined: Fri Jul 24, 2020 3:15 pm

Re: Advice for a newbie

Post by Slipratchet » Sat Jul 25, 2020 5:14 pm

Hi. I guess what I'm looking for is some guidance on the best way to build wealth and retirement. I found out about the Bigger Pockets website from this forum, and I've noticed some people here think it's a great place to get help with real estate and others not so much. I've looked into REITs, but I'm not sure which is better for income purposes. I know there are tons of posts on this subject, but most of the time when I'm reading them, I'm more confused that when I started. While reading about REITs I found out about the SPIA. It seems to be an option for people over 50, but could that also be an option for someone like me? Or would that be foolish? Apologies for my financial ignorance, but I do Irrigation work for a living; A lot of the financial jargon and terms confuse me easily.

000
Posts: 571
Joined: Thu Jul 23, 2020 12:04 am

Re: Advice for a newbie

Post by 000 » Sat Jul 25, 2020 5:43 pm

Slipratchet wrote:
Sat Jul 25, 2020 5:02 pm
If not growth; than what?
I use total market blend funds, e.g. VTI and VEA.

In the context of stock investing, "growth" does not mean stocks that are guaranteed to grow faster than others; rather, it is differentiated from "value" stocks by metrics such as P/E (price per earnings). A value investor tries to buy stocks that he thinks are undervalued by the market. In recent years, "growth" stocks have done well, but there is no guarantee this style of investing will continue to outperform blend or value funds in the future.

Topic Author
Slipratchet
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Re: Advice for a newbie

Post by Slipratchet » Sun Jul 26, 2020 1:51 pm

000 wrote:
Sat Jul 25, 2020 5:43 pm
Slipratchet wrote:
Sat Jul 25, 2020 5:02 pm
If not growth; than what?
I use total market blend funds, e.g. VTI and VEA.

In the context of stock investing, "growth" does not mean stocks that are guaranteed to grow faster than others; rather, it is differentiated from "value" stocks by metrics such as P/E (price per earnings). A value investor tries to buy stocks that he thinks are undervalued by the market. In recent years, "growth" stocks have done well, but there is no guarantee this style of investing will continue to outperform blend or value funds in the future.
Thanks for your input. I saw the word "growth" and thought that meant that fund was for an investor who wanted to grow their money quickly. :oops:

000
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Re: Advice for a newbie

Post by 000 » Sun Jul 26, 2020 3:15 pm

Slipratchet wrote:
Sun Jul 26, 2020 1:51 pm
000 wrote:
Sat Jul 25, 2020 5:43 pm
Slipratchet wrote:
Sat Jul 25, 2020 5:02 pm
If not growth; than what?
I use total market blend funds, e.g. VTI and VEA.

In the context of stock investing, "growth" does not mean stocks that are guaranteed to grow faster than others; rather, it is differentiated from "value" stocks by metrics such as P/E (price per earnings). A value investor tries to buy stocks that he thinks are undervalued by the market. In recent years, "growth" stocks have done well, but there is no guarantee this style of investing will continue to outperform blend or value funds in the future.
Thanks for your input. I saw the word "growth" and thought that meant that fund was for an investor who wanted to grow their money quickly. :oops:
I thought the same thing when I started investing! :D

Topic Author
Slipratchet
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Joined: Fri Jul 24, 2020 3:15 pm

Re: Advice for a newbie

Post by Slipratchet » Mon Jul 27, 2020 5:29 am

If I wanted to grow my money as quickly as possible, would it be best to put my money in something like Vanguard's VNQ and VGSLX funds or stick with the S&P 500 total market funds, or both? I'd like to grow my money quickly for real estate investments.

retired@50
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Re: Advice for a newbie

Post by retired@50 » Mon Jul 27, 2020 5:56 am

Slipratchet wrote:
Mon Jul 27, 2020 5:29 am
If I wanted to grow my money as quickly as possible, would it be best to put my money in something like Vanguard's VNQ and VGSLX funds or stick with the S&P 500 total market funds, or both? I'd like to grow my money quickly for real estate investments.
It appears you want to put your money into some sort of magic investment and watch it double in a year. This isn't how it works.

Maybe you should read over the Boglehead investment philosophy and see if it resonates with you. See link.

https://www.bogleheads.org/wiki/Boglehe ... philosophy

Regards,
This is one person's opinion. Nothing more.

Topic Author
Slipratchet
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Re: Advice for a newbie

Post by Slipratchet » Mon Jul 27, 2020 8:40 pm

retired@50 wrote:
Mon Jul 27, 2020 5:56 am
Slipratchet wrote:
Mon Jul 27, 2020 5:29 am
If I wanted to grow my money as quickly as possible, would it be best to put my money in something like Vanguard's VNQ and VGSLX funds or stick with the S&P 500 total market funds, or both? I'd like to grow my money quickly for real estate investments.
It appears you want to put your money into some sort of magic investment and watch it double in a year. This isn't how it works.

Maybe you should read over the Boglehead investment philosophy and see if it resonates with you. See link.

https://www.bogleheads.org/wiki/Boglehe ... philosophy

Regards,
I know there is no magic way to grow money in a year. When I say "quickly", I mean within 5 to 7 years as opposed to 30 or 40 years. I've read a lot of posts concerning REITs vs active real estate investing (Rentals and Flipping); I'm just trying to figure out if REITs can generate the kind of cash flow a rental can with out all the headaches. If not, that's okay; there's nothing wrong with doing work to achieve a goal, I'm okay with that.

