anyone max out their 401k?

[jagec]

if it's possible, getting the after-tax 401k into a roth IRA as soon as possible is almost always good move. the sooner, the better.

The only reason to MAKE after-tax 401k contributions is for the backdoor Roth. If you can't do that, then you should put that money into a taxable account instead. LTCG tax is lower than regular income tax, and you can harvest losses that way.

 

[brianmanahan]

The only reason to MAKE after-tax 401k contributions is for the backdoor Roth. If you can't do that, then you should put that money into a taxable account instead. LTCG tax is lower than regular income tax, and you can harvest losses that way.

yep, exactly. otherwise you are just turning cap gains taxed income into ordinary taxed income, which is bad.

 

[Phynaz]

An alternate title to this thread is "Do you make decent money and don't have kids yet?"

My wife and kid are both in college. Priorities.

 

[Blanky]

My wife and kid are both in college. Priorities.

I said kids. But yeah by the time you're older what else are you going to spend it on? My co workers who make similar coin to me are blowing money on silly shit now like kitchen remodels just because it seems they run out of things to buy once the kids are gone and day care is a thing of the past, maybe the mortgage is paid off, etc.

 

[jagec]

and also want to brag on the internet!

The internet is for:

1)Porn
2)Cats
3)Bragging

IN THAT ORDER.

 

[Phynaz]

I said kids. But yeah by the time you're older what else are you going to spend it on? My co workers who make similar coin to me are blowing money on silly shit now like kitchen remodels just because it seems they run out of things to buy once the kids are gone and day care is a thing of the past, maybe the mortgage is paid off, etc.

I have two kids. Already put the first through school. Tuition is $24k for my wife and son.

I have one television in the house, a 30" lcd. It's my first hdtv. My car is 11 years old. My last PC lasted for nearly 7 years. My house payment is $500.

I save over 30% of my income. It's all about your priorities.

 

[Blanky]

The internet is for:

1)Porn
2)Cats
3)Bragging

IN THAT ORDER.

I like to brag about my cat porn on the internet.

 

[dr150]

I have two kids. Already put the first through school. Tuition is $24k for my wife and son.

I have one television in the house, a 30" lcd. It's my first hdtv. My car is 11 years old. My last PC lasted for nearly 7 years. My house payment is $500.

I save over 30% of my income. It's all about your priorities.

Warren Buffet, Suze Orman and Sam Walton would be proud of you.

You must have read The Millionaire Next Door.

 

[andylawcc]

hey, ppl have different wants/needs. While I can't do that myself, doesn't mean its wrong.

 

[zCypher]

There is no "401k" here, but I max out some of the available contributions I can make. I take advantage of all those that offer a match and then some, and I save into some tax-free accounts, but I don't make enough yet to max out the maximum yearly amount for RRSP+TFSA + the company contributions. Some day maybe, but I'm already saving 30%ish of my earnings and still affording to live in town, ride, drink too much, spend on hobbies, do stuff to enjoy life and travel occasionally, whatever. There's usually a trade-off to be made, and in my case it's living in a fairly small place so I don't lose a ridiculous portion of my earnings on rent/home expenses.

<-- not an anandtech 1%er , but learned from past foolishness.

 

[Exterous]

It's all about your priorities.

Yep. There are several people in my life that complain about a lack of money but they could all make different decisions on a daily basis to change that. Don't go to Starbucks everyday. Do you really need that new TV? How many subscription services do you really want to belong to?

I think another big area is how much people could save if they did more of the fixing\maintaining their house\dwelling on their own. I'll look at a youtube video to find out how to fix an appliance. I do all my own yard work. I taught myself electrical and plumbing to finish part of my basement. I know a lot of people in my neighborhood have had their exterior wood trim repainted but I am pretty sure I am the only one who did it myself. Got a couple of quotes and they wanted over $1400. So I said 'fuck that', rented a boom lift* and did it myself for under $300

*Most of us have a second story set slightly back above the garage making it nearly impossible to use a ladder

 

[jlee]

wait, if you all max out your 401k at 18k, which means you guys are putting in MORE than 20-25% of gross income (assuming you making 72-90k a year). You guys are okay with that?
Some of you are probably making 7 digit / 100k+ so 15% is not that noticeable of a hit, but pile on mortgage and others expense like kids i don't see myself be able to put aside that much income for the future.

30% of gross here - my house is effectively paying for itself, though, so my housing expenses are minimal.

 

[rh71]

wait, if you all max out your 401k at 18k, which means you guys are putting in MORE than 20-25% of gross income (assuming you making 72-90k a year). You guys are okay with that?

I mentioned this earlier - I stand to gain an additional $1.4 mil if I max out, paying something like +$378k into it. Of course this is when I'm 65 and gray and old. The money of course makes sense, but do you sacrifice the money that you can spend in your youth if it is indeed 20% of your gross income? That's the bigger question.

 

[dullard]

so you really meant "invest in items that you never intend to sell IN A SHORT TERM" right?

No, I meant exactly what I said. Never sell them, and then you never are taxed on the gains. In fact, no one is ever taxed on the gains.

Here is a scenario for you.
1) Buy $1000 of stock in a taxable account.
2) Wait for it to go to $10,000.
3) Donate the stock.
4) Take a $10,000 tax deduction. Assuming a 25% federal and 7% state income tax bracket, you get $3,200 from this.

