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First post - we fired our financial "advisor," next steps?

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  • First post - we fired our financial "advisor," next steps?

    Very first post. I soooo appreciate the feedback. I have thick skin so go for it.

    My husband and I are finally understanding our finances after several years of letting a financial advisor be in charge of our money. Surprise surprise, she did not have our best interest in mind.

    Here is where we are:
    Gross income 2020 = 395,000
    Part time physician 130,000 salaried plus 20,000 part time private practice
    Husband self employed 245,000 (he just reached what’s likely to be his max income)

    Our Net Worth is 900,000 with about half of that in our home and rest a combination employer sponsored 401K, a one time Roth IRA for myself and my husband right before our incomes got too much, and SEP IRA and a 529 for our 8 year old.

    I max out my employer sponsored 401K yearly plus they just started in 2019 an employer sponsored match of 6%. 19,500 + 4875 = 24,375 yearly. These are with Fidelity. I do have the option through work making my “elective deferral contributions” as Roth Contributions (after tax) but my total deferral still needs to be 19,500 and I’m not actually sure I qualify for this.

    My husband was directed towards a SEP IRA for his solo practice and has been putting 24,000 (which last year ended up being about 10% his income).

    We have a 529 with about 29,000 in it and we will continue to contribute with a goal of reaching about 200,000ish for college.

    We have not pursued traditional IRA’s, backdoor Roth IRA’s or taxable accounts mostly due to lack of knowledge and motivation to learn at the time. Oops.

    We have a high mortgage that really limits some of our savings rate. While it is not what I would have chosen to spend, many circumstances led us here and it really has helped us survive the pandemic with our sanity.

    We do have about 100,000 in student loans we are aggressively paying off for him (higher interest rate) and more slowly for me due to a very low interest rate. We are also watching to see what happens with the Biden administration before he refinances anything.

    I’m signed up for WCICON21 and just finished The Simple Path to Wealth. We also fired our financial advisor.

    Once we figure out how to max tax deferred and taxed savings and finish paying off student loans we would like to create a taxable account through index funds. I plan on partially retiring in about 10 years when our daughter goes to college and we can downsize. Our income should stay about the same until then.

    Here are my questions going forward:


    What’s the best book / source for exploring more in depth about considering taxes in your retirement? I find I’m still confused about how to plan now for better balance later. A specific example is my continued uncertainty between traditional IRA’s and Roth IRA’s (with backdoor conversion). It seems like the main incentive is the tax management later. But I am still confused if I can actually add to a traditional IRA $6000 on top of my employer 401K savings vs pursuing backdoor Roths etc.

    We need to move our money to new accounts and out of the hands of the financial advisor / wealth management company. That means moving our two Roths’ and SEP IRA. It seems the Roth IRA transfer should be straightforward as we will keep them Roth IRA’s.

    For my husband, it does seem that if we want more tax free money later, we will need to move his SEP IRA into an individual 401K and pursue backdoor Roth’s for him as well. We were planning on doing Vanguard but have heard that may be a problem? What are the implications of making this switch from SEP to solo 401K? My retirement accounts are with Fidelity.

    Does it make sense for me to also set up a solo 401K for my 20,000 private practice money? Can I do that while also contributing to my employer sponsored 401K and doing back door Roth IRA’s?

    Any other feedback or things I’m missing would be so helpful. We still need to figure out our annual savings rate which seems daunting so any advice on that would be helpful.


    Thank you!

  • #2
    Some info you can add to help others advise appropriately:
    Age of you and spouse
    What is your mortgage
    Total amount of student loan(s) and any other debt
    Identify what $ you have right now in retirement vs what you have in 529

    You should earmark 20% of gross income to retirement, be it pre-tax or in taxable accounts through vanguard or similar. Based on your ages and desired retirement lifestyle, you may need to put more than 20% in for a time. Generally speaking you should want to fund your retirement before funding 529.

    Comment


    • #3
      Edit your post to look like this format: https://www.bogleheads.org/forum/viewtopic.php?t=6212

      Comment


      • #4
        Thanks.
        We are 42 and 44.
        Mortgage is 880,000.
        Student loans combined 100,000 (some details on these are listed above)
        30,000 in 529 with $300 monthly contributions
        350,000 in combined retirements
        60,000 savings

        Comment


        • #5
          Before figuring out all that other stuff I would try to figure out why you have so little saved given your age and incomes.

