Where/how should I invest my savings/extra money?

[justme]

Sept 17, 2020 8:50:09 GMT -5 azucena said:

I was so proud of myself when I got to the point of maxing my 401k.  Plus I think that's really when the investment earnings started to reach a tipping point of growth.

I save without a concrete goal of what it's for.  One motivation is posting in the savers' thread and trying to meet my annual goal.

Stash more in the HSA that you don't touch.

$30k for a car seems like a lot to me.  Plus, even with interest rates so low, it's been my goal to be able to buy $15k replacement cars after running prior ones to the ground.  We just did our 2nd "flip" this summer.  Not having a car payment is very freeing.

Regarding the HSA - I hit my deductible every year (yay me). So that's why I use some of it. Otherwise it's $1500-2000 coming out of my budget each year. Which I could do, I've just so far opted to take the tax break to pay for that now. Maybe it's not the best idea, I dunno. 

As for the car, well part of that is I'm getting a crossover. After having crutches twice in my lil sedan my tall ass isn't buying a car I gotta crouch down to get into. My current car I bought as a lease return with 19k miles but I've now had it for 10 years and 100k miles. It was around 20% less than an equivalent brand new. That's more or less my plan for my next car, but it depends on how it shakes out. To get the one I'm looking at (Tuscon but not married to that one, just seems like the best price and car in that class) it'd have to be 4 years old. Don't really want to buy a car with 50k miles and god knows how well it was taken care of. 

[phil5185]

You may be overthinking the tax issue.  The tax on a Roth and a TradIRA are about the same. Eg, say that you have $10k to invest, and say that money grows by 3X in 10 years.  (1) you can pay your 22% tax upfront, invest the $7800 in a Roth and let it grow to $23,400. Or (2) you can invest $10k in a TradIRA and let it grow to $30k in 10 years and then pay the 22% tax, leaving $23,400. Ie, it's just a matter of when you pay. 

As for having your money locked up until age 60 - it is still your money, in case of an emergency you can pay the 10% penalty and take your money.  But what I always do is leave my money invested and borrow the money I need. (paying 2% to 5% interest is cheaper than the 10% penalty)

Also, trying to treat 'savings' as 'investing' will not work.  Savings products are designed by the banking industry to offset inflation (as opposed to building wealth). So, by definition, your real return is zero, you are paying for the safe storage of money.  This is true for the oxymoron products -  'high interest' savings, interest paying checking, high interest bonds (aka junk bonds).  The only way to get a wealth-building return is to invest in something that out-paces bank interest. Eg, an 11%/yr stock fund out-paces inflation by about 9%, that is real return.

Here are a couple of data points for you:  $19,500/yr invested in an 11%/yr fund equals about $2 million in 23 years. (age 57). (Of course the $2M keeps growing after you retire, just at a slower rate.)

[justme]

Sept 17, 2020 12:43:29 GMT -5 phil5185 said:

You may be overthinking the tax issue.  The tax on a Roth and a TradIRA are about the same. Eg, say that you have $10k to invest, and say that money grows by 3X in 10 years.  (1) you can pay your 22% tax upfront, invest the $7800 in a Roth and let it grow to $23,400. Or (2) you can invest $10k in a TradIRA and let it grow to $30k in 10 years and then pay the 22% tax, leaving $23,400. Ie, it's just a matter of when you pay. 

As for having your money locked up until age 60 - it is still your money, in case of an emergency you can pay the 10% penalty and take your money.  But what I always do is leave my money invested and borrow the money I need. (paying 2% to 5% interest is cheaper than the 10% penalty)

Also, trying to treat 'savings' as 'investing' will not work.  Savings products are designed by the banking industry to offset inflation (as opposed to building wealth). So, by definition, your real return is zero, you are paying for the safe storage of money.  This is true for the oxymoron products -  'high interest' savings, interest paying checking, high interest bonds (aka junk bonds).  The only way to get a wealth-building return is to invest in something that out-paces bank interest. Eg, an 11%/yr stock fund out-paces inflation by about 9%, that is real return.

