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  • Do I want a financial advisor, an accountant, or both?

    Hello everyone. Long-ish time reader.

    I'm a Naval Aviator (Hornets). My wife finished residency in 2020 and is currently an attending physician/assistant professor at a medical school, both 29 yrs old. While she is a genius, she isn't well-versed in the financial realm, and leaves the majority of the decisions to me. Unfortunately, since I am a simpleton -- pull back on stick houses get smaller, push forward on stick houses get bigger -- this year I've started to reach the point that I would like some oversight/advice.

    Annual Income:
    • Myself - $110 (only base pay is taxed ~$73.5k)
    • Her - $210k (only made ~$115k in 2020 since she was a resident for the majority of the year)
    Financial Summary:
    • House purchase in 2020, mortgage - $500k
    • Her student loans - $287k (currently all federal, will be refinancing shortly if they don't extend 0% interest)
    • No other debt, no children
    • Wife claims my state of residency (obscure, but legal under the SCRA), neither of us pay state income tax.
    Retirement Summary:
    • Me - Roth TSP and individual Roth IRA are maxed every year, with additional money going to taxable accounts equating to total saving of ~30-35% of my annual salary. -- ~$285k saved to date
    • Her - Max contributions have been made to her Roth 403b in 2020 (wasn't able to max it by end of year) and we'll max out her Roth IRA before April. -- ~$15k saved to date
    • Combined total retirement savings ~$300k
    Questions I want answered:
    Tax questions:
    • Should we file jointly or separately this year?
      • Should we continue to file separately in the future to preserve my ability to contribute to Roth options?
    • Will we hit the threshold for itemized deductions?
    • We bought a house this year, her name is on the deed, but only my name is on the loan, can we still deduct home interest against her taxable income?
    • There wasn't a lot of student loan interest collected this year obviously, but based on her income this year can she deduct that?
    • I've done my taxes every year through TurboTax, but always filing separately. If we file jointly this year, is our situation all that complicated? If not, can TurboTax still meet our needs?
    General financial questions:
    • For her - based on the 403b not having income limits for Roth, does it make sense to continue contributing to Roth (years of tax-free growth), or go traditional to drive down taxable income?
    • For her - she has other retirement options with 457b and 401a. From what I've read, having access to a 457b is pretty valuable and we have the ability to max out both. Should this be something we prioritize over other investment vehicles back-door Roth IRAs, 529s, HSA, etc.?
    • I'm seeing people refinancing their student loans at 2-2.5%, but the rate quotes I've seen is 2.98-3.75% from companies on this site for 5-7 year terms. Am I doing something wrong?
    Bottom line - I'm not expecting all of these questions to be answered by the forum (though it would be appreciated), but these are the types of questions I want to ask a professional. I think I would benefit from some help with the taxes this year, but looking for long term advice as well. Do financial advisors answer all of these questions or do I need to hire an accountant for these more pointed tax questions?

    Thanks for being such a great community!

  • #2
    I would get an accountant , a real one, not like H&R Block. I dont think there is anything wrong with paying for advice , especially tax advice if you need it. My accountant saved me thousands of dollars when I switched from a do it yourself approach. But I also had some properties and business which make it more complicated.

    Comment


    • #3
      Welcome! My last tour as a Navy flight surgeon was with a Marine Hornet squadron and my grandfather was a Navy pilot, all Naval aviators have a special place in my heart.

      I don’t think your tax situation is too complicated, TurboTax should be fine. That being said if you’re not feeling confident you might want to have an accountant do them this year and you can also do it on your own via TT, see if there’s any differences, that way you can build your confidence to do them on your own moving forward if that’s what you want to do. When our tax situation became more complicated due to real estate my husband found an accountant who was willing to answer all his questions and doublecheck his work while he did the taxes on his own, now when he has a question he calls her and pays a flat amount for advice, but he does our taxes himself. This is his preference, if he didn’t want to do them we would pay someone to do them. For your situation though it seems like there isn’t anything that TT wouldn’t be able to walk you through.

      Both you and your wife can still do Roth via the backdoor Roth even if MFJ. You should definitely both do Backdoor Roth IRA, that’s a no-brainer. You can always choose to do Roth or regular TSP/403b regardless of your joint income. Whether you should or not is complicated and may be difficult to predict as it depends on so many factors: your future career/income trajectories, whether you plan to stay in military until retirement/pension, whether you guys will have years of ability to do Roth conversions prior to RMD time, whether you would save/invest (e.g. in a taxable account) the extra $ you get in paycheck by putting it into regular vs Roth, whether you are going to be super savers moving forward or not. I would personally go with Roth as 29 year olds in the 24% tax bracket (or one person do Roth and the other do regular) but that’s just me. If all of that makes sense you can probably run some calculations and make an intelligent decision, if not you might want to schedule an appointment with a fee only FA and come up with a plan that makes sense for you guys.

