My issue is things that cross categories. Especially for something like Mint.
For example, did I get gas or buy food at Wawa? It doesn't know! (I don't expect it to know)
If I buy a Chipotle GC on discount, is that food or discretionary?
Is paying for Dash Pass food or subscriptions?
Yeah, that's another reason I pretty much immediately leaned towards passing on Mint, and also the banks default category tracking. Costco is like 50% toiletries, 50% groceries, so what category does it go in?
Category: Costco
What does it represent? Toilet paper, boxes of 500 hamburgers, and kayaks.
"I will write your name in the ruin of them. I will paint you across history in the color of their blood."
My issue is things that cross categories. Especially for something like Mint.
For example, did I get gas or buy food at Wawa? It doesn't know! (I don't expect it to know)
If I buy a Chipotle GC on discount, is that food or discretionary?
Is paying for Dash Pass food or subscriptions?
Thats what I like about YNAB. You can have multiple payment categories under one payment. So like if I see a charge for $43 at Chevron I can categorize $40 for gas and $3 for grocery because I bought some jerky.
Dash Pass is Food. Now you could break it up too though, the $5 for food lets say, and $3 service fees under subscriptions inside the same transaction.
That's what my Fred Meyers (Kroger) transactions look like on a single Transaction. $50 food, $30 fun money (for the Lego set I impulse bought) and $80 for "Medicinal" for the cash back I got to buy weed with.
I can double check, but I'm pretty sure mint also allows you to split up transactions.
But for both mint and YNAB, you will have to do it all manually. Which just isn't realistic. Maybe someone out there is capable of categorizing not only every receipt, but every line item on every receipt, but I can't do it. For places like costco or amazon where it fits into a lot of different categories I just go through each transaction and assign it based on what I remember off the top of my head as being the biggest part of the purchase.
So like I might see costco - $204 - 5/1, and I remember that was 90% groceries and a few small things for the house, so I'll just mark that one groceries. Then I might see costco - $525 - 5/10, and I remember I bought a shed and some gifts, so that one goes into home improvements because the shed cost the most.
Every so often you'll get months that look out of wack, and it's worthwhile to dig out receipts and try and be a little more careful, but usually it all just sort of evens out in the end.
edit - some stuff, I could see just assigning a fixed split every time (like the uber eats example), but most of the time I just put it under the dominant category. Uber eats counts towards how much I spend on eating out. Doesn't really matter to me if the cost is fee's or the food itself, both are going towards that activity.
Jebus314 on
"The world is a mess, and I just need to rule it" - Dr Horrible
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webguy20I spend too much time on the InternetRegistered Userregular
I can double check, but I'm pretty sure mint also allows you to split up transactions.
But for both mint and YNAB, you will have to do it all manually. Which just isn't realistic. Maybe someone out there is capable of categorizing not only every receipt, but every line item on every receipt, but I can't do it. For places like costco or amazon where it fits into a lot of different categories I just go through each transaction and assign it based on what I remember off the top of my head as being the biggest part of the purchase.
So like I might see costco - $204 - 5/1, and I remember that was 90% groceries and a few small things for the house, so I'll just through that in groceries. Then I might see costco - $525 - 5/10, and I remember I bought a shed and some gifts, so that one goes into home improvements because the shed cost the most.
Every so often you'll get months that look out of wack, and it's worthwhile to dig out receipts and try and be a little more careful, but usually it all just sort of evens out in the end.
edit - some stuff, I could see just assigning a fixed split every time (like the uber eats example), but most of the time I just put it under the dominant category. Uber eats counts towards how much I spend on eating out. Doesn't really matter to me if the cost is fee's or the food itself, both are going towards that activity.
I'll roughly group stuff. Its rare that there are so many different categories I cant roughly group them. Like if I bought some plates I know like roughly $40 of my $120 bill is what I call "Small home goods" and I'll split it up appropriately. Like I would never recommend someone going so granular as "Dairy" or "Dry Goods" or "Deli" under their grocery receipt unless you can get a grouped receipt out of the gate from the store.
I feel that modern stores should be able to do that, like sort it by the departments. Even if its just "home goods" "Grocery" "Garden" and "home". I can just about guarantee those SKUs in the system have that categorization built in.
YNAB specifically is designed for you to put in your entry right then and there, so for like the Uber eats example, as soon as I placed the order, on my phone, I'd then open the YNAB app and load the transaction. One thing that is nice is that I have my bank set to round up my transactions and then dumb the extra into savings, so all of my YNAB transactions are into whole numbers and it makes it look A LOT cleaner.
Final Edit: Not sure if Mint does this, but you can set YNAB as a widget on iOS for a specific category. So right on my home screen I have one showing me my fun money budget. Its real nice seeing right then and there if I have the money available to buy something frivolous for myself.
BrodyThe WatchThe First ShoreRegistered Userregular
Yeah, I haven't gotten far enough in that I'm splitting paper goods from toiletries from household cleaning supplies yet. I think all thats going to go into toiletries until I have a better handle on everything. Right now its probably more about accurately tracking our Amazon et al shopping, and where and what and how important any of it is.
"I will write your name in the ruin of them. I will paint you across history in the color of their blood."
yeah my budget is only four buckets for everyday expenses:
* Food
* Going Out
* Stuff We Need
* Stuff We Don't Need
life's a game that you're bound to lose / like using a hammer to pound in screws
fuck up once and you break your thumb / if you're happy at all then you're god damn dumb
that's right we're on a fucked up cruise / God is dead but at least we have booze
bad things happen, no one knows why / the sun burns out and everyone dies
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ChanusHarbinger of the Spicy Rooster ApocalypseThe Flames of a Thousand Collapsed StarsRegistered Userregular
• things
• stuff
• lube
Allegedly a voice of reason.
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BrodyThe WatchThe First ShoreRegistered Userregular
Right, its a lot of things off amazon, what was stuff we needed, what was stuff we didn't, and was it worth spending the money on that instead of saving for something that would probably make our lives better, but maybe not compared to the aggregate of things we avoided buying?
"I will write your name in the ruin of them. I will paint you across history in the color of their blood."
You could also commit and enter transactions in manually!
I did that for years in the YNAB 4 era.
It kinda sucks but really forces you to pay attention to your spending.
Or forces you to give up in frustration. 🤷♀️
One thing that helped me budget using YNAB 4 was using one card for all my “bullshit spending money” category, then just not tracking those transactions. For budgeting purposes, I don’t care if I spend money on an iced coffee or video game, and if I’m really curious I can use the card’s online tools to get those details. But for budgeting I treat it like “walkin’ around money,” and record it once monthly using the “total charges” off the statement.
Obviously this requires you to ensure you aren’t completely blowing your budget on those charges. But that wasn’t an issue for me.
Groceries, proper meals out, bills, these are their own budget items and got paid on a different card whose transactions I tracked individually.
