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My husband is self-employed and has SEP IRA. He can contribute about 24-25K this year. He can also open Solo 401(K) (I wish we've done this all along, but it certainly can be opened in addition to SEP). We can possibly add 6K there (we can up to 18k, but we just can't afford to put that much).
I'm on track to put 18k into my 401k with some employer's match.
We are 40 and 41. I will have ~210k in my 401ks by the end of the year (all tax deferred), he will have ~125K in his 401ks/IRAs (he has Roth IRA account, but it's something like 2.5K there) with the 25K to SEP.
We are in the 28% tax bracket. Should we keep putting as much as we can away into his tax-deferred accounts (especially, considering that he is quite a bit behind for his age) or should we pay taxes and save the rest into a taxable account? I've started one with ShareBuilder long time ago, but wasn't serious about investing there. Or, perhaps, do a backdoor Roth (we are phased out from contributing to Roth directly).
We are toying with an idea of buying a rental property at some point down the road (perhaps, 2-3 years from now). We have a second property, in addition to our primary residence, but it's not making money right now. Eventually (5-10 years from now), we will sell our house and move into the second property, at which point we should be mortgage free and possibly have nice chunk of change from the proceeds on the house. (Conservatively ~50-70K).
If it wouldn't be for the low balances in his accounts, I would definitely start setting more money aside in the taxable accounts, that way, when the time is right, part of it could be accessed for the down payment on the rental.
We are also putting one child through college, and another one is 5.5 years away, but I will take those numbers out of the equation, it's just a big fat item in our budget right now and we can't really cut it.
Putting that much money into your retirement accounts is great...and probably well worth working with a good financial planner to maximize your contributions and to help create a good, balanced and diversified portfolio. The answer to your question is another question..what tax bracket will you be in when you retire? Problem is, no one knows.
I will also ask if you have sufficient life insurance and disability insurance to not only cover your expenses, but should something happen, would it cover continuing to fund your retirement? Do you you have a succession plan in place for the business?
i would do a bit of both . if it looks like you will be living off mostly cash and delaying docial secutity that zero % capital gains bracket can be nice .
heirs can inherit that account tax free too as long as you are under estate tax thresholds .
if i knew years ago what i know today about retirement planning i would have done things very differently .
way more roths for sure , as well as setting myself to take advantage of zero capital gains brackets while delaying ss and getting an aca subsidy until medicare.
so much is linked to taxable income in retirement that tax rates being lower or higher really do not matter as much .
everything from getting your social security taxed to what you pay for medicare premiums is tied in to that damn taxable income .
Last edited by mathjak107; 12-04-2016 at 08:46 AM..
So, looks like we should beef up Roths or maybe add to brokerage account. Thank you for reminding me about life insurance - I'm probably way behind the curve here.
I just have term life through my employer and paying for extra coverage (250,000). I also bought the same coverage for my husband. But I probably need to look into whole life, correct? What are the considerations here? The rates for the term life I'm getting through employer are relatively cheap.
The "business" is really just working as a software development contractor, so he is not that different from myself (I'm in software development/consulting as well), but I'm a W2 employee and he gets 1099. So, no, there are no succession plans, but I'm looking into hiring the older son (college student) for doing some of the work for my husband. Looks like a win-win, as this will reduce business income and son can then use that income to file taxes and take advantage of higher education credits - we are phased out of every single one (both credits and deductions).
I wouldn't look at Whole Life personally. It can be a useful part of estate and tax planning, but at your age, I'd just get a 20yr Term policy for 10-12x your salaries (or more if you anticipate LARGE increases in income in the coming years), and call it a day.
But I agree about maxing out Roth's, and putting money not in an emergency fund to work in a taxable brokerage account.
My husband is self-employed and has SEP IRA. He can contribute about 24-25K this year. He can also open Solo 401(K) (I wish we've done this all along, but it certainly can be opened in addition to SEP). We can possibly add 6K there (we can up to 18k, but we just can't afford to put that much).
I'm on track to put 18k into my 401k with some employer's match.
I could be wrong and if so someone let me know but can't OP file an extension (as long as they don't owe) and contribute more money to pre-tax accounts up until the day they file? What is the last day to contribute to and IRA and 401k? OP would have to really save to contribute more for this year and stay on plan for 2017. Not sure
For me, I'm contributing pre-tax (max) and post retirement funds. That way I have more control over how much I withdrawal from pre-tax accounts. I've read that people say (for example) I have $500k in my 401k but they are not thinking about the tax consequences on withdrawal. That $500k can be beat down via taxes to be a lot less depending on how they withdrawal. It also can effect taxation on SS.
I wouldn't look at Whole Life personally. It can be a useful part of estate and tax planning, but at your age, I'd just get a 20yr Term policy for 10-12x your salaries (or more if you anticipate LARGE increases in income in the coming years), and call it a day.
But I agree about maxing out Roth's, and putting money not in an emergency fund to work in a taxable brokerage account.
For Life insurance my thinking was to cover all the outstanding debts (mortgages) and see both kids through college, which 500K should do, if we both die. But I will look into a 10 or 20yr term, it may be a better deal. Thanks!
I could be wrong and if so someone let me know but can't OP file an extension (as long as they don't owe) and contribute more money to pre-tax accounts up until the day they file? What is the last day to contribute to and IRA and 401k? OP would have to really save to contribute more for this year and stay on plan for 2017. Not sure
For me, I'm contributing pre-tax (max) and post retirement funds. That way I have more control over how much I withdrawal from pre-tax accounts. I've read that people say (for example) I have $500k in my 401k but they are not thinking about the tax consequences on withdrawal. That $500k can be beat down via taxes to be a lot less depending on how they withdrawal. It also can effect taxation on SS.
We have until April 15th of 2017 to contribute to any of his accounts, but if we decide to open Solo 401(k) it has to be opened by December 31st of 2016, which is why I'm doing all this thinking now .
Saving extra 6k on top of his SEP IRA max is not an issue, it's just a question of how to allocate that money.
For Life insurance my thinking was to cover all the outstanding debts (mortgages) and see both kids through college, which 500K should do, if we both die. But I will look into a 10 or 20yr term, it may be a better deal. Thanks!
Only buy the coverage you need - if you only need coverage for 20 years, buy a 20-year level term policy, not a whole life policy. Coverage you don't need is simply a waste.
For Life insurance my thinking was to cover all the outstanding debts (mortgages) and see both kids through college, which 500K should do, if we both die. But I will look into a 10 or 20yr term, it may be a better deal. Thanks!
A conventional way of thinking is to replace said person's income and/or services for some period of time say 10-20 years as well as other large obligations. The idea is to preserve the currently lifestyle without the income or resource of said person
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