Deferred compensation

[azucena]

Jan 11, 2024 16:09:10 GMT -5 saveinla said:

Jan 11, 2024 15:25:58 GMT -5 ArchietheDragon said:

It will be about 22%, or $5k.     You can open another IRA for him, but you won't be able to fully convert it to a ROTH.   you could do a partial and slowly do the conversion of his rollover over a few years, but you have the cash available.   I would rip the bandaid off and do it this year. 

If you can roll his Traditional IRA to his 401K , then you dont have to pay taxes now, but you have to check if that is allowed and if it is worth it to do that.

Ooo this was helpful. I have all his login information from my yearend net worth update. I was able to call pretending to be him and his 403b does allow a rollover. I called a 1-800# so I thought that would anonymize me a bit. Um, the guy was local and wants to meet next week to walk me through it. Me being female and DH who will have to show up in person as a male. He'll have some 'splaining to do ROFL.

But, if this works out then I can do backdoor Roth for DH too for 2023 and going fwd. So that will take care of $13,000 for 2023 and $13,000 of 2024.

Looks he has his 403b invested in 'The New Economy Fund (ANEFX)' with these details...
- asset mix US equities 76%
- non UW equities 19%
- cash & equivalents 5%
- expense ratio 0.76%
- 10 yr return 8.72%
This was based on our mtg with investment advisor fall 2022.

[resolution]

Jan 11, 2024 14:50:30 GMT -5 azucena said:

Jan 11, 2024 14:45:14 GMT -5 aricia said:

Looks like you’re in a good place with your college savings. Our 529 benefit is much different. 20% back on first $7500.
If you’re truly joint finances, it shouldn’t matter if his paycheck is $0. Is it just a mental issue with seeing that? My entire paycheck used to go in savings that we didn’t touch, and DH’s went in checking and it was pretty much all spent. I didn’t feel like I didn’t get to spend anything and he didn’t feel like I spent all his money. We do have complete trust in each other’s spending habits though and no “fun money” or allowances are required.

It shouldn't matter, but it would be a huge hit to his male ego. So likely not worth that hassle to put in more than I've outlined at least for now.

Every year when my bonus hits in March, it's like a catch-22 because the higher it is, the more it dwarfs his entire salary.

It may be more human nature than male ego. In my own family I was the one that decided to take a disproportionate amount out of my checks, but it was still discouraging every pay day that I was taking home less in two weeks than my husband would in one week. I expect it would be even more discouraging if I weren't the person that came up with the plan for it.

[lurkyloo]

Jan 11, 2024 19:33:33 GMT -5 resolution said:

Jan 11, 2024 14:50:30 GMT -5 azucena said:

It shouldn't matter, but it would be a huge hit to his male ego. So likely not worth that hassle to put in more than I've outlined at least for now.

Every year when my bonus hits in March, it's like a catch-22 because the higher it is, the more it dwarfs his entire salary.

It may be more human nature than male ego. In my own family I was the one that decided to take a disproportionate amount out of my checks, but it was still discouraging every pay day that I was taking home less in two weeks than my husband would in one week. I expect it would be even more discouraging if I weren't the person that came up with the plan for it.

It was my own idea to set my additional tax withholding insanely high to compensate for other income streams being insufficiently withheld, including capital gains and DH’s large bonuses under the new insufficient-withholding tax policy.  I also felt obligated to cover some lumpy expenses (summer camp, new washer, pool filling, the splurgey airplane tickets) then wound up sort of dumbfounded that I might need to pull from inherited funds to cover my damn CC bill.  My own choices, but I was still illogically mad at DH for putting us in such a high tax bracket in the first place 

[minnesotapaintlady]

Jan 11, 2024 17:18:47 GMT -5 azucena said:

But, if this works out then I can do backdoor Roth for DH too for 2023 and going fwd. So that will take care of $13,000 for 2023 and $13,000 of 2024.

The contribution limit for 2024 is $7000.

[TheOtherMe]

Jan 11, 2024 16:56:17 GMT -5 azucena said:

Jan 11, 2024 16:48:08 GMT -5 TheOtherMe said:

If you know the reason why they receive large refunds, do you know why?  Is it because of refundable credits or over withholding.  

The over withholding is an interest free loan to the government.  I know some people like large refunds.  I used to think like that until I prepared tax returns at Block and saw what people did with the refunds.

Refundable credits?  Which ones are they?  Is it because they are lower income.  

I try to hit the +/- $100 mark.  Federal refund is closer to $300 but I'd rather it be that direction than that I owe $300.  

Since retirement income is no longer taxable in Iowa, I owe no Iowa taxes.  I have a refund coming of the withholding that was done last year before I knew this. 

Oh that's a whole can of worms, MIL is on social security disability because she's blind. There's some kind of extra tax refund or credit for blind people - I forget if it's federal or Illinois state. Her refund is a few thousand.

SIL doesn't work a full time job and works under the table here and there. She also gets paid by the state for MIL. She has two minor kids and reports income below poverty level. Not sure she actually makes much more than poverty level. Her refund is usually around $10k. She's one of those folks in the loophole of getting 'refunded' more than she pays in. It's a whole thing.