Edit: Oh and like everybody was saying once I went to the next page, yeah I don’t really care about the fine grained details. Toilet paper goes in “groceries” because I buy them from the same place, and I budget money in the grocery budget for TP. If you have more than like 4 categories for everyday (non-bill) spending, you’re setting yourself up for failure.
mcdermott on
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webguy20I spend too much time on the InternetRegistered Userregular
You could also commit and enter transactions in manually!
I did that for years in the YNAB 4 era.
It kinda sucks but really forces you to pay attention to your spending.
Or forces you to give up in frustration. 🤷♀️
One thing that helped me budget using YNAB 4 was using one card for all my “bullshit spending money” category, then just not tracking those transactions. For budgeting purposes, I don’t care if I spend money on an iced coffee or video game, and if I’m really curious I can use the card’s online tools to get those details. But for budgeting I treat it like “walkin’ around money,” and record it once monthly using the “total charges” off the statement.
Obviously this requires you to ensure you aren’t completely blowing your budget on those charges. But that wasn’t an issue for me.
Groceries, proper meals out, bills, these are their own budget items and got paid on a different card whose transactions I tracked individually.
Yea i have a category thats calked "Webguy20 fun money" that anything frivolous I buy for myself gets logged under. Video games, D&D stuff, coffee and things of that nature. Let's me see my discretionary spending as a whole compared to the rest of the budget but I don't need it more granular than that. I have the same category for my wife then I also have one for us as a couple.
I've been using YNAB for a straight year now, the longest I've ever consecutively maintained a budget, and I just wanted to share this very satisfying chart
I feel like I'm genuinely making some financial progress for the first time in my life, and I know where all my money is and where it's going, I've successfully captured all of my revolving subscriptions in one place so there's no more wondering what a charge on my card is when it appears in the middle of a month unexpectedly, it feels very good.
I don't say that to brag or anything, but just to advocate for YNAB as a tool since it has been so helpful - the Goals feature in particular. The yearly subscription seems steep at first, but it's worth it in the long run, IMO. It's a good product.
I've only had two issues:
1. I make all my money in USD, but many of my expenditures are in JPY. There's no clean way to track JPY spending in the same budget, so it goes to another budget entirely. Basically the only way I've found to do it is to set a blanket expenditure in my USD budget called "Dollars to Yen" and then it shoots money off into an unbudgeted void - I don't track any of my JPY spending really, but I have a blanket item showing how much money I converted to JPY in a month.
2. I have two Wealthfront accounts, cash and Individual Investment, that I treat as savings. YNAB doesn't do a great job tracking balances that vary with stock prices, so I had no choice but to set up the investment account as an untracked, nonbudget account that I reconcile once a month. That part is fine, but if I ever want to add extra there to my investment account for more returns, or if I want to invest extra, things get ugly because it shows as extra expense from my budget when I move it out of my Wealthfront Cash account. It basically kind of ruined the overview of what I have "available" for savings.
yeah I ended up doing my savings similar to how you did dollars to yen
but I'm ok with the graphs in ynab just showing my short term cash
life's a game that you're bound to lose / like using a hammer to pound in screws
fuck up once and you break your thumb / if you're happy at all then you're god damn dumb
that's right we're on a fucked up cruise / God is dead but at least we have booze
bad things happen, no one knows why / the sun burns out and everyone dies
I've been using YNAB for a straight year now, the longest I've ever consecutively maintained a budget, and I just wanted to share this very satisfying chart
I feel like I'm genuinely making some financial progress for the first time in my life, and I know where all my money is and where it's going, I've successfully captured all of my revolving subscriptions in one place so there's no more wondering what a charge on my card is when it appears in the middle of a month unexpectedly, it feels very good.
I don't say that to brag or anything, but just to advocate for YNAB as a tool since it has been so helpful - the Goals feature in particular. The yearly subscription seems steep at first, but it's worth it in the long run, IMO. It's a good product.
I've only had two issues:
1. I make all my money in USD, but many of my expenditures are in JPY. There's no clean way to track JPY spending in the same budget, so it goes to another budget entirely. Basically the only way I've found to do it is to set a blanket expenditure in my USD budget called "Dollars to Yen" and then it shoots money off into an unbudgeted void - I don't track any of my JPY spending really, but I have a blanket item showing how much money I converted to JPY in a month.
2. I have two Wealthfront accounts, cash and Individual Investment, that I treat as savings. YNAB doesn't do a great job tracking balances that vary with stock prices, so I had no choice but to set up the investment account as an untracked, nonbudget account that I reconcile once a month. That part is fine, but if I ever want to add extra there to my investment account for more returns, or if I want to invest extra, things get ugly because it shows as extra expense from my budget when I move it out of my Wealthfront Cash account. It basically kind of ruined the overview of what I have "available" for savings.
Just out of curiously, and not really relevant so totally get it if you don't want to answer... but why are many of your expenditures in JPY? I assume you're living in Japan otherwise I'd expect them to be converted to USD when they show up on your accounts.
I live in Japan, but I work for an American organization, I get paid in dollars, and most of my accounts are in American banks. You’re correct that most of my expenditures are converted to USD. For example, I pay a company to arrange my rent payments for me, and they perform direct transfers from my US credit union, I only care about the USD part of that. If I make a purchase here on my American credit card (I don’t have a credit card from a Japanese bank), it’s also converted to USD. However, many of my day-to-day expenses are in cash because paying in certain places with a foreign credit card here is a chore: grocery stores, restaurants, things like that. So I go to the ATM, and the ATM withdraws JPY from my USD checking account, for a reasonable fee and conversion rate. I do it infrequently so I pay the conversion and fee less often, so say I withdraw $380 USD, or ¥40,000 JPY, that’s a “Dollar to Yen” transaction and I’m not going to track the individual trips to the grocery store or my restaurant spending. That ¥40,000 will last however many weeks based on what I’ve got going on, then at a certain point I go back to the ATM and reload my Walking Around money.
Are ETFs like really bad at publishing data about how often and how much they have historically paid out or reinvested respectively? That info seems hard to come by.
Like, how would you know what compound interest there might be with a reinvesting ETF?
Are ETFs like really bad at publishing data about how often and how much they have historically paid out or reinvested respectively? That info seems hard to come by.
Like, how would you know what compound interest there might be with a reinvesting ETF?
I may be missing something, but I think you're referring to the dividend yield?
Our budget is basically money out, money in. I review the transactions periodically to see if there's anything we're spending money on and not using, but that's about it. Helps that we're generally homebodies that only really splurge on food.
Are ETFs like really bad at publishing data about how often and how much they have historically paid out or reinvested respectively? That info seems hard to come by.
Like, how would you know what compound interest there might be with a reinvesting ETF?