      Comment


      • #4
        Well, sounds like you would benefit from a fee only planning session with a CPA to set you on the right path. But take a look at the WCI recommendations for planners. Some FA are CPAs and you can one stop shop your tax strategy. That said, I think Anne is right and you can do this yourself. The Married filing separately penalty is pretty steep, but you can run the numbers in TT. My guess is you will clearly benefit going forward from MFJ even if you file 2020 as MFS.

        The Roth decision is basically tax bracket arbitrage, but WCI has written about all the factors here https://www.whitecoatinvestor.com/ch...contributions/ Bottom line: Roth probably better for now.

        As for 457b, the answer actually depends on whether it is governmental or nongovernmental. Though it should be second choice to a backdoor Roth if you are resource constrained. You are not likely eligible for HSA because she should be using TRICARE and you of course are covered. 529s versus 457s is apples to oranges. That is, for different goals (retirement v. College). Retirement savings generally come first, but when you get there you should be able to max both.

        I can’t help on the student loans, so I’ll defer. WCI writes a lot about this. Check out: https://www.whitecoatinvestor.com/re...-a-lower-rate/

        Comment


        • #5
          Lots of issues and questions. I apologize in advance if I don't hit all of them. (Previous posters have addressed quite a few issues.)

          Buy Turbotax 2020. At this point, you should have your final leave and earnings statement for 2020. Your wife should have all final paystubs for 2020 as well. Your taxes sound pretty straightforward: residency and attending pay for your wife, active duty W-2 pay for you, maybe some TAD / TDY reimbursement, mortgage payments, and some property taxes. This is a more complicated tax return than you've had in the past, but pretty darned simple compared to some of the business owners, real estate moguls, and side gig folks on this forum. Calculate your tax burden both married filing jointly and married filing single. I suspect MFJ will win, but there could be some student loan reason for MFS.

          TurboTax will tell you pretty quickly whether you will hit the threshold for itemized deductions. You didn't mention if you're in a location with low or high property taxes. Likewise, tithing, charitable giving, and perhaps using a donor advised fund to lump sum two or three years' worth of charitable deductions could put you past the standard deductions. Keep in mind that going only $500 past the standard deduction in a given year isn't that useful. Far better to have $30K or $40K in itemized deductions one year, then use the standard deduction the following year.

          You and your wife are covered by Tricare. Therefore, no HSA eligibility.

          You mentioned 403(b), 457(b), and 401(a) accounts for your wife, as well as an associate professor position. To the casual observer, this sounds like she might be in a public service loan forgiveness (PSLF)-eligible job. I wouldn't be in a rush to refinance or pay off student loans if your better half is eligible for PSLF.

          That said, I'm concerned that you're active duty (out of state tax residency) and it sounds like your wife isn't an active duty doc. (It's unfortunate that she didn't have HPSP to pay for med school and open up join spouse active duty assignments.) While the Navy is pretty good about home-porting sailors, Marines and Naval Aviators tend to get deployed frequently and PCSed wherever the Navy wants every two or three years. That works against PSLF and career progression in academic medicine outside the military.

          How much longer of an active duty service commitment do you have from commissioning, pilot training, Hornet upgrade, and your most recent PCS? There can be a lot of ego tied up in one's identity as a zipper suited sun god, but your wife currently makes twice as much as you do. Would you be able to take a job with one of the major airlines before too long and carry on as a Reserve fighter jock? (Recent furloughs due to Covid-19 may have pushed back hiring with the majors by at least two or three years.)

          You didn't mention your wife's specialty. If she's a spine surgeon or some other super high paying specialty that will pay substantially more in a few years, then maybe use the Roth TSP and Roth 403(b). If you're going to make $250K as a captain with a major airline and another $50-60K as a weekend reservist, then you're going to make substantially more in the future. From what you've described, it doesn't sound like you guys are going to increase your income by 50% or 100%+ really soon, so you ought to use back door Roths for the IRAs and traditional contributions for TSP and 403(b).