Here are a couple of data points for you:  $19,500/yr invested in an 11%/yr fund equals about $2 million in 23 years. (age 57). (Of course the $2M keeps growing after you retire, just at a slower rate.)

But why pay 10% penalty when I can put it in a Roth IRA and pay 0%? Assuming tax rates stay the same (which I think is a big assumption, but to assume anything else we're getting into speculation) it mathematically doesn't matter which I put it in, but one gives me access to a chunk of it with no cost. 

That's my personal reason for the choice between Roth or taxable not 401k, Roth, or taxable. Though I do hope to max the 401k at some point, just don't feel comfortable tying up that money with a penalty right now. 

[Lizard Queen]

Sept 17, 2020 13:05:42 GMT -5 justme said:

Sept 17, 2020 12:43:29 GMT -5 phil5185 said:

You may be overthinking the tax issue.  The tax on a Roth and a TradIRA are about the same. Eg, say that you have $10k to invest, and say that money grows by 3X in 10 years.  (1) you can pay your 22% tax upfront, invest the $7800 in a Roth and let it grow to $23,400. Or (2) you can invest $10k in a TradIRA and let it grow to $30k in 10 years and then pay the 22% tax, leaving $23,400. Ie, it's just a matter of when you pay. 

As for having your money locked up until age 60 - it is still your money, in case of an emergency you can pay the 10% penalty and take your money.  But what I always do is leave my money invested and borrow the money I need. (paying 2% to 5% interest is cheaper than the 10% penalty)

Also, trying to treat 'savings' as 'investing' will not work.  Savings products are designed by the banking industry to offset inflation (as opposed to building wealth). So, by definition, your real return is zero, you are paying for the safe storage of money.  This is true for the oxymoron products -  'high interest' savings, interest paying checking, high interest bonds (aka junk bonds).  The only way to get a wealth-building return is to invest in something that out-paces bank interest. Eg, an 11%/yr stock fund out-paces inflation by about 9%, that is real return.

Here are a couple of data points for you:  $19,500/yr invested in an 11%/yr fund equals about $2 million in 23 years. (age 57). (Of course the $2M keeps growing after you retire, just at a slower rate.)

But why pay 10% penalty when I can put it in a Roth IRA and pay 0%? Assuming tax rates stay the same (which I think is a big assumption, but to assume anything else we're getting into speculation) it mathematically doesn't matter which I put it in, but one gives me access to a chunk of it with no cost. 

That's my personal reason for the choice between Roth or taxable not 401k, Roth, or taxable. Though I do hope to max the 401k at some point, just don't feel comfortable tying up that money with a penalty right now. 

"You can always withdraw your contributions with no tax or penalty."

www.investopedia.com/roth-ira-withdrawal-rules-4769951

[Clifford]

It would be terrible to come to a life decision before 59.5 years old and realize that you have to reduce all of your dreams by 1/3 due to taxes and penalties. So I tell folks, in order:
-Have the rainy-day fund. (check for you)
-Fund the 401k to the company match only
-Fully fund a Roth
-Top off the 401k
-Begin a post-tax trade account

If you know for sure that you’ll do something big before 59.5, reverse the last two.
Of course, advice like this is worth what you pay for it. 🙂

[movingforward]

I am huge fan of having a big post-tax account

[The Walk of the Penguin Mich]

Sept 20, 2020 12:15:44 GMT -5 movingforward said:

I am huge fan of having a big post-tax account

Me too.  It increases your flexibility and is not counted against Medicare...like Roth’s.

[jerseygirl]

Sept 20, 2020 14:22:18 GMT -5 The Walk of the Penguin Mich said:

Sept 20, 2020 12:15:44 GMT -5 movingforward said:

I am huge fan of having a big post-tax account

Me too.  It increases your flexibility and is not counted against Medicare...like Roth’s.

