Liz and her husband are planning to retire in 5 to 10 years. They have rental income properties, but Liz is bored of managing these, and she’s intrigued by the idea of buying stocks at a discount when the market is low. Should she sell her rental properties and use the money to buy stocks instead?
Rebecca is a high income earner and thinking about investing in a Roth 401k … but she’s scared of how much she’ll have to pay in taxes. Should she do it anyway?
Anonymous made big changes last year: she got a new career AND sold a house! Now she needs help figuring out capital gains and lowering how much she’ll have to pay in taxes … and she won’t have access to her company’s 401K for most of the year.
Kyle and his wife are moving into their dream home! What should they do with their current place?
Former financial planner Joe Saul-Sehy and I tackle these four questions in today’s episode.
P.S. Got a question? Leave it here.
Here are the details:
Liz asks (at 03:06 minutes):
My husband is 59 and I am 55. We plan to retire in five to 10 years.
We bring in roughly $200,000 a year. We have $600,000 in retirement accounts and $150,000 in cash.
My husband and I own six rental properties: three long-term rentals, two short-term rentals, and one commercial property. Of the three long-term rentals, one is paid off. The other two have mortgages of approximately $78,000 each. All of our properties more than pay for the monthly mortgage, taxes, and expenses.
My absolute love is short-term rental properties. I find great joy when helping people go on vacation.
However, with these three long-term properties, I don’t feel the love.
If we’re looking at retiring in the next five to 10 years, and these mortgages have 20-year term lengths, is there an advantage to holding onto them? How will we collect that passive income if we’re still paying on the mortgage in our retirement?
Properties are selling at an all-time high, while index funds and all stocks are at an all time low. Is now the time to sell property and invest in index funds so that I don’t have to manage these properties?
Rebecca asks (at 29:20 minutes): I’ve been with my employer for many years, and I’ve been maxing out my traditional 401k for most of that time.
I did not know that you could have both a 401k and a Roth IRA until a few years ago, and I opened a backdoor Roth IRA then.
My employer recently added a Roth 401k option to our retirement benefits. Although I understand the benefits of having money saved in Roth accounts, I have still been maxing out my traditional tax deferred 401k to reduce our tax liability. I am a very high income earner — in the last few years, I have made more than $400,000 annually.
My husband has a small business from which he’s able to deduct a lot of business expenses, and we also max out my HSA and the flexible savings account to lower our tax liability. In addition, once I made partner a few years ago I was eligible to participate in a profit sharing plan and to contribute around $20,000 a year, which my employer deposits in the traditional 401k.
I’m effectively saving over $40,000 annually in the traditional 401k account.
I’m torn between trying to reduce our tax liability as much as possible, while also recognizing that we have no idea what our tax brackets will look like 30 years from now.
I’m 43, my husband’s 45. We have around $520,000 in the traditional 401k, but only $23,000 in a backdoor Roth. We invested $17,000 in our HSA and $8,500 in an individual brokerage account. We also have around $75,000 in cash for an emergency fund.
I plan on staying in my job for at least another 10 years and my mortgage will be paid off in 9 years.
There is a large discrepancy between our traditional 401k savings and our Backdoor Roth.
Should I bite the bullet and increase my Roth contributions, even though I’m scared of the tax bill?
Anonymous asks (at 39:46 minutes): This past year, I went through a career pivot and I sold a house.
My income is going to be about $105,000 from my job and I’ll make an additional $76,000 on the house that I sold, but I’ll have to pay capital gains on the house because I held it for less than two years.
My goals are to reduce the taxes that I’ll have to pay next year and save for retirement.
This year I contributed $1,000 to my Traditional IRA without realizing that, because of my income, I don’t think that that’s actually going to be deductible.
In the meantime, I’ve just started to contribute to a regular taxable brokerage account, but I’d much rather optimize my tax strategy.
I won’t be eligible for my new company’s 401K until October of this year. Once I’m eligible for my company’s 401K, should I put my full paycheck towards that 401K?
Is there any limit for someone who is only eligible for a 401K for a part of the year?
Is there anything else that I’m thinking of that would help me reduce next year’s taxes?
I’m really concerned about the $15,000 or so that I owe on the house — is there anything else I could be doing?
Kyle asks (at 51:49 minutes): My wife and I are moving into our dream home and we’re thinking about turning our current home into a long-term rental.
The home value is approximately $300,000, and our remaining mortgage balance is about $190,000.
I don’t know if it makes sense to sell it so that we can cash out now, avoid capital gains tax and the hassle of being a landlord, or if we should hold on to it for the long term.
Our third option would be rent-to-own but I don’t know the specifics of this strategy and if it makes sense.
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