Personal Finance Advice and Education! (1 Viewer)

[stbugs]

Understand I know a lot of people who prefer to take it early.  The risk of living well past 80 is offset a little bit by waiting and taking the higher income though.  One concern I do have is whether my social security gets reduced due to means testing or if solvency becomes an issue.

The solvency/reduction part makes me also want to grab it as early as possible. Benefits already in people’s hands are much less likely to be reduced.

One big difference in our discussion of taking benefits early than most people is that most people are doing it because they need the money now. Those people would be much better off waiting if they can because that money isn’t sitting somewhere as an investment. Us folks in here are talking about it because we want it early so we can earn a return on it (or spend it and keep other money invested).

 

[ConstruxBoy]

The solvency/reduction part makes me also want to grab it as early as possible. Benefits already in people’s hands are much less likely to be reduced.

One big difference in our discussion of taking benefits early than most people is that most people are doing it because they need the money now. Those people would be much better off waiting if they can because that money isn’t sitting somewhere as an investment. Us folks in here are talking about it because we want it early so we can earn a return on it (or spend it and keep other money invested).

Excellent point. Two other thoughts on this discussion:

Be careful with the return % you think you'll get with that investment. I think someone on here posted 8% but I think that's a very aggressive assumption. 

Also, the point about either using it or investing it is a good way to be flexible about when to sell your securities in retirement. Maybe the market is way up and you don't want a big capital gain for your spending money, nor do you want to invest SS into a high market. Then you just use the SS as spending money. A year later the market is in a more normal place and you sell some securities for spending and invest the SS. 

 

[stbugs]

Excellent point. Two other thoughts on this discussion:

Be careful with the return % you think you'll get with that investment. I think someone on here posted 8% but I think that's a very aggressive assumption. 

Also, the point about either using it or investing it is a good way to be flexible about when to sell your securities in retirement. Maybe the market is way up and you don't want a big capital gain for your spending money, nor do you want to invest SS into a high market. Then you just use the SS as spending money. A year later the market is in a more normal place and you sell some securities for spending and invest the SS. 

Yeah, it’s 6 of one or half dozen of the other. Either you spend the SS money or you spend other investment money and invest the SS money, just the point that you have an extra lump of money that can be invested. Way too complicated as you could have RMDs, tax free investments, brokerage investments that could be short or long term gains and also tax thresholds where you might want to take out more than you need because you have room under a lower tax bracket than if you take out nothing this year twice as much next year.

I just like the take at 62 on simple return calcs. I think it was somewhere around 6% where it was basically break even because you have 8 years of income plus returns during those 8 years on the money. It takes a while for starting at 70 to catch up and if something happens before you do or you can earn a slightly better rate then it never catches up.

 

[-OZ-]

Excellent point. Two other thoughts on this discussion:

Be careful with the return % you think you'll get with that investment. I think someone on here posted 8% but I think that's a very aggressive assumption. 

Also, the point about either using it or investing it is a good way to be flexible about when to sell your securities in retirement. Maybe the market is way up and you don't want a big capital gain for your spending money, nor do you want to invest SS into a high market. Then you just use the SS as spending money. A year later the market is in a more normal place and you sell some securities for spending and invest the SS. 

The only thing I disagree somewhat here is whether to sell securities and pay taxes while the securities are supposedly high. I don’t mind paying some taxes if necessary in that situation. Rather sell high and pay tax than sell low. But that’s also a reason to make withdrawals from your traditional IRA/401k accounts before Roth or regular brokerage, preferably before taking SS. (Added benefit if you’re entirely in IRAs, to avoid RMDs on these funds)

 

[ConstruxBoy]

The only thing I disagree somewhat here is whether to sell securities and pay taxes while the securities are supposedly high. I don’t mind paying some taxes if necessary in that situation. Rather sell high and pay tax than sell low. But that’s also a reason to make withdrawals from your traditional IRA/401k accounts before Roth or regular brokerage, preferably before taking SS. (Added benefit if you’re entirely in IRAs, to avoid RMDs on these funds)

Yes good point. Selling low is probably worse. I should have said when the market is at either extreme. 

But the extra flexibility if you do get SS early of use it or invest does make it more compelling for me. 

 

[-OZ-]

Yes good point. Selling low is probably worse. I should have said when the market is at either extreme. 

But the extra flexibility if you do get SS early of use it or invest does make it more compelling for me. 

let me know when the market is extremely high and about to come down. That might be useful information.  preferably before Russia invades another country. 

