Chris, age 30, makes $200,000 per year and saves 50 percent of his income. What accounts should he use in order to maximize his tax benefits?
Dee, age 39, is getting tired of apartment living. She found a great neighborhood in which she’d like to own a home, and she’s saving for a 20 percent downpayment. But she’s nervous about the high cost of home maintenance. How can she deal with this?
Chelsea just moved into a new house with her husband. He purchased the house outright, in cash, and she wants to pay him so that she can share in the home’s ownership and equity. But she also has student loan and credit card debt. Should she make progress towards all three of these goals (build equity, pay off student loans, pay off credit cards) at the same time? Or should she prioritize one — and if so, which one?
Charlene is curious: what’s so great about Vanguard? Why do Joe and I like the Vanguard Target Date funds so much, as compared to funds from another brokerage? (Note: neither of us have any financial relationship with Vanguard, other than being an ordinary, run-of-the-mill customer.)
Alma is looking for a term life insurance policy that’ll protect her if she passes away outside of the United States. Where and how can she find this?
My friend Joe Saul-Sehy, a former financial planner and host of the award-winning Stacking Benjamins podcast, joins me today while we tackle these 5 questions … and somehow, also we go on a tangent about Burger King. It’s a whopper of an episode. 🙂
Enjoy!
Resources Mentioned:
A.M. Best – This agency rates insurance companies
Here’s the A.M. Best rating scale:
- A++, A+ (Superior)
- A, A− (Excellent)
- B++, B+ (Good)
- B, B− (Fair)
- C++, C+ (Marginal)
- C, C− (Weak)
- D (Poor)
- E (Under Regulatory Supervision)
- F (In Liquidation)
- S (Rating Suspended)
(Original source is this, but you can get a more concise version here.)
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David Portmann
The condo and townhome valuation and price appreciation you both mention is 100% false in Denver. Your Castle Real Estate publish home and condo appreciation data for the Denver metro counties. In fact Condos rise before home values out of a recession.
Ian Esplin
For the most part, condo and townhouse valuations tend to follow the price appreciation mentioned in this podcast. Here in Las Vegas, this is very true. It may not be in Denver, but I would say that is an exception, not the rule.
ikomrad
for the part about putting 18k in a Roth vs Traditional 401k discussion, you including the tax factors for Roth, but left out the amount of taxes saved by investing with pre tax month.
For Roth 401k, you have $18k income and you decide to pay taxes on it and put the rest into your Roth 401k. Let’s say that $14k invested and $4k paid in taxes. (~25% tax bracket)
For traditional.401k, you have $18k pretax and you invest all $18k of it because there are no taxes.
so you’ve invested an additional $4k to grow over, say, 30 years with pretax money. that’s a lot more moolah! when come time to pay taxes,
we don’t know where tax reform laws will leave us, either paying more or less than today after adjusting for inflation, but personally I’d prefer to invest more now because I can control that part of the equation. I cannot control taxes so I won’t make decisions based on that.
Nicole
What episode of Stacking Benjamins are you referring to in your answer to Chris regarding your discussion w/ Joe about life insurance?
Erin
Hi Nicole – are you referring to when Chris says (in his question) “After listening to you and Joe from Stacking Benjamins”? If so, I think he’s referring to this previous episode – https://podcast.affordanything.com/68-ask-paula-invest-tax-refund-save-college-avoid-massive-pitfalls/ around the 51:30ish mark. If not, let me know and I’ll try and find out for you!
Nicole
I think that was it, thanks
Rikki Racela
Hi guys, I love the podcast Paula!. Just recently started binge listening to this podcast and likely nobody will be reading this, but I agree with ikomrad above and not with Paula and Joe. The dude Chris is making 200k per year!!! he’s at almost the highest tax bracket!!! his marginal tax rate is 32%- I highly doubt in retirement that his retirement income will be higher than that (although years from now if it is then Chris you would be killing it in retirement!)
also, what about the backdoor Roth!!! No mention of this!!!! Joe, paula, you guys got to call this dude back. Chris man, hope you get this or something. I make 350K per year as a high income professional. I am a doctor and read the White Coat Investor, but would suggest also check out that blog and podcast as this is where I got this answer. You should max the 401K, do backdoor Roth, max HSA if you have that available, and if you end up keeping the same intensely high savings rate with a crapload of retirement savings in the 401k where the RMD’s then push you to even higher tax brackets in retirement, then the White Coat Investor has posts on the “Mega Backdoor Roth” which if you are in the same job seems like you can do given your retirement plan has the Roth option. You should read your 401k plan document to see if this Mega Backdoor Roth is possible.
Not taking the tax deduction in your high earning years does not make sense- do the tax deferred option for your 401K, and then do Backdoor Roth to get some money in a Roth account.