Need investment and grown up help 101

[keyslover]

DH and I need some help. He is finally making enough money that we are able to breath and not just survive. We've been focusing on paying things down this year.

We realize we have money we can use to retroactively invest for 2020. We just aren't sure how.

I don't work outside of the home, we haven't maxed out his 401 or our HSA for last year. (Or this year either). We want to set ourselves up for the future and also help with a lower tax bracket.

Taxes have been filed with TT and I think we've outgrown them.

Any suggestions? Who would we contact for help with this stuff?

[sakura]

Are you under the income limit for a Roth IRA? If so, I’d put extra money there. You can still contribute to 2020.
Why do you think you’ve outgrown TT?

[dr.girlfriend]

I vote Roth too.

[tcu2003]

Another vote for Roth.

[ohgillian]

So there was a point when I felt like I had outgrown TT, and it was because I was receiving tax forms that I couldn't even figure out where to put in TT, and I was being asked questions in TT that I didn't know how to answer.

So I got multiple local recommendations for a CPA, he was highly recommended, and he was terrible. (<-- NOT saying all CPAs are terrible.)

I went back to TT the next year and paid for the highest level plan, whatever that is. The one where you can schedule video chats with CPAs to help you file correctly. Plus it has the audit protection, where they'll help you if you get audited. I'm really happy with this solution for me. I like scheduling a call and being like "I don't know what X is even asking."

[gt7301b]

Another vote for a Roth, but it won't help you lower your tax bracket. I would argue that this shouldn't necessarily be that big of a concern but wanted to make sure you are aware of that fact.

You could do $6,000 for 2020 and 2021 for both of you.

[keyslover]

Mar 18, 2021 20:14:09 GMT -5 sakura said:

Are you under the income limit for a Roth IRA? If so, I’d put extra money there. You can still contribute to 2020.
Why do you think you’ve outgrown TT?

I think we are under the income, I'd need to check limits.

Ok, after reading with ohgillian said, I feel better about continuing TT.

My thought was we'd have more forms, documents for filing and I'd be in over my head. But I think we just need help getting on track financially and taxes may be manageable.

[keyslover]

Mar 19, 2021 10:57:18 GMT -5 gt7301b said:

Another vote for a Roth, but it won't help you lower your tax bracket. I would argue that this shouldn't necessarily be that big of a concern but wanted to make sure you are aware of that fact.

You could do $6,000 for 2020 and 2021 for both of you.

Darn. Is an IRA deductible at all?

[ohgillian]

Mar 20, 2021 13:39:38 GMT -5 keyslover said:

Mar 19, 2021 10:57:18 GMT -5 gt7301b said:

Another vote for a Roth, but it won't help you lower your tax bracket. I would argue that this shouldn't necessarily be that big of a concern but wanted to make sure you are aware of that fact.

You could do $6,000 for 2020 and 2021 for both of you.

Darn. Is an IRA deductible at all?

This is an overstatement, so hopefully someone will roll in here with the details. But broadly: contributions to a traditional IRA are tax deductible; contributions to a Roth IRA are not. 

[ohgillian]

Mar 20, 2021 13:38:29 GMT -5 keyslover said:

Mar 18, 2021 20:14:09 GMT -5 sakura said:

Are you under the income limit for a Roth IRA? If so, I’d put extra money there. You can still contribute to 2020.
Why do you think you’ve outgrown TT?

I think we are under the income, I'd need to check limits.

Ok, after reading with ohgillian said, I feel better about continuing TT.

My thought was we'd have more forms, documents for filing and I'd be in over my head. But I think we just need help getting on track financially and taxes may be manageable.

I really thought our stuff had gotten too complex for TT. Then I found out that my fancy cousin who has tons of $ still uses TT, and she told me that her approach is basically what I said I now do, above. I thought, well, if it can handle her financial life, it can handle mine. 

