“Hetty” is struggling with being too frugal, possibly to the detriment of her health. I mentioned in a previous episode that I struggled with frugality for a long time. She wants to know: in what ways was frugality a hindrance or an asset, and how did I get myself out of such a frugal mindset?
John and his wife aren’t sure how much they should contribute to their daughter’s Ohio 529 plan. They want her to graduate from undergrad debt-free, but they imagine she’ll get help from scholarships and that she’ll work as a teenager. How much is enough?
Rafael just got a job as a 1099 sales associate and is wondering how the heck to calculate what he’ll owe in taxes.
Rafael has a second question: he opened an account at Vanguard in December 2020 and noticed that he could still contribute to that account for the first few months of 2021. Which year should he have focused on contributing to?
Elizabeth has two rental properties: one that’s paid off and profitable, the other which shows a loss. If she put her profitable rental into an LLC, could she still combine the rent from both properties?
My friend and former financial planner Joe Saul-Sehy joins me to answer another round of questions.
By the way, if you have questions on business, money, trade-offs, financial independence strategies, travel, or investing, be sure to leave them here and we’ll answer them in a future episode.
“Hetty” asks (at 2:38 minutes):
In your May 11th episode, you mentioned that you grew up steeped in the traditions of frugality. I’m also trying to overcome negative aspects of frugality. It’s to the point where I avoid doctor’s visits by thinking something will heal on its own.
Could you speak to how frugality was a hindrance to you — where you were too frugal? How did you overcome these obstacles?
Were there any cases where your frugal tendencies were an asset?
John asks (at 22:50 minutes):
My wife and I can’t decide on how much to contribute to our daughter’s Ohio 529 plan.
We both have secure pension jobs and we have no plans to retire early. We have a 403b and a small taxable account, we each fully fund our Roth IRAs, and we have around $110,000 in cash. Our only debts are my student loans and our mortgage. I’m on course to qualify for public service loan forgiveness in early 2023, and our monthly mortgage payment is less than seven percent of our monthly take-home pay.
Our daughter is two-and-a-half, and we contribute $500 per month to her 529. There’s $17,000 in the account, which is in the Vanguard 500 index option available through the Ohio 529.
I had the privilege of graduating undergrad debt-free, and we’d like our daughter to have the same privilege. We imagine she’ll do this through a combination of the 529, scholarships, and working as a teen. How much should we contribute to her 529 given this goal?
Rafael asks (at 39:34 minutes):
I have a question regarding taxes on 1099 income.
I got a new job as a 1099 sales associate. If I’m understanding what I found on the internet correctly, I need to get my net income by subtracting my costs (food, transportation, etc.) from my gross pay. Then I multiply my net income by .9235 percent to find my actual taxable income.
Is that really how it works? The amount I came to seems like a lot for someone who’s only 22 and doesn’t know what he’s doing.
As a safeguard, I put 20 percent of the income I made aside in a separate bank account, so when I have to pay taxes, I have enough. Is 20 percent overkill?
Another unrelated question: I opened a Vanguard account in late December 2020. Vanguard gave me a few months in 2021 to continue contributing to my 2020 account for that year. I’m about 23 percent of the way through that – should I work on maxing that out until the deadline? Or should I focus on maxing out 2021?
Elizabeth asks (at 53:50 minutes):
My husband and I turned our first house into a rental when we bought a second property. This second property has a carriage house above our detached garage, which allowed us to stay on-site during a renovation. Once we moved into the main house, we rented out the carriage house, so now we have a total of two rental properties.
When we file taxes, our carriage house rental shows a loss, which helps offset our rental house’s positive income. (We paid off the rental house mortgage, so there’s no interest to deduct.)
We’ve thought about putting the first rental into an LLC for years, but we haven’t. If we put the rental house into an LLC, could we still combine the rent from both properties for tax purposes? I’m not clear on what happens when you create an LLC for a rental property when tax time comes around. Any advice?
Resources Mentioned:
- Savingforcollege.com
- Hetty Green | Wikipedia
- EFTPS.gov
- Every Landlord’s Tax Deduction Guide, by Stephen Fishman | Book
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