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Should You Roll Over to an IRA?

Rolling funds to an IRA can be advantageous, but it depends on the specifics of your situation. Consider the following:

Reasons to Roll Over to an IRA:

  1. Lower Fees: IRAs often give you access to low-cost index funds and ETFs (e.g., Vanguard or Fidelity), which may have expense ratios as low as 0.03% to 0.1%.

  2. Greater Investment Options: Unlike 401(k)s, which limit fund choices, IRAs offer a wide variety of investments, including ETFs, stocks, and bonds.

  3. Consolidation: Rolling over can simplify your finances by having fewer accounts to manage.

  4. No Employer Restrictions: If you’ve left the employer offering the 401(k), rolling funds out can free you from their fee structure and plan limitations.

Reasons to Keep the 401(k):

  1. Creditor Protection: 401(k)s often have stronger protections from creditors and lawsuits compared to IRAs, depending on your state.

  2. Plan-Specific Features: Some 401(k) plans allow loans or other benefits that IRAs don’t.

  3. Penalty-Free Early Withdrawals: If you’re aged 55-59.5 and separate from your employer, you can withdraw funds from a 401(k) penalty-free, unlike IRAs, which have a higher threshold of 59.5 for penalty-free withdrawals.

  4. New Employer Match: If your new employer allows you to roll your old 401(k) into their plan, you might benefit from lower fees or new matching contributions.

Steps to Evaluate and Act:

  1. Compare Costs:

    • Check the combined admin fee (0.71%) and expense ratios of your 401(k) investments.
    • Compare these costs to low-cost IRA providers like Vanguard, Fidelity, or Schwab.

  2. Analyze Investment Options:

    • Does the 401(k) offer high-quality, low-cost funds (e.g., index funds)? If not, an IRA rollover could give you better choices.

  3. Plan Your Rollout:

    • If you choose an IRA, contact your 401(k) provider and preferred IRA custodian to execute a direct rollover to avoid taxes and penalties.

Bottom Line:

A 0.71% admin fee is high, so rolling over to an IRA is likely a smart move, especially if:

  • You want to reduce fees and gain access to more investment options.
  • You don’t rely on features like loans or penalty-free early withdrawals from your 401(k).

However, weigh the creditor protection and withdrawal flexibility of your 401(k) against the benefits of an IRA before deciding. If you’re unsure, consulting a financial advisor to analyze your

Here’s a breakdown of your situation and considerations:

Why You Might Want to Switch from a TDF

  • Control Over Allocation: If you prefer a different U.S./International split than the TDF provides, switching gives you flexibility.
  • Avoid Bonds: Many TDFs include bonds even at younger ages, which may not align with your growth-oriented goals.
  • Cost Efficiency: If the TDF’s expense ratio is higher than VTI/VXUS or comparable funds, switching can save on fees.

VTI/VXUS Split (70/30)

  • Pros:
    • Low-cost, diversified exposure to global markets.
    • Greater flexibility in adjusting allocations to suit your preferences.
    • No forced bond exposure at this stage.
  • Cons:
    • You’ll need to rebalance manually or set up auto-rebalancing (if your plan allows it).
    • International equities can underperform at times, requiring patience to stay the course.

Red Flags:

  • Ensure your 401(k) plan allows access to VTI/VXUS or similar ETFs/mutual funds. Some plans may only offer mutual fund equivalents or proprietary funds.
  • Check for additional transaction fees or restrictions in your 401(k) plan when selecting new funds.

Switching Allocations: What to Do

  1. Changing Future Contributions:

    • Go to your 401(k) portal and adjust your contribution percentages to allocate 70% to VTI (or a similar U.S. fund) and 30% to VXUS (or its equivalent).

  2. Reallocating Existing Balances:

    • Most 401(k) plans allow you to rebalance your current holdings.
    • Navigate to your plan’s “Rebalance” or “Transfer Funds” section and choose to sell the TDF and allocate the proceeds to your new funds.

  3. Fees or Restrictions:

    • Confirm whether selling the TDF will incur any fees (e.g., short-term redemption fees).
    • Ensure the new funds you choose have competitive expense ratios and no hidden costs.

Additional Tips

  • Risk Management: If you decide to avoid bonds entirely, ensure you have other safeguards in your financial plan (e.g., an emergency fund and appropriate insurance).
  • International Allocation: 30% international is reasonable, but you can adjust up or down based on your research and risk tolerance. Vanguard recommends 20-40% international equity in portfolios.

Next Steps

  1. Confirm fund availability in your 401(k) and expense ratios for VTI/VXUS or equivalents.

  2. Make the allocation changes in your 401(k) portal, adjusting both current balances and future contributions.

  3. Set a reminder to rebalance your portfolio annually or whenever your allocation drifts significantly.

Here’s how to evaluate your options:

1. Keep it in the Vanguard 401(k)

  • Pros:
    • Access to institutional funds with potentially lower expense ratios.
    • No immediate tax consequences.
  • Cons:
    • $60/year in admin fees eats into returns on a relatively small balance.
    • Harder to manage with multiple accounts.

2. Roll Over to Robinhood IRA

  • Pros:
    • Avoids Vanguard’s $60/year fee.
    • Robinhood covers $75 in IRA transfer fees (though not for rollovers).
    • Consolidates accounts for simpler management.
  • Cons:
    • Limited investment options and tools compared to Vanguard.
    • Potential hidden costs (e.g., higher spreads or less guidance).