Not an expert, but in my experience most ETFs just pass through all the dividends and then have an automatic dividend reinvestment option(DRIP).
So if I have 100 shares of ABC ETF @$100 a share, and it pays a 2% annual dividend, quarterly. At the end of the quarter I get my $50 in dividends, or if I'm enrolled in DRIP I get a 1/2 share of the ETF.
If I was in DRIP, the next quarter I'd have 100.5 shares and the 'choice' between $50.25 or 0.05025 of a share.
Our budget is basically money out, money in. I review the transactions periodically to see if there's anything we're spending money on and not using, but that's about it. Helps that we're generally homebodies that only really splurge on food.
Same, but I do like to have the checking account balance settle out to $3,333.33 after everything changes hands at the start and middle of the month.
Which is perfectly normal and in no way obsessive compulsive, why do you ask?
Are ETFs like really bad at publishing data about how often and how much they have historically paid out or reinvested respectively? That info seems hard to come by.
Like, how would you know what compound interest there might be with a reinvesting ETF?
Our budget is basically money out, money in. I review the transactions periodically to see if there's anything we're spending money on and not using, but that's about it. Helps that we're generally homebodies that only really splurge on food.
Same, but I do like to have the checking account balance settle out to $3,333.33 after everything changes hands at the start and middle of the month.
Which is perfectly normal and in no way obsessive compulsive, why do you ask?
I’m somewhat similar. My chequing account gets topped up every paycheck to an amount equivalent to the total amount that’s expected to be deducted from it through recurring bill payments over the course of the whole month, plus an extra $250 just in case.
Civics is not a consumer product that you can ignore because you don’t like the options presented.
Our budget is basically money out, money in. I review the transactions periodically to see if there's anything we're spending money on and not using, but that's about it. Helps that we're generally homebodies that only really splurge on food.
Same, but I do like to have the checking account balance settle out to $3,333.33 after everything changes hands at the start and middle of the month.
Which is perfectly normal and in no way obsessive compulsive, why do you ask?
I’m somewhat similar. My chequing account gets topped up every paycheck to an amount equivalent to the total amount that’s expected to be deducted from it through recurring bill payments over the course of the whole month, plus an extra $250 just in case.
Yeah, it's basically just peace of mind that we can cover the mortgage, HOA, utilities, and other auto-withdrawls, and a credit card payment, even if something goes absolutely wonky and pear shaped with our direct deposit for some unpredictable reason and I'm not paying attention.
Also, just being a silly nerd to an extent. Hercule Poirot kept his bank balance at £444.44, which we may move up to when childcare becomes a thing. Back when I was living alone in a cheap studio and had drastically lower monthly expenses I had it at $1,010.10 because it is both a sequence of 10's and is binary for 42.
...the last thing I ever expected to read on PA was a Poirot reference
Really?
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ChaosHatHop, hop, hop, HA!Trick of the lightRegistered Userregular
Finance thread, I have a question. I called a dude at Fidelity (where my accounts are) because I had a few question and he had a good idea about a tax minimization strategy but I had some questions after the fact. First, some backstory. My mom died last year and I inherited her retirement accounts. I have ten years to withdraw from them where they count as income for tax purposes. During this period, with my salary and my wife's, I won't qualify to contribute to the Roth anymore due to the amount of income. He described that I could right now just max our 401k contributions and put 39k into that tax free account and just use the distributions from the inherited accounts to pay our bills and shit month to month, then I'm effectively dumping the inherited money into a tax free account.
Here's my question, how is that better than just putting it into an individual brokerage account? When I withdraw from the 401k I'll pay income taxes on those distributions, but that will almost certainly be more than the capital gains rate, right? The 401k also has the big disadvantage of being very difficult to touch until I'm almost 60 which I won't be for another 25 years, and maybe I'd like to be able to pay for my kid's college or something before then.
Am I missing something here? Is the assumption that by the time I'm retired I'll have fewer expenses and I won't need as much income? Even then I'd have to be in the two lowest income brackets for that to pay off.
Finance thread, I have a question. I called a dude at Fidelity (where my accounts are) because I had a few question and he had a good idea about a tax minimization strategy but I had some questions after the fact. First, some backstory. My mom died last year and I inherited her retirement accounts. I have ten years to withdraw from them where they count as income for tax purposes. During this period, with my salary and my wife's, I won't qualify to contribute to the Roth anymore due to the amount of income. He described that I could right now just max our 401k contributions and put 39k into that tax free account and just use the distributions from the inherited accounts to pay our bills and shit month to month, then I'm effectively dumping the inherited money into a tax free account.
Here's my question, how is that better than just putting it into an individual brokerage account? When I withdraw from the 401k I'll pay income taxes on those distributions, but that will almost certainly be more than the capital gains rate, right? The 401k also has the big disadvantage of being very difficult to touch until I'm almost 60 which I won't be for another 25 years, and maybe I'd like to be able to pay for my kid's college or something before then.
Am I missing something here? Is the assumption that by the time I'm retired I'll have fewer expenses and I won't need as much income? Even then I'd have to be in the two lowest income brackets for that to pay off.
Because you're in your prime earning years so your paying top dollar tax rate in the withdrawals for the second option, whereas with the former you're going with what your tax rate will be in retirement, which almost certainly be a fair bit less.
That's assuming I have this correct?
First option:
1) Max out 401k pre-tax; withdraw same amount from inherited account to pay bills. Effectively transferring all of this inherited accounts' balance into pre-tax accounts. Withdraw both gains and original balance at retirement income tax-rates (likely in the 15% neighborhood), almost certainly lower than your current tax rate.
Second Option:
2) Withdraw from inherited accounts, pay top tax rate (22%+?) and possibly even more than your top current rate if this amount gets you bumped into a higher bracket on the original balance. Invest this amount into brokerage, pay capital gains (currently 15%) on any and all gains; including the possibility that capital gains rates gets bumped up to nominal income tax rates in the ensuing years.
So first option -> pay retirement tax rate, likely 15-20% on everything including the original balance;
Or second option pay your top marginal tax rate (22%+?) on original balance and then whatever capital gains is at the time of withdrawal, currently minimum 15% but could be raised by Congress at any time.
Guess it all depends on what your current top-dollar tax bracket is.
If the income from your mom's retirement boosts you over Roth limits, the Fidelity advisor should also be able to help you "backdoor Roth" some of the funds also (I hate that term). Which leaves less funds to have to play this shell game.
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ChaosHatHop, hop, hop, HA!Trick of the lightRegistered Userregular
Finance thread, I have a question. I called a dude at Fidelity (where my accounts are) because I had a few question and he had a good idea about a tax minimization strategy but I had some questions after the fact. First, some backstory. My mom died last year and I inherited her retirement accounts. I have ten years to withdraw from them where they count as income for tax purposes. During this period, with my salary and my wife's, I won't qualify to contribute to the Roth anymore due to the amount of income. He described that I could right now just max our 401k contributions and put 39k into that tax free account and just use the distributions from the inherited accounts to pay our bills and shit month to month, then I'm effectively dumping the inherited money into a tax free account.