          Comment


          • #6
            Originally posted by Koi1217 View Post
            Here are my questions going forward:

            What’s the best book / source for exploring more in depth about considering taxes in your retirement? I find I’m still confused about how to plan now for better balance later. A specific example is my continued uncertainty between traditional IRA’s and Roth IRA’s (with backdoor conversion). It seems like the main incentive is the tax management later. But I am still confused if I can actually add to a traditional IRA $6000 on top of my employer 401K savings vs pursuing backdoor Roths etc.
            -- you are skipping ahead. you need basic lvl info to start. read all the boglehead books, then the wci books, then mike pipers books.
            -- once you get that heres all you need to know for bdrIRA: https://forum.whitecoatinvestor.com/...-ira-home-base


            For my husband, it does seem that if we want more tax free money later, we will need to move his SEP IRA into an individual 401K and pursue backdoor Roth’s for him as well. We were planning on doing Vanguard but have heard that may be a problem? What are the implications of making this switch from SEP to solo 401K? My retirement accounts are with Fidelity.
            - yes, SEP was wrong. need solo 401k. vanguard is the worst for this. https://www.whitecoatinvestor.com/wh...our-solo-401k/

            Does it make sense for me to also set up a solo 401K for my 20,000 private practice money? Can I do that while also contributing to my employer sponsored 401K and doing back door Roth IRA’s?
            -- are you 1099? then yes.
            -- see link above.


            Any other feedback or things I’m missing would be so helpful. We still need to figure out our annual savings rate which seems daunting so any advice on that would be helpful.
            -- savings rate: how much did you save (retirement accounts, taxable accounts, checking account) divided by how much gross income (395K in your example). not hard.

            Thank you!
            read read read. personal finance is not hard. its just a new area, definitions, and baggage from whatever your parents taught you, etc . but its not hard.
            https://www.bogleheads.org/RecommendedReading.php
            https://www.whitecoatinvestor.com/be...s-for-doctors/

            Comment


            • #7
              Originally posted by fatlittlepig View Post
              Before figuring out all that other stuff I would try to figure out why you have so little saved given your age and incomes.
              This is my husbands second career and he came in with no real savings. He has only been making this type of income about 3 years. So despite our ages, our income has only really now gotten here. We also live in a very expensive area of the US. All the reasons why everyone is behind where they are supposed to be I guess. We're trying...

              Comment


              • #8
                Originally posted by Peds View Post

                read read read. personal finance is not hard. its just a new area, definitions, and baggage from whatever your parents taught you, etc . but its not hard.
                https://www.bogleheads.org/RecommendedReading.php
                https://www.whitecoatinvestor.com/be...s-for-doctors/
                Thanks. These are helpful. Especially the reading material links and I promise to keep reading and format in the future.

                Realistically we only put about 11% (not including employer match) towards retirement but we did pay down his student loans by 42,000 this year. But yes, the decisions we are making seem haphazard. We are working on our financial plan so we will gain more discipline but I did feel pressure to get out of our wealth manager's grip.

                Comment


                • #9
                  I’m guessing you had a pretty bad financial advisor if you fired him or her before you had these basic concepts down.

                  If I were your advisor, I’d focus first on what’s going to help you between now and the tax deadline.

                  I would first make sure you’re maxing out an HSA if available, and I’d try to set up a solo 401k on your income for 2020. You only have until the tax deadline to open the account and contribute (4/15, or 10/15 if you file an extension), so it is fairly time sensitive. Fidelity is fine. So is ETrade. That will allow you to put about an extra $4k in tax deferred space.

                  Read the WCI posts on multiple 401k rules.

                  The backdoor Roth won’t fly in 2020 due to the pro Rata rule but learn how to get around this so you can do it in 2021. Start with the home base thread.

                  Comment


                  • #10
                    Originally posted by fatlittlepig View Post
                    Before figuring out all that other stuff I would try to figure out why you have so little saved given your age and incomes.
                    My initial thought as well. I see husband's income is relatively new. What are your expenses like? Can you really afford to be part-time and retire in 10 years?