What do you mean - Not counted against Medicare?
I thought any withdrawal or profits of stock sales, dividends from broker account are included in income for Medicare. RMDs from regular IRAs and Roth IRAs also count as income

[The Walk of the Penguin Mich]

Sept 20, 2020 15:27:37 GMT -5 jerseygirl said:

Sept 20, 2020 14:22:18 GMT -5 The Walk of the Penguin Mich said:

Me too.  It increases your flexibility and is not counted against Medicare...like Roth’s.

What do you mean - Not counted against Medicare?
I thought any withdrawal or profits of stock sales, dividends from broker account are included in income for Medicare. RMDs from regular IRAs and Roth IRAs also count as income

You don’t have to take RMDs from Roth’s, so they don’t count in your AGI.  The profit made on stock sales is counted, but it is minus the stock price.  Dividends are counted.

You've already paid taxes on the stock you bought with your initial investment.  So you don’t get taxed on that money again.

[CCL]

Sept 20, 2020 16:45:00 GMT -5 The Walk of the Penguin Mich said:

Sept 20, 2020 15:27:37 GMT -5 jerseygirl said:

What do you mean - Not counted against Medicare?
I thought any withdrawal or profits of stock sales, dividends from broker account are included in income for Medicare. RMDs from regular IRAs and Roth IRAs also count as income

You don’t have to take RMDs from Roth’s, so they don’t count in your AGI.  The profit made on stock sales is counted, but it is minus the stock price.  Dividends are counted.

You've already paid taxes on the stock you bought with your initial investment.  So you don’t get taxed on that money again.

I know ordinary dividends count as income. What about qualified dividends? How are they treated in calculating Medicare rates?

[The Walk of the Penguin Mich]

Sept 20, 2020 20:21:59 GMT -5 CCL said:

Sept 20, 2020 16:45:00 GMT -5 The Walk of the Penguin Mich said:

You don’t have to take RMDs from Roth’s, so they don’t count in your AGI.  The profit made on stock sales is counted, but it is minus the stock price.  Dividends are counted.

You've already paid taxes on the stock you bought with your initial investment.  So you don’t get taxed on that money again.

I know ordinary dividends count as income. What about qualified dividends? How are they treated in calculating Medicare rates?

Dividends are taxed at your normal tax rate.  Qualified dividends are taxed as capital gains, but are included in your AGI.....which is how Medicare calculates rates.

[schildi]

I would use the extra to pay for medical expenses out of pocket, and let the HSA grow.
Keep track of how much you paid and when, keep receipts. You can reimburse yourself later that way.

[justme]

Sept 20, 2020 22:58:55 GMT -5 schildi said:

I would use the extra to pay for medical expenses out of pocket, and let the HSA grow.
Keep track of how much you paid and when, keep receipts. You can reimburse yourself later that way.

I know the whole keep the receipts and claim it later if you want works in theory. But personally analog record keeping and organizing does not work for me. If I don't use my card to pay for stuff, I likely never will because the paper receipts won't be around. Especially since I'd likely need more than just a receipt to a medical place years later to actually claim it.

Also, my work's HSA charges $3 a month to invest any money and $20 to move any money out. It sucks. 

[Deleted]

Sept 21, 2020 10:51:46 GMT -5 justme said:

Sept 20, 2020 22:58:55 GMT -5 schildi said:

I would use the extra to pay for medical expenses out of pocket, and let the HSA grow.
Keep track of how much you paid and when, keep receipts. You can reimburse yourself later that way.

I know the whole keep the receipts and claim it later if you want works in theory. But personally analog record keeping and organizing does not work for me. If I don't use my card to pay for stuff, I likely never will because the paper receipts won't be around. Especially since I'd likely need more than just a receipt to a medical place years later to actually claim it.

Also, my work's HSA charges $3 a month to invest any money and $20 to move any money out. It sucks. 