Here's my question, how is that better than just putting it into an individual brokerage account? When I withdraw from the 401k I'll pay income taxes on those distributions, but that will almost certainly be more than the capital gains rate, right? The 401k also has the big disadvantage of being very difficult to touch until I'm almost 60 which I won't be for another 25 years, and maybe I'd like to be able to pay for my kid's college or something before then.
Am I missing something here? Is the assumption that by the time I'm retired I'll have fewer expenses and I won't need as much income? Even then I'd have to be in the two lowest income brackets for that to pay off.
Because you're in your prime earning years so your paying top dollar tax rate in the withdrawals for the second option, whereas with the former you're going with what your tax rate will be in retirement, which almost certainly be a fair bit less.
That's assuming I have this correct?
First option:
1) Max out 401k pre-tax; withdraw same amount from inherited account to pay bills. Effectively transferring all of this inherited accounts' balance into pre-tax accounts. Withdraw both gains and original balance at retirement income tax-rates (likely in the 15% neighborhood), almost certainly lower than your current tax rate.
Second Option:
2) Withdraw from inherited accounts, pay top tax rate (22%+?) and possibly even more than your top current rate if this amount gets you bumped into a higher bracket on the original balance. Invest this amount into brokerage, pay capital gains (currently 15%) on any and all gains; including the possibility that capital gains rates gets bumped up to nominal income tax rates in the ensuing years.
So first option -> pay retirement tax rate, likely 15-20% on everything including the original balance;
Or second option pay your top marginal tax rate (22%+?) on original balance and then whatever capital gains is at the time of withdrawal, currently minimum 15% but could be raised by Congress at any time.
Guess it all depends on what your current top-dollar tax bracket is.
I guess I just find it hard to believe my retirement expenses would be so much lower to fall into that minimum tax bracket. Yes my house would be theoretically paid off but like, I'd have all this free time to do shit so I could see my other expenditures rising. I mean ideally I'd be travelling more or something. Car related costs might go down due to no commuting, and thus less wear and tear and gas, but that seems like a rounding error in the grand scheme of it.
I think the worst case scenario is capital gains are taxed at the same rate as income, but at that point it's still better to just keep it in the brokerage account since hey, you can withdraw it if you need to. Let's assume I won't make the 10% bracket in retirement because that's really low, the difference between the next (at 12%) isn't much lower than capital gains at 15% in my likely bracket. On the other hand, if I miss the other way and fall into the next highest income bracket, now I'm getting 22%.
I'm just trying to think out loud and see if there's just something I'm overlooking.
If the income from your mom's retirement boosts you over Roth limits, the Fidelity advisor should also be able to help you "backdoor Roth" some of the funds also (I hate that term). Which leaves less funds to have to play this shell game.
He did mention this and I was going to ask in a separate follow up. He mentioned it's a little bit of a headache tax wise, but as far as I can tell it should be fine? I take the withdrawal from the inherited account and pay taxes. I immediately throw that money in a traditional IRA. Normally, you would get a tax deduction since I funded it with post tax money, but since I'll be over that phase out with the withdrawal and my household income, I get no deduction, correct? I then immediately roll it into a roth, paying no taxes because I have no earnings in the traditional. Then I have all the benefits of the Roth, being able to withdraw the principle with no penalty, and being able to withdraw the earnings tax free when I'm old. Is that correct? The only taxes I should pay are on the initial withdrawal from the inherited retirement account?
Finance thread, I have a question. I called a dude at Fidelity (where my accounts are) because I had a few question and he had a good idea about a tax minimization strategy but I had some questions after the fact. First, some backstory. My mom died last year and I inherited her retirement accounts. I have ten years to withdraw from them where they count as income for tax purposes. During this period, with my salary and my wife's, I won't qualify to contribute to the Roth anymore due to the amount of income. He described that I could right now just max our 401k contributions and put 39k into that tax free account and just use the distributions from the inherited accounts to pay our bills and shit month to month, then I'm effectively dumping the inherited money into a tax free account.
Here's my question, how is that better than just putting it into an individual brokerage account? When I withdraw from the 401k I'll pay income taxes on those distributions, but that will almost certainly be more than the capital gains rate, right? The 401k also has the big disadvantage of being very difficult to touch until I'm almost 60 which I won't be for another 25 years, and maybe I'd like to be able to pay for my kid's college or something before then.
Am I missing something here? Is the assumption that by the time I'm retired I'll have fewer expenses and I won't need as much income? Even then I'd have to be in the two lowest income brackets for that to pay off.
Because you're in your prime earning years so your paying top dollar tax rate in the withdrawals for the second option, whereas with the former you're going with what your tax rate will be in retirement, which almost certainly be a fair bit less.
That's assuming I have this correct?
First option:
1) Max out 401k pre-tax; withdraw same amount from inherited account to pay bills. Effectively transferring all of this inherited accounts' balance into pre-tax accounts. Withdraw both gains and original balance at retirement income tax-rates (likely in the 15% neighborhood), almost certainly lower than your current tax rate.
Second Option:
2) Withdraw from inherited accounts, pay top tax rate (22%+?) and possibly even more than your top current rate if this amount gets you bumped into a higher bracket on the original balance. Invest this amount into brokerage, pay capital gains (currently 15%) on any and all gains; including the possibility that capital gains rates gets bumped up to nominal income tax rates in the ensuing years.
So first option -> pay retirement tax rate, likely 15-20% on everything including the original balance;
Or second option pay your top marginal tax rate (22%+?) on original balance and then whatever capital gains is at the time of withdrawal, currently minimum 15% but could be raised by Congress at any time.
Guess it all depends on what your current top-dollar tax bracket is.
I guess I just find it hard to believe my retirement expenses would be so much lower to fall into that minimum tax bracket. Yes my house would be theoretically paid off but like, I'd have all this free time to do shit so I could see my other expenditures rising. I mean ideally I'd be travelling more or something. Car related costs might go down due to no commuting, and thus less wear and tear and gas, but that seems like a rounding error in the grand scheme of it.
I think the worst case scenario is capital gains are taxed at the same rate as income, but at that point it's still better to just keep it in the brokerage account since hey, you can withdraw it if you need to. Let's assume I won't make the 10% bracket in retirement because that's really low, the difference between the next (at 12%) isn't much lower than capital gains at 15% in my likely bracket. On the other hand, if I miss the other way and fall into the next highest income bracket, now I'm getting 22%.
I'm just trying to think out loud and see if there's just something I'm overlooking.
