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Money mistakes you didn't know you're making

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Re: Money mistakes you didn't know you're making

#21

Post by blinded »

al_borland wrote: post #4
blinded wrote: post #3

Earlier quoted context omitted.

From what I've seen in Schwab and experienced personally. The "sell shares for taxes" settings is a flat tax rate, mine is 26% last I looked. If you're in the higher brackets[1], ie making 250k+ it can be up to 9% difference. So if you get a vest of 20k in November toward the end of the year where you're likely in that higher bracket the amount Schwab sells could be 1,200~ difference (assuming 32% tax bracket, 26% fl…

Interesting. I get pay statement adjustments (they show up alongside my paychecks when I view them) to take out the taxes, so it seems like my employer is doing it, not the brokerage. I’m not sure if they do this when the RSU’s are first given, or when they vest; I’ll have to pay more attention this year. I do need to do something weird with my taxes every year to enter that the taxes were already paid, as by default…

Schwab (or your brokerage) is reporting the RSU vesting on your w2 / paystub.

Re: Money mistakes you didn't know you're making

#22

Post by andrewmcwatters »

The conventional wisdom of investing the maximum into your 401(k) beyond employer contributions is a dangerous tip if you fully intend to retire early, because you are penalized so heavily on withdrawing too young and then further taxed on it.

It’s such bad advice and people parrot it all the time, probably because so many people are so bad with finances to begin with. It’s almost always a bad idea in this specific case.

If you intend to retire in your late 60s, then the conventional wisdom is fine.

Re: Money mistakes you didn't know you're making

#23

Post by QuiEgo »

al_borland wrote: post #2

I’m not sure I understand the RSU one. I just went back and did the math on my RSUs from last year and my company deducted over 22% on federal, as well as taxes for social security, Medicare, and state tax. Assuming there isn’t a 2nd income drastically raising your income, why wouldn’t the company withhold the right percentage, considering they know what you make? Choosing a flat 22% seems odd.

The law says 22% so they hold 22%.

It may be better for you. For example, you may want to cover the rest of the tax bill by selling other shares and doing tax lost harvesting. You may think your company is going to the moon and decide to cover the rest of your tax bill with cash and keep your shares (this is usually a bad idea). The way they do it gives you flexibility.

Re: Money mistakes you didn't know you're making

#24

Post by positr0n »

nunez wrote: post #14

One more: /r/CreditCards on Reddit is an awesome resource for finding excellent credit card deals. Banks offer amazing sign-ups deals in the hopes that you'll carry a big balance in perpetuity. Taking the bait and paying off your card every month is basically free money! Don't get sucked into churning, though. It's high risk for very low reward.

What’s high risk about churning besides the risk of wasting your time?

Forgetting to pay a bill with all the accounts you are juggling then wiping out your gains with one late fee?

Re: Money mistakes you didn't know you're making

#25

Post by xhkkffbf »

snowwrestler wrote: post #18

Having a single bullet point about using a trust is insufficient, as it is quite complicated to receive a trust. There are other options for managing estate planning that will work well for ordinary families (those with less than ~$28 million in total assets). The marketing around trusts is a classic information asymmetry. Law firms selling the service of setting up a trust know it’s not simple for heirs, but that is…

Why does regular probate cost more than passing the inheritance through a trust?

Re: Money mistakes you didn't know you're making

#27

Post by putlake »

nunez wrote: post #13

I wish it were easier to contribute more to my 401k during specific pay periods. Part of my income is commission-based. I could max out my 401k when I receive my commission. It would be easier for me to budget this way. Unfortunately, contribution is all-or-nothing, and changing one's contribution percentage takes a few pay periods to go into effect. Another tip not mentioned re 401k: change your default elections! B…

Change your default elections - this is a great point. But I'm wary of giving out specific investment advice i.e. what to put your money in.

Re: Money mistakes you didn't know you're making

#28

Post by putlake »

snowwrestler wrote: post #18

Having a single bullet point about using a trust is insufficient, as it is quite complicated to receive a trust. There are other options for managing estate planning that will work well for ordinary families (those with less than ~$28 million in total assets). The marketing around trusts is a classic information asymmetry. Law firms selling the service of setting up a trust know it’s not simple for heirs, but that is…

Trusts are like life insurance. It's not about when you're old and your kids are all grown up and self-reliant. The point of the trust is when you have younger kids and need to plan for you and your significant other both dying unexpectedly. It's no use naming your 8 year old as a beneficiary because they won't be able to use any of the assets without trusted adults.

Re: Money mistakes you didn't know you're making

#29

Post by eszed »

PopAlongKid wrote: post #16

>you could have a large tax bill when you file your taxes the following year. And if it’s too large, the IRS will even impose a penalty It is actually called an "addition to tax", not a penalty, and in fact it is merely an interest charge, just like if you don't pay the full balance on your credit card each billing period (for tax, the "billing periods" are the (roughly) quarterly dates when estimated payments are du…

Don't #1 and #3 become true when you consider capital gains on an appreciated account? Genuine question, because how I'd thought of it, and your assertion shakes my confidence in my understanding.

Re: Money mistakes you didn't know you're making

#30

Post by putlake »

PopAlongKid wrote: post #16

>you could have a large tax bill when you file your taxes the following year. And if it’s too large, the IRS will even impose a penalty It is actually called an "addition to tax", not a penalty, and in fact it is merely an interest charge, just like if you don't pay the full balance on your credit card each billing period (for tax, the "billing periods" are the (roughly) quarterly dates when estimated payments are du…

1. There are penalties for underpayment of estimated taxes. And there are even interest charges on penalties. https://www.irs.gov/payments/underpayment-of-estimated-tax-b...

2. The triple tax advantage is not ridiculous. (1) and (3) are not the same thing. 401k for example is not taxed going in (you fund it with pre-tax dollars) but is taxed when taken out. When you withdraw money from your 401k in retirement, you owe taxes on the capital gains that have accrued in the account since you first put the money in. But if you take money out of HSAs for paying medical bills, there is no tax on the capital appreciation you have enjoyed in your HSA account.

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