          You make $320K combined, so you should save at least $64K per year towards retirement. Over and above that 20% per year towards retirement, you should have a student loan payoff side fund, even if you expect that your wife will qualify for PSLF. $6K each for back door Roth IRAs gets you to $12K. $19.5K towards your (traditional) TSP and $19.5K for your wife's 403(b) gets you another $39K, leaving $13K to hit your 20% target. Your wife still has the 457 and the 401(a), so you should be able to meet your retirement savings goal solely with qualified funds. Based on the associate professor billet, I'm going to presume that your wife's 457 is governmental, which eliminates that risk of creditors taking the 457 in a lawsuit. If you want to save over and above 20% to max out all your wife's available qualified accounts, that would be an excellent idea.

          Speaking of maxing out qualified accounts, when you get deployed you should get the risk free 10% return with the Savings Deposit Program (SDP) as soon as possible. You also should make tax free excess employee contributions to your TSP to top out the full $58K employee, employer, and employee after tax contribution limit.

          Last item: while you don't have kids yet, you mentioned a 529. If you don't plan to have any dependents who will benefit from a 529, then there's no need to fund one. If you plan to have kids, you should consider whether you'll serve on active duty long enough to transfer your post 9/11 GI Bill benefits to your kids. (You also should look at the Yellow Ribbon program, which can increase GI Bill benefits quite a bit. For instance, Duke University adds another $16K in grants over the post 9/11 GI Bill maximum benefit.) If your state has a credit or deduction for 529 contributions, consider capturing that tax benefit even before the kids arrive.

          Also look at benefits based on your state of residence when you entered military service or your current state of residence. The Hazelwood Act is particularly generous for veterans who entered active duty as Texas residents. Likewise, while California generally has a leftie bent, the Peoples' Republic of Sacramento currently offers free tuition for children of honorably discharged veterans with a service connected disability. Programs like these potentially could change, so you might want to fund the 529 all the same. You still could use it for grad school or for the nieces and nephews if the GI Bill or a state tuition waiver / reduction doesn’t pan out a couple decades from now.
          Last edited by Hank; 01-04-2021, 08:00 PM.

          Comment


          • #6
            Originally posted by Hank View Post

            Buy Turbotax 2020. At this point, you should have your final leave and earnings statement for 2020. Your wife should have all final paystubs for 2020 as well. Your taxes sound pretty straightforward. Calculate your tax burden both married filing jointly and married filing single. I suspect MFJ will win, but there could be some student loan reason for MFS.
            Will do. Confidence actualized.

            Originally posted by Hank View Post
            You and your wife are covered by Tricare. Therefore, no HSA eligibility.
            Okay, thank you.

            Originally posted by Hank View Post
            You mentioned 403(b), 457(b), and 401(a) accounts for your wife, as well as an associate professor position. To the casual observer, this sounds like she might be in a public service loan forgiveness (PSLF)-eligible job. I wouldn't be in a rush to refinance or pay off student loans if your better half is eligible for PSLF.

            That works against PSLF and career progression in academic medicine outside the military.

            How much longer of an active duty service commitment do you have from commissioning, pilot training, Hornet upgrade, and your most recent PCS? There can be a lot of ego tied up in one's identity as a zipper suited sun god, but your wife currently makes twice as much as you do. Would you be able to take a job with one of the major airlines before too long and carry on as a Reserve fighter jock? (Recent furloughs due to Covid-19 may have pushed back hiring with the majors by at least two or three years.)
            *reads zipper suited sun god*
            *spits out coffee*
            Do you want to be friends?

            You are correct, our decision stems from several factors, but the lack of stability in geographic location for me is one of them. She is eligible for PSLF, however she wasn't diligent with making payments in residency so that puts us about 2-3 years behind. I believe even though no payments were made in 2020, once 0% interest began, they also started counting no payments as a qualified payment toward PSLF. She is open to PSLF as am I and academic medicine is her main interest (right now). Between job interests, having children, and potential to go back to fellowship, I worry that locking us into a roughly nine-year commitment may not pan out, but how much different is that than a 5-7 year commit at a lower interest rate. So many unknowns, *unsure emoji*.

            Hank, you know better than most, the sun never sets on a bad ******************, but in ~5 years, I think I'm going to turn my flight suits into painting smocks and hopefully wear a shade of crimson in Boston or Silicon Valley.

