The Intersection of FIRE and Disney

[bernina]

The only caution I'd make (which you acknowledged) when running a calculator like that is it's not considering opportunity costs vs those savings. Plugging that 46k into a compound interest calculator at 7% gives you a return of 27.8k over 7 years. That's not a guaranteed return though as the 7% figure is pulled from historic data while your interest savings are.

It also depends on priorities of course as we plan to payoff our house before entering retirement (which pushes this math out the window) but it's something to balance.

https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator

Completely agree! This saves us 2.5 years so I looked at what that $46k could historically earn over that time period as part of our decision making process. I also have to factor in the "extra" $24k/year we have during that 2.5 year early pay off which I'll admit made my brain a bit fuzzy. Our original intent with refinancing many years ago down to 15 years was that mortgage would be paid off a year or two before DD started college and we'd divert that money towards college payments. Now that our portfolios can handle those college costs on their own, I'm looking more into getting our spending down (mortgage is a big chunk of annual spend) and walking through potential earlier retirement scenarios. The more we get our fixed spending down, the less we need to convert from 401ks for Roth conversion ladders, which ultimately will result in a lower tax bracket. I fear I'm gonna need a bigger spreadsheet

 

[bernina]

The more we get our fixed spending down, the less we need to convert from 401ks for Roth conversion ladders, which ultimately will result in a lower tax bracket.

Expanding on this a bit, if anyone has any sites or tools to help plan out a Roth conversion ladder I'd definitely be interested. We're likely 8 years out but would like to start getting an idea of what I need to do when. We can't start until one of us retires/quits but would like to scratch out a rough timeline.

 

[QueenIsabella]

I don't have one, but you might try asking on Bogleheads. They talk about Roth conversion ladders a lot. Lots of good financial advice over there.

 

[bernina]

I don't have one, but you might try asking on Bogleheads. They talk about Roth conversion ladders a lot. Lots of good financial advice over there.

That's one of my go-to sources for sure.

 

[FreeDiningFanatic]

I wanted to share a cool spreadsheet I came across while evaluating if we should dump some excess cash towards our mortgage. This works for fixed loans only.

We're a little more than halfway into our 15 yr mortgage with a balance of around $115k at 4%. We could refinance to a lower rate, but neither of us really feel a strong desire to do this. We feel like we're close enough to paying this thing off that we just want to ride it out (emotional choice here vs what likely makes more financial sense).

While evaluating our current cash situation and upcoming bonuses I threw an idea out to DH about taking around $46k and throwing it at the mortgage. We have other access to cash for real emergencies (low rate HELOC, taxable brokerage, and will still have some cash sitting around). I was curious to estimate the amount we'd save on interest and that's when I stumbled across this calculator.

In the past I'd just plug our rough numbers into an online calculator and it would get close enough, but I wanted something that would allow me to plan out a few scenarios and also see how extra payments would shorten the loan.

https://www.mortgagecalculator.org/download/excel.php

I set up the basic info and then entered in extra payments that we'd made along the way (I had my bank send me the amortization schedule for my mortgage last year so I had that information available). It came out to what I had from the bank down to the penny. Now I can play around with all kinds of scenarios and see exactly how much we'd save on interest and how it would shorten the loan.

This $46k payment will save us $8k in interest and shave a few years off our mortgage. Pretty much a no brainer decision for us.

The only caution I'd make (which you acknowledged) when running a calculator like that is it's not considering opportunity costs vs those savings. Plugging that 46k into a compound interest calculator at 7% gives you a return of 27.8k over 7 years. That's not a guaranteed return though as the 7% figure is pulled from historic data while your interest savings are.

It also depends on priorities of course as we plan to payoff our house before entering retirement (which pushes this math out the window) but it's something to balance.

https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator

I also found this to be true when considering refinancing. I found that I could effectively lower interest costs through prepayment, without the additional closing costs.

I totally agree about the opportunity cost. I think JL Collins says something like if less than 3% interest, it makes more sense to take a loan and invest that money. 3-5% is personal preference. Anything above 5% interest, pay with cash.
So mortgages fall into that personal preference arena. For me, there is an absolute security that comes with knowing I am debt free NOW. And, I think it helps me get a better real world handle on my actual annual spend, so I really understand (not speculate) how much I spend in a year.

Like you said, there’s no right answer here. Thanks @bernina for giving folks another tool to think about refinancing without the costs of a refi.

 

[Starport Seven-Five]

I also found this to be true when considering refinancing. I found that I could effectively lower interest costs through prepayment, without the additional closing costs.

I totally agree about the opportunity cost. I think JL Collins says something like if less than 3% interest, it makes more sense to take a loan and invest that money. 3-5% is personal preference. Anything above 5% interest, pay with cash.
So mortgages fall into that personal preference arena. For me, there is an absolute security that comes with knowing I am debt free NOW. And, I think it helps me get a better real world handle on my actual annual spend, so I really understand (not speculate) how much I spend in a year.