If the income from your mom's retirement boosts you over Roth limits, the Fidelity advisor should also be able to help you "backdoor Roth" some of the funds also (I hate that term). Which leaves less funds to have to play this shell game.
He did mention this and I was going to ask in a separate follow up. He mentioned it's a little bit of a headache tax wise, but as far as I can tell it should be fine? I take the withdrawal from the inherited account and pay taxes. I immediately throw that money in a traditional IRA. Normally, you would get a tax deduction since I funded it with post tax money, but since I'll be over that phase out with the withdrawal and my household income, I get no deduction, correct? I then immediately roll it into a roth, paying no taxes because I have no earnings in the traditional. Then I have all the benefits of the Roth, being able to withdraw the principle with no penalty, and being able to withdraw the earnings tax free when I'm old. Is that correct? The only taxes I should pay are on the initial withdrawal from the inherited retirement account?
Add up your monthly expenses, subtract the mortgage and health insurance (Medigap plans are cheap comparatively), and that's what you need to live on in retirement. Which is a lot less than your salary.
Also, also, consider you are already really living on ~60-70% of your "salary" after taxes, deductions, and personal savings are all considered in the first place. You aren't saving for retirement during retirement after all.
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ChaosHatHop, hop, hop, HA!Trick of the lightRegistered Userregular
Finance thread, I have a question. I called a dude at Fidelity (where my accounts are) because I had a few question and he had a good idea about a tax minimization strategy but I had some questions after the fact. First, some backstory. My mom died last year and I inherited her retirement accounts. I have ten years to withdraw from them where they count as income for tax purposes. During this period, with my salary and my wife's, I won't qualify to contribute to the Roth anymore due to the amount of income. He described that I could right now just max our 401k contributions and put 39k into that tax free account and just use the distributions from the inherited accounts to pay our bills and shit month to month, then I'm effectively dumping the inherited money into a tax free account.
Here's my question, how is that better than just putting it into an individual brokerage account? When I withdraw from the 401k I'll pay income taxes on those distributions, but that will almost certainly be more than the capital gains rate, right? The 401k also has the big disadvantage of being very difficult to touch until I'm almost 60 which I won't be for another 25 years, and maybe I'd like to be able to pay for my kid's college or something before then.
Am I missing something here? Is the assumption that by the time I'm retired I'll have fewer expenses and I won't need as much income? Even then I'd have to be in the two lowest income brackets for that to pay off.
Because you're in your prime earning years so your paying top dollar tax rate in the withdrawals for the second option, whereas with the former you're going with what your tax rate will be in retirement, which almost certainly be a fair bit less.
That's assuming I have this correct?
First option:
1) Max out 401k pre-tax; withdraw same amount from inherited account to pay bills. Effectively transferring all of this inherited accounts' balance into pre-tax accounts. Withdraw both gains and original balance at retirement income tax-rates (likely in the 15% neighborhood), almost certainly lower than your current tax rate.
Second Option:
2) Withdraw from inherited accounts, pay top tax rate (22%+?) and possibly even more than your top current rate if this amount gets you bumped into a higher bracket on the original balance. Invest this amount into brokerage, pay capital gains (currently 15%) on any and all gains; including the possibility that capital gains rates gets bumped up to nominal income tax rates in the ensuing years.
So first option -> pay retirement tax rate, likely 15-20% on everything including the original balance;
Or second option pay your top marginal tax rate (22%+?) on original balance and then whatever capital gains is at the time of withdrawal, currently minimum 15% but could be raised by Congress at any time.
Guess it all depends on what your current top-dollar tax bracket is.
I guess I just find it hard to believe my retirement expenses would be so much lower to fall into that minimum tax bracket. Yes my house would be theoretically paid off but like, I'd have all this free time to do shit so I could see my other expenditures rising. I mean ideally I'd be travelling more or something. Car related costs might go down due to no commuting, and thus less wear and tear and gas, but that seems like a rounding error in the grand scheme of it.
I think the worst case scenario is capital gains are taxed at the same rate as income, but at that point it's still better to just keep it in the brokerage account since hey, you can withdraw it if you need to. Let's assume I won't make the 10% bracket in retirement because that's really low, the difference between the next (at 12%) isn't much lower than capital gains at 15% in my likely bracket. On the other hand, if I miss the other way and fall into the next highest income bracket, now I'm getting 22%.
I'm just trying to think out loud and see if there's just something I'm overlooking.
If the income from your mom's retirement boosts you over Roth limits, the Fidelity advisor should also be able to help you "backdoor Roth" some of the funds also (I hate that term). Which leaves less funds to have to play this shell game.
He did mention this and I was going to ask in a separate follow up. He mentioned it's a little bit of a headache tax wise, but as far as I can tell it should be fine? I take the withdrawal from the inherited account and pay taxes. I immediately throw that money in a traditional IRA. Normally, you would get a tax deduction since I funded it with post tax money, but since I'll be over that phase out with the withdrawal and my household income, I get no deduction, correct? I then immediately roll it into a roth, paying no taxes because I have no earnings in the traditional. Then I have all the benefits of the Roth, being able to withdraw the principle with no penalty, and being able to withdraw the earnings tax free when I'm old. Is that correct? The only taxes I should pay are on the initial withdrawal from the inherited retirement account?
Add up your monthly expenses, subtract the mortgage and health insurance (Medigap plans are cheap comparatively), and that's what you need to live on in retirement. Which is a lot less than your salary.
Also, also, consider you are already really living on ~60-70% of your "salary" after taxes, deductions, and personal savings are all considered in the first place. You aren't saving for retirement during retirement after all.
I guess the payroll taxes are a pretty decent chunk that wouldn't come out of my "retirement pay." I'll have to do some math. My gut is leaning to the individual account just because it's easier to access, but there's no reason I couldn't do some of both, instead of putting all 19.5k into the 401k just put 10 or 12 and hedge my bets that way.
I think you're maybe still not understanding the tax difference. With your brokerage option you're paying your top dollar tax rate (I'm guessing 22% or more) on all of the current balance of the retirement accounts. With the 401k, you're paying your retirement tax rate, which given the current tax brackets is likely the 12% bracket but given how progressive tax brackets work, even if you break to the next tax bracket in retirement only a much smaller portion of it is taxed at the higher rate compared to the other option of paying the highest rate on all of it.
So maybe you're OK with losing that 10% difference on the whole of the inherited accounts' balance for flexibility, but understand that it's not an insignificant difference.
Simpsonia on
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ChaosHatHop, hop, hop, HA!Trick of the lightRegistered Userregular
I think you're maybe still not understanding the tax difference. With your brokerage option you're paying your top dollar tax rate (I'm guessing 22% or more) on all of the current balance of the retirement accounts. With the 401k, you're paying your retirement tax rate, which given the current tax brackets is likely the 12% bracket.
So maybe you're OK with losing that 10% difference on the whole of the inherited accounts' balance for flexibility, but understand that it's not an insignificant difference.