Why would you need more than the receipt?  I became HSA eligible for the first time this year and I'm just going to keep receipts.  I'll scan or take a picture of them and store them that way, not paper copies.  My pharmacy will give me one receipt at year end that shows all prescription charges and medical is all online, so just download and save to PDF. 

I keep the receipts as backup in case I need the money earlier, but my main goal is to save it for medical expenses/insurance premiums in retirement...which reminds me...I need to figure out how to start investing this money.    I better start another thread!

[justme]

Sept 21, 2020 13:33:40 GMT -5 minnesotapaintlady said:

Sept 21, 2020 10:51:46 GMT -5 justme said:

I know the whole keep the receipts and claim it later if you want works in theory. But personally analog record keeping and organizing does not work for me. If I don't use my card to pay for stuff, I likely never will because the paper receipts won't be around. Especially since I'd likely need more than just a receipt to a medical place years later to actually claim it.

Also, my work's HSA charges $3 a month to invest any money and $20 to move any money out. It sucks. 

Why would you need more than the receipt?  I became HSA eligible for the first time this year and I'm just going to keep receipts.  I'll scan or take a picture of them and store them that way, not paper copies.  My pharmacy will give me one receipt at year end that shows all prescription charges and medical is all online, so just download and save to PDF. 

I keep the receipts as backup in case I need the money earlier, but my main goal is to save it for medical expenses/insurance premiums in retirement...which reminds me...I need to figure out how to start investing this money.    I better start another thread!

Proof that it's eligible to be paid by the HSA. Proof that it wasn't already paid by the HSA. Not all of the receipts I've gotten are very clear that it was medically related. For example my dermatologist also runs a spa/cosmetic thing out of her office and I don't think everything she does is eligible for HSA - but you can't tell it by the little credit card receipt I get. But when I use my HSA card the business is coded medical so I don't have to worry about it. Plus if it's questioned it's within time enough that I still have access to my EOBs. 

[The Walk of the Penguin Mich]

Sept 21, 2020 13:50:44 GMT -5 justme said:

Sept 21, 2020 13:33:40 GMT -5 minnesotapaintlady said:

Why would you need more than the receipt?  I became HSA eligible for the first time this year and I'm just going to keep receipts.  I'll scan or take a picture of them and store them that way, not paper copies.  My pharmacy will give me one receipt at year end that shows all prescription charges and medical is all online, so just download and save to PDF. 

I keep the receipts as backup in case I need the money earlier, but my main goal is to save it for medical expenses/insurance premiums in retirement...which reminds me...I need to figure out how to start investing this money.    I better start another thread!

Proof that it's eligible to be paid by the HSA. Proof that it wasn't already paid by the HSA. Not all of the receipts I've gotten are very clear that it was medically related. For example my dermatologist also runs a spa/cosmetic thing out of her office and I don't think everything she does is eligible for HSA - but you can't tell it by the little credit card receipt I get. But when I use my HSA card the business is coded medical so I don't have to worry about it. Plus if it's questioned it's within time enough that I still have access to my EOBs. 

Exactly.  I receive a receipt from my PT that should be eligible for putting against our flex plan.  However, the administrator of the flex plan has decreed that the receipt I receive is not sufficient, for it to be sufficient I need to also provide an additional 2 pages of documentation.  It's gotten to the point where I am a cash pay patient and don't bother.  

[justme]

Sept 21, 2020 14:22:13 GMT -5 The Walk of the Penguin Mich said:

Sept 21, 2020 13:50:44 GMT -5 justme said:

Proof that it's eligible to be paid by the HSA. Proof that it wasn't already paid by the HSA. Not all of the receipts I've gotten are very clear that it was medically related. For example my dermatologist also runs a spa/cosmetic thing out of her office and I don't think everything she does is eligible for HSA - but you can't tell it by the little credit card receipt I get. But when I use my HSA card the business is coded medical so I don't have to worry about it. Plus if it's questioned it's within time enough that I still have access to my EOBs. 