When it comes to making an investment like real estate, as I understand it, if you can't beat the S&P 500 (8 to 10%) / year, then you shouldn't pursue it because why put yourself through all that stress and headache for anything less than 8% when you can just let your money grow virtually stress free in the S&P 500? Is that correct, or at least on the right track?

Living Free
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Re: Advice for a newbie

Post by Living Free » Tue Jul 28, 2020 6:22 pm

Are you filling all of your available tax advantaged accounts to the max? I'd do that before getting into taxable investing or real estate.

Robdac
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Re: Advice for a newbie

Post by Robdac » Tue Jul 28, 2020 6:55 pm

There are no free lunches.

You said you want to double your money in 5-7 years. To double your money in 6 years you need an average annual return of just over 12%. That 12 percent return will come with substantial risk of losing part or all of your investment. Are you willing to risk that?

You can go to Vegas, put it all on black and double your money instantly. Super high return. But you also have a greater than 50% chance of losing it all. Super high risk as well.

Bogleheads is about low risk. It's the opposite. It's understanding that over time the stock market is like like walking uphill throwing a yoyo. It goes up and down but on a long enough time horizon it has always gone up. That average return is in the 8-10 percent range. Put the money away each month every month. Stay the course in good and bad times. Nothing flashy, it just works.

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arcticpineapplecorp.
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Re: Advice for a newbie

Post by arcticpineapplecorp. » Tue Jul 28, 2020 7:00 pm

slow down.

take 1 hour and watch the following videos:

https://www.bogleheads.org/wiki/Video:B ... philosophy

then come back with more questions.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

Topic Author
Slipratchet
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Re: Advice for a newbie

Post by Slipratchet » Wed Jul 29, 2020 5:29 am

Thanks for your input everyone. I have watched all those videos, and I do understand that stocks are a long term game. If you look above, you'll note that my current job offers a pension and I have a 457 which I contribute 10% of my salary to; that's my long term savings. The other 10% that I have been talking about is money that I have been putting away in my savings account for more short term investments. It's not really going to grow very fast there because the interest rates on savings accounts is quite low. I just wanted some advice on what the smartest way to invest that money would be. :mrgreen:

Living Free
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Re: Advice for a newbie

Post by Living Free » Wed Jul 29, 2020 10:51 am

Slipratchet wrote:
Wed Jul 29, 2020 5:29 am
Thanks for your input everyone. I have watched all those videos, and I do understand that stocks are a long term game. If you look above, you'll note that my current job offers a pension and I have a 457 which I contribute 10% of my salary to; that's my long term savings. The other 10% that I have been talking about is money that I have been putting away in my savings account for more short term investments. It's not really going to grow very fast there because the interest rates on savings accounts is quite low. I just wanted some advice on what the smartest way to invest that money would be. :mrgreen:
I asked above about retirement accounts, but again if you're not filling those to the max each year then I'd recommend that as a first step. Filling retirement accounts is kinda boring, but it's better to be taxed once than twice.

Topic Author
Slipratchet
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Re: Advice for a newbie

Post by Slipratchet » Thu Jul 30, 2020 5:16 am

Living Free wrote:
Wed Jul 29, 2020 10:51 am
Slipratchet wrote:
Wed Jul 29, 2020 5:29 am
Thanks for your input everyone. I have watched all those videos, and I do understand that stocks are a long term game. If you look above, you'll note that my current job offers a pension and I have a 457 which I contribute 10% of my salary to; that's my long term savings. The other 10% that I have been talking about is money that I have been putting away in my savings account for more short term investments. It's not really going to grow very fast there because the interest rates on savings accounts is quite low. I just wanted some advice on what the smartest way to invest that money would be. :mrgreen:
I asked above about retirement accounts, but again if you're not filling those to the max each year then I'd recommend that as a first step. Filling retirement accounts is kinda boring, but it's better to be taxed once than twice.
Got it. I see what you're saying. I should take that extra 10% I want to use for short term investments and put it toward my long term retirement savings. Right?

backpacker61
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Re: Advice for a newbie

Post by backpacker61 » Thu Jul 30, 2020 7:33 am

Slipratchet wrote:
Thu Jul 30, 2020 5:16 am
Living Free wrote:
Wed Jul 29, 2020 10:51 am
Slipratchet wrote:
Wed Jul 29, 2020 5:29 am
Thanks for your input everyone. I have watched all those videos, and I do understand that stocks are a long term game. If you look above, you'll note that my current job offers a pension and I have a 457 which I contribute 10% of my salary to; that's my long term savings. The other 10% that I have been talking about is money that I have been putting away in my savings account for more short term investments. It's not really going to grow very fast there because the interest rates on savings accounts is quite low. I just wanted some advice on what the smartest way to invest that money would be. :mrgreen:
I asked above about retirement accounts, but again if you're not filling those to the max each year then I'd recommend that as a first step. Filling retirement accounts is kinda boring, but it's better to be taxed once than twice.
Got it. I see what you're saying. I should take that extra 10% I want to use for short term investments and put it toward my long term retirement savings. Right?
I agree with this.