                    Welcome to forum!

                    Comment


                    • #11
                      Welcome to the forum. The biggest thing is to start reading. Personal finance is the most lucrative hobby you can develop IMHO. Read some basic books and start following some blogs. This blog and physicianonfire are two good ones. One other suggestion is to start tracking your spending. Download your credit cards and bank statements into quicken or personal capital. If you are an excel superstar you can do your own thing. The point is to quantify what you actually spend. Once you know your spending you can determine a ballpark number to get your retirement accounts to. Once you understand about different types of retirement accounts you will need to determine your asset allocation. Maybe 70/30 stock to bonds. Did you panic when the market tanked in 2/20? Asset allocation differs because of differing risk tolerances. Anyway these are just a few random thoughts on your situation.

                      Comment


                      • #12
                        Thank you all. We are looking at all those blogs, courses, etc and reading reading reading. But we do have to do some immediate things so thank you for some of those more immediate suggestions. My limitations have always been how best to save. I wish I would have been in situation where some of those retirement options were bigger for me. For instance, there have been years where I couldn't contribute the full amount to my employer 401K because they failed the high compensation rules (I'm considered a highly compensated employee compared to most other employees there). No other contribution options and I wasn't always doing private practice on the side. I appreciate people's comments about working more but life dictates what it does and we all make those decisions about ensuring our sanity. So for me, right now, it's figuring out how I can save into retirement and understanding how to make decisions about paying down debt vs paying into retirement. Thanks again.

                        Comment


                        • #13
                          Stop contributing to the 529 and pay off your own loans first

                          Comment


                          • #14
                            Originally posted by JBME View Post
                            Stop contributing to the 529 and pay off your own loans first
                            Unless there’s a generous state credit or deduction for 529 contributions, I’d have to agree with JBME.

                            Maybe if you were going for public service loan forgiveness, but even there you’d want to save 20% towards retirement, have a loan payoff side fund matching the 10 year term for PSLF, and only then put money into the 529 once you’re taking care of those other goals.

                            Since it doesn’t sound like you’re going for PSLF, have you refinanced your student loans recently? Also, the 20% of gross salary towards your retirement has 20% as the numerator and your combined gross salary plus any employer contributions towards retirement as the denominator. Based on the math you’ve laid out, that’s $79,975 per year towards retirement. Since this is math in public, call it $80K per year.

                            Replace your husband’s SEP with a 401(k) that accepts roll ins from SEPs and traditional IRAs. That’ll let you each make a $6,000 per year non-deductible contribution to a traditional IRA, then do a back door conversion to a Roth IRA. $24,375 to your 401(k). Based on your husband’s compensation, it looks like he may be able to put the full $58,000 into a solo 401(k) through a mix of employee and employer compensation. Boom, that gets the two of you to $94,375 in annual contributions to qualified funds, for a 23.6% savings rate and $14,375 more than your $80K annual goal. (The two of you are a little behind, so no harm in setting aside more than 20% per year, especially if you have additional tax advantaged space available.)

                            Comment


                            • #15
                              Originally posted by childay View Post

                              My initial thought as well. I see husband's income is relatively new. What are your expenses like? Can you really afford to be part-time and retire in 10 years?

                              Welcome to forum!
                              +1 on the comment above.

                              https://www.irs.gov/pub/irs-tege/rollover_chart.pdf
                              Just a handy chart to see where the SEP can go.

                              When I saw the mortgage and student loan debt it actually made me cringe. Add on the potential uncertainty of the husband’s income it seems you really need to plan.

                              Gross - taxes - retirement savings- debt = spending (what is left).

                              I understand life gets in the way, but you have to use numbers to see where you will end up. Seems like you shorted the retirement. Without that, you cannot retire.

                              Focus your reading on learning and problem solving. My gut feel is a 10 year time frame the simple math won’t work. To change the results attack the areas that can change the math.
                              Income, retirement savings, taxes, debt and the time required to keep working. At least you will have a picture. You have 10-20 years to fix it but some hard choices is my gut feeling. This is a good thing to solve now, rather than later.

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