Exactly.  I receive a receipt from my PT that should be eligible for putting against our flex plan.  However, the administrator of the flex plan has decreed that the receipt I receive is not sufficient, for it to be sufficient I need to also provide an additional 2 pages of documentation.  It's gotten to the point where I am a cash pay patient and don't bother.  

 Good to know. My plan for investing in my HSA isn't to claim reimbursements 20+ years from now, but to use it for medical stuff 20+ years from now. Hopefully it'll be a lot better then than now - but it won't all be covered so money for that, plus dental (a lot of stuff where they have to do something to neighboring teeth freaks me the fuck out and I'd like to be able to say yank it and put in an implant if it ever occurs) and vision (nearsighted now, but both my parents went from single vision in their youth to now using progressive lenses which are $$$). 

Though I'm not against the idea of at least in part paying more money out of pocket to save more in my HSA. I gotta figure out how to get it into an account that doesn't want to charge me $36/year to invest PLUS fund expenses. Maybe it won't be much, but right now I only have around $2000 to invest and it kinda makes me wanna throw up to 2% per year plus the fund expenses which are another 1-2%. 

[The Walk of the Penguin Mich]

Sept 21, 2020 14:31:43 GMT -5 justme said:

Sept 21, 2020 14:22:13 GMT -5 The Walk of the Penguin Mich said:

Exactly.  I receive a receipt from my PT that should be eligible for putting against our flex plan.  However, the administrator of the flex plan has decreed that the receipt I receive is not sufficient, for it to be sufficient I need to also provide an additional 2 pages of documentation.  It's gotten to the point where I am a cash pay patient and don't bother.  

 Good to know. My plan for investing in my HSA isn't to claim reimbursements 20+ years from now, but to use it for medical stuff 20+ years from now. Hopefully it'll be a lot better then than now - but it won't all be covered so money for that, plus dental (a lot of stuff where they have to do something to neighboring teeth freaks me the fuck out and I'd like to be able to say yank it and put in an implant if it ever occurs) and vision (nearsighted now, but both my parents went from single vision in their youth to now using progressive lenses which are $$$). 

Though I'm not against the idea of at least in part paying more money out of pocket to save more in my HSA. I gotta figure out how to get it into an account that doesn't want to charge me $36/year to invest PLUS fund expenses. Maybe it won't be much, but right now I only have around $2000 to invest and it kinda makes me wanna throw up to 2% per year plus the fund expenses which are another 1-2%. 

Do you have any plans of retiring early?  If you do, I would invest the money where there are no strings.  Are your expenses such that the tax savings are that much?

[Deleted]

Sept 21, 2020 13:50:44 GMT -5 justme said:

Sept 21, 2020 13:33:40 GMT -5 minnesotapaintlady said:

Why would you need more than the receipt?  I became HSA eligible for the first time this year and I'm just going to keep receipts.  I'll scan or take a picture of them and store them that way, not paper copies.  My pharmacy will give me one receipt at year end that shows all prescription charges and medical is all online, so just download and save to PDF. 

I keep the receipts as backup in case I need the money earlier, but my main goal is to save it for medical expenses/insurance premiums in retirement...which reminds me...I need to figure out how to start investing this money.    I better start another thread!

Proof that it's eligible to be paid by the HSA. Proof that it wasn't already paid by the HSA. Not all of the receipts I've gotten are very clear that it was medically related. For example my dermatologist also runs a spa/cosmetic thing out of her office and I don't think everything she does is eligible for HSA - but you can't tell it by the little credit card receipt I get. But when I use my HSA card the business is coded medical so I don't have to worry about it. Plus if it's questioned it's within time enough that I still have access to my EOBs. 

I'm going to transfer all my HSA money to Fidelity once a year or so.  I don't believe they require you to submit receipts at all to make a withdrawal, you just want to have them around in case you're ever audited, same as I do with 529 withdrawals. 

But, yeah, my ultimate goal is to just have it as retirement money that goes for medical expenses, so I'm not drawing on it at all if I can help it. 