Something else to consider; do you have a high deductible health insurance plan (HDHP) at work?
If so, have you opened and contribute to a Health Savings Account (HSA), and invested the unspent HSA balance?

https://www.bogleheads.org/wiki/Health_savings_account
“Now shall I walk or shall I ride? | 'Ride,' Pleasure said; | 'Walk,' Joy replied.” | | ― W.H. Davies

Living Free
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Re: Advice for a newbie

Post by Living Free » Thu Jul 30, 2020 11:58 am

Slipratchet wrote:
Thu Jul 30, 2020 5:16 am
Living Free wrote:
Wed Jul 29, 2020 10:51 am
Slipratchet wrote:
Wed Jul 29, 2020 5:29 am
Thanks for your input everyone. I have watched all those videos, and I do understand that stocks are a long term game. If you look above, you'll note that my current job offers a pension and I have a 457 which I contribute 10% of my salary to; that's my long term savings. The other 10% that I have been talking about is money that I have been putting away in my savings account for more short term investments. It's not really going to grow very fast there because the interest rates on savings accounts is quite low. I just wanted some advice on what the smartest way to invest that money would be. :mrgreen:
I asked above about retirement accounts, but again if you're not filling those to the max each year then I'd recommend that as a first step. Filling retirement accounts is kinda boring, but it's better to be taxed once than twice.
Got it. I see what you're saying. I should take that extra 10% I want to use for short term investments and put it toward my long term retirement savings. Right?
Yes, but we should clarify what you mean by short term investments. You had mentioned above that you want to use it to create some sort of passive income stream, which as above can be done via stocks and bonds held in mutual funds (or exchange traded funds). If you're going about it that way, then it's better to max out the retirement accounts first before you invest in a regular taxable/brokerage account. I wouldn't consider it short term though - this would be something that you'll contribute to and then withdraw from over the course of several decades.

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ruralavalon
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Re: Advice for a newbie

Post by ruralavalon » Thu Jul 30, 2020 2:21 pm

Welcome to the forum :) .

Slipratchet wrote:
Fri Jul 24, 2020 3:45 pm
Hello everyone. I'm new here, and I've read through many form posts concerning "passive income", Real Estate, and REITs. The more I read the more lost and confused I get. So here's my situation: I'm 42, I work for for a city with a pension and 457 that I put 10% of gross income towards. About 5 years ago I changed jobs and decided to take disbursement of my original 401A and 457 to pay off my mortgage, and yes I payed income tax on both those plus a 10% penalty on my 401. At the time it seemed like the right thing to do; I hadn't even heard of this form back then, but I was mortgage free before the age of 40, and I'm still happy with my decision today. I am currently setting aside another 10% of my gross pay in a savings account for short term investing, 5 to 7 Yrs, I guess; not really sure if that's unrealistic or not. But I'd like to generate monthly supplementary income with that 10%. If I choose to get into the rental game, it could potentially be a lot of work, but I wouldn't have to worry about making mortgage payments. Is there a way to double your money in 5 to 7 yrs by say putting that money into the Vanguard S&P 500 Growth ETF (VOOG). If real estate would be the way to go, how does everyone here feel about the Bigger Pockets site? Sorry for being the 10,000,000th [person] (implied profanity removed by Mod Misenplace) that's asked this question, but I feel my real estate situation is different from the questions in all those other forum posts. I would really like to generate monthly income on the order of $800 to $1,000 / month with as little work as possible, but if I have to some work in to get there, that's fine too. Thanks.
Slipratchet wrote:
Sat Jul 25, 2020 4:59 pm
What I was going to do was just buy shares in that Vanguard fund or maybe a different one with the 10% gross I've been putting in my savings account, so I would be continually adding to it while it grows with interest. Then at the end of 5 to 7 yrs I guess I would sell off the shares and use that money for a real estate investment or maybe I should let it grow. Perhaps I should sit down with a financial planner and hash out some sort of plan to make this happen? I'm really not sure how to approach this. I've been putting away about $165 a pay check. I just feel it would grow better in an index fund rather than my savings account. I do realize that "passive income" isn't always passive; sometimes you have to put work in. I'm just trying to limit the amount of work I need to put in. My original plans were to accumulate as many rental properties as I could before I retire so I would have a steady stream of income from them along with my pension and 457, but I know a lot of people on this form kind of frown on the real estate thing because it's not really the Boglehead way. Perhaps instead of rental properties flipping would be a better income venture. I don't know; just throwing out ideas.

Slipratchet wrote:
Wed Jul 29, 2020 5:29 am
Thanks for your input everyone. I have watched all those videos, and I do understand that stocks are a long term game. If you look above, you'll note that my current job offers a pension and I have a 457 which I contribute 10% of my salary to; that's my long term savings. The other 10% that I have been talking about is money that I have been putting away in my savings account for more short term investments. It's not really going to grow very fast there because the interest rates on savings accounts is quite low. I just wanted some advice on what the smartest way to invest that money would be. :mrgreen:

Slipratchet wrote:
Sat Jul 25, 2020 5:14 pm
Hi. I guess what I'm looking for is some guidance on the best way to build wealth and retirement.
To give "guidance on the best way to build wealth and retirement" we need information about your current retirement accounts and assets. We need to know what you have now, what accounts and investments you have, in order to suggest what to add.

How much (in dollars) do you currently contribute annually to the 457 account? What mutual funds do you currently use in your 457 account? What funds are offered in your employer's 457 plan? Please give fund names, tickers and expense ratios. Do you also have any other accounts, like an IRA or savings account or CDs? If so how much in each? Or you already have an IRA, what mutual funds do you use in it?

Please see this for information needed and format: "Asking Portfolio Questions". Also what will your pension be? What will your Social Security be? What do you expect your retirement living expenses will be?

Please simply add these details to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.