Maybe I'm not understanding your question, or I explained it wrong? I have have inherited my mother's retirement accounts and I have to completely withdraw them from those accounts by 12/31 of the year of the tenth anniversary of her death, otherwise I forfeit half of the remaining balance to taxes. All the money I withdraw from them, regardless of the eventual end account they land in, is taxed as income. So I'm going to lose 22% or more of it as I withdraw it from the inherited accounts until the end of year ten. So, I can't just leave that money in my checking account, as far as I see it I have one or two options if I understand them correctly. (I can max the backdoor IRA for both myself and my wife every year so that's not an option, it's just a given, I will have money left over after that because putting money into a Roth seems like the best of all worlds)
Option 1: what I could do is jam that money into my brokerage account and then when I withdraw, I should only pay up to 15% of the earnings. I can also withdraw any time as long as it's been in there for a year without penalty, I'd just pay capital gains (and income if less than a year).
Option 2: Max out my 401k with pretax dollars and then supplement my day to day income with the money withdrawn from the inherited accounts so I can still pay my mortgage and shit. Eventually, I will pay income tax on both the earnings AND contributions, which could range as low as 10% and as high as maybe 22% (okay okay, potentially higher but I don't see it). I cannot touch the money before I'm 60 without paying a 10% penalty on top of income tax.
So is there something I'm not understanding where you're saying I'd pay 22% income tax on the brokerage account in retirement?
And just to make sure I understand the backdoor Roth: I withdraw enough to have $12k after taxes from the inherited accounts. I then put $6k into a traditional IRA for myself and one for my wife, and then immediately roll that into a Roth IRA. I now have 12k in a Roth, can withdraw the principle at anytime, paying no taxes, and I can withdraw earnings when I'm 59 1/2 and pay no taxes on that, right?
Option 1: since you are taking these inherited withdrawals on top of your current income, every additional dollar beyond your current income is taxed at your top marginal rate (ie 22% or more). So this option is 22% on the entirety of the principle, then whatever capital gains is at for the the gains (15% minimum, possibly higher by retirement).
Option 2: You are withdrawing an amount equal to what you contribute to your 401k. Since the 401k is tax-deferred, you are not paying any income taxes on it currently. $19,500 to 401k, offset by $19,500 withdrawal from your inherited accounts. Since it's a wash and tax-deferred, you are paying your retirement rate on BOTH principal and gains. A) You have lower income needs in retirement so you will have a lower tax bracket; And b) due to progressive tax brackets, even if you do need to withdraw more and end up with a higher tax bracket, only a tiny portion of the withdrawals (ie only the withdrawals over ~$80k (for married couple brackets)) are taxed at the higher 22% rate, while most dollars under ~$80k is taxed at 12%, and the first ~$12k of those withdrawals is tax-free!
Think of it as buckets of income, with option 1, your bucket is full so everything additional is taxed at the top rate. In retirement, your bucket is empty so you get to fill up on the delicious low-tax brackets before you even sniff the higher tax brackets, including the first ~$12k being tax-free.
This is why I really don't like Roth IRAs too. Every dollar you contribute to your Roth is essentially taxed at your top marginal rate, whereas with tax-deferred retirement accounts your bucket starts empty and you get to withdraw through all the low tax-brackets before you hit the higher ones.
ChaosHatHop, hop, hop, HA!Trick of the lightRegistered Userregular
Okay, I think I was having trouble mentally counting the money as untaxed on the way in since I do actually have to do the withholding on the withdrawal. That makes more sense now.
I'm taking a flyer on the CapitalOne Savor card. It's got a $95 annual fee so I'm trying to see if the benefits outweigh the fee.
4% on food and entertainment and streaming services
3% on groceries
1% for everything else
I'm trying to figure out if it's worth the fee, for now. I also have to work out how to navigate their reward tiers because we bought tickets to Hamilton but it's showing as the 1% tier; which is just confusing. I'm also curious if Amazon Prime will count as a streaming service (I'm assuming NO).
This is the Savor, not the SavorOne; which has different reward tiers but no annual fee.
Posts
What does it represent? Toilet paper, boxes of 500 hamburgers, and kayaks.
The Monster Baru Cormorant - Seth Dickinson
Steam: Korvalain
Thats what I like about YNAB. You can have multiple payment categories under one payment. So like if I see a charge for $43 at Chevron I can categorize $40 for gas and $3 for grocery because I bought some jerky.
Dash Pass is Food. Now you could break it up too though, the $5 for food lets say, and $3 service fees under subscriptions inside the same transaction.
That's what my Fred Meyers (Kroger) transactions look like on a single Transaction. $50 food, $30 fun money (for the Lego set I impulse bought) and $80 for "Medicinal" for the cash back I got to buy weed with.
Origin ID: Discgolfer27
Untappd ID: Discgolfer1981
But for both mint and YNAB, you will have to do it all manually. Which just isn't realistic. Maybe someone out there is capable of categorizing not only every receipt, but every line item on every receipt, but I can't do it. For places like costco or amazon where it fits into a lot of different categories I just go through each transaction and assign it based on what I remember off the top of my head as being the biggest part of the purchase.
So like I might see costco - $204 - 5/1, and I remember that was 90% groceries and a few small things for the house, so I'll just mark that one groceries. Then I might see costco - $525 - 5/10, and I remember I bought a shed and some gifts, so that one goes into home improvements because the shed cost the most.
Every so often you'll get months that look out of wack, and it's worthwhile to dig out receipts and try and be a little more careful, but usually it all just sort of evens out in the end.
edit - some stuff, I could see just assigning a fixed split every time (like the uber eats example), but most of the time I just put it under the dominant category. Uber eats counts towards how much I spend on eating out. Doesn't really matter to me if the cost is fee's or the food itself, both are going towards that activity.
I'll roughly group stuff. Its rare that there are so many different categories I cant roughly group them. Like if I bought some plates I know like roughly $40 of my $120 bill is what I call "Small home goods" and I'll split it up appropriately. Like I would never recommend someone going so granular as "Dairy" or "Dry Goods" or "Deli" under their grocery receipt unless you can get a grouped receipt out of the gate from the store.
I feel that modern stores should be able to do that, like sort it by the departments. Even if its just "home goods" "Grocery" "Garden" and "home". I can just about guarantee those SKUs in the system have that categorization built in.
YNAB specifically is designed for you to put in your entry right then and there, so for like the Uber eats example, as soon as I placed the order, on my phone, I'd then open the YNAB app and load the transaction. One thing that is nice is that I have my bank set to round up my transactions and then dumb the extra into savings, so all of my YNAB transactions are into whole numbers and it makes it look A LOT cleaner.
