patrick.net

Traditional IRA and HSA are pretty much all options you have. The former is subject to income and contributions limits the latter also has contributions limit ($7K iirc) and you must have a high-deductible medical insurance to be eligible to contribute into it.

Buy a Roth IRA, max it out.
Invest in mutual funds with capital appreciation as the objective.
An HSA is awesome if you qualify.
I have an HSA at Fidelity invested for capital appreciation. Fidelity is easy.
Invest your HSA for use in retirement, or when you are on Medicare.
I'm using my HSA for stuff not completely covered by medicare, like $35 to see a specialist.
HSA are "triple tax free", I wish I had put more money in it.

clambo says

Buy a Roth IRA, max it out.

He said pre-tax. And with a second job he's probably over the limit already.

RWSGFY says

clambo says

Buy a Roth IRA, max it out.

He said pre-tax. And with a second job he's probably over the limit already.

Cash payment. Or just pay the taxes. I don't see a solution if the employer doesn't offer anything. Fact is tax avoidance is smart, but at the end of the day the IRS is gonna get their share 99% of the time. Solution. Make more money. Really all there is to it. Or don't work a 2nd job. Or find another 2nd job that offers benefits.

Roth really is the best option or if you're good with stocks that would be better. Either way you're likely going to be investing after tax money.

Without sufficient information, an answer is difficult.

Second job=1099 ? Get a SEP-IRA. Invest in capital appreciation mutual funds.

I am making the assumption that the author doesn't have 2 full time W2 jobs.

You would need to have a lot of deductions for your second job to reduce how much you pay in self employment tax (social security and medicare tax) and income tax.

Contributing to a traditional IRA allows you to reduce your income tax but not your self employment tax. That is if you qualify for a traditional IRA as far as not making over a certain amount in total wages.

Roth IRA does not reduce your taxes but is a great deal as far as retirement savings.

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SEP-IRA reduces self-employment tax.

clambo says

SEP-IRA reduces self-employment tax.

True, I read in Investopedia that a self employed business owner can contribute to their own SEP IRA (which is a traditional IRA) with up to 25% of income or $61,000 (for 2022), whichever is less.

That 25% is not taxable as far as income tax AND self employment tax. So the contribution is considered a business expense hence it reduces the amount of self employment tax.

WookieMan says

Roth really is the best option or if you're good with stocks that would be better.

Porque no los dos?

Stocks in a Roth can set you up very nicely to pay no tax later on big capital gains.

clambo says

Second job=1099 ? Get a SEP-IRA.

Yes, I think the SEP-IRA has a really huge annual limit to the amount you can put into it pre-tax. Yes, $66,000 in 2023.

clambo says

An HSA is awesome if you qualify.

Right, you have to be on a high-deductible insurance plan to qualify. And you can't put all that much in per year, like $7k for a family, half that for an individual.

The deductible for an HSA is $1400.

Get it fully taxed, then save/invest it. Your retired self will thank you tremendously for it.. Who knows what the tax hit on monthly stipends will be for retirees in another 10 years or so. .

Most new retirees are floored to find out that when they retire and start drawing their retirement money. It's taxed the full 30%, get it taxed now while the employer is on the hook to pay half of the tax.

Just my thoughts on our bogus scam we call Retirement options these days. .

Taxes annoy me a lot, and it's going to get worse.
The "Bush tax cuts" expire in 2025.
This is why I tell everyone to max out a Roth IRA.
Do they do it? ; generally not.
Not all of my investments are in IRAs, and I actually have not spent any of them yet.
A good addition to your retirement account funds is Vanguard Tax Managed Capital Appreciation Fund; it produces no or a small 1099 each year.

Tenpoundbass says

It's taxed the full 30%,

Are not the withdrawals or distributions from traditional IRA, non-Roth 401K's, SEP IRA (i.e., pre tax contribution accounts) taxed at the ordinary income tax level ? But yes they do not get taxed at the capital gains tax rate.

Someone paying +30% income tax rate (after standard deductions on the 1040 tax return form) is in a very high bracket.

