Retirement SOS: Finance question

[FreckledOne]

FINALLY, I started working after months of looking for a good J-O-B. It‘s an independent contractor position. I do know to set aside a percentage of each paycheck for taxes, IRA (pre-tax), and individual 401k (pre-tax). I‘ve heard of REIT and brokerage accounts. Not sure what else to do here. I just want to make sure I am not a pinching pennies pauper suffering in my twilight years.

For all you finance savvy people out there, what else can I do for retirement?

 

[wabbott]

https://www.bogleheads.org/forum/index.php

The folks on this discussion board know just about everything there is to know about money/investing/planning. If you don't see an answer to your specific question, they will direct you to where you can find it.

 

[QueenIsabella]

Seconding the recommendation to read Bogleheads. The people there are VERY financially savvy--don't be intimidated, they love to help out. I believe there's a sticky on there about order of investment that might help you. There are also tons of threads on subjects like risk tolerance, when to splurge, when is enough, enough, and so forth. There are some lively (but respectful) debates on things like when to buy a new(er?) car, how much house is enough, and so on. You'll learn a lot!

 

[FreckledOne]

https://www.bogleheads.org/forum/index.php

The folks on this discussion board know just about everything there is to know about money/investing/planning. If you don't see an answer to your specific question, they will direct you to where you can find it.

Seconding the recommendation to read Bogleheads. The people there are VERY financially savvy--don't be intimidated, they love to help out. I believe there's a sticky on there about order of investment that might help you. There are also tons of threads on subjects like risk tolerance, when to splurge, when is enough, enough, and so forth. There are some lively (but respectful) debates on things like when to buy a new(er?) car, how much house is enough, and so on. You'll learn a lot!

Thank you so much!

 

[_19disnA]

You can read a lot of articles or join various websites that talk about investing but the basics aren't that complicated. During your working years, live within your means (whatever that might be) and save/invest for when you eventually retire. If you make enough to max out your 401K each year, then you might consider setting up a brokerage account where you can invest extra funds. You can manage one on your own or use an investment pro. Even things like CD's, Treasury bills/bonds are playing ~5% now so you can find many places to get a reasonable low/no risk return.

Lot of people TALK about chasing 15-20% annual returns, but no one can consistently do that. The risk is also in down years your portfolio will probably lose MORE than that when chasing those big returns.

 

[FreckledOne]

If you make enough to max out your 401K each year, then you might consider setting up a brokerage account where you can invest extra funds. You can manage one on your own or use an investment pro. Even things like CD's, Treasury bills/bonds are playing ~5% now so you can find many places to get a reasonable low/no risk return.

Ah, so that‘s when the brokerage account comes into play. Good to know. I‘m going to look into parking $ in T-bills/bonds and/or CDs. Much appreciated

 

[Wood Nymph]

FINALLY, I started working after months of looking for a good J-O-B. It‘s an independent contractor position. I do know to set aside a percentage of each paycheck for taxes, IRA (pre-tax), and individual 401k (pre-tax). I‘ve heard of REIT and brokerage accounts. Not sure what else to do here. I just want to make sure I am not a pinching pennies pauper suffering in my twilight years.

For all you finance savvy people out there, what else can I do for retirement?

I am retired now and found that the money I had put in my Roth IRA was the best thing I had ever done. I can withdraw those funds without paying income taxes, which is a great money saver. I opened the Roth IRA about 30 years ago, so I had plenty of time to fund it. There is a limit to how much you can add to a Roth IRA per year, and the best thing I did was to fund that account first, before adding to an IRA. Withdrawals from an IRA are taxable, and I hate paying taxes.

I also invested in high-risk funds that returned a good interest rate. The doom and gloom-ers advise people to invest in safe treasuries and bonds, but those don't give enough interest to cover the rate of inflation. If you are worried about risk, then just put a portion of your money in them. I've been investing for almost 50 years, riding many market ups and downs, and the only investments that have performed poorly over time have been the low risk bond funds.

 

[FreckledOne]

I am retired now and found that the money I had put in my Roth IRA was the best thing I had ever done. I can withdraw those funds without paying income taxes, which is a great money saver. I opened the Roth IRA about 30 years ago, so I had plenty of time to fund it. There is a limit to how much you can add to a Roth IRA per year, and the best thing I did was to fund that account first, before adding to an IRA. Withdrawals from an IRA are taxable, and I hate paying taxes.

I also invested in high-risk funds that returned a good interest rate. The doom and gloom-ers advise people to invest in safe treasuries and bonds, but those don't give enough interest to cover the rate of inflation. If you are worried about risk, then just put a portion of your money in them. I've been investing for almost 50 years, riding many market ups and downs, and the only investments that have performed poorly over time have been the low risk bond funds.