Final Edit: Not sure if Mint does this, but you can set YNAB as a widget on iOS for a specific category. So right on my home screen I have one showing me my fun money budget. Its real nice seeing right then and there if I have the money available to buy something frivolous for myself.
Origin ID: Discgolfer27
Untappd ID: Discgolfer1981
The Monster Baru Cormorant - Seth Dickinson
Steam: Korvalain
i basically just look at savings, bills, subscriptions, food, gas, and a bucket for everything else
i buy toilet paper once a year maybe, it doesn't need its own $10 bucket i don't think
* Food
* Going Out
* Stuff We Need
* Stuff We Don't Need
fuck up once and you break your thumb / if you're happy at all then you're god damn dumb
that's right we're on a fucked up cruise / God is dead but at least we have booze
bad things happen, no one knows why / the sun burns out and everyone dies
• stuff
• lube
The Monster Baru Cormorant - Seth Dickinson
Steam: Korvalain
this is all the same thing
If you think
Lube things before you stuff them
and
Stuff things before you lube them
are the same thing....Ouch!
One thing that helped me budget using YNAB 4 was using one card for all my “bullshit spending money” category, then just not tracking those transactions. For budgeting purposes, I don’t care if I spend money on an iced coffee or video game, and if I’m really curious I can use the card’s online tools to get those details. But for budgeting I treat it like “walkin’ around money,” and record it once monthly using the “total charges” off the statement.
Obviously this requires you to ensure you aren’t completely blowing your budget on those charges. But that wasn’t an issue for me.
Groceries, proper meals out, bills, these are their own budget items and got paid on a different card whose transactions I tracked individually.
Edit: Oh and like everybody was saying once I went to the next page, yeah I don’t really care about the fine grained details. Toilet paper goes in “groceries” because I buy them from the same place, and I budget money in the grocery budget for TP. If you have more than like 4 categories for everyday (non-bill) spending, you’re setting yourself up for failure.
Yea i have a category thats calked "Webguy20 fun money" that anything frivolous I buy for myself gets logged under. Video games, D&D stuff, coffee and things of that nature. Let's me see my discretionary spending as a whole compared to the rest of the budget but I don't need it more granular than that. I have the same category for my wife then I also have one for us as a couple.
Origin ID: Discgolfer27
Untappd ID: Discgolfer1981
I feel like I'm genuinely making some financial progress for the first time in my life, and I know where all my money is and where it's going, I've successfully captured all of my revolving subscriptions in one place so there's no more wondering what a charge on my card is when it appears in the middle of a month unexpectedly, it feels very good.
I don't say that to brag or anything, but just to advocate for YNAB as a tool since it has been so helpful - the Goals feature in particular. The yearly subscription seems steep at first, but it's worth it in the long run, IMO. It's a good product.
I've only had two issues:
1. I make all my money in USD, but many of my expenditures are in JPY. There's no clean way to track JPY spending in the same budget, so it goes to another budget entirely. Basically the only way I've found to do it is to set a blanket expenditure in my USD budget called "Dollars to Yen" and then it shoots money off into an unbudgeted void - I don't track any of my JPY spending really, but I have a blanket item showing how much money I converted to JPY in a month.
2. I have two Wealthfront accounts, cash and Individual Investment, that I treat as savings. YNAB doesn't do a great job tracking balances that vary with stock prices, so I had no choice but to set up the investment account as an untracked, nonbudget account that I reconcile once a month. That part is fine, but if I ever want to add extra there to my investment account for more returns, or if I want to invest extra, things get ugly because it shows as extra expense from my budget when I move it out of my Wealthfront Cash account. It basically kind of ruined the overview of what I have "available" for savings.
but I'm ok with the graphs in ynab just showing my short term cash
fuck up once and you break your thumb / if you're happy at all then you're god damn dumb
that's right we're on a fucked up cruise / God is dead but at least we have booze
bad things happen, no one knows why / the sun burns out and everyone dies
Just out of curiously, and not really relevant so totally get it if you don't want to answer... but why are many of your expenditures in JPY? I assume you're living in Japan otherwise I'd expect them to be converted to USD when they show up on your accounts.
Like, how would you know what compound interest there might be with a reinvesting ETF?
I may be missing something, but I think you're referring to the dividend yield?
Not an expert, but in my experience most ETFs just pass through all the dividends and then have an automatic dividend reinvestment option(DRIP).
So if I have 100 shares of ABC ETF @$100 a share, and it pays a 2% annual dividend, quarterly. At the end of the quarter I get my $50 in dividends, or if I'm enrolled in DRIP I get a 1/2 share of the ETF.
If I was in DRIP, the next quarter I'd have 100.5 shares and the 'choice' between $50.25 or 0.05025 of a share.
Same, but I do like to have the checking account balance settle out to $3,333.33 after everything changes hands at the start and middle of the month.
Which is perfectly normal and in no way obsessive compulsive, why do you ask?
The payout amounts vary over time because the ETF composition changes over time, even if it’s an index ETF. You have to compute the compound interest over time yourself with the historical dividend yield. For SPY, for instance, you can find that info here: https://finance.yahoo.com/quote/SPY/history?period1=728265600&period2=1623801600&interval=div|split&filter=div&frequency=1d&includeAdjustedClose=true
I’m somewhat similar. My chequing account gets topped up every paycheck to an amount equivalent to the total amount that’s expected to be deducted from it through recurring bill payments over the course of the whole month, plus an extra $250 just in case.
Yeah, it's basically just peace of mind that we can cover the mortgage, HOA, utilities, and other auto-withdrawls, and a credit card payment, even if something goes absolutely wonky and pear shaped with our direct deposit for some unpredictable reason and I'm not paying attention.
Also, just being a silly nerd to an extent. Hercule Poirot kept his bank balance at £444.44, which we may move up to when childcare becomes a thing. Back when I was living alone in a cheap studio and had drastically lower monthly expenses I had it at $1,010.10 because it is both a sequence of 10's and is binary for 42.
Really?
Here's my question, how is that better than just putting it into an individual brokerage account? When I withdraw from the 401k I'll pay income taxes on those distributions, but that will almost certainly be more than the capital gains rate, right? The 401k also has the big disadvantage of being very difficult to touch until I'm almost 60 which I won't be for another 25 years, and maybe I'd like to be able to pay for my kid's college or something before then.
Am I missing something here? Is the assumption that by the time I'm retired I'll have fewer expenses and I won't need as much income? Even then I'd have to be in the two lowest income brackets for that to pay off.
Seriously. Hercule is one of the best parts of DBZ.
Because you're in your prime earning years so your paying top dollar tax rate in the withdrawals for the second option, whereas with the former you're going with what your tax rate will be in retirement, which almost certainly be a fair bit less.
That's assuming I have this correct?