Slipratchet wrote:
Sat Jul 25, 2020 5:14 pm
I found out about the Bigger Pockets website from this forum, and I've noticed some people here think it's a great place to get help with real estate and others not so much.
I don't know about Bigger Pockets. Sounds risky to me. Bigger Pockets, "Tips for Avoiding a Scam on BiggerPockets" .


Slipratchet wrote:
Sat Jul 25, 2020 5:14 pm
I've looked into REITs, but I'm not sure which is better for income purposes. I know there are tons of posts on this subject, but most of the time when I'm reading them, I'm more confused that when I started.
Investing in a REIT mutual fund, like Vanguard Real Estate Index Fund Admiral Shares (VGSLX), or Vanguard Real Estate ETF (VNQ), is a good way to "get into the rental game, [without] it potentially be[ing] a lot of work".

I don't know if a REIT fund, or any other kind of real estate fund, is offered in your employer's 457 plan.

It's not a good idea to invest in a single unmarketable Real Estate Investment Trust (REIT). It's hard or even impossible to get your money back out when you need it want it.


Slipratchet wrote:
Sat Jul 25, 2020 5:14 pm
While reading about REITs I found out about the SPIA. It seems to be an option for people over 50, but could that also be an option for someone like me? Or would that be foolish?
I do not believe that a Single Premium Immediate Annuity (SPIA) is a good idea at your age, 42.

That is useful only when you are just about ready to retire, like within a year.

Slipratchet wrote:
Sat Jul 25, 2020 5:14 pm
Apologies for my financial ignorance, but I do Irrigation work for a living; A lot of the financial jargon and terms confuse me easily.
No apologies are necessary. The jargon can be confusing. You will pick it up, be patient. To start learning see "Investment Planning" .
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Topic Author
Slipratchet
Posts: 15
Joined: Fri Jul 24, 2020 3:15 pm

Re: Advice for a newbie

Post by Slipratchet » Thu Jul 30, 2020 7:36 pm

backpacker61 wrote:
Thu Jul 30, 2020 7:33 am
Slipratchet wrote:
Thu Jul 30, 2020 5:16 am
Living Free wrote:
Wed Jul 29, 2020 10:51 am
Slipratchet wrote:
Wed Jul 29, 2020 5:29 am
Thanks for your input everyone. I have watched all those videos, and I do understand that stocks are a long term game. If you look above, you'll note that my current job offers a pension and I have a 457 which I contribute 10% of my salary to; that's my long term savings. The other 10% that I have been talking about is money that I have been putting away in my savings account for more short term investments. It's not really going to grow very fast there because the interest rates on savings accounts is quite low. I just wanted some advice on what the smartest way to invest that money would be. :mrgreen:
I asked above about retirement accounts, but again if you're not filling those to the max each year then I'd recommend that as a first step. Filling retirement accounts is kinda boring, but it's better to be taxed once than twice.
Got it. I see what you're saying. I should take that extra 10% I want to use for short term investments and put it toward my long term retirement savings. Right?
I agree with this.

Something else to consider; do you have a high deductible health insurance plan (HDHP) at work?
If so, have you opened and contribute to a Health Savings Account (HSA), and invested the unspent HSA balance?

https://www.bogleheads.org/wiki/Health_savings_account
I do, but I have not set up contribution yet. You suggest this because it's another way of saving on taxes correct?

Topic Author
Slipratchet
Posts: 15
Joined: Fri Jul 24, 2020 3:15 pm

Re: Advice for a newbie

Post by Slipratchet » Thu Jul 30, 2020 7:42 pm

ruralavalon wrote:
Thu Jul 30, 2020 2:21 pm
Welcome to the forum :) .

Slipratchet wrote:
Fri Jul 24, 2020 3:45 pm
Hello everyone. I'm new here, and I've read through many form posts concerning "passive income", Real Estate, and REITs. The more I read the more lost and confused I get. So here's my situation: I'm 42, I work for for a city with a pension and 457 that I put 10% of gross income towards. About 5 years ago I changed jobs and decided to take disbursement of my original 401A and 457 to pay off my mortgage, and yes I payed income tax on both those plus a 10% penalty on my 401. At the time it seemed like the right thing to do; I hadn't even heard of this form back then, but I was mortgage free before the age of 40, and I'm still happy with my decision today. I am currently setting aside another 10% of my gross pay in a savings account for short term investing, 5 to 7 Yrs, I guess; not really sure if that's unrealistic or not. But I'd like to generate monthly supplementary income with that 10%. If I choose to get into the rental game, it could potentially be a lot of work, but I wouldn't have to worry about making mortgage payments. Is there a way to double your money in 5 to 7 yrs by say putting that money into the Vanguard S&P 500 Growth ETF (VOOG). If real estate would be the way to go, how does everyone here feel about the Bigger Pockets site? Sorry for being the 10,000,000th [person] (implied profanity removed by Mod Misenplace) that's asked this question, but I feel my real estate situation is different from the questions in all those other forum posts. I would really like to generate monthly income on the order of $800 to $1,000 / month with as little work as possible, but if I have to some work in to get there, that's fine too. Thanks.
Slipratchet wrote:
Sat Jul 25, 2020 4:59 pm
What I was going to do was just buy shares in that Vanguard fund or maybe a different one with the 10% gross I've been putting in my savings account, so I would be continually adding to it while it grows with interest. Then at the end of 5 to 7 yrs I guess I would sell off the shares and use that money for a real estate investment or maybe I should let it grow. Perhaps I should sit down with a financial planner and hash out some sort of plan to make this happen? I'm really not sure how to approach this. I've been putting away about $165 a pay check. I just feel it would grow better in an index fund rather than my savings account. I do realize that "passive income" isn't always passive; sometimes you have to put work in. I'm just trying to limit the amount of work I need to put in. My original plans were to accumulate as many rental properties as I could before I retire so I would have a steady stream of income from them along with my pension and 457, but I know a lot of people on this form kind of frown on the real estate thing because it's not really the Boglehead way. Perhaps instead of rental properties flipping would be a better income venture. I don't know; just throwing out ideas.