Funny. I was just thinking about opening a Roth IRA to go along with the traditional. I hear you about the taxes.

 

[QueenIsabella]

Really, the most important things are:

Start. Even if it's just a little. At a minimum, invest in your company's 401k to get the maximum match. I started a 401k at 21, putting in just enough to get the full company match. Worked for 10 years, have been a SAHM for nearly 30, so I never added more than those first 10 years. My IRA is worth close to $1M now (I haven't checked lately--I'm not a fan of obsessively checking), from those 10 years of contributions and then doing nothing.

Figure out your risk level. No investment is worth losing sleep over.

I'm a big fan of the Ron Popeill "Set it and forget it" strategy. Don't worry about chasing the highest gain, don't sweat small losses.

While a Roth isn't worth it for us, personally, my kids each have one. They're in the lowest tax brackets. DD20 works at Starbucks, she has a Roth 401k (but the company match goes into her regular 401k). If you're in a low tax bracket, the Roth in an excellent way to save.

 

[wabbott]

I gathered from your post that this may be your first job. And you also said that you were a contractor. If that's the case, you will be responsible for paying quarterly income taxes and also your Social Security and Medicare taxes. Here is the IRS website for that.
https://www.irs.gov/businesses/small-businesses-self-employed/self-employed-individuals-tax-center
For the past several years, after I got tired of TurboTax's nickel and dime price hikes, I began using an excel tax program developed by a retired nuclear engineer. He doesn't sell it, but he does ask for donations. I send him $20 after I file my return. In addition to the 1040 spreadsheet, he has a forecast spreadsheet for the next tax year. It has proven to be very accurate.
https://sites.google.com/view/incometaxspreadsheet/home

 

[Anthony1971]

If you are an independent contractor with no taxes deducted you need to file QTR returns for both the IRS and State if you pay state taxes. If you do not pay at least 90% of your tax burden you will incur penalties + interest when you file at the end of the year. If you write a letter you will most likely get the penalty refunded but the interest you will not... this leads to the investment part as you would love to get the investment % the IRS will charge you. The returns are very easy and they have a calculator to help you estimate make sure to include investment return as well as it is taxable. The same rule applies to large investment returns but it is easier to ask your employer to deduct an extra X dollar amount per pay period if you are an employee that pays tax.

 

[FreckledOne]

I gathered from your post that this may be your first job. And you also said that you were a contractor. If that's the case, you will be responsible for paying quarterly income taxes and also your Social Security and Medicare taxes. Here is the IRS website for that.
https://www.irs.gov/businesses/small-businesses-self-employed/self-employed-individuals-tax-center
For the past several years, after I got tired of TurboTax's nickel and dime price hikes, I began using an excel tax program developed by a retired nuclear engineer. He doesn't sell it, but he does ask for donations. I send him $20 after I file my return. In addition to the 1040 spreadsheet, he has a forecast spreadsheet for the next tax year. It has proven to be very accurate.
https://sites.google.com/view/incometaxspreadsheet/home

If you are an independent contractor with no taxes deducted you need to file QTR returns for both the IRS and State if you pay state taxes. If you do not pay at least 90% of your tax burden you will incur penalties + interest when you file at the end of the year. If you write a letter you will most likely get the penalty refunded but the interest you will not... this leads to the investment part as you would love to get the investment % the IRS will charge you. The returns are very easy and they have a calculator to help you estimate make sure to include investment return as well as it is taxable. The same rule applies to large investment returns but it is easier to ask your employer to deduct an extra X dollar amount per pay period if you are an employee that pays tax.

I very much appreciate the information. I am a bit stressed on how to properly file my taxes since I am an independent contractor. Last thing I want to do is have the IRS come after me for being an idiot.

 

[wabbott]

I very much appreciate the information. I am a bit stressed on how to properly file my taxes since I am an independent contractor. Last thing I want to do is have the IRS come after me for being an idiot.

Take your time, your first quarterly payment won't be due until April 15, 2024. You'll need a reasonable estimate of what you expect your income for the year will be. It doesn't have to be exact, but reasonably close.

Set aside a few minutes each day and do a little study on the issue. It's all there and once you learn how, it will become routine like brushing your teeth. One of the keys of personal finance is to stay current. Do a little bit each day. Keep your check book current. Kinda, sorta keep up with what you're charging on your CCs. It's when you let stuff slide, and then it piles up on you is when you get into trouble.

 

[tvguy]

Do everything you can do TODAY, to have no debt when you retire. House paid off, cars paid off, etc.

 

[tvguy]

I am retired now and found that the money I had put in my Roth IRA was the best thing I had ever done. I can withdraw those funds without paying income taxes, which is a great money saver. I opened the Roth IRA about 30 years ago, so I had plenty of time to fund it. There is a limit to how much you can add to a Roth IRA per year, and the best thing I did was to fund that account first, before adding to an IRA. Withdrawals from an IRA are taxable, and I hate paying taxes.