 

[ConstruxBoy]

let me know when the market is extremely high and about to come down. That might be useful information.  preferably before Russia invades another country. 

Stonks go up, so you need to turn the chart upside down. 

 

[jm192]

Getting a nice tax refund.  

Finally going to be in a spot to buy Ibonds for my wife and I.  Seems like the rates are going to be really nice for another 6 months.  

 

[Craig_MiamiFL]

Have a relative interested in Ibonds. I'm guessing rate should be around the same for next 2nd 6 months (after the 7+%). Is it better to buy $10k in one shot or perhaps 5 $2k bonds in the event want to cash in before 5 years? (From what I understand if buy separate bonds will be able to keep some bonds untouched as opposed if buy 1 $10k bond)

 

[D_House]

Have a relative interested in Ibonds. I'm guessing rate should be around the same for next 2nd 6 months (after the 7+%). Is it better to buy $10k in one shot or perhaps 5 $2k bonds in the event want to cash in before 5 years? (From what I understand if buy separate bonds will be able to keep some bonds untouched as opposed if buy 1 $10k bond)

From the treasury direct website:

How much can I cash at one time?

You can cash a minimum of $25 or any amount above that in 1-cent increments. If you cash only a portion of the bond's value, you must leave at least $25 in the TreasuryDirect account.  Redemptions are comprised of principal and interest. (In a partial redemption, we pay interest only on the partial amount you cash.)

So you can buy a single 10k bond and redeem in 2k increments.

 

[jm192]

People are speculating I-Bond will again be over 7%, and I've seen some predictions of 8-9%.  Which is just unholy good for fixed income.  

I appreciate that it's not a huge win because the state of ibonds means inflation is infact so bad and eats into your returns on everything and eats into the value of your cash.  

But I can't control for that.  I can't do anything about it.  So I'm going to keep going after the best returns I can get and hoping inflation levels out somewhere in the end.  

Planning to lock this next round in next month and have a year of 7%+.  Our first round of Ibonds are six months in.  So 6 more months and they'll be liquid and we'll shift to that being our emergency fund.  

 

[BroncoFreak_2K3]

People are speculating I-Bond will again be over 7%, and I've seen some predictions of 8-9%.  Which is just unholy good for fixed income.  

I appreciate that it's not a huge win because the state of ibonds means inflation is infact so bad and eats into your returns on everything and eats into the value of your cash.  

But I can't control for that.  I can't do anything about it.  So I'm going to keep going after the best returns I can get and hoping inflation levels out somewhere in the end.  

Planning to lock this next round in next month and have a year of 7%+.  Our first round of Ibonds are six months in.  So 6 more months and they'll be liquid and we'll shift to that being our emergency fund.  

So you simply redeem them after a year?  Is there penalty for early redemption?

 

[jm192]

So you simply redeem them after a year?  Is there penalty for early redemption?

You can't redeem them at all for the first year.  

If you redeem them before 5 years, then there is a 3 month interest penalty.  

If you don't NEED the money, and the Inflation linked rate becomes very low/zero--I think the "move" is to leave them there for the 3 months--and then when you withdraw them you're forfeiting 3 months of low/no interest.  

As far as the Emergency fund:  Someone else here explained it, and it's a fantastic idea IMO.  

You keep a standard liquid emergency fund for a year while your ibonds stay locked.  Once they're "unlocked" you can access them any time you need the $$.  And so now that emergency fund sitting in your HYSA getting 0.25% can be thrown into some other vehicle--and you've still got emergency funds sitting nice and safe. 

 

[Random]

So, I did $40K last Nov and $40K in Jan.  10k for each the wife and I and 10K for each kid (each time).  Sort of planning on letting the kids $ ride for college funds.  Anyone know the tax consequences for that?

Wife and mine was just EF cash, so we'll let that ride as well until we can do better in savings rates.

 

[jm192]

So, I did $40K last Nov and $40K in Jan.  10k for each the wife and I and 10K for each kid (each time).  Sort of planning on letting the kids $ ride for college funds.  Anyone know the tax consequences for that?

Wife and mine was just EF cash, so we'll let that ride as well until we can do better in savings rates.

Taxes are deferred until you cash them out. There is no state or local tax.

 

[-OZ-]

You can't redeem them at all for the first year.  

If you redeem them before 5 years, then there is a 3 month interest penalty.  

If you don't NEED the money, and the Inflation linked rate becomes very low/zero--I think the "move" is to leave them there for the 3 months--and then when you withdraw them you're forfeiting 3 months of low/no interest.  