Slipratchet wrote:
Wed Jul 29, 2020 5:29 am
Thanks for your input everyone. I have watched all those videos, and I do understand that stocks are a long term game. If you look above, you'll note that my current job offers a pension and I have a 457 which I contribute 10% of my salary to; that's my long term savings. The other 10% that I have been talking about is money that I have been putting away in my savings account for more short term investments. It's not really going to grow very fast there because the interest rates on savings accounts is quite low. I just wanted some advice on what the smartest way to invest that money would be. :mrgreen:
Thanks for your input. Give me some time; I'll have to gather up all that info and get back to all of you with the info. :D

Slipratchet wrote:
Sat Jul 25, 2020 5:14 pm
Hi. I guess what I'm looking for is some guidance on the best way to build wealth and retirement.
To give "guidance on the best way to build wealth and retirement" we need information about your current retirement accounts and assets. We need to know what you have now, what accounts and investments you have, in order to suggest what to add.

How much (in dollars) do you currently contribute annually to the 457 account? What mutual funds do you currently use in your 457 account? What funds are offered in your employer's 457 plan? Please give fund names, tickers and expense ratios. Do you also have any other accounts, like an IRA or savings account or CDs? If so how much in each? Or you already have an IRA, what mutual funds do you use in it?

Please see this for information needed and format: "Asking Portfolio Questions". Also what will your pension be? What will your Social Security be? What do you expect your retirement living expenses will be?

Please simply add these details to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.

Slipratchet wrote:
Sat Jul 25, 2020 5:14 pm
I found out about the Bigger Pockets website from this forum, and I've noticed some people here think it's a great place to get help with real estate and others not so much.
I don't know about Bigger Pockets. Sounds risky to me. Bigger Pockets, "Tips for Avoiding a Scam on BiggerPockets" .


Slipratchet wrote:
Sat Jul 25, 2020 5:14 pm
I've looked into REITs, but I'm not sure which is better for income purposes. I know there are tons of posts on this subject, but most of the time when I'm reading them, I'm more confused that when I started.
Investing in a REIT mutual fund, like Vanguard Real Estate Index Fund Admiral Shares (VGSLX), or Vanguard Real Estate ETF (VNQ), is a good way to "get into the rental game, [without] it potentially be[ing] a lot of work".

I don't know if a REIT fund, or any other kind of real estate fund, is offered in your employer's 457 plan.

It's not a good idea to invest in a single unmarketable Real Estate Investment Trust (REIT). It's hard or even impossible to get your money back out when you need it want it.


Slipratchet wrote:
Sat Jul 25, 2020 5:14 pm
While reading about REITs I found out about the SPIA. It seems to be an option for people over 50, but could that also be an option for someone like me? Or would that be foolish?
I do not believe that a Single Premium Immediate Annuity (SPIA) is a good idea at your age, 42.

That is useful only when you are just about ready to retire, like within a year.

Slipratchet wrote:
Sat Jul 25, 2020 5:14 pm
Apologies for my financial ignorance, but I do Irrigation work for a living; A lot of the financial jargon and terms confuse me easily.
No apologies are necessary. The jargon can be confusing. You will pick it up, be patient. To start learning see "Investment Planning" .

Topic Author
Slipratchet
Posts: 15
Joined: Fri Jul 24, 2020 3:15 pm

Re: Advice for a newbie

Post by Slipratchet » Thu Jul 30, 2020 7:56 pm

ruralavalon wrote:
Thu Jul 30, 2020 2:21 pm
Welcome to the forum :) .

Slipratchet wrote:
Fri Jul 24, 2020 3:45 pm
Hello everyone. I'm new here, and I've read through many form posts concerning "passive income", Real Estate, and REITs. The more I read the more lost and confused I get. So here's my situation: I'm 42, I work for for a city with a pension and 457 that I put 10% of gross income towards. About 5 years ago I changed jobs and decided to take disbursement of my original 401A and 457 to pay off my mortgage, and yes I payed income tax on both those plus a 10% penalty on my 401. At the time it seemed like the right thing to do; I hadn't even heard of this form back then, but I was mortgage free before the age of 40, and I'm still happy with my decision today. I am currently setting aside another 10% of my gross pay in a savings account for short term investing, 5 to 7 Yrs, I guess; not really sure if that's unrealistic or not. But I'd like to generate monthly supplementary income with that 10%. If I choose to get into the rental game, it could potentially be a lot of work, but I wouldn't have to worry about making mortgage payments. Is there a way to double your money in 5 to 7 yrs by say putting that money into the Vanguard S&P 500 Growth ETF (VOOG). If real estate would be the way to go, how does everyone here feel about the Bigger Pockets site? Sorry for being the 10,000,000th [person] (implied profanity removed by Mod Misenplace) that's asked this question, but I feel my real estate situation is different from the questions in all those other forum posts. I would really like to generate monthly income on the order of $800 to $1,000 / month with as little work as possible, but if I have to some work in to get there, that's fine too. Thanks.
Slipratchet wrote:
Sat Jul 25, 2020 4:59 pm
What I was going to do was just buy shares in that Vanguard fund or maybe a different one with the 10% gross I've been putting in my savings account, so I would be continually adding to it while it grows with interest. Then at the end of 5 to 7 yrs I guess I would sell off the shares and use that money for a real estate investment or maybe I should let it grow. Perhaps I should sit down with a financial planner and hash out some sort of plan to make this happen? I'm really not sure how to approach this. I've been putting away about $165 a pay check. I just feel it would grow better in an index fund rather than my savings account. I do realize that "passive income" isn't always passive; sometimes you have to put work in. I'm just trying to limit the amount of work I need to put in. My original plans were to accumulate as many rental properties as I could before I retire so I would have a steady stream of income from them along with my pension and 457, but I know a lot of people on this form kind of frown on the real estate thing because it's not really the Boglehead way. Perhaps instead of rental properties flipping would be a better income venture. I don't know; just throwing out ideas.

