The Intersection of FIRE and Disney

[Starport Seven-Five]

I follow most of what you are saying, but can you explain the part I bolded? How are you getting that the effective rate is 10.62%? This past year, I changed our 401k deduction to all pre-tax instead of post tax trying to still be able to take some of the American Opportunities Credit for our DD in college. I am trying to decide whether to switch it back or leave it all pretax this year.

I went back and edited my post because that was incorrect. I used an online calculator and missed that it took out the standard deduction from the 120k. The effective rate would actually be 15.1% on 120k taxable income.

That was using 2019 tax brackets shown here:


So on 120k taxable income (note that's 120k after all deductions are taken) you would pay:
10% on $19,400=$1,940
12% on 78950-19401=$7,145.88
22% on 120,000-78951=$9,030.78

Total taxes due would be $18116.16. Divide that by 120,000 and you get 15.1%.

 

[ski_mom]

I went back and edited my post because that was incorrect. I used an online calculator and missed that it took out the standard deduction from the 120k. The effective rate would actually be 15.1% on 120k taxable income.

That was using 2019 tax brackets shown here:
View attachment 473488

So on 120k taxable income (note that's 120k after all deductions are taken) you would pay:
10% on $19,400=$1,940
12% on 78950-19401=$7,145.88
22% on 120,000-78951=$9,030.78

Total taxes due would be $18116.16. Divide that by 120,000 and you get 15.1%.

Thanks for the further explanation!

 

[bernina]

Sounds like good news for your DD too! We're phased out of Roth IRA as well and have been doing the backdoor method for 5 or so years. We're at the point where we have enough liquid or easily accessible options for home expenses as well as unplanned events and all we were really focusing on was VTSAX in a brokerage account. I like this option better as I can still get a VTSAX like fund but the money will grow tax free.

I'll keep you all posted on how it plays out for me.

An update on my mega backdoor Roth IRA saga.

First paycheck with after tax contributions (a whooping 1% to test it out) just hit and I now have fancy new options on my rollover screen within my 401k plan. I was able to set up my existing Vanguard Roth IRA as my rollover account. My plan uses something called Rollovercentral and is able to process a lot of rollovers automatically. Unfortunately Vanguard is not one of the options but they do allow you to fill in relevant information and they'll mail a check. I had previously reached out to Vanguard and asked them what they needed to process the rollover and they provided me a nice summary of who to make the check out to as well as mailing address. That form also alerts Vanguard to be on the lookout for the incoming rollover so they can make sure it's applied to the correct account.

In about a week the money should be in Vanguard in my settlement fund. I'll then sweep into VTSAX. I'll be doing this monthly with each paycheck to minimize taxable growth.

So far so good!

 

[Mome Rath]

What a roller coaster week; buying or selling? Selling and buying? Holding? Not watching?

 

[bernina]

What a roller coaster week; buying or selling? Selling and buying? Holding? Not watching?

Holding tight although I'll admit to being kind of excited that my paycheck and 401k contributions hit yesterday and I was able to buy low. I'm fighting the urge to dump some of our excess cash into VTSAX right now as using mega backdoor to get them into Roth vs a taxable brokerage is the better way to go for us. It's hard to resist though.

If these lower numbers hold out for months, at what point do you look to rebalance to your desired asset allocation? In theory many of us could be heavier in bonds than our target (or will be soon if it keeps going south).

 

[SouthFayetteFan]

What a roller coaster week; buying or selling? Selling and buying? Holding? Not watching?

 

[SouthFayetteFan]

Everybody hanging in there? For many of us this might be the first time in your life you’ve lost over $100k! I for one am staying the course. Regularly buying as I always have been.

 

[Budzooka]

Everybody hanging in there? For many of us this might be the first time in your life you’ve lost over $100k! I for one am staying the course. Regularly buying as I always have been.

Definitely a tough environment, but know I'm in it for the long run. I haven't adjusted our 401(k) contributions at all, but have decided to delay contributions to our taxable account to have more cash on hand. I am a partner in a local accounting firm and we are very fortunate to have the ability for our employees to work remotely without a significant decline in production. We have created a 90 day plan with cash projections for assumptions there will be a dip in production and a significant decline (35%) in collections. As such, we have suspended partner Q1 and Q2 distributions, but have committed to not interrupting our employee's pay cycle or contemplating layoffs. Hopefully, the worst will be behind us by then and we are back on the road to normalcy. The deferral of 4/15 tax payments until 7/15 definitely helps in the short-term, but it is just timing. The concern is if this were to continue longer, but I'm trying not to get caught up with that.

 

[BridgetBordeaux]

Everybody hanging in there? For many of us this might be the first time in your life you’ve lost over $100k! I for one am staying the course. Regularly buying as I always have been.

I have been retired for 4 years. My wife is about to retire. I have been selling off and "dollar cost averaging" profits since July 2019. When the market was setting records, I would sell off a few hundred bucks worth on those days. I sold 100/200/300 dollars a day .......day after day on some weeks! My last sell transaction was about the 2nd or 3rd week of Feb. I felt the market was climbing too far, too fast. 2019 alone was a banner year.

