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

[Koi1217]

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.

FYI you would have to create the solo 401k in the calendar year you intended to contribute but can then contribute up until taxes are due. So since we did not have a solo 401K established in 2020 no way to do that now.

[Tim]

FYI you would have to create the solo 401k in the calendar year you intended to contribute but can then contribute up until taxes are due. So since we did not have a solo 401K established in 2020 no way to do that now.

You can do it now for 2021. That is the important point. It is more than a one year deal.

[Lithium]

FYI you would have to create the solo 401k in the calendar year you intended to contribute but can then contribute up until taxes are due. So since we did not have a solo 401K established in 2020 no way to do that now.

That changed with the SECURE Act last year.

https://www.solo401k.com/blog/secure-act-and-solo401k-new-law-affects-you/

[Koi1217]

Unless there’s a generous state credit or deduction for 529 contributions, I’d have to agree with JBME.

We aren't actually trying to do one or the other. We are actually finally in a financial situation where we can work towards maxing out everything - debt paydowns and savings.

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.

Loans right now are at 0% if they are still held by the government. So we have kept paying and will stay here until they get turned back on and we know what will be coming about across the board loan forgiveness. So no refinancing just yet.

YES. We are actually looking at working with 30% of our income assuming 20% into retirement (about 80K) and 10% into loan paydown (about 40K) with whatever we have leftover at the end of the year into his loans again.

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.)

Thank you Hank. This is constructive and helpful and focused on my actual questions. My one follow up is why the hard focus on backdoor Roth conversions? WCI and some of the FIRE folks seem to default to backdoor Roth IRA's though I see others debate it's better to get your tax bracket down now by doing the traditional IRA. My question from above is why are most folks on the forums automatically defaulting to doing the backdoor Roths?

[Lithium]

Thank you Hank. This is constructive and helpful and focused on my actual questions. My one follow up is why the hard focus on backdoor Roth conversions? WCI and some of the FIRE folks seem to default to backdoor Roth IRA's though I see others debate it's better to get your tax bracket down now by doing the traditional IRA. My question from above is why are most folks on the forums automatically defaulting to doing the backdoor Roths?

Traditional IRA is only deductible at low incomes. One reason the backdoor Roth works is because the initial contribution is non-deductible.

https://www.irs.gov/retirement-plans/ira-deduction-limits

[Peds]

Thank you Hank. This is constructive and helpful and focused on my actual questions. My one follow up is why the hard focus on backdoor Roth conversions? WCI and some of the FIRE folks seem to default to backdoor Roth IRA's though I see others debate it's better to get your tax bracket down now by doing the traditional IRA. My question from above is why are most folks on the forums automatically defaulting to doing the backdoor Roths?

Because it is your only option....hence default.


You clearly haven't read my links above....

[Koi1217]

Because it is your only option....hence default.


You clearly haven't read my links above....

I did and sorry my grasp of this stuff isn't as on point as you would like. I'm making an effort and I appreciate the constructive feedback. I don't appreciate the various tones that have come up from you and other's on the thread. I'm doing my best to respect that I put myself out there to get feedback but I didn't put myself out there to be shamed - those are different and not cool. I posted under beginners for a reason and accept the encouragement to keep reading and learning.

[Koi1217]

Traditional IRA is only deductible at low incomes. One reason the backdoor Roth works is because the initial contribution is non-deductible.

https://www.irs.gov/retirement-plans...duction-limits

This is really helpful since it most sources hadn't been updated that I was finding.

[childay]

I did and sorry my grasp of this stuff isn't as on point as you would like. I'm making an effort and I appreciate the constructive feedback. I don't appreciate the various tones that have come up from you and other's on the thread. I'm doing my best to respect that I put myself out there to get feedback but I didn't put myself out there to be shamed - those are different and not cool. I posted under beginners for a reason and accept the encouragement to keep reading and learning.

I don't think anyone is shaming you. Skin doesn't appear all that thick, no further offense intended. Again, welcome.

[Hank]

Good afternoon Koi1217,

Peds and the other posters on this forum want to see you succeed! Roth conversions, roll overs from a SEP to a 401(K), setting an appropriate savings rate and asset allocation, etc. all are very do-able for someone who's bright enough to graduate from medical school. However, some of these things can be a little confusing the first time you do them. Occasionally there's bad information floating around on the web, or at least information that doesn't apply to you and your household since you're easily in the top 5% of households by income in this country.

While Joe Sixpack might be well served with the tax deduction from a traditional IRA contribution, for a couple who are married filing jointly you can't deduct anything for a traditional IRA contribution if your 2021 AGI is $125,000 or higher. Congratulations, you and your husband make significantly more than that. (More money is better than less money.) However, that means that your choice is between a backdoor Roth that lets you be done with paying taxes for the rest of your life or else a taxable account where you pay taxes going forward.