Slipratchet wrote:
Wed Jul 29, 2020 5:29 am
Thanks for your input everyone. I have watched all those videos, and I do understand that stocks are a long term game. If you look above, you'll note that my current job offers a pension and I have a 457 which I contribute 10% of my salary to; that's my long term savings. The other 10% that I have been talking about is money that I have been putting away in my savings account for more short term investments. It's not really going to grow very fast there because the interest rates on savings accounts is quite low. I just wanted some advice on what the smartest way to invest that money would be. :mrgreen:

Slipratchet wrote:
Sat Jul 25, 2020 5:14 pm
Hi. I guess what I'm looking for is some guidance on the best way to build wealth and retirement.
To give "guidance on the best way to build wealth and retirement" we need information about your current retirement accounts and assets. We need to know what you have now, what accounts and investments you have, in order to suggest what to add.

How much (in dollars) do you currently contribute annually to the 457 account? What mutual funds do you currently use in your 457 account? What funds are offered in your employer's 457 plan? Please give fund names, tickers and expense ratios. Do you also have any other accounts, like an IRA or savings account or CDs? If so how much in each? Or you already have an IRA, what mutual funds do you use in it?

Please see this for information needed and format: "Asking Portfolio Questions". Also what will your pension be? What will your Social Security be? What do you expect your retirement living expenses will be?

Please simply add these details to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.

Slipratchet wrote:
Sat Jul 25, 2020 5:14 pm
I found out about the Bigger Pockets website from this forum, and I've noticed some people here think it's a great place to get help with real estate and others not so much.
I don't know about Bigger Pockets. Sounds risky to me. Bigger Pockets, "Tips for Avoiding a Scam on BiggerPockets" .


Slipratchet wrote:
Sat Jul 25, 2020 5:14 pm
I've looked into REITs, but I'm not sure which is better for income purposes. I know there are tons of posts on this subject, but most of the time when I'm reading them, I'm more confused that when I started.
Investing in a REIT mutual fund, like Vanguard Real Estate Index Fund Admiral Shares (VGSLX), or Vanguard Real Estate ETF (VNQ), is a good way to "get into the rental game, [without] it potentially be[ing] a lot of work".

I don't know if a REIT fund, or any other kind of real estate fund, is offered in your employer's 457 plan.

It's not a good idea to invest in a single unmarketable Real Estate Investment Trust (REIT). It's hard or even impossible to get your money back out when you need it want it.


Slipratchet wrote:
Sat Jul 25, 2020 5:14 pm
While reading about REITs I found out about the SPIA. It seems to be an option for people over 50, but could that also be an option for someone like me? Or would that be foolish?
I do not believe that a Single Premium Immediate Annuity (SPIA) is a good idea at your age, 42.

That is useful only when you are just about ready to retire, like within a year.

Slipratchet wrote:
Sat Jul 25, 2020 5:14 pm
Apologies for my financial ignorance, but I do Irrigation work for a living; A lot of the financial jargon and terms confuse me easily.
No apologies are necessary. The jargon can be confusing. You will pick it up, be patient. To start learning see "Investment Planning" .
Thanks so much for the link to the Bigger Pockets scam page! I didn't even know a bout that.

User avatar
arcticpineapplecorp.
Posts: 5531
Joined: Tue Mar 06, 2012 9:22 pm

Re: Advice for a newbie

Post by arcticpineapplecorp. » Thu Jul 30, 2020 7:58 pm

Slipratchet wrote:
Thu Jul 30, 2020 7:36 pm
backpacker61 wrote:
Thu Jul 30, 2020 7:33 am
Slipratchet wrote:
Thu Jul 30, 2020 5:16 am
Living Free wrote:
Wed Jul 29, 2020 10:51 am
Slipratchet wrote:
Wed Jul 29, 2020 5:29 am
Thanks for your input everyone. I have watched all those videos, and I do understand that stocks are a long term game. If you look above, you'll note that my current job offers a pension and I have a 457 which I contribute 10% of my salary to; that's my long term savings. The other 10% that I have been talking about is money that I have been putting away in my savings account for more short term investments. It's not really going to grow very fast there because the interest rates on savings accounts is quite low. I just wanted some advice on what the smartest way to invest that money would be. :mrgreen:
I asked above about retirement accounts, but again if you're not filling those to the max each year then I'd recommend that as a first step. Filling retirement accounts is kinda boring, but it's better to be taxed once than twice.
Got it. I see what you're saying. I should take that extra 10% I want to use for short term investments and put it toward my long term retirement savings. Right?
I agree with this.