As far as the Emergency fund:  Someone else here explained it, and it's a fantastic idea IMO.  

You keep a standard liquid emergency fund for a year while your ibonds stay locked.  Once they're "unlocked" you can access them any time you need the $$.  And so now that emergency fund sitting in your HYSA getting 0.25% can be thrown into some other vehicle--and you've still got emergency funds sitting nice and safe. 

Hell, If you have access to a HELOC or other low interest LOC (M1 for example) I’d put the whole EF into I bonds and use the LOC as the EF. I might even borrow another $20k or more in the kids names to buy I bonds, wouldn’t do much more than that as I don’t want to get anywhere close to our LOC limit. Already bought ours for the year. 

 

[Charlie Harper]

So I think I messed up doing my first backdoor Roth last year. 

Here are my steps:

Deposited 8k of post-tax money (6k for 2020 and 2k for 2021) into a newly opened Traditional IRA on 4/2021 into Vanguard Settlement Fund. 

A few days later converted $8000.01 to ROTH IRA via Vanguard. So there was no money in the Traditional IRA account at the end of the year.

I thought all is well until I'm looking to do taxes and on my 1099-R form I see the $8000.01 labeled as gross distribution and in Box 7 it labeled at "2 - Early distribution, exception applies (under age 59 1/2).

So did I mess up last year? Shouldn't the whole thing be non-taxable or did the .01 mess everything up?

Also, I'm looking at the 8606 form now and I'm not sure I'm filling the first section correctly.  

I just deposited 4k today to finish up my 2021 contributions just to complicate things more. Any guidance is appreciated. Thanks.

 

[jm192]

So I think I messed up doing my first backdoor Roth last year. 

Here are my steps:

Deposited 8k of post-tax money (6k for 2020 and 2k for 2021) into a newly opened Traditional IRA on 4/2021 into Vanguard Settlement Fund. 

A few days later converted $8000.01 to ROTH IRA via Vanguard. So there was no money in the Traditional IRA account at the end of the year.

I thought all is well until I'm looking to do taxes and on my 1099-R form I see the $8000.01 labeled as gross distribution and in Box 7 it labeled at "2 - Early distribution, exception applies (under age 59 1/2).

So did I mess up last year? Shouldn't the whole thing be non-taxable or did the .01 mess everything up?

Also, I'm looking at the 8606 form now and I'm not sure I'm filling the first section correctly.  

I just deposited 4k today to finish up my 2021 contributions just to complicate things more. Any guidance is appreciated. Thanks.

https://www.whitecoatinvestor.com/late-contributions-to-the-backdoor-roth-ira/

Is the 1099 something Vanguard generated or Turbotax?  You don't owe taxes on money you've paid taxes on.  

Vanguard will tell you a roth conversion is a taxable event.  And it is.  The good news is, you've already paid the taxes on it.  So they may have generated a 1099 in the event you hadn't paid taxes on it?

Form 8606 is what you need.  Use the link I posted.  I used it to walk through mine and my wife's.  It's a few years old so the 5500$ limit is outdated.  But the rest should fly.

 

[Charlie Harper]

https://www.whitecoatinvestor.com/late-contributions-to-the-backdoor-roth-ira/

Is the 1099 something Vanguard generated or Turbotax?  You don't owe taxes on money you've paid taxes on.  

Vanguard will tell you a roth conversion is a taxable event.  And it is.  The good news is, you've already paid the taxes on it.  So they may have generated a 1099 in the event you hadn't paid taxes on it?

Form 8606 is what you need.  Use the link I posted.  I used it to walk through mine and my wife's.  It's a few years old so the 5500$ limit is outdated.  But the rest should fly.

The 1099-R was something Vanguard gave.

General question. This is my first year doing an 8606 form and I had late contributions. 

Do I have to fill/send in a late 2020 8606 form for the 2020 contributions or will the 2021 8606 be enough? Thanks for the link again. That really helped explain it for me.

 

[jm192]

The 1099-R was something Vanguard gave.

General question. This is my first year doing an 8606 form and I had late contributions. 

Do I have to fill/send in a late 2020 8606 form for the 2020 contributions or will the 2021 8606 be enough? Thanks for the link again. That really helped explain it for me.

I'm pretty sure you have to do one for each year.  Which is silly because you're putting the info on the 2021 document.  But IRS gonna IRS.  

Ideally you'd have done it when you did last year's taxes.  I'm not sure if the fix is to just do it now and send it in or how that part works.  