            Originally posted by Hank View Post
            You didn't mention your wife's specialty. If she's a spine surgeon or some other super high paying specialty that will pay substantially more in a few years, then maybe use the Roth TSP and Roth 403(b). If you're going to make $250K as a captain with a major airline and another $50-60K as a weekend reservist, then you're going to make substantially more in the future. From what you've described, it doesn't sound like you guys are going to increase your income by 50% or 100%+ really soon, so you ought to use back door Roths for the IRAs and traditional contributions for TSP and 403(b).
            Internal Medicine, so your assessment of our income increase is correct.

            Originally posted by Hank View Post
            You make $320K combined, so you should save at least $64K per year towards retirement. Over and above that 20% per year towards retirement, you should have a student loan payoff side fund, even if you expect that your wife will qualify for PSLF. $6K each for back door Roth IRAs gets you to $12K. $19.5K towards your (traditional) TSP and $19.5K for your wife's 403(b) gets you another $39K, leaving $13K to hit your 20% target. Your wife still has the 457 and the 401(a), so you should be able to meet your retirement savings goal solely with qualified funds. Based on the associate professor billet, I'm going to presume that your wife's 457 is governmental, which eliminates that risk of creditors taking the 457 in a lawsuit. If you want to save over and above 20% to max out all your wife's available qualified accounts, that would be an excellent idea.

            Speaking of maxing out qualified accounts, when you get deployed you should get the risk free 10% return with the Savings Deposit Program (SDP) as soon as possible. You also should make tax free excess employee contributions to your TSP to top out the full $58K employee, employer, and employee after tax contribution limit.
            Our savings in 2020, should easily exceed 20% based on our income, but your plan moving forward makes a lot of sense as our saving plan gets more complicated.

            SDP is a great program, and for anyone else who reads this, tax-free contributions to TSP up to $58k will only be a player if you deploy to a combat zone in that calendar year. I did make great use of both of these programs on my last deployment.

            Originally posted by Hank View Post
            Last item: while you don't have kids yet, you mentioned a 529. If you don't plan to have any dependents who will benefit from a 529, then there's no need to fund one. If you plan to have kids, you should consider whether you'll serve on active duty long enough to transfer your post 9/11 GI Bill benefits to your kids. (You also should look at the Yellow Ribbon program, which can increase GI Bill benefits quite a bit. For instance, Duke University adds another $16K in grants over the post 9/11 GI Bill maximum benefit.) If your state has a credit or deduction for 529 contributions, consider capturing that tax benefit even before the kids arrive.

            Also look at benefits based on your state of residence when you entered military service or your current state of residence. The Hazelwood Act is particularly generous for veterans who entered active duty as Texas residents. Likewise, while California generally has a leftie bent, the Peoples' Republic of Sacramento currently offers free tuition for children of honorably discharged veterans with a service connected disability. Programs like these potentially could change, so you might want to fund the 529 all the same. You still could use it for grad school or for the nieces and nephews if the GI Bill or a state tuition waiver / reduction doesn’t pan out a couple decades from now.
            I'll be using my GI Bill and hopefully Yellow Ribbon for business school. 529 plans will be in our future, while I continue to pray my future children attend the Naval Academy.

            Comment


            • #7
              Originally posted by TeachMeThings View Post
              I'll be using my GI Bill and hopefully Yellow Ribbon for business school. 529 plans will be in our future, while I continue to pray my future children attend the Naval Academy.
              As I’m sure you know, a service academy has to be the kid’s choice, not something the parent pushes. That said, if your kid does get into a federal service academy, here’s a thread on how to get the money out of the 529. https://www.serviceacademyforums.com...hdrawal.57244/
              You also could use the 529 for grad school, a younger sibling, or a niece or nephew. (All of this very well could change two decades from now.)

              Comment


              • #8
                Originally posted by Hank View Post

                As I’m sure you know, a service academy has to be the kid’s choice, not something the parent pushes. That said, if your kid does get into a federal service academy, here’s a thread on how to get the money out of the 529. https://www.serviceacademyforums.com...hdrawal.57244/
                You also could use the 529 for grad school, a younger sibling, or a niece or nephew. (All of this very well could change two decades from now.)
                Of course. I was being facetious. Thank you again for the advice!

                Comment


                • #9
                  Originally posted by TeachMeThings View Post

                  Of course. I was being facetious. Thank you again for the advice!
                  There are kids who don’t want to go to the Naval Academy?

                  Comment


                  • #10
                    Originally posted by Larry Ragman View Post
                    There are kids who don’t want to go to the Naval Academy?
                    Sure, the ones with higher grades and SAT scores who got accepted to USAFA!

                    Comment

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