Here's a table showing the Roth income limits for last year (2020, which you can still contribute to until April 15):  investor.vanguard.com/ira/roth-ira-income-limits


ETA: edited for clarity

[sakura]

Mar 20, 2021 13:39:38 GMT -5 keyslover said:

Mar 19, 2021 10:57:18 GMT -5 gt7301b said:

Another vote for a Roth, but it won't help you lower your tax bracket. I would argue that this shouldn't necessarily be that big of a concern but wanted to make sure you are aware of that fact.

You could do $6,000 for 2020 and 2021 for both of you.

Darn. Is an IRA deductible at all?

An IRA is deductible. Tax brackets are done in groupings of income, so the first $X is taxed at one rate and the remainder of your income in excess of that is taxed at a higher rate. So having a goal of reducing your taxable income may not have as large of an impact as you’re hoping for because it doesn’t lower the tax on all of your income, just a portion if you bump down a bracket.

[goldengirlz]

Using tax software or not probably has less to do with how much money you make and more about how straightforward your income sources and deductions are. For example, we both make fairly high salaries but for the most part, everything we’re entering is fairly common. The most complicated tax issue we face is that I get a lot of restricted stock units, but otherwise we have pretty everyday deductions (mortgage interest, SALT, charitable donations, childcare ... and that’s about it because we’re both W4 employees without a lot of income from other sources.)

BUT, if you’re not maxing your H’s 401k, that’s definitely where I’d start and then, yes, look into IRAs. (Some are tax deductible now and you pay taxes later; others are not tax deductible but the earnings grow tax-free.)

I can’t remember if you have kids or not but 529s are tax deductible in some states (but not on federal taxes.)

[Poppy]

Mar 20, 2021 13:39:38 GMT -5 keyslover said:

Mar 19, 2021 10:57:18 GMT -5 gt7301b said:

Another vote for a Roth, but it won't help you lower your tax bracket. I would argue that this shouldn't necessarily be that big of a concern but wanted to make sure you are aware of that fact.

You could do $6,000 for 2020 and 2021 for both of you.

Darn. Is an IRA deductible at all?

The income limits to deduct traditional IRA contributions are kind of low if you are covered by a retirement plan at work. www.irs.gov/retirement-plans/plan-participant-employee/2020-ira-contribution-and-deduction-limits-effect-of-modified-agi-on-deductible-contributions-if-you-are-covered-by-a-retirement-plan-at-work That's pretty much the only way to reduce your income from last year at this point, afaik. You can probably do a 2020 deductible IRA contribution in your name though.

I don't know what your income is, but I find it unlikely by your description that you will meaningfully "lower your tax bracket" with this strategy.

I agree 401k and/or Roth IRA are probably best options. Also we have not found need for an accountant even with fairly high earnings and investments and even some tricky things like ESSP plan through work. TurboTax is probably sufficient. If I owned a business or rental property, then I would consider an accountant.

[lust2hart]

Contributing to your HSA will reduce your taxes. The limit for 2020 is $7100 per family.

[keyslover]

Thanks everyone.
We are actually going to meet with a financial advisor tomorrow.

Not gonna lie, I'm nervous because I don't want to be judged for all the poor decisions DH and I have made over the years. We did have to deal with long term medical issues which equates to debt and loss of income.

I keep telling myself it is ok, looking forward is what's important. Growth mindset is tough!

[gt7301b]

If the financial advisor judges you they aren't the tight person for you. Good luck!

[ohgillian]

Mar 24, 2021 19:18:16 GMT -5 keyslover said:

Thanks everyone.
We are actually going to meet with a financial advisor tomorrow.

Not gonna lie, I'm nervous because I don't want to be judged for all the poor decisions DH and I have made over the years. We did have to deal with long term medical issues which equates to debt and loss of income.

I keep telling myself it is ok, looking forward is what's important. Growth mindset is tough!

Ditto what gt7301b said: if they're judgey, they aren't right for you. Even if you've made terrible decisions in the past, you're hiring this person to help you move forward. You are paying them, and they owe it to you to treat you respectfully.  If you guys don't click, you don't have to meet with him/her again. Let us know how it goes!