I agree taxes are going up and there may be a means test for Social Security. Also Trump's tax cuts (the Tax Cuts and Jobs Act ) expire end of 2025.

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source: https://en.wikipedia.org/wiki/Tax_Cuts_and_Jobs_Act

Your rate when up for some upper class under Trump's Tax Cuts and Jobs Act such as those make $200,000 to $400,000 saw an increase in the ordinary tax rate from 32% to 35%

If filing single. If you file married and make $400,000 your rate also went up from 33% to 35%. This affects a lot of white liberal states where the husband and wife each earn $200,000 a year and also they are hit hard because Trump's tax cuts does not allow full deduction of their high property taxes.

Income from qualified dividends and long term capital gains aren't taxed too badly today.
I also get a few grand of interest from municipal bonds.
I think my actual tax rate ended up at a little over 10%.
Income from work and self employment is taxed worse, as shown above.
Someday I'm going to open the money faucet but it's so hard to change my habits now.

ad says

Your rate when up for some upper class under Trump's Tax Cuts and Jobs Act such as those make $200,000 to $400,000 saw an increase in the ordinary tax rate from 32% to 35%

Also remember that the seriously increased standard deduction (now up to $27,700 for married filing jointly) cut taxes for the lower end.

RWSGFY says

Traditional IRA and HSA are pretty much all options you have. The former is subject to income and contributions limits the latter also has contributions limit ($7K iirc) and you must have a high-deductible medical insurance to be eligible to contribute into it.

Thank you, meeting with a tax attorney Friday and Fidelity advisor in the morning. 🇺🇸🇺🇸🇺🇸

clambo says

Buy a Roth IRA, max it out.
Invest in mutual funds with capital appreciation as the objective.
An HSA is awesome if you qualify.
I have an HSA at Fidelity invested for capital appreciation. Fidelity is easy.
Invest your HSA for use in retirement, or when you are on Medicare.
I'm using my HSA for stuff not completely covered by medicare, like $35 to see a specialist.
HSA are "triple tax free", I wish I had put more money in it.

Thank you, meeting with a tax attorney Friday and Fidelity advisor in the morning. 🇺🇸🇺🇸🇺🇸

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speaking of tax ... see below tax brackets for this year

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Broadway_Sam says

clambo says

Buy a Roth IRA, max it out.
Invest in mutual funds with capital appreciation as the objective.
An HSA is awesome if you qualify.
I have an HSA at Fidelity invested for capital appreciation. Fidelity is easy.
Invest your HSA for use in retirement, or when you are on Medicare.
I'm using my HSA for stuff not completely covered by medicare, like $35 to see a specialist.
HSA are "triple tax free", I wish I had put more money in it.

Thank you, meeting with a tax attorney Friday and Fidelity advisor in the morning. 🇺🇸🇺🇸🇺🇸

I found a way to 1099 and setup a SOLO-401K maxing out at around 45k...the HRA is not an option in CA for those of us without a healthcare plan....thanks

clambo says

Buy a Roth IRA, max it out.
Invest in mutual funds with capital appreciation as the objective.
An HSA is awesome if you qualify.
I have an HSA at Fidelity invested for capital appreciation. Fidelity is easy.
Invest your HSA for use in retirement, or when you are on Medicare.
I'm using my HSA for stuff not completely covered by medicare, like $35 to see a specialist.
HSA are "triple tax free", I wish I had put more money in it.

@clambo, How is it triple tax free? I isn't taxed before you put it in and not taxed when you spend it. Thats double. Where's the triple?

clambo says

Someday I'm going to open the money faucet but it's so hard to change my habits now.