Both blow through the refund money like it's water and then are promptly behind on bills once again.

He was raised to expect big refunds and my high income more than kills that. Logically he knows that we are so much better off this way but numerically/emotionally it kinds screws with his head in March/April every year.

The spending of that refund is what I encountered at Block many, many times.  The people would get the instant refund, which costs money plus interest and walk out with the money spent by day's end.

I hope he can overcome that thinking.  Your family is way better off than they are.

[azucena]

Jan 11, 2024 17:08:14 GMT -5 lurkyloo said:

I hesitate to suggest this since you’ve mentioned you’re not fond of the available investments in his 403b, but some plans allow you to roll IRAs into 401ks or 403bs.  Might be a possible workaround to enable backdoor Roths for him.  Personally I’d probably go ahead and convert the 24K and take the tax hit.  

You know you have until April 15-ish to also take advantage of 2023 IRA space, right?

We have additional tax withheld from our paychecks because otherwise we underpay enough* to owe penalties, and it’s easier than doing quarterly payments.  If you feel like humoring him on the refund sulk you could overpay your owed taxes slightly by this route and make Phil need eye bleach 

*Seriously, fsck mutual fund capital gains.


Edit:  I missed that saveinla had already suggested the IRA-to-403b rollover    I’d take a close look at the fund options first though, 0.76% is pretty high for expense ratio.

Will follow through on this advice. As I posted the numbers, I was second guessing myself if 0.76% is really high so really glad that you chimed in to confirm.

[azucena]

Jan 11, 2024 21:33:31 GMT -5 TheOtherMe said:

Jan 11, 2024 16:56:17 GMT -5 azucena said:

Oh that's a whole can of worms, MIL is on social security disability because she's blind. There's some kind of extra tax refund or credit for blind people - I forget if it's federal or Illinois state. Her refund is a few thousand.

SIL doesn't work a full time job and works under the table here and there. She also gets paid by the state for MIL. She has two minor kids and reports income below poverty level. Not sure she actually makes much more than poverty level. Her refund is usually around $10k. She's one of those folks in the loophole of getting 'refunded' more than she pays in. It's a whole thing.

Both blow through the refund money like it's water and then are promptly behind on bills once again.

He was raised to expect big refunds and my high income more than kills that. Logically he knows that we are so much better off this way but numerically/emotionally it kinds screws with his head in March/April every year.

The spending of that refund is what I encountered at Block many, many times.  The people would get the instant refund, which costs money plus interest and walk out with the money spent by day's end.

I hope he can overcome that thinking.  Your family is way better off than they are.

He has come a long way in his view of finances, but sometimes the old thinking creeps in and needs a little smackdown LoL.

[haapai]

Perhaps I have missed something that is worth talking about.  You have the potential to shield an additional $16,000 a year or so from current taxation but it will be taxable in the future.  Have you ever done the math and attempted to figure out how big the differences between your present and future tax rates are likely to be and done a little bit of multiplication?  $16K is a big number but the differences between your present and future federal and state marginal tax rates might be quite small. 

I'm so solidly in the 12% federal bracket (that used to be the 15% bracket) and sliding toward the 10% bracket that the thought of paying 22% or 25% federal tax on even a tiny portion of my income is very painful.  That may have blinded me to how that big 10% jump in federal marginal tax rates is anomalous.  After you cross the 25% threshhold, the increases in the marginal rate get quite a bit smaller and they are spaced out a lot more. 

Maybe it is worth 3%, 5%, 7%, or even 10% of $16K annually to avoid making your partner resentful?  Perhaps you should compare those calculated amounts to what his low brackets are worth when you file a joint tax return? 

[azucena]

Haapai - Good thoughts. I just don't see us withdrawing $300k/yr in retirement and being taxed on that much like we are now.

He's already resentful during tax and bonus time and then gets over it.

DH's first paycheck rolled through today and he was happy that the $300 401k deduction made it through this pay cycle instead of next.

He also recognized that me turning 45 this week means we are within 15 yrs of retirement goal of 60 and these additional savings makes that even more possible and real.

He's also excited about us being able to put in Roth money. His first question was "do I get to deposit mine first?" I said that I have a partial bonus being paid out at the end of January, so if he can get the transfer paperwork done by then, yes. Otherwise, I'll put my chunk in. Net amount might be close to enough to do both for 2023.

Then, will work our paycheck savings up to cover 2024 for each of us. His first since his retirement balance is lower.

This will take up 300*2*12 + 6500 + 6500 = $20,200 of my potential 2024 savings and then I can also add 7000 + 7000 for 2024 Roths.

I'll re-evaluate in Nov open enrollment and decided if I kick 5-10% into deferred comp or not.

Again, so glad I asked this question and thanks to all who responded. This has been a weighty to do for a while, and I feel so much better having a plan.

[finnime]

That looks like a good course of action. Also, happy birthday azucena!

[azucena]

Follow up question, our 2024 contributions can go into the same IRA accounts as 2023, right? 

[minnesotapaintlady]

Jan 16, 2024 8:33:31 GMT -5 azucena said:

Follow up question, our 2024 contributions can go into the same IRA accounts as 2023, right? 

Yes.  You can do all your contributions and conversion at once if you want.