But yes, we are down about 20 percent in our portfolio at a time when the market is down about 30 percent.

Over the past week I did buy a teeny little bit and will not touch it for at least 2 more years.

If you are young and have 10-30 years on the horizon, you should buy a little from time to time.
History shows you will be rewarded down the line.

 

[holyrita]

I've increased the amount I'm contributing to my 401k. Instead of $19,500 over 12 months, I'm contributing as much as I can over these next few months.

 

[disfanforlife]

I've increased the amount I'm contributing to my 401k. Instead of $19,500 over 12 months, I'm contributing as much as I can over these next few months.

I am thinking about increasing ours too.

 

[pillow]

Over the past week I did buy a teeny little bit and will not touch it for at least 2 more years.

We bought some as well in our IRAs. I also moved a little of my HSA cash position into an index fund. In the short term, it may not be the best decision, but in the long run I'm confident it will be. Sure is hard to watch the market on a daily basis.

 

[robinb]

Everybody hanging in there? For many of us this might be the first time in your life you’ve lost over $100k! I for one am staying the course. Regularly buying as I always have been.

It’s only lost if you sell your investments. But yes, it’s the first time I’ve seen my portfolio drop this much. Luckily we had moved a lot into bonds in the last couple of years in anticipation of retirement so our loss is less than the market’s loss.

edited: we continue to max out my DH’s 401-k contributions. Buy low!

 

[Starport Seven-Five]

I've increased the amount I'm contributing to my 401k. Instead of $19,500 over 12 months, I'm contributing as much as I can over these next few months.

I am thinking about increasing ours too.

Make sure to check what your company’s matching policy is. Would suck to max early and then miss out on months of matching funds.

You can still ramp it up now regardless, just have to strategize when to adjust down if the match is impacted.

 

[holyrita]

Make sure to check what your company’s matching policy is. Would suck to max early and then miss out on months of matching funds.

You can still ramp it up now regardless, just have to strategize when to adjust down if the match is impacted.

If only my startup offered match

 

[runwad]

I've upped my 401k contribution. I've been on this rodeo before so I'm eerily calm this go around.

Since taxes are delayed until July 15th, I've heard somewhere(podcast I think?) that you can also still contribute to your 2019 Roth if you haven't maxed it out. That's good news for my DD24 who just started working this past summer .

 

[elaine amj]

Well, as I shared here before, I FIREd at the end of 2018. For various reasons, we racked up quite a bit in cash reserves (4 years living expenses). So right now as the market is falling, we are dollar cost averaging a chunk of the excess cash into the market. Plan to hang on to 2-3 years of living expenses in cash.

I have been impressed that in these crazy days, we have been calm. I did check our investments after the first big drop, gulped a little, and carried on.

What helped my peace of mind was seeing our investments and savings surge upwards in the past year or two. As a wise friend pointed out a few months ago, a market drop of 30% would just bring us back to our original FIRE number. That was very comforting.

 

[first*toright]

I have stopped looking at my investment accounts - no need to pull cash for anything in the forseeable future, so I'm just going to ride this out. I'm not changing anything, really. I'm making my normal 401k contributions. Most of my investment cash comes from windfalls like bonuses, or from DH's paycheck. He won't be working for the foreseeable future (he's a photographer, and no events = no work) and this downturn is definitely going to kill bonuses for a while. Our cash burn rate will likely go down during this period (although our grocery spend has been insane in the last couple of weeks), so I may throw a little bit of that at my Vanguard account, but no significant plans to up my investing.

 

[AmyAnne]

I don't trust myself to change anything right now. DH and I significantly increased our 401(k) contributions in the last 18 months, because even though we are both pretty risk-averse personality-wise, the tax benefits were hard to pass up. I had actually told myself--as if could never happen--that the market would have to go down 30% before we would have been better off just putting the $ in a CD. We do have pretty conservative investments--very little VTSAX for us--so I don't think our losses are as bad as the overall market, but I'm not looking.

 

[alryan]

Everybody hanging in there? For many of us this might be the first time in your life you’ve lost over $100k! I for one am staying the course. Regularly buying as I always have been.

I am trying!! I usually only check our retirement accounts once a quarter, but last week I figured I better look at the damage. Yikes, that was a big number. I keep telling myself we made it through 2008, we can make it through this. But retirement was farther off then. We are still 11 years away from DH hoping to retire, so I know we should just stay the course, but I have to admit it does make me nervous. DH joked, "Well there goes retirement at 62! We may have to go to plan B." But you know what plan B is....me working full time to save more!!! Noooo!!

But we haven't changed anything with our contributions. I briefly considered investing some of our cash, but really it wouldn't be that much and it's probably better to have that cash on hand. I do wonder though how much more of a drop I could handle. I feel like I could stomach 50%, but really I don't know if I could do much more than that.