Net gain to you: $3200 - $1000 = $2200 in pure profit. Tax? None. Charity gets the full $10,000 and doesn't pay tax either.

You can replace step #3 with similar other options. Such as have your family inherit the stock. You never pay tax on your gains since you never sell it. The people inheriting the stock never pay tax on YOUR gains since, well, they were your gains and not theirs (assuming you aren't in the estate tax range, and even then the effective tax rate is genearally quite small). Keep the wealth moving down the family lines and never pay tax on anything.

But you can only do that if you don't ever intend to sell. The stocks that you are likely to sell belong in your tax-deferred accounts.

(Sure, sometimes you have to sell, but try to keep that to a minimum, and certainly try to keep them to long-term gains or losses).

 

[andylawcc]

thanks for explaining dullard
now, my obvious retort would be, how about plain ole' selling it?

using your scenario
gross profit 10,000 - 1,000 = $9000
34% tax = $3060 tax
net profit = 9000 - 3060 = $5940
did i miss anything?

 

[Engineer]

thanks for explaining dullard
now, my obvious retort would be, how about plain ole' selling it?

using your scenario
gross profit 10,000 - 1,000 = $9000
34% tax = $3060 tax
net profit = 9000 - 3060 = $5940
did i miss anything?

Yes, long term capital gains are taxed at 15% (0% for lower income earners).

 

[dullard]

thanks for explaining dullard
now, my obvious retort would be, how about plain ole' selling it?

using your scenario
gross profit 10,000 - 1,000 = $9000
34% tax = $3060 tax
net profit = 9000 - 3060 = $5940
did i miss anything?

Assuming that you were planning on donating $10,000 anyways your math is really:

gross profit 10,000 - 1,000 = $9000
34% tax = $3060 tax
donate $10,000:
Net change to you = $9000 - $3060 - $10000 = -$4060.

(A) Donate stock for $2200 gain, or (B) sell stock and donate the proceeds for $4060 loss. The choice for (A) is obvious. If the gains were long term, the difference would be less. But still, you'd be way better off never selling taxable stocks.

 

[Drako]

thanks for explaining dullard
now, my obvious retort would be, how about plain ole' selling it?

using your scenario
gross profit 10,000 - 1,000 = $9000
34% tax = $3060 tax
net profit = 9000 - 3060 = $5940
did i miss anything?

You missed the part about the charity having the $10k.

 

[rcpratt]

No, and I don't need to. As long as you start early there's really no need to max it.

 

[DesiPower]

Me and my wife, we both max it. 50% goes in conservative and 50% in aggressive. We do it to save taxes...

 

[Blanky]

Warren Buffet, Suze Orman and Sam Walton would be proud of you.

You must have read The Millionaire Next Door.

I read that. Great book and even I would say life changing to a degree. But I still have three tvs and two brand new cars that I lease. The problem with that book is it celebrates financial hoarding. If the average millionaire has an old shitty car for example somewhere along the way he forgot that money is not the end it is just a means. I don't overextend but i also don't live like a miser, and I rarely worry about money. Sometimes I am cheap as hell and thrifty to a fault but stockpiling money like a financial doomsday prepper is taken too far sometimes. Granted, that is rare. More Americans than not have little or no retirement and have lived hand to mouth their entire working careers as if they would never want--or have to retire.

 

[andylawcc]

ah, i guess i should stop now before my philanthropic awareness being questioned

 

[Engineer]

ah, i guess i should stop now before my philanthropic awareness being questioned

Not by me. The charity may be better off but you won't be. Take your tax lumps, especially if 15% long term capital gains (or even better if at 0%) and smile. Now if you're going to give to charity anyway, Dullard's method is a no brainer.

 

[Fingolfin269]

Max 401k and Roth. Get 8.5% match. Still trying to decide what to do next other than h&b.

 

[dullard]

ah, i guess i should stop now before my philanthropic awareness being questioned

My advice was mostly geared towards those who can afford to max out the 401k but are below the level where estate planning is a big deal. Basically, towards the people who are likely to donate or have inheritances but who haven't yet had the insight of expert financial planners. And actually, it does apply to a lot of ATOT (especially the subset of ATOT in this type of thread).

But even if you don't intend to donate, the advice is still the same. Put stable items for long-term holding into your taxable account (you know, the old boring buy-and-hold strategy that keeps winning over most other strategies). Put volatile items, items with strong dividends or other capital gains into your tax-deferred accounts. Put items you intend to sell in your tax-deferred account.

The taxable accounts should thus be US S&P500-like ETFs or mutual funds or boring large value corporations (the Warren Buffet strategy to wealth building). These stocks are not the stocks you buy and sell, they are the ones you hold for life. Donate them if you wish when you are wealthier. Or sell them at some point (but what would you buy with the proceeds?). These should be your stable base that you don't want to muck with. If you intend to sell it, you probably should be putting it in your 401k instead.

The taxable accounts should be your small companies, your foreign companies, your high-growth companies (or worst your small foreign growth companies). These are stocks with high turnover, high capital gains, high probability of selling. They all belong in tax-defferred accounts so you can buy and sell as needed without constantly being dinged by taxes. Short term, long term--who cares? High turnover--who cares? High dividends dinging you over and over again with taxes--not applicable in a tax-defferred account.

Follow that strategy for the greatest weath building since it is the least amount of tax for you. Then when you do donate (if you ever do), you have stocks in taxable accounts to donate (or give to friends/family when you die).