That's how get and stay rich. My daughter's mother inlaw is worth millions and millions. She washes her tin foil and pie tins.

ad says

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speaking of tax ... see below tax brackets for this year

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Add Obamacare taxes to those figures.

zzyzzx says

Add Obamacare taxes to those figures.

true, as a silver plan (which is really somewhat a high deductible plan) on the Affordable Care Act (ACA) website costs about $850 a month per individual in 2023

you pay all of that if you do not get a subsidy because you make too much

you pay up to 8.5% of income for the ACA plan ... so if less than 8.5% of your annual income is equal to the annual premium for the ACA plan, then you get no subsidies from the federal government and pay 100% of the premium

its a couple who has to buy health insurance plan through the ACA and make more than $90,000 a year ... it hits hard those who earn $90,000 to $160,000 because they do not make a lot to absorb the high cost of health insurance ...
....

ad says

Are not the withdrawals or distributions from traditional IRA, non-Roth 401K's, SEP IRA (i.e., pre tax contribution accounts) taxed at the ordinary income tax level ? But yes they do not get taxed at the capital gains tax rate.

It's beyond the capital gains tax, you're being taxed for the income tax that you deferred, when you start paying out in your retirement.
Each check you get has the income tax deducted that you didn't have deducted when you put it in your pretax vehicle.

Now that interest rates are high, and you can get over 5% on your money. You're better off taking that taxed income, and squirrelling it away there.
It's all yours to do as you please, other than capital gains tax. Also your account wont shrink when some Clown crashes the economy, like happens with typical work benefits packages. Every 5 to 7 years, I hear everyone complain how their 401K took a beating. By time they get back to where they were, it crashes again.

ad says

Someone paying +30% income tax rate (after standard deductions on the 1040 tax return form) is in a very high bracket.

It's 30% because you missed the employer paying half of the tax. By putting it in a pretax bucket. So then you pay the full 30% at payout time.

GNL
A Health Savings Account contribution is also deductible, like a traditional IRA, so it's "triple tax free".

I wish I had put more money in mine, oh well.

clambo says

GNL
A Health Savings Account contribution is also deductible, like a traditional IRA, so it's "triple tax free".

I wish I had put more money in mine, oh well.

Protected as well. No one gets they can go on a binge when they're 65 and drop $300k on CC's and not pay it. Max out protected retirement funds BEFORE other investments.

WookieMan says

clambo says

GNL
A Health Savings Account contribution is also deductible, like a traditional IRA, so it's "triple tax free".

I wish I had put more money in mine, oh well.

Protected as well. No one gets they can go on a binge when they're 65 and drop $300k on CC's and not pay it. Max out protected retirement funds BEFORE other investments.

^^^^ THIS

Fuck the "heirs" - run up the CC's and live large, then let the 80,000 armed IRS agents duke it out with the executors of the "estate."

stereotomy says

Fuck the "heirs" - run up the CC's and live large, then let the 80,000 armed IRS agents duke it out with the executors of the "estate."

There's ways to protect that as well. I'm not as well educated in that, but I know trusts are a good debt protection vehicles for people you want to leave money to.

Until people realize that the "wealthy" are not all movie stars or athletes making $10M+ of W-2 or 1099 income, they'll never know. The wealthy borrow money and don't pay taxes. Eventually and even while alive they don't pay the debt and neither will their kids.

Anyone think an Elon Musks sells his stock to pay his bills? Fuck no. He borrows against his shares tax free and can spend like a drunken sailor if he wants. I bought my current house with my MIL's stocks on margin. We've borrowed $50k from our own 401k. Tax free. Build it while you're young and you can pay yourself in your 40's+ with borrowed tax free income.

This is why the Dave Ramsey types are stupid. Yes his ideas work for dip shits that don't understand tax free leverage, but it's flat out bad advice.

Credit cards are "unsecured debt."
Nobody but the cardholder is on the hook for the debt.

The "Tranfer on Death" form for mutual funds and brokerage accounts is a type of revocable trust.
Likewise the beneficiary list of your retirement accounts.

WookieMan says

This is why the Dave Ramsey types are stupid. Yes his ideas work for dip shits that don't understand tax free leverage, but it's flat out bad advice.

I agree with this as my mom took out a HELOC line of credit of $80,000 against her home which has no mortgage and is valued around $850,000. This helps her pay for home repairs, etc.