Something else to consider; do you have a high deductible health insurance plan (HDHP) at work?
If so, have you opened and contribute to a Health Savings Account (HSA), and invested the unspent HSA balance?

https://www.bogleheads.org/wiki/Health_savings_account
I do, but I have not set up contribution yet. You suggest this because it's another way of saving on taxes correct?
because the HSA is the "ultimate retirement account"

why?

triple tax savings.

That's even better than Roth 457b/IRA which is double tax savings (save tax on earnings and on withdrawals only, not contributions) or traditional 457b/IRA (save tax on contributions and earnings, but not withdrawals)

HSAs have triple tax savings: save tax on contribution, on earnings and on withdrawals if used for qualified medical expenses.

even if not used on medical expenses, is similar to traditional 457b/IRA in that taxes only on withdrawals if after 65, not 59.5 (also no penalty after 65, not 59.5)

read more here:
https://www.madfientist.com/ultimate-re ... t-account/
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

backpacker61
Posts: 48
Joined: Wed May 20, 2020 6:36 am

Re: Advice for a newbie

Post by backpacker61 » Thu Jul 30, 2020 8:20 pm

Slipratchet wrote:
Thu Jul 30, 2020 7:36 pm
I do, but I have not set up contribution yet. You suggest this because it's another way of saving on taxes correct?
Exactly what arcticpineapplecorp said.
Couldn't have said it better. It would make an ideal tax-free pot of money out of which to pay medicare premiums.
“Now shall I walk or shall I ride? | 'Ride,' Pleasure said; | 'Walk,' Joy replied.” | | ― W.H. Davies

Topic Author
Slipratchet
Posts: 15
Joined: Fri Jul 24, 2020 3:15 pm

Re: Advice for a newbie

Post by Slipratchet » Sat Aug 01, 2020 11:30 am

arcticpineapplecorp. wrote:
Thu Jul 30, 2020 7:58 pm
Slipratchet wrote:
Thu Jul 30, 2020 7:36 pm
backpacker61 wrote:
Thu Jul 30, 2020 7:33 am
Slipratchet wrote:
Thu Jul 30, 2020 5:16 am
Living Free wrote:
Wed Jul 29, 2020 10:51 am


I asked above about retirement accounts, but again if you're not filling those to the max each year then I'd recommend that as a first step. Filling retirement accounts is kinda boring, but it's better to be taxed once than twice.
Got it. I see what you're saying. I should take that extra 10% I want to use for short term investments and put it toward my long term retirement savings. Right?
I agree with this.

Something else to consider; do you have a high deductible health insurance plan (HDHP) at work?
If so, have you opened and contribute to a Health Savings Account (HSA), and invested the unspent HSA balance?

https://www.bogleheads.org/wiki/Health_savings_account
I do, but I have not set up contribution yet. You suggest this because it's another way of saving on taxes correct?
because the HSA is the "ultimate retirement account"

why?

triple tax savings.

That's even better than Roth 457b/IRA which is double tax savings (save tax on earnings and on withdrawals only, not contributions) or traditional 457b/IRA (save tax on contributions and earnings, but not withdrawals)

HSAs have triple tax savings: save tax on contribution, on earnings and on withdrawals if used for qualified medical expenses.

even if not used on medical expenses, is similar to traditional 457b/IRA in that taxes only on withdrawals if after 65, not 59.5 (also no penalty after 65, not 59.5)

read more here:
https://www.madfientist.com/ultimate-re ... t-account/
Thanks! I never really understood why so many investors love HSAs. But that webpage really helped put things into perspective. Just to be clear, The idea is to contribute to the HSA, pay for all my medical expenses with my taxed dollars, keep the receipts, and the total of those receipts are the amount I can withdraw to "pay myself back" and use for what ever I want. Invest the contributions to the HSA in a low cost total market index fund so it grows with both the contributions and the stocks at the same time. Do I have all that right, or did I miss something?

Topic Author
Slipratchet
Posts: 15
Joined: Fri Jul 24, 2020 3:15 pm

Re: Advice for a newbie

Post by Slipratchet » Sat Aug 01, 2020 11:52 am

So I'm having trouble accessing my retirement account with ICMA and I have to get some details about the FRS (Florida Retirement System) aka my pension. As far as I know, the percentage of a person's salary they receive is based on the number of years served, mine would be about 25.5 years in, and how far up the ladder they climbed during their service. For example: if two employees start the same exact day and one is an mid-level hourly employee and the other a department head like a director (Salary), both serve 20 years and then retire, the director gets a better percentage than the mid-level employee because He was much higher on the leadership ladder. If anyone out there knows something about the FRS, please feel free to comment on this; otherwise it's probably going to take me about another week to get all the other information together for my advice / guidance request.

I should also let you all know that active real estate investing (rentals and / or flipping) has been a part of my plan for quite some time. I know it's a lot of work and really not passive, but I would like to here everyone's thoughts on the subject. My job requires me to be out in the hot Florida sun everyday, so I'm definitely not afraid of hard work. That being said, It was that extra 10% I was putting in my savings account, that I was going to save up and use for a down payment on my next property purchase, but I guess I could take out a Home Equity Loan to use for that and contribute that extra 10% to my HSA. What do you guys think?