 

[Craig_MiamiFL]

Ibonds starting May. Haven't done # myself but saw this this AM:

https://mobile.twitter.com/BobBrinker/status/1513862879862173700

8+% return 12 months

 

[Ridgeback]

Ibonds starting May. Haven't done # myself but saw this this AM:

https://mobile.twitter.com/BobBrinker/status/1513862879862173700

8+% return 12 months

I finally bought my allotment yesterday. So, I have to wait another calender year to purchase next tranch?

 

[Nugget]

I finally bought my allotment yesterday. So, I have to wait another calender year to purchase next tranch?

You can buy 10K per person or trust account. If you haven’t done your taxes you can get up to 5K refunded as paper bonds. 
 

 

[The Z Machine]

Ok, let me understand this I-bond thing some more.

Let's say I have $100k parked in a simple savings account.  What's the limit on I-bond purchases?  How does one actually move that money from the savings account to buy them?  Do I receive some certificates that I need to store in a safe deposit box?

I take it this will lock up the money for 12 months with something like 8% interest.  Is there a way to cash out before the 12 months is up, even if I forfeit the interest? 

 

[Runkle]

Ok, let me understand this I-bond thing some more.

Let's say I have $100k parked in a simple savings account.  What's the limit on I-bond purchases?  How does one actually move that money from the savings account to buy them?  Do I receive some certificates that I need to store in a safe deposit box?

I take it this will lock up the money for 12 months with something like 8% interest.  Is there a way to cash out before the 12 months is up, even if I forfeit the interest? 

You buy them online with a fund transfer from your checking account to the US Treasury website. 

You can only by $10,000 worth a year.

You're locked in for "12 months" (starting from the first of the month you buy them. So if you buy them today, you can cash out on 4/1/23 instead of 4/12/23). After that, early redemption is a penalty of the last few month's interest. 

 

[Ridgeback]

You can buy 10K per person or trust account. If you haven’t done your taxes you can get up to 5K refunded as paper bonds. 
 

But it's 10k per year, right? So I have to wait until 4/12/23 to buy more, right? Not 1/1/23.

 

[Juxtatarot]

But it's 10k per year, right? So I have to wait until 4/12/23 to buy more, right? Not 1/1/23.

No, January 1.

 

[-OZ-]

Hell, If you have access to a HELOC or other low interest LOC (M1 for example) I’d put the whole EF into I bonds and use the LOC as the EF. I might even borrow another $20k or more in the kids names to buy I bonds, wouldn’t do much more than that as I don’t want to get anywhere close to our LOC limit. Already bought ours for the year. 

Stocks might suck but at least The I bonds portfolio is looking great! 
 

Is there a way to buy for kids without having an established trust?

 

[Desert_Power]

Stocks might suck but at least The I bonds portfolio is looking great! 
 

Is there a way to buy for kids without having an established trust?

Looks like you just create an account for them: https://www.treasurydirect.gov/indiv/planning/plan_gifts.htm

 

[D_House]

I-bonds hack to get more I-bonds (above $10k) at current rates:

https://thefinancebuff.com/buy-i-bonds-as-gift.html#htoc-interest-and-holding-period

Gifts still count against the recipients’ annual $10k limit but can be purchased now for gifting in the future. While awaiting future delivery in your ‘gift box,’ the bonds both earn current rates and start the count down to   the minimum holding period.

 

[-OZ-]

Looks like you just create an account for them: https://www.treasurydirect.gov/indiv/planning/plan_gifts.htm

Thanks. I hadn’t checked the linked account deal, just tried to set up an account for our junior. I’

 

[Desert_Power]

Thanks. I hadn’t checked the linked account deal, just tried to set up an account for our junior. I’

Yeah. We haven't quite decided what to save for ours, but probably will do at least some iBonds for him at the end of this month.

It does seem like you would essentially redeem this into a UTMA account

 

[jm192]

Love you guys.  Came here to talk about I/bonds are you’re all over it,

Someone already posted a link with the %.  9.62% Holy Cow!  
 

I previously blew off the idea to do trusts or gifts.  Now researching it.  

 

[-OZ-]

Yeah. We haven't quite decided what to save for ours, but probably will do at least some iBonds for him at the end of this month.

It does seem like you would essentially redeem this into a UTMA account

Good stuff. We’d just use it for college or possibly down payment on a house or car if his plan to get a full ride (Probably auburn) comes through. 

 

[NutterButter]

Good stuff. We’d just use it for college or possibly down payment on a house or car if his plan to get a full ride (Probably auburn) comes through. 