I think Dave Ramsey appeals to the working class who are trying to improve their credit scores and finances, and are not in the position to benefit for this type of financing. He emphasizes "rice and beans, beans and rice" as far as not eating out and saving money.

Ramsey is great for those looking to get ahead and only make about $50,000 in household income; he does encourage saving in growth stocks mutual funds, as I have heard him tout Wilshire 5000 index funds.

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clambo says

Credit cards are "unsecured debt."
Nobody but the cardholder is on the hook for the debt.

Nobody is on the hook. Even the person that took it out. You just don't pay it. The debt is paid off when it goes to collections. It's your choice if you decide to engage with those people. If you don't, you don't pay it. Yes you get a credit ding. Your debt is paid when someone buys your debt. Don't answer numbers you don't recognize. If someone asks "is this John Doe" say no and ask why. Don't sign certified mail personally unless you know it's coming for something else you know needs a signature.

Ethical or moral, no. But it's how lots of people operate. It's a business transaction.

ad says

Ramsey is great for those looking to get ahead and only make about $50,000 in household income; he does encourage saving in growth stocks mutual funds, as I have heard him tout Wilshire 5000 index funds.

I get your point, but Ramsey is for lazy people really. He supports our inept eduction system with his "rules" on finance. We should teach people to use the tools available to them, not hide them from them. The wealthy have competition if you know how to use debt. It screws them. Dave is their puppet. His advice is the complete opposite of what every wealthy person does. They leverage tax free money to fund their life and investments. I'd rather pay 10% interest than 30% in taxes on income. And with housing debt you can write it off as well.

The key is to know when you got in over your head. AND if you can just dump the debt. Most cases you can. Put a fence around your assets and you can walk away. Dave tells you to stop going out to eat and you'll need to live with pennies for years and get two jobs. I live once. Fuck that. Learn how to game the system. The one thing the wealthy and blacks have in common.... Us moronic white dudes seemingly continue play by the rules for no reason while we pay for others "wealth...." lol.

WookieMan says

I get your point, but Ramsey is for lazy people really.

I understand and agree, but Dave Ramsey tailors to the blue collar and clerical worker crowd (~$40,000 to $60,000 annual household income). So their tax rate is not 30% and likely is very low if they have children. Ramsey advises them to at least avoid costly mistakes to progressively improve their finances.

ad says

WookieMan says

I get your point, but Ramsey is for lazy people really.

I understand and agree, but Dave Ramsey tailors to the blue collar and clerical worker crowd (~$40,000 to $60,000 annual household income). So their tax rate is not 30% and likely is very low if they have children. Ramsey advises them to at least avoid costly mistakes to progressively improve their finances.

I hear ya. He just doesn't tell them the reality of the situation most people are in. My dad was a jack of all trades in the lawyer world. There are very few situations where bankruptcy makes sense. One is if you like paying attorneys and debt collectors for no reason. And this is what Ramsey is. A fear monger.

For that income range they'd be better off not paying the debt. He advocates paying it and attorneys. Ruining years of your life to make someone else money. When you get debt it was a business decision by both parties. There was always a risk it wouldn't be paid. That's why we have credit scores and companies approve credit limits. You made a bad bet on loaning someone money.... oh well. That's the business you're in. Don't loan money to people if you cannot handle the loss?

Ramsey comes at it like "you must pay it" mentality. He's a paid shill to get poor people to pay off their debt when they don't have to. Credit card and auto loan companies love the dude. For someone giving financial advice I'd love to see his taxes and annual receipts. I can promise you the hypocrisy from that guy is thick if we could see behind the curtain.

WookieMan says

The key is to know when you got in over your head. AND if you can just dump the debt. Most cases you can. Put a fence around your assets and you can walk away. Dave tells you to stop going out to eat and you'll need to live with pennies for years and get two jobs. I live once. Fuck that. Learn how to game the system. The one thing the wealthy and blacks have in common.

I'm not familiar with this but I suspect you mean like start a LLC and the LLC borrows the money so as to shield your personal savings and investments ?