User avatar
ruralavalon
Posts: 18741
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Advice for a newbie

Post by ruralavalon » Sat Aug 01, 2020 12:10 pm

In my opinion it is not a good idea to take out a home equity loan in order to invest that money either in real estate or a HSA.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

User avatar
arcticpineapplecorp.
Posts: 5531
Joined: Tue Mar 06, 2012 9:22 pm

Re: Advice for a newbie

Post by arcticpineapplecorp. » Sat Aug 01, 2020 12:24 pm

Slipratchet wrote:
Sat Aug 01, 2020 11:30 am

Thanks! I never really understood why so many investors love HSAs. But that webpage really helped put things into perspective. Just to be clear, The idea is to contribute to the HSA, pay for all my medical expenses with my taxed dollars, keep the receipts, and the total of those receipts are the amount I can withdraw to "pay myself back" and use for what ever I want. Invest the contributions to the HSA in a low cost total market index fund so it grows with both the contributions and the stocks at the same time. Do I have all that right, or did I miss something?
unless you live in CA or NJ, then...
State taxation of HSAs

While contributions are deductible on one's federal income tax, this is not always true for state income tax. The following states are not in conformity with federal legislation and do not recognize HSAs, so contributions are not deductible and earnings are taxable:[2]

California
New Jersey

If you live in a state which taxes HSA earnings, consider investing the HSA in Treasury bonds or TIPS, which are exempt from state taxes. (In CA, capital gains issued by a TIPS/Treasury mutual fund or capital gain/loss on the sale of Treasury mutual fund shares would be subject to state taxes, but even if they are, most of the returns from Treasury bonds and TIPS would be income which is not subject to state tax. NJ exempts capital gains on Treasuries from state tax.)

In states that tax contributions, be aware that Federal tax-free rollovers into an HSA, such as the once in a lifetime IRA to HSA rollover, and an Archer MSA to HSA rollover, are treated as a non-qualified withdrawal from the IRA/MSA at the state level and subject to income taxes and penalties on the state return. Also in states that tax contributions, the state treats the HSA as a taxable account, taxable investing rules apply.

Principles of tax-efficient fund placement are important, except when investing in TIPS and treasury bonds (as noted above) and tax loss harvesting is possible on the state tax return if you have capital gains or the state allows carryovers of capital losses. HSA administrators are not required to send you tax forms (such as 1099-INT, -B) by the IRS, so you are required to keep good records, track the state cost basis manually, and report HSA gains/losses on your state tax return. You may be able to include amounts paid from the HSA for medical expenses as an itemized deduction on the state tax return, subject to AGI floors.

If you move from a state which does not tax HSAs to a state which taxes HSAs, sell any holdings with capital gains before you move, so that you will not pay taxes on the same capital gains when you sell the same holdings later as a resident of the state. You can buy back the same or similar holdings immediately after selling.

https://www.bogleheads.org/wiki/Health_savings_account
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

Topic Author
Slipratchet
Posts: 15
Joined: Fri Jul 24, 2020 3:15 pm

Re: Advice for a newbie

Post by Slipratchet » Sun Aug 02, 2020 11:19 am

arcticpineapplecorp. wrote:
Sat Aug 01, 2020 12:24 pm
Slipratchet wrote:
Sat Aug 01, 2020 11:30 am

Thanks! I never really understood why so many investors love HSAs. But that webpage really helped put things into perspective. Just to be clear, The idea is to contribute to the HSA, pay for all my medical expenses with my taxed dollars, keep the receipts, and the total of those receipts are the amount I can withdraw to "pay myself back" and use for what ever I want. Invest the contributions to the HSA in a low cost total market index fund so it grows with both the contributions and the stocks at the same time. Do I have all that right, or did I miss something?
unless you live in CA or NJ, then...
State taxation of HSAs

While contributions are deductible on one's federal income tax, this is not always true for state income tax. The following states are not in conformity with federal legislation and do not recognize HSAs, so contributions are not deductible and earnings are taxable:[2]

California
New Jersey

If you live in a state which taxes HSA earnings, consider investing the HSA in Treasury bonds or TIPS, which are exempt from state taxes. (In CA, capital gains issued by a TIPS/Treasury mutual fund or capital gain/loss on the sale of Treasury mutual fund shares would be subject to state taxes, but even if they are, most of the returns from Treasury bonds and TIPS would be income which is not subject to state tax. NJ exempts capital gains on Treasuries from state tax.)

In states that tax contributions, be aware that Federal tax-free rollovers into an HSA, such as the once in a lifetime IRA to HSA rollover, and an Archer MSA to HSA rollover, are treated as a non-qualified withdrawal from the IRA/MSA at the state level and subject to income taxes and penalties on the state return. Also in states that tax contributions, the state treats the HSA as a taxable account, taxable investing rules apply.

Principles of tax-efficient fund placement are important, except when investing in TIPS and treasury bonds (as noted above) and tax loss harvesting is possible on the state tax return if you have capital gains or the state allows carryovers of capital losses. HSA administrators are not required to send you tax forms (such as 1099-INT, -B) by the IRS, so you are required to keep good records, track the state cost basis manually, and report HSA gains/losses on your state tax return. You may be able to include amounts paid from the HSA for medical expenses as an itemized deduction on the state tax return, subject to AGI floors.

If you move from a state which does not tax HSAs to a state which taxes HSAs, sell any holdings with capital gains before you move, so that you will not pay taxes on the same capital gains when you sell the same holdings later as a resident of the state. You can buy back the same or similar holdings immediately after selling.

https://www.bogleheads.org/wiki/Health_savings_account
I don't live in either of those states; I live in South Florida, so I guess I don't have to worry about that?

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