First option:
1) Max out 401k pre-tax; withdraw same amount from inherited account to pay bills. Effectively transferring all of this inherited accounts' balance into pre-tax accounts. Withdraw both gains and original balance at retirement income tax-rates (likely in the 15% neighborhood), almost certainly lower than your current tax rate.
Second Option:
2) Withdraw from inherited accounts, pay top tax rate (22%+?) and possibly even more than your top current rate if this amount gets you bumped into a higher bracket on the original balance. Invest this amount into brokerage, pay capital gains (currently 15%) on any and all gains; including the possibility that capital gains rates gets bumped up to nominal income tax rates in the ensuing years.
So first option -> pay retirement tax rate, likely 15-20% on everything including the original balance;
Or second option pay your top marginal tax rate (22%+?) on original balance and then whatever capital gains is at the time of withdrawal, currently minimum 15% but could be raised by Congress at any time.
Guess it all depends on what your current top-dollar tax bracket is.
I guess I just find it hard to believe my retirement expenses would be so much lower to fall into that minimum tax bracket. Yes my house would be theoretically paid off but like, I'd have all this free time to do shit so I could see my other expenditures rising. I mean ideally I'd be travelling more or something. Car related costs might go down due to no commuting, and thus less wear and tear and gas, but that seems like a rounding error in the grand scheme of it.
I think the worst case scenario is capital gains are taxed at the same rate as income, but at that point it's still better to just keep it in the brokerage account since hey, you can withdraw it if you need to. Let's assume I won't make the 10% bracket in retirement because that's really low, the difference between the next (at 12%) isn't much lower than capital gains at 15% in my likely bracket. On the other hand, if I miss the other way and fall into the next highest income bracket, now I'm getting 22%.
I'm just trying to think out loud and see if there's just something I'm overlooking.
He did mention this and I was going to ask in a separate follow up. He mentioned it's a little bit of a headache tax wise, but as far as I can tell it should be fine? I take the withdrawal from the inherited account and pay taxes. I immediately throw that money in a traditional IRA. Normally, you would get a tax deduction since I funded it with post tax money, but since I'll be over that phase out with the withdrawal and my household income, I get no deduction, correct? I then immediately roll it into a roth, paying no taxes because I have no earnings in the traditional. Then I have all the benefits of the Roth, being able to withdraw the principle with no penalty, and being able to withdraw the earnings tax free when I'm old. Is that correct? The only taxes I should pay are on the initial withdrawal from the inherited retirement account?
Add up your monthly expenses, subtract the mortgage and health insurance (Medigap plans are cheap comparatively), and that's what you need to live on in retirement. Which is a lot less than your salary.
Also, also, consider you are already really living on ~60-70% of your "salary" after taxes, deductions, and personal savings are all considered in the first place. You aren't saving for retirement during retirement after all.
I guess the payroll taxes are a pretty decent chunk that wouldn't come out of my "retirement pay." I'll have to do some math. My gut is leaning to the individual account just because it's easier to access, but there's no reason I couldn't do some of both, instead of putting all 19.5k into the 401k just put 10 or 12 and hedge my bets that way.
So maybe you're OK with losing that 10% difference on the whole of the inherited accounts' balance for flexibility, but understand that it's not an insignificant difference.
Maybe I'm not understanding your question, or I explained it wrong? I have have inherited my mother's retirement accounts and I have to completely withdraw them from those accounts by 12/31 of the year of the tenth anniversary of her death, otherwise I forfeit half of the remaining balance to taxes. All the money I withdraw from them, regardless of the eventual end account they land in, is taxed as income. So I'm going to lose 22% or more of it as I withdraw it from the inherited accounts until the end of year ten. So, I can't just leave that money in my checking account, as far as I see it I have one or two options if I understand them correctly. (I can max the backdoor IRA for both myself and my wife every year so that's not an option, it's just a given, I will have money left over after that because putting money into a Roth seems like the best of all worlds)
Option 1: what I could do is jam that money into my brokerage account and then when I withdraw, I should only pay up to 15% of the earnings. I can also withdraw any time as long as it's been in there for a year without penalty, I'd just pay capital gains (and income if less than a year).
Option 2: Max out my 401k with pretax dollars and then supplement my day to day income with the money withdrawn from the inherited accounts so I can still pay my mortgage and shit. Eventually, I will pay income tax on both the earnings AND contributions, which could range as low as 10% and as high as maybe 22% (okay okay, potentially higher but I don't see it). I cannot touch the money before I'm 60 without paying a 10% penalty on top of income tax.
So is there something I'm not understanding where you're saying I'd pay 22% income tax on the brokerage account in retirement?
And just to make sure I understand the backdoor Roth: I withdraw enough to have $12k after taxes from the inherited accounts. I then put $6k into a traditional IRA for myself and one for my wife, and then immediately roll that into a Roth IRA. I now have 12k in a Roth, can withdraw the principle at anytime, paying no taxes, and I can withdraw earnings when I'm 59 1/2 and pay no taxes on that, right?
Option 2: You are withdrawing an amount equal to what you contribute to your 401k. Since the 401k is tax-deferred, you are not paying any income taxes on it currently. $19,500 to 401k, offset by $19,500 withdrawal from your inherited accounts. Since it's a wash and tax-deferred, you are paying your retirement rate on BOTH principal and gains. A) You have lower income needs in retirement so you will have a lower tax bracket; And b) due to progressive tax brackets, even if you do need to withdraw more and end up with a higher tax bracket, only a tiny portion of the withdrawals (ie only the withdrawals over ~$80k (for married couple brackets)) are taxed at the higher 22% rate, while most dollars under ~$80k is taxed at 12%, and the first ~$12k of those withdrawals is tax-free!
Think of it as buckets of income, with option 1, your bucket is full so everything additional is taxed at the top rate. In retirement, your bucket is empty so you get to fill up on the delicious low-tax brackets before you even sniff the higher tax brackets, including the first ~$12k being tax-free.
This is why I really don't like Roth IRAs too. Every dollar you contribute to your Roth is essentially taxed at your top marginal rate, whereas with tax-deferred retirement accounts your bucket starts empty and you get to withdraw through all the low tax-brackets before you hit the higher ones.
Edit to tldr:
Option 1:
Principle taxed at 22%+
Gains taxed at 15%
Option 2:
Principle taxed at:
$1-12k = 0% tax
$12k-$80k = 12% tax
$80k+ = 22% tax
Gains taxed at:
$1-12k = 0% tax
$12k-$80k = 12% tax
$80k+ = 22% tax
4% on food and entertainment and streaming services
3% on groceries
1% for everything else
I'm trying to figure out if it's worth the fee, for now. I also have to work out how to navigate their reward tiers because we bought tickets to Hamilton but it's showing as the 1% tier; which is just confusing. I'm also curious if Amazon Prime will count as a streaming service (I'm assuming NO).
This is the Savor, not the SavorOne; which has different reward tiers but no annual fee.