Like you said, there’s no right answer here. Thanks @bernina for giving folks another tool to think about refinancing without the costs of a refi.

Depending on current rate, you might be able to refinance to a better rate with no closing costs. Still a headache to do it but could be worth pursuing. Bankrate is showing 30 year rates at 3.125% and 15 year rates at 2.5% with $0 closing.

We have a 30 year at 2.5% (had to pay of closing costs to get that rate) so we're outside of the personal preference area.

 

[PaintsWithAllTheColors]

A word of warning to FIRE friends about HSA contributions.
Also, this may be entirely unhelpful to everyone here, as it’s likely you all already know this, but I made a rookie mistake and would like to warn anyone else. Here we go:

Last year was the first year my husband and I had our own insurance (not on our parents’) through our respective employers. Of course, I set our HSA contributions to max out. When my husband changed jobs in the middle of the year I carefully calculated the amount he needed to have withdrawn to meet the max. What I failed to realize is that employer contributions count towards the IRS limit. I erroneously thought that it was like 401k matches, which are over and above the IRS limit. Now we’re stuck with a headache of needing to withdraw the excess contributions AND the earnings on those contributions and have them redistributed to 2021. Of course, neither my tax advisor nor the HSA bank itself can tell me how much the earnings on those contributions are so I’m just taking a SWAG on that one. I have no idea if that’s a bad idea or if this will be an issue, but I’m out of other ideas.

The whole thing has been really annoying. So please please please don’t make the same mistake! Count employer HSA contributions when doing calculations!

 

[bernina]

Of course, neither my tax advisor nor the HSA bank itself can tell me how much the earnings on those contributions are so I’m just taking a SWAG on that one. I have no idea if that’s a bad idea or if this will be an issue, but I’m out of other ideas.

Sorry you're having to deal with this. I did find this information, maybe there is something there that will help you explain to the HSA provider exactly what you need.

https://ttlc.intuit.com/community/t...e-earned-on-excess-hsa-contribution/00/528957

 

[PaintsWithAllTheColors]

Sorry you're having to deal with this. I did find this information, maybe there is something there that will help you explain to the HSA provider exactly what you need.

https://ttlc.intuit.com/community/t...e-earned-on-excess-hsa-contribution/00/528957

Thanks! Yeah, I found this article, among many others, in my search for answers but was unable to get clear guidance. I spoke with several different people at the HSA, on various days, with no luck. Honestly I’m not overly concerned but we’re at a high risk for being audited (adoption) so I just wanted to be as accurate as possible. And it really is a pain and has put our filing on hold haha so avoid it if possible!

 

[RamblingMad]

A word of warning to FIRE friends about HSA contributions.
Also, this may be entirely unhelpful to everyone here, as it’s likely you all already know this, but I made a rookie mistake and would like to warn anyone else. Here we go:

Last year was the first year my husband and I had our own insurance (not on our parents’) through our respective employers. Of course, I set our HSA contributions to max out. When my husband changed jobs in the middle of the year I carefully calculated the amount he needed to have withdrawn to meet the max. What I failed to realize is that employer contributions count towards the IRS limit. I erroneously thought that it was like 401k matches, which are over and above the IRS limit. Now we’re stuck with a headache of needing to withdraw the excess contributions AND the earnings on those contributions and have them redistributed to 2021. Of course, neither my tax advisor nor the HSA bank itself can tell me how much the earnings on those contributions are so I’m just taking a SWAG on that one. I have no idea if that’s a bad idea or if this will be an issue, but I’m out of other ideas.

The whole thing has been really annoying. So please please please don’t make the same mistake! Count employer HSA contributions when doing calculations!

This happened to me. I get $250 from my employer added to my HSA if I get a physical. I didn't count this in and went over the max. I miss the days of copays when I was young.

 

[Sleepy425]

Who has gotten an answer from their financial institution about how much they have contributed to their Roth IRA over the lifetime of the account? I called figuring this would be an easy answer. I kept getting "well how much do you want to take out?" and "You've put $X in since 2012" (account has been open since 2005). Nobody could tell me. The person who is in charge of my IRA (in the process of moving it to an account I control) says "well how could I keep track of that, you've always put different amounts in. Call your bank and ask for statements dating back to 2005."
Am I wrong to think this is information they should have? My money has been with Fidelity, with this same advisor, since I opened it when I turned 21. But they say they purged files prior to 2012 and can't help me. So how would the IRS know if I'm taking contributions or gains out? (thinking for if I can retire early and want to use the contributions in the gap years).