Same for college.   I was already using mine to store some college money as I'm just 3 years out but having another safe place to add an additional $10k per kid could come in handy.   

 

[Charlie Harper]

You can buy 10K per person or trust account. If you haven’t done your taxes you can get up to 5K refunded as paper bonds. 
 

So for my wife and I...

10k for me + 10k for her + 5k from our tax returns? 

 

[Nugget]

So for my wife and I...

10k for me + 10k for her + 5k from our tax returns? 

Yes if you are getting a refund. I haven’t tried this and I’m a bit intimidated by having to hold a paper bond. I am more willing to set up a trust account as I should start planning for my kids anyway.  The 10K for you and $10k for your wife should be all electronic. 

 

[The Z Machine]

After that, early redemption is a penalty of the last few month's interest.

So you can cash out before the 12 months are up?

 

[Charlie Harper]

Also, looking into starting a 529 for our baby due in October so family and friends can put money in there for gifts if they choose.

California gets no tax breaks, so shopping for the best plan with the lowest fees. What type of investment do you guys use in a 529? Do you guys do the target funds or passive US index fund?

I did some research and Utah, Nevada, Ohio came up as the best plans. 

When I compared those 529 plans on passive US Index fund they were between 0.12-0.16% expense ratio using Vanguard S&P 500 type funds. 

However, the CA 529 has the option to invest in TIEIX, which tracks the Russell 3000, and only has a 0.06% expense ratio. 

Is there something I'm missing? Why would I choose the others when CA plan offers similar with half the expense?

 

[The Z Machine]

Also, I owe a butt load in taxes for 2021. Can I buy I-bonds right now to offset any of those 2021 taxes?

Yes I know taxes are due at the end of the week...

 

[Nugget]

So you can cash out before the 12 months are up?

No. 

 

[Nugget]

Also, I owe a butt load in taxes for 2021. Can I buy I-bonds right now to offset any of those 2021 taxes?

Yes I know taxes are due at the end of the week...

These won’t affect your taxes. You will pay taxes on the earnings when you cash out the bond. 

 

[jm192]

Also, I owe a butt load in taxes for 2021. Can I buy I-bonds right now to offset any of those 2021 taxes?

Yes I know taxes are due at the end of the week...

Typically the way I-Bonds work in with your tax return is that you can use the excess to buy paper I-bonds.  Some people will overpay the Federal government by 5K (the max, but I'm sure you can ask for whatever dollar amount under that) to get paper I-Bonds.  

 

[Judge Smails]

Also, looking into starting a 529 for our baby due in October so family and friends can put money in there for gifts if they choose.

California gets no tax breaks, so shopping for the best plan with the lowest fees. What type of investment do you guys use in a 529? Do you guys do the target funds or passive US index fund?

I did some research and Utah, Nevada, Ohio came up as the best plans. 

When I compared those 529 plans on passive US Index fund they were between 0.12-0.16% expense ratio using Vanguard S&P 500 type funds. 

However, the CA 529 has the option to invest in TIEIX, which tracks the Russell 3000, and only has a 0.06% expense ratio. 

Is there something I'm missing? Why would I choose the others when CA plan offers similar with half the expense?

I went with the Utah plan for my grandkids.  And we're in CA

 

[Charlie Harper]

I went with the Utah plan for my grandkids.  And we're in CA

Why?

 

[The Z Machine]

Typically the way I-Bonds work in with your tax return is that you can use the excess to buy paper I-bonds.  Some people will overpay the Federal government by 5K (the max, but I'm sure you can ask for whatever dollar amount under that) to get paper I-Bonds.  

What's the benefit of paper I-Bonds over digital?

 

[-OZ-]

What's the benefit of paper I-Bonds over digital?

You can use them as bookmarks? 
you can’t get paper I bonds, apparently other than with the tax return (which surprises me)

 

[jm192]

What's the benefit of paper I-Bonds over digital?

Just the ability to buy more.

You can buy a max of 10,000$ per year through the Treasury direct website.  

You can buy another 5,000$ per year of paper bonds through your tax return.  

But the idea stresses me out to no end.  I don't want to keep up with paper worth 5,000$.  I certainly don't want to keep up with multiples.  

 

[matuski]

Why?

We did Utah as well... it was recommended here I believe years ago.

I believe it had the best fund options with the lowest costs.

 

[Desert_Power]

Didn't even think about the paper I Bond option as we are usually on the payer side of the equation. Good thing I haven't filed yet.