I also invested in high-risk funds that returned a good interest rate. The doom and gloom-ers advise people to invest in safe treasuries and bonds, but those don't give enough interest to cover the rate of inflation. If you are worried about risk, then just put a portion of your money in them. I've been investing for almost 50 years, riding many market ups and downs, and the only investments that have performed poorly over time have been the low risk bond funds.

Well, it's a little more complicated than that. My entire retirement plan is based on deferring taxes until AFTER I retired, because I am in a MUCH MUCH lower tax bracket now.. I hate taxes too, which is why my Financial Planner set things up without a Roth IRA. The money you put into a ROTH you paid taxes on. The money I put into a traditional IRA has no tax so I could put more money in, and earn more money. The money you paid years ago in taxes was earning income for me. I was in a 32% Federal Tax Bracket when I was working. I'm in a 12% tax bracket now.

 

[Wood Nymph]

Well, it's a little more complicated than that. My entire retirement plan is based on deferring taxes until AFTER I retired, because I am in a MUCH MUCH lower tax bracket now.. I hate taxes too, which is why my Financial Planner set things up without a Roth IRA. The money you put into a ROTH you paid taxes on. The money I put into a traditional IRA has no tax so I could put more money in, and earn more money. The money you paid years ago in taxes was earning income for me. I was in a 32% Federal Tax Bracket when I was working. I'm in a 12% tax bracket now.

You make an excellent point. One thing that happened with my Roth IRA is that it grew in value over the years. Hopefully, the taxes that I paid on the money put into the Roth many years ago would be less than the taxes that I would have had to pay if I had invested in a regular IRA.

I am very close to the RMD age, when I have to withdraw a percentage of my retirement funds. I hate having to cash those out because, among other things, I have to pay taxes on that income. The Roth funds give me a window of time to withdraw nontaxable funds before I have to withdraw taxable funds.

 

[princesscinderella]

I very much appreciate the information. I am a bit stressed on how to properly file my taxes since I am an independent contractor. Last thing I want to do is have the IRS come after me for being an idiot.

Plan on an extra 15% of tax to go towards Social Security and Medicare its labeled "Self Employment Tax" but its the half portion you would have paid into SS & Med plus the half your employer would have paid on your behalf. It catches a lot of independent contractors off guard come tax time. Depending on your income you may be required to do quarterly tax deposits to the IRS. Uncle Sam prefers to earn the interest on the money vs letting you earn it.

 

[barb969]

I am retired now and found that the money I had put in my Roth IRA was the best thing I had ever done. I can withdraw those funds without paying income taxes, which is a great money saver. I opened the Roth IRA about 30 years ago, so I had plenty of time to fund it. There is a limit to how much you can add to a Roth IRA per year, and the best thing I did was to fund that account first, before adding to an IRA. Withdrawals from an IRA are taxable, and I hate paying taxes.

I totally agree. Taking the rmds every year raises the tax bracket. I wish we had converted everything to Roth.

 

[princesscinderella]

Well, it's a little more complicated than that. My entire retirement plan is based on deferring taxes until AFTER I retired, because I am in a MUCH MUCH lower tax bracket now.. I hate taxes too, which is why my Financial Planner set things up without a Roth IRA. The money you put into a ROTH you paid taxes on. The money I put into a traditional IRA has no tax so I could put more money in, and earn more money. The money you paid years ago in taxes was earning income for me. I was in a 32% Federal Tax Bracket when I was working. I'm in a 12% tax bracket now.

If you were in a 32% tax bracket you would not have been eligible to contribute to a Roth directly anyway and your IRA would also would most likely not be tax deductible either if you participated in your employer's 401(k).

The 32% tax bracket for income is Over $364,200 but not over $462,500 for married filing jointly or over $182,100 but not over $231,250 for a single filers. The phase out amount is $136,000 for married filing joint or $83,000 for singles to contribute to an IRA and get the tax deferral benefit. If you were in this category, your financial advisor should have had you doing a backdoor roth IRA, so that way it will grow tax free.

 

[tvguy]

I totally agree. Taking the rmds every year raises the tax bracket. I wish we had converted everything to Roth.

Again, it's complicated. If I had converted my traditional IRA to a Roth, I would have owed over $100,000 in taxes because I was well along in my traditional IRA savings. The only source of money to pay those taxes was my IRAs which would have triggered early withdrawal penalties. So it made more sense for me to not roll my IRAs over, from a time when I had earned income, until I have to make RMD and I have no earned income. I will pay less tax by not rolling over, and the money I would have paid in tax if I had rolled into a Roth would not have compounded and earned income.
Now, a Roth did make sense for my daughter, but she rolled over her IRA when she has less than $10,000 in it.