 

[Hoosier John]

Who has gotten an answer from their financial institution about how much they have contributed to their Roth IRA over the lifetime of the account? I called figuring this would be an easy answer. I kept getting "well how much do you want to take out?" and "You've put $X in since 2012" (account has been open since 2005). Nobody could tell me. The person who is in charge of my IRA (in the process of moving it to an account I control) says "well how could I keep track of that, you've always put different amounts in. Call your bank and ask for statements dating back to 2005."
Am I wrong to think this is information they should have? My money has been with Fidelity, with this same advisor, since I opened it when I turned 21. But they say they purged files prior to 2012 and can't help me. So how would the IRS know if I'm taking contributions or gains out? (thinking for if I can retire early and want to use the contributions in the gap years).

Doesn't it work like this:
Only the last 5 years are important, all previous years have "seasoned". So previous contributions and growth(?) are okay to withdraw before full retirement age, without penalty.
I haven't really followed the rules too closely (yet), but I think it goes something like that.

 

[QueenIsabella]

Doesn't it work like this:
Only the last 5 years are important, all previous years have "seasoned". So previous contributions and growth are okay to withdraw before full retirement age, without penalty.
I haven't really followed the rules too closely (yet), but I think it goes something like that.

This is true. So, I think from their perspective, anything before 2015 is fine, so why worry about it? Of course, you have to take growth into account, since you can't remove that without penalty until you reach a certain age. But I would hope your financial institution could tell you that "You put in $40k of your $150k balance prior to 2015, so you can withdraw that much, penalty and tax-free." (or whatever--made-up numbers).

I'm kind of surprised in this day and age, they wouldn't have better tracking. I mean, it was one thing, when we were trying to figure out which GTE/Verizon stock my FIL purchased, when, back in the 70's and 80's when he worked for them. These days, I would think there would be an easily-followed electronic trail of purchases, deposits, withdrawals, etc.

 

[georgina]

Who has gotten an answer from their financial institution about how much they have contributed to their Roth IRA over the lifetime of the account? I called figuring this would be an easy answer. I kept getting "well how much do you want to take out?" and "You've put $X in since 2012" (account has been open since 2005). Nobody could tell me. The person who is in charge of my IRA (in the process of moving it to an account I control) says "well how could I keep track of that, you've always put different amounts in. Call your bank and ask for statements dating back to 2005."
Am I wrong to think this is information they should have? My money has been with Fidelity, with this same advisor, since I opened it when I turned 21. But they say they purged files prior to 2012 and can't help me. So how would the IRS know if I'm taking contributions or gains out? (thinking for if I can retire early and want to use the contributions in the gap years).

I feel for you! I have a similar problem. PA does not tax IRA and 401k withdrawals, because they do not give a tax break on contributions. However, we are moving to a state that does tax these, but if I could prove which were contributions previously taxed by PA I could exclude those. However, our 401k and IRA money has moved around many times over 30+ years and it is impossible to calculate.

 

[Buzzsgramma]

All in VTSAX!

Hooray for VTSAX ...VANGUARD....

 

[Frwinkley]

I so want to put some money in VTSAX, but we are close to retirement age. Have about 3 years to go. We do have money that we won't need for at least 10 years. What would be the minimum time frame you would look at for investing in VTSAX?

 

[Sleepy425]

This is true. So, I think from their perspective, anything before 2015 is fine, so why worry about it? Of course, you have to take growth into account, since you can't remove that without penalty until you reach a certain age. But I would hope your financial institution could tell you that "You put in $40k of your $150k balance prior to 2015, so you can withdraw that much, penalty and tax-free." (or whatever--made-up numbers).

I'm kind of surprised in this day and age, they wouldn't have better tracking. I mean, it was one thing, when we were trying to figure out which GTE/Verizon stock my FIL purchased, when, back in the 70's and 80's when he worked for them. These days, I would think there would be an easily-followed electronic trail of purchases, deposits, withdrawals, etc.

I kept calling trying to get an answer. I sent my advisor a not so kind email inquiring what his job actually was if it wasn't to help me know this kind of stuff about my account. Everyone just says "nope that's on you to know." My advisor told me to go back through bank statements or tax returns. But it is a Roth - we enter the info when filing taxes but I don't see that it actually shows up on the forms.

 

[SouthFayetteFan]

I kept calling trying to get an answer. I sent my advisor a not so kind email inquiring what his job actually was if it wasn't to help me know this kind of stuff about my account. Everyone just says "nope that's on you to know." My advisor told me to go back through bank statements or tax returns. But it is a Roth - we enter the info when filing taxes but I don't see that it actually shows up on the forms.

You’re looking for IRS form 5498 which should be provided to you (or at a minimum sent to the IRS by your IRA provider) each year. This will detail your Roth contributions for that year. Sadly this is easier said than done... especially now that many years have passed.

 

[Sleepy425]

You’re looking for IRS form 5498 which should be provided to you (or at a minimum sent to the IRS by your IRA provider) each year. This will detail your Roth contributions for that year. Sadly this is easier said than done... especially now that many years have passed.

Thank you! I found a place on the IRS website to request forms. I'll see if that one is an option. I appreciate your help!

 

[FreeDiningFanatic]

Post deleted: wrong forum.