I was thinking this can be done as far as an LLC buying vacation rentals and getting a bank loan to buy the vacation rentals with only a 20% downpayment.

I'd like to know more about what you mean by "put a fence around your assets and you can walk away"

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ad says

I'd like to know more about what you mean by "put a fence around your assets and you can walk away"

401k, HSA and Roths. If you're married it's huge.

401k: $22,500 (2023) X 2 = $45,000
HSA: $7,750 (2023) x 1 family = $7,750 (tax free gains if you keep medical receipts/bills)
Roth: $6,500 (2023) x 2 = $13,000 (tax free gains)

$65,750 you can put into protected accounts annually. Not a single creditor can touch those funds and you can tell them to fuck off. Ever. All of these grow and you get compound interest. Do this for 10 years. You'll likely have $3-5M in assets no one can touch. 20 years I think you get the math.

Now is it possible for most? Likely no, you'd need $200k of income and the median is still sub $70k for a family. But it's the iron dome of financial freedom. Try $10k between accounts to start. Remember to factor in matching and catch up after certain ages and it could be well over $75k/yr.

Throw in the fact you can start taking out Roth money after 5 years if you wanted (gains) and it's the quickest path to early retirement. You can file BK and they cannot touch a thing.

Now factor in a house. Own it for 10 years. You can pay yourself 1-3 years salary tax free in most cases with a line of credit or HELOC. The payment will be higher, yes. But if you file BK it's almost impossible to take a primary residence if you have a decent attorney.

I'm not promoting fucking over creditors. But this is reality. It's a business transaction. Everyone has been made to feel bad about default. It's not a big deal. Our economy dies if people stop taking risks and buying things. If you can get a couple million in protected assets, you're golden. Have to start young though to reap the benefits. If I have $5M in these accounts at 55, I can go on a binge and not pay a dime to any creditors. I wouldn't even need to file BK. Ignore them and they go away. They can't do anything.

Anyone wonder why inflation is high? I pretty much explained it. Boomers. They know they don't have to pay. Well most of them. They spend money they know they don't have to repay. This cycle has happened before.

WookieMan says

Now is it possible for most? Likely no, you'd need $200k of income and the median is still sub $70k for a family.

That is why Dave Ramsey caters to the ~$40,000 to $70,000 annual household income demographic. He does encourage saving in a Traditional IRA with growth stock mutual funds. Ramsey helps people to eventually reach higher levels of income.

I see that bronze plans from the Health Care exchange (or Obamacare) are only eligible for health savings accounts.

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ad says

He does encourage saving in a Traditional IRA with growth stock mutual funds.

NEVER touch any other account until you max these 3 out. Just don't. Anyone that tells you otherwise is frankly an idiot. Play with stocks and funds AFTER you've done this. If you can't do this, you have no business investing in anything that can be taken from you. Just go to the fucking casino at that point. Your odds are better off making more and keeping it going to the casino and betting black on a roulette table.

HSA, get your employer to set one up. It's a slight bit of leg work to make it happen on their end and yours. I also am not sure I'd want to be employed by someone that doesn't offer a HSA. Fuck them. It's just effort for maybe 5 hours a year and plugging the numbers into your accounting software. It's trivial. Reality is they don't even understand what it is and the benefits of what it is. I'm about to drop $2k to pay for an MRI. That $2k could have been invested for a decade, tax free and withdrawn tax free. Can borrow against it. Protected from creditors. Everyone WILL have medical expenses. Might as well make tax free income in the meantime off your money.

Sorry I'm aggressive on this topic. 99% of people don't know about this. They get sucked into "investments" by con artists. This fund or that. This stock or that. I'll take my approach and if I want to be reckless with debt I don't owe anyone a fucking dime and I keep my money. I can park the Lambo in the garage. I can book a $40k trip to SE Asia and not pay a dime. Buy a boat. List is endless. You see these people do this and you have to understand they're not paying for it.

This is what rich people do. They just don't tell you about it.