Plenty of bright people on this site have messed up the IRS form 8606 for their back door Roth contribution. Other folks have established a 401(k) that didn't allow roll ins from SEPs, IRAs, or even other 401(k)s. The links that Peds sent you are valid links with helpful advice to help you avoid these pitfalls. Read the information he linked to a couple of times, then explain it to your husband and get buy in for both of you going forward. (That isn't meant to be sexist - I find that I only truly understand something if I can explain it to someone else. Also you'll have more success if you both are committed to saving at a given rate, using the appropriate investment vehicles.)

Read and re-read the links above, then feel free to come back with any and all follow up questions. You're right, this sub-forum is the right place for non-judgmental help for beginners and new posters. The other folks on the forum are here and happy to help.

[ShredtheGnar]

Max out tax deferred space to reduce taxable income. Pay off debt. Highest interest 1st. Then the next. Repeat until gone. Once debt paid off focus on taxable brokerage account. Debt elimination is goal to increase savings rate and creating cash flow. Some debt such as mortgage is OK. Make sure you have an adequate emergency fund so you do not have to use credit. Savings rate is the most important thing to focus on if you are behind on savings. I would not be super conservative with investment asset allocation either. More equities than fixed income until you have more saved. I would not worry about 529. Once you save enough, you can help kids pay off their loans or cash flow their tuition. You can put money in the day before you spend it for education into a 529 and get the tax credit. That is my advice.

[Tim]

Roth tax free income seems to be about as good as it can get.

Tax deferred accounts are dependent upon current vs retired marginal tax rates. If you are out of pretax, use it.

[Koi1217]

Thank you all!

[racelari]

welcome man! let me guess, your advisor was from Northwestern Mutual? if so, then you are like me and many other doctors who are targeted by this company. Please let us know as they have a tendency to sell whole life insurance which is separate headache on itself, as well as disability insurance that's not true own occupation.

I realized Dec 30th 2018 after finishing the first WCI book that I needed to get my financial house in order. After being screwed by my NWM financial advisor and being in 31k of credit card debt, my wife got me the 1st WCI book for Xmas and I started down the path of financial literacy. I then purchased the WCI course which really helped me get started on getting up to speed on everything you would really need to know to form a financial plan. I then also binge listened to WCI podcasts and going down WCI's recommended books. before tax day of April 2019 I had opened up a SEP-IRA and made the max contribution to it, then afterwards setup a solo401k and rolled my sep into there. By June of 2019 I had a written financial plan including a plan on optimizing my retirement account and what low cost index funds they should be invested in. you can do this!

As for your questions:

1. 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.
- the best source really was the the Fire Your Financial Advisor Course I mentioned just because it goes over taxes in retirement in relation to the rest of a written financial plan. Keep in mind the reason to do a Roth IRA is b/c as doctors our high income does not allow us to make tax deductible traditional IRA contribution.

2. 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, need to open a solo401k and can do at Fidelity. the problem with Vanguard is that they do not take IRA rollovers, so you would not be able to rollover your SEP-IRA into a Vanguard solo401k. I myself rolled over my sep into the fidelity solo401k at fidelity is great!

3. 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?
- yes, definitely setup a solo401k for yourself so you can up some of your private practice/1099 income into there. You can do this while still getting W2 money from your current employer and maxing your W2 job 401k (that's what I do).

[Koi1217]

- the best source really was the the Fire Your Financial Advisor Course I mentioned just because it goes over taxes in retirement in relation to the rest of a written financial plan. Keep in mind the reason to do a Roth IRA is b/c as doctors our high income does not allow us to make tax deductible traditional IRA contribution.

I've been talking to my husband about doing the course together. I don't want to find myself holding all the information. It's good to see how many positive reviews there are for the course and I'm reading his Boot Camp book now.

2. 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, need to open a solo401k and can do at Fidelity. the problem with Vanguard is that they do not take IRA rollovers, so you would not be able to rollover your SEP-IRA into a Vanguard solo401k. I myself rolled over my sep into the fidelity solo401k at fidelity is great!

We are doing this as well. I need to call Fidelity as their paperwork looks like the language is still calendar year for establishing a solo 401K rather than the new rule allowing for tax year. We also need to talk with our CPA to make sure he can manage this. But I've had employer accounts with Fidelity and they have been great.

3. 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?
- yes, definitely setup a solo401k for yourself so you can up some of your private practice/1099 income into there. You can do this while still getting W2 money from your current employer and maxing your W2 job 401k (that's what I do).

Thanks so much for this. We are working hard at figuring out our goals, what we can do this year for last year and what we need to do for this year. This has been really helpful.