Dumb Question - What's After 401k and Roth?

[tco]

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Assuming an attending salary and no children, if my 401k and backdoor Roth are maxed out, what's the next most sensible step(s)? I've never actually seen anything spelled out.

 

[Plastikos]

An HSA is perfect if available, though tiny contribution limits.

If you were around 40, have a high steady income on a 1099 you could do a defined benefit plan. If employed some places have 457, etc...

Otherwise you mostly have a taxable which is totally fine and preferable in many circumstances.

 

[sazerac]

^agree

While hunting for tax free accounts is fun, they are all limited (especially if not self employed).

When you invest in taxable and tax free accounts, mathematically it makes sense to put high income (bond funds) into the tax free accounts and the high growth (stock index funds) into the taxable accounts.

If you don't have it yet, The White Coat Investor book spells out the sensible steps and their preferred order for investing when you have more money than month. It's a good problem to have.

 

[keifernny2]

HSA isn't a bad idea, but for those of us who have insurance plans that don't let us have HSA ( and don't want to sign up for a high deductible plan) the next step would be to open a brokerage account through one of the major brokers. Profits are taxable generally (unless you invest in muni bonds / funds) and some of them give free trades in their own funds / etfs or specific funds. It's pretty easy to sign up online and almost always pays better than a savings account.


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[Raryn]

Assuming an attending salary and no children, if my 401k and backdoor Roth are maxed out, what's the next most sensible step(s)? I've never actually seen anything spelled out.

If you're on a 1099 or self-employed, you can put up to ~$54k in an individual 401(k).

But if you're not, and you're maxing out your 401(k) and backdoor Roth, the next step (other than small ones like the HSA) would be to just get a taxable brokerage account. You can do it through all the usual suspects, though typically vanguard, fidelity, and schwab are the best for no fees (as long as you buys funds from within their own family).

 

[tco]

Thanks all.

I'm not quite there yet, but was curious about to what to read about for when the time comes (it's fast approaching).

 

[Stroganoff]

• Echo the taxable investment account. If you're considering financial independence, you can live off the taxable account until age 59 1/2 when the 401k/IRA withdrawals kick in.
• Also consider a 529 college savings plan as another large tax shelter. You can open one up in your own name right now (even with no kids) and then change it once kids come (if that is your plan) or for the benefit of a nephew/niece/etc.
• Another common scenario is to find some way to earn self-employment income, allowing you to open up a Solo 401k that can be maxed out.
• If you are married, max out spousal Roth IRA, and any tax-advantaged 401k/403b/457 accounts. Same with spousal Solo 401k.
• Don't forget about liquid savings. Massive emergency fund. Separate accounts for short- and medium-term goals like house down payment, next vehicle, vacations, honeymoons, etc.
• This one's way out there requiring more CPA/legal consults, but look into starting a charitable foundation. Then use the money to endow scholarships, give to charities you believe in, build new university research labs with your name on them.
• Assumption that you have no debts (student loans, mortgage, consumer). Otherwise just eliminate them.

 

[sazerac]

• Echo the taxable investment account. If you're considering financial independence, you can live off the taxable account until age 59 1/2 when the 401k/IRA withdrawals kick in.
• Also consider a 529 college savings plan as another large tax shelter. You can open one up in your own name right now (even with no kids) and then change it once kids come (if that is your plan) or for the benefit of a nephew/niece/etc.
• Another common scenario is to find some way to earn self-employment income, allowing you to open up a Solo 401k that can be maxed out.
• If you are married, max out spousal Roth IRA, and any tax-advantaged 401k/403b/457 accounts. Same with spousal Solo 401k.
• Don't forget about liquid savings. Massive emergency fund. Separate accounts for short- and medium-term goals like house down payment, next vehicle, vacations, honeymoons, etc.
• This one's way out there requiring more CPA/legal consults, but look into starting a charitable foundation. Then use the money to endow scholarships, give to charities you believe in, build new university research labs with your name on them.
• Assumption that you have no debts (student loans, mortgage, consumer). Otherwise just eliminate them.

This is awesome advice. A couple of tweaks-

If you are married, you can double the contributions to the 529. A 529 contribution is deductible against state income (triple tax free, like an HSA) but not federal income (only double tax free, like a traditional IRA).

Running one's own charitable foundation can be a pain in the ass. Maybe some people get joy out of the control, but I have other things I would rather do. I have had good luck making donations to large institutions (like a university) that can run the foundation for me according to a set of rules established at the beginning. I have one that is 20 years old now and I still get statements saying the Sazerac Fund has $X, spent $Y on good works, and sometimes includes a thank you letter from a recipient.

 

[FirstNobleTruth]

For your shorter-term savings, such as emergency fund, house down-payment, etc - what vehicle are you using? I imaging keeping it in your checking account isn't the best way to go about this.

Thank you.

 

[Raryn]

For your shorter-term savings, such as emergency fund, house down-payment, etc - what vehicle are you using? I imaging keeping it in your checking account isn't the best way to go about this.

Thank you.

For emergency fund where you could need it anytime, I'd recommend just a decently high yield savings account. Something like Ally (1% is about as high yield as you'll get these days)

If it's a house down payment and you think you won't need it for a couple years, can consider opening a CD somewhere.

 

[sazerac]

For your shorter-term savings, such as emergency fund, house down-payment, etc - what vehicle are you using? I imaging keeping it in your checking account isn't the best way to go about this.

Thank you.

We use Capital One 360, which is usually in the top 5 for interest rates. Ally generally has a slightly higher yield, but my family already had a relationship with Capital One and it made our life easier.

Yeah it can be frustrating to see yields around 1%, but rest assured there isn't any magic place we are all earning 5.25% on our emergency funds. Low yields in 2017 are just the cost of having instant access for when the oil pan falls off the car next week. The goal of an emergency fund isn't high yield, it's liquidity.

 

[jacksparrow82]

Taxable accounts are where the bulk of your money will end up if you're a high paid physician. You can only put $18k in a 401k, $5500 in a ROTH, and $3400 in an HSA each year. That's really not much money as an attending. You'll easily have another $5-10k + per month to invest once your student loans are paid off. Most people put those funds in taxable brokerage accounts and pick tax efficient investments.

 

[jacksparrow82]

For your shorter-term savings, such as emergency fund, house down-payment, etc - what vehicle are you using? I imaging keeping it in your checking account isn't the best way to go about this.

Thank you.

Its best to keep those funds in a high interest rate savings account. I use Ally for their 1% savings accounts. As the fed raises the interest rates those rates will eventually go up as well. Under higher inflation, savings accounts could pay 3-4% or more.

 

[jacksparrow82]

Thanks all.

I'm not quite there yet, but was curious about to what to read about for when the time comes (it's fast approaching).

Have you visited White Coat Investor yet? That's where you should spend some time if not. All the questions you could possibly come up with are already answered there😉 WCI posts here frequently as well. whitecoatinvestor.com

 

[G-Man82]

My EF is in an Ally 1% Savings account and partially in I-Bonds.

My short-term savings (for eventual down-payment) has been moved to a Vanguard taxable account and invested in Vanguard's Limited Term Tax-Exempt bond fund: a short-term tax-free fund with a SEC yield of about 1.5%. A little more risky than a vanilla savings account, but it's average duration is 2 years and I don't plan to use it until then anyway. I figure why not get a slightly higher yield, which after taxes is actually a much higher yield than a regular savings account.


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[The White Coat Investor]

Make sure you don't have any other tax-advantaged accounts available to you (defined benefit, 403b, 457, solo 401(k), HSA etc.)

Then it's a matter of paying down debt vs taxable investing vs spend it on something fun.