Deepak is considering downsizing his family’s home, but wants to know if the savings are worth the transaction costs he’ll have to pay.
Anonymous and her husband hold $900,000 worth of privately-owned company stock. How should they plan for handling this money?
Shelby is 25 years old and works for a company that awarded her restricted stock units. What should she do with these? Additionally, she traded in a 2013 Prius for a 2018 Subaru, for which she now owes $19,000. Should she sell it for a used vehicle or stick it out?
Katelyn is interested in learning more about annuities. What should she know in order to make an informed decision?
Max FI and his wife want to retire in 12 years. How should they invest to achieve this?
Anonymous’s former employer offered a Roth and Traditional 401k, and his new employer only offers a Traditional option. How should he rollover his former Roth 401k?
Max FI asks (at 01:42 minutes):
My wife and I want to retire at the same time, 12 years from now. Where should we put our funds to make this a reality?
We gross $240,000. I’m 39 and she’s 43, and we have two kids. In 12 years, my wife will be 55 and eligible to receive a $70,000 annual teacher pension.
However, I’ll be 52 in 12 years, so I need to figure out how to fund my retirement until I reach age 65, when I can start withdrawing funds.
I’ve maxed out my 401k for the past few years, but we haven’t focused on my wife’s 403b or 457b due to her pension. We also have $125,000 in a brokerage account. Does it make more sense to focus on maxing out my wife’s retirement accounts, or should we focus on contributing to the brokerage account?
Here are a few other considerations: we have $330,000 between our IRA and 401k, and we have $180,000 left on our mortgage that we want to pay off within three years. We’re also funding our children’s 529 plans.
Which accounts make the most sense to fund in our situation?
Shelby asks (at 22:59 minutes):
I’m 25 years old and just recently joined the FIRE movement. I work for a large company where a portion of my compensation comes in the form of restricted stock units. My total portfolio value is around $120,000 – $30,000 of which has vested and $90,000 of which is scheduled to gradually vest over the next three years.
RSE’s will continue to be awarded based on performance at annual reviews and with any promotion. This account is held with Morgan Stanley and it’s set to sell shares to cover the taxes at vesting.
What are the pros and cons of this? Should I do something different with this? Should I sell these shares when they vest, and invest the money somewhere else, like index funds?
On a separate note, I traded in a 2013 Prius that my dad gifted to me to buy a brand new 2018 Subaru Forester. I have excellent credit and received a zero percent APY for five years. However, I still owe $19,000. Should I sell the car and look for something used? Or do I stick it out?
Katelyn asks (at 29:30 minutes):
I listened to your interview with Dr. Pfau, and I’m interested in learning more about his views on annuities. It sounded like he was in favor of relying on annuities as a safety route in retirement (the hybrid approach to retirement savings), but you didn’t seem like a fan. However, it would be helpful to hear more about annuities so that I can make up my mind on my approach to retirement.
Deepak asks (at 44:42 minutes):
Should we downsize our home to increase our savings? Here are our details:
We save 45 percent of our income, and our only debt is our mortgage. We want to retire sooner than later, and our house is the biggest drain on our ability to do so. My wife, myself, and our two kids are living in a 3,000 square foot, 5-bed, 4-bath, single-family home. We purchased it for $410,000 in 2016 and it has appreciated to $460,000.
The balance on our 30-year, fixed-rate loan is around $330,000. It has an interest rate of 3.625 percent, and the monthly mortgage payment (including utilities) is $2,500.
If we downsized to a smaller home (1,500 – 2,000 square feet), it would cost around $200,000 – $280,000. These properties would be three to ten years old. Including utilities, the monthly payment on these homes would be $1,200 – $1,600, with an interest rate of 4 percent.
Given that we would have transaction costs on buying and selling, are the potential savings of $1,000 – $1,300/month worth it?
Anonymous “Lucky in LA” asks (at 56:09 minutes):
My husband and I have a strange money situation. About 10 years ago, my husband worked for a private company and was partially paid in incentive stock options. We paid about $30,000 for the options to change them into stock when he left the company, and five years later, we sold 20 percent of the stock for around $100,000.
While we’re happy with that outcome, the problem is – the company is still private and probably always will be, so we can only sell the remaining $900,000 worth of stock when they make us an offer, at their price, and only as much as they’ll take.
For instance, we sold another not-quite-ten percent of our stock this year, and we used the money to make a downpayment on our first rental house. Unfortunately, we don’t know when the next offer will be, and as a result, we’re unsure of how to think about this in terms of our net worth and how to make plans for the money.
Anonymous “Nerd” asks (at 01:02:23 minutes):
I’m 24, making $85,000/year. My former employer offered both a Roth and Traditional 401k option, but my current employer only offers a Traditional 401k. Since I can’t roll my Roth 401k into another Roth 401k, my former employer gave me the following options:
- Do a full rollover to a personal Roth IRA
- Full payout check made out to me
- Partial of both
They said that if I take a payout, my earnings would be taxed at 10 percent of my current income tax. As of right now, I have no dividends in my Roth 401k, but I’m unsure of those rules. My former employer also mentioned there may be withholdings for tax reasons, but I’m unclear on that as well.
I’m under the impression that with Roth IRAs, I can withdraw from my contributions penalty-free and tax-free because I paid taxes on it already. I made $2.00 in dividends in my Roth IRA. Is there any way to separate the contributions from the dividends so that I only remove the contributions from the account?
I have about $3,900 in my 401k and $3,400 in my Roth IRA. If I do the rollover right now, I’ll be over the cap of $6,000 for IRA contributions in 2019. If I do a full or partial payout, will there be tax or penalty implications? Is there any other way that I can avoid taxes or penalties?
We answer these questions in today’s episode. Enjoy!
- Book, The 7 Habits of Highly Effective People, by Stephen Covey
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