[justme]

Sept 21, 2020 14:41:54 GMT -5 The Walk of the Penguin Mich said:

Sept 21, 2020 14:31:43 GMT -5 justme said:

 Good to know. My plan for investing in my HSA isn't to claim reimbursements 20+ years from now, but to use it for medical stuff 20+ years from now. Hopefully it'll be a lot better then than now - but it won't all be covered so money for that, plus dental (a lot of stuff where they have to do something to neighboring teeth freaks me the fuck out and I'd like to be able to say yank it and put in an implant if it ever occurs) and vision (nearsighted now, but both my parents went from single vision in their youth to now using progressive lenses which are $$$). 

Though I'm not against the idea of at least in part paying more money out of pocket to save more in my HSA. I gotta figure out how to get it into an account that doesn't want to charge me $36/year to invest PLUS fund expenses. Maybe it won't be much, but right now I only have around $2000 to invest and it kinda makes me wanna throw up to 2% per year plus the fund expenses which are another 1-2%. 

Do you have any plans of retiring early?  If you do, I would invest the money where there are no strings.  Are your expenses such that the tax savings are that much?

I think my retirement age is 67 so yeah I hope to retire before that. Hopefully quite a bit - I wanna peace out as soon as I can do it comfortably but it won't be one of those <50 unless I stumble into the lottery or something. It's not so much that the tax savings are that much (though it's through my employer so it comes out before all taxes - so that's what another 10% savings more than 401k contributions) but that I have a ton and a half of medical issues, and if my past is any indicator there's a couple more maladies coming my way that my relatives didn't get until they were 50+. I've averaged probably $3000 in out of pocket expenses for medical shit every year for the last 10 with no indication that it will decrease in the near future. And that was with my two ER visits occuring on a plan that had a $1500 OOP max excluding prescriptions - both those trips were billed well over $1500 so my average would be higher if it included those. 

I'm not someone who will ever have low healthcare costs unless our system wildly changes so to me it makes sense to save something like 30%+ of taxes on those expenses. And honestly while I hope I can do the HSA savings for retirement, if I have a bad year for whatever reason the HSA will make it so I can still afford to make sure my health stuff is taken care of. 

I'm open to if someone can give me a convincing argument to not max my HSA (I get money from my employer in it so I actually only put in a $2900 of my own money but it's still maxed) and instead put another $1500ish into my 401k. I just figured with my health issues + the payroll tax savings that it was a no brainer. 

[schildi]

Sept 21, 2020 10:51:46 GMT -5 justme said:

Sept 20, 2020 22:58:55 GMT -5 schildi said:

I would use the extra to pay for medical expenses out of pocket, and let the HSA grow.
Keep track of how much you paid and when, keep receipts. You can reimburse yourself later that way.

I know the whole keep the receipts and claim it later if you want works in theory. But personally analog record keeping and organizing does not work for me. If I don't use my card to pay for stuff, I likely never will because the paper receipts won't be around. Especially since I'd likely need more than just a receipt to a medical place years later to actually claim it.

Also, my work's HSA charges $3 a month to invest any money and $20 to move any money out. It sucks. 

You can open a free HSA at Fidelity. Didn't you say that you already have accounts there?

Then transfer money and invest it like once a year or so.

[justme]

Sept 21, 2020 17:37:13 GMT -5 schildi said:

Sept 21, 2020 10:51:46 GMT -5 justme said:

I know the whole keep the receipts and claim it later if you want works in theory. But personally analog record keeping and organizing does not work for me. If I don't use my card to pay for stuff, I likely never will because the paper receipts won't be around. Especially since I'd likely need more than just a receipt to a medical place years later to actually claim it.

Also, my work's HSA charges $3 a month to invest any money and $20 to move any money out. It sucks. 

You can open a free HSA at Fidelity. Didn't you say that you already have accounts there?

Then transfer money and invest it like once a year or so.

Yeah, I'll have to do that. It's just annoying as fuck to have to pay $20 to access my own damn money.