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  • New Attending Trying to Invest

    Hi everyone. So I thought I had a handle on what to do, but honestly I’m just completely lost. I paid for a fee only financial advisor but it was a complete waste and I’m more confused than before.
    I have an LLCS for long term rentals and opened individual 401k accounts (regular and roth options) with Vanguard this year. My employer has an IRA I’m eligible to contribute to starting January and they will contribute 5% of gross starting 2022. FYI not interested in changing most of the already bought investments but happy to invest better in the future.
    Thank you for your help.

    Questions (This may raise more for me later haha):
    1. My new understanding is that I can’t use the individual 401ks as the business generates paper losses for tax benefits. Is that accurate? I was hoping for higher contribution allowances.
    2. What am I allowed to contribute?? That is probably my biggest confusion. I haven’t contributed anything in 2019 or 2020.
    3. What “suitcase” do I put the contributions in (roth, traditional, individual, brokerage, etc)?
    4. The advisor said to roll over the bond funds into Roth account. Does that count against contributions? What are the mechanics to actually do that?
    5. I’m not a fan of the high ER USAA MFs. What are the advantages/disadvantages of liquidating them and just buying VSTAX? Is there a better way to do it? Should I just let them ride?
    6. General Advice??

    Stage of Life: Second Career Attending - just graduated in summer
    Social Situation: Single

    Net Worth: ~$500K
    Tax Bracket: 38% (33% Federal, 5% state)
    State of residence: Illinois

    Insurance Policies:
    • 20 year term life $2.5M Prudential
    • $8.625K/month individual disability Principal
    • Group disability
    • VA health insurance (free)
    • Adequate auto, dental, pet, and home insurance
    • $2M umbrella policy USAA
    • Malpractice policy provided by employer

    Income:
    • W2 ~$450K
    • VA Disability: $1500/month for life

    Debts:Assets:
    • Primary Home: $650K
    • Investment Properties: $240k, $100k, $95k, $45k, $30k
    • Cash, savings, equivalents: $100k
    • Valuables, vehicles, collectibles: $57k

    Investments
    Thrift Savings Plan
    L2040 $79k

    Brokerage
    Individual Stocks: $112k
    ETF Vanguard REIT: $4k
    USAA Mutual Funds: $110k (USSPX 22K, USAUX 15.6K, USHYX 6.7K, USAIX 9.3K, USISX 10.2K, USIBX 12.6K, USAGX 2.7K, USCAX 11.6K, USAWX 20K, USVAX 4.2K)

    Traditional IRA
    $0

    Sep IRA
    VYM $6.4k

    Roth IRA
    VTTHX $14.6k
    URFRX $24k

    Individual 401k
    $0

    Individual Roth 401k
    $0

  • #2


    Originally posted by bwk4sbwk4s
    My new understanding is that I can’t use the individual 401ks as the business generates paper losses for tax benefits. Is that accurate? I was hoping for higher contribution allowances.
    You need to have a net business profit to contribute to an individual 401k, which means you can't make contributions if the business is running at a loss.
    However, real estate rentals are considered passive income rather than earned income and thus you cannot sponsor a solo 401k through this LLC.

    Originally posted by bwk4sbwk4s
    What am I allowed to contribute?? That is probably my biggest confusion. I haven’t contributed anything in 2019 or 2020.
    What “suitcase” do I put the contributions in (roth, traditional, individual, brokerage, etc)?
    See above

    Originally posted by bwk4sbwk4s
    The advisor said to roll over the bond funds into Roth account. Does that count against contributions? What are the mechanics to actually do that?
    I’m not a fan of the high ER USAA MFs. What are the advantages/disadvantages of liquidating them and just buying VSTAX? Is there a better way to do it? Should I just let them ride?
    General tip - don't use ticker symbols. No one has the USAA mutual funds memorized.
    What exactly is he telling you to roll into the Roth IRA? It would be reasonable to roll over VYM but that's not a bond fund. Surely not the TSP?
    I'm not sure you can move money out of the TSP anyway since you're still employed at the VA.
    Rollovers don't count against contributions.

    Originally posted by bwk4sbwk4s
    I’m not a fan of the high ER USAA MFs. What are the advantages/disadvantages of liquidating them and just buying VSTAX? Is there a better way to do it? Should I just let them ride?
    Post the expense ratios and cost basis you have in these funds if you want good advice. This is where a good fee-only advisor would provide value. Since is it unlikely any equity-based assets are down, you would be paying capital gains tax. If so, wait until you've held them for more than a year. Donate to a DAF if charitably inclined.

    Originally posted by bwk4sbwk4s
    General Advice??
    What are you doing with your loans? PSLF? Refinancing?

    Zero out the SEP IRA ASAP so you can do the bdRoth this year - best move is likely to roll over into the TSP.

    Comment


    • #3
      Not at all sure about that net worth. You have student loan debt, mortgage debt. Does the primary residence also have a mortgage? Some debt (leverage) can be useful starting off. Some people forget to subtract this to determine net worth. What is your age?

      Comment


      • #4
        So I'm 36. Taking all the market values if I were to liquidate everything and subtract all debt, net worth is as above. Obviously not liquid.

        For #2, does it all go back to $19k/year total I can contribute to funds?

        I work for a private group on a W2. TSP is from military service prior. No more contributions. I'll be paying down student debt. Not a huge priority at the moment. Interest is 0 and I have cash flow to pay off large chunks monthly when I want to pay.

        Do I try to contribute to retirement in 2020? Wait to 2021? Put all $19k in a bdRoth and then extra money in a brokerage? Can I do more than $19k in retirement vehicles?

        Comment


        • #5
          Originally posted by bwk4sbwk4s View Post
          Do I try to contribute to retirement in 2020? Wait to 2021? Put all $19k in a bdRoth and then extra money in a brokerage? Can I do more than $19k in retirement vehicles?
          Tell us more about these solo 401k plans you opened. What sort of income are you able to open a solo 401k? 1099 or are you talking about your real-estate. Did you see the post by Lithium re: rental income?
          Also clarify the IRA your employer has.
          You cannot put 19k in a ROTH regardless.


          Comment


          • #6
            For some reason I thought you were an active VA attending.

            I guess this year your only retirement account option is the back door Roth. That’s only 6K in 2020. But you want to eliminate the SEP IRA balance by 12/31. Otherwise invest in taxable. Consider $10k in ibonds.

            Not sure the back door Roth will even be worth doing in future years if your group uses a SEP IRA or SIMPLE IRA, as the pro rata rule comes into play.

            Comment

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