3. Roll Over to New Employer 401(k)

  • Pros:
    • No rollover fee after the $150 (check to confirm this).
    • Simplifies management if your employer offers good investment options with low fees.
    • Can borrow against the new 401(k) if needed.
  • Cons:
    • Investment options depend on your employer’s plan, which may not be as robust as Vanguard’s.
    • Contribution limits for your current 401(k) could complicate things if you’re near the annual cap.

4. Roth 401(k) to Roth IRA Conversion

  • Yes, you can convert. This allows you to move funds into a Roth IRA if the original funds are in a Roth 401(k).
    • Pros:
    • No required minimum distributions (RMDs) with a Roth IRA.
    • Offers more investment options and flexibility.
    • Cons:
    • If you’re converting traditional 401(k) funds into a Roth IRA, you’ll owe taxes on the converted amount.

My Recommendation

  1. If your employer’s 401(k) plan has low fees and strong fund choices: Roll it into the new 401(k). This avoids Vanguard’s ongoing fees and keeps retirement funds in one account.

  2. If not: Roll it into a Roth IRA (if eligible) or traditional IRA at a low-cost provider like Fidelity, Schwab, or Vanguard (avoid Robinhood unless you prefer its simplicity). This consolidates accounts and minimizes fees.

Key Action Plan

  • Ask Vanguard if the $150 fee applies to direct rollovers to your new employer’s 401(k) or an IRA.
  • Confirm your new employer’s 401(k) expense ratios and fund options.
  • Consider whether you want tax-free growth with a Roth IRA or prefer keeping pre-tax status.
  • If you’re still undecided, park the funds temporarily in Vanguard until you finalize your consolidation plan.

Convincing your employer to improve 401(k) options requires a strategic approach, as plan offerings are often driven by cost, administrative ease, and financial literacy among decision-makers. Here's a concise plan to make your case effectively:

1. Research the Current Plan

  • Understand the Fees: Identify and highlight the high expense ratios or lack of diverse options. Provide specific comparisons with similar, lower-cost funds (e.g., Vanguard, Fidelity, Schwab).
  • Benchmark Against Competitors: Research what competitors or industry peers offer in their 401(k) plans. Highlight gaps in your company’s plan relative to best practices.

2. Build a Business Case

  • Emphasize Employee Retention & Satisfaction: Point out that better 401(k) options, such as low-cost index funds or broader choices, are attractive benefits that help retain talent and improve morale.
  • Highlight Fiduciary Responsibility: Employers have a legal obligation to act in employees’ best interest when offering a retirement plan. High-fee, poor-performing funds may raise concerns about fiduciary compliance.
  • Quantify the Impact: Use examples showing how lower fees (e.g., 0.05% vs. 0.75%) lead to significantly higher retirement savings over time.

3. Mobilize Employee Support

  • Conduct an Informal Survey: Gauge how many employees would appreciate more robust or lower-cost options. Present this data to show collective interest.
  • Form a Committee: Suggest forming a voluntary employee committee to explore better 401(k) options, showing you're taking initiative to work collaboratively.

4. Present Alternatives

  • Suggest well-known providers that offer cost-effective, highly rated plans (e.g., Vanguard, Fidelity, T. Rowe Price).
  • Recommend specific funds like S&P 500 index funds, total market funds, or target-date funds with low expense ratios.

5. Pitch to HR or Leadership

  • Schedule a meeting with HR, your manager, or the benefits administrator. Present your research and emphasize how improving the 401(k) plan aligns with company goals and employee satisfaction.
  • Offer resources like third-party consultants who specialize in optimizing employer-sponsored retirement plans.

Bonus Tip:

If improving the plan isn’t immediately feasible, ask about offering a brokerage window. This option allows employees to invest in a wider range of funds through their 401(k), bypassing the limited choices of the current plan.

To properly claim rental income from your condo on your tax return, you'll need to follow these steps and complete the appropriate forms:

### Forms Required

1. **Schedule E (Form 1040)**:

  • As the owner of a rental property, you will report your rental income and expenses using **Schedule E** (Supplemental Income and Loss). This form is attached to your individual income tax return, **Form 1040**. On Schedule E, you will detail the income received from renting out your condo and any related expenses (e.g., maintenance, property management fees, mortgage interest).

2. **Form 1040**:

  • Your total rental income from Schedule E will be included in your overall income reported on **Form 1040**.

### Steps to Follow

1. **Gather Documentation**:

  • Collect all relevant documents, including lease agreements, records of rental payments received, and receipts for any expenses related to the rental property.

2. **Complete Schedule E**:

  • Fill out Schedule E with the total rental income received and any deductible expenses. Ensure that you accurately report all income and expenses to maximize your deductions.

3. **File Your Tax Return**:

  • Submit your completed **Form 1040** along with **Schedule E** by the tax filing deadline (typically April 15th).

### Additional Considerations

- **Record Keeping**: Maintain detailed records of all income and expenses related to your rental property for at least three years in case of an audit.

- **Tax Deductions**: Be aware of what expenses are deductible (e.g., repairs, depreciation, property management fees) to reduce your taxable rental income.

- **Consult a Tax Professional**: If this is your first time filing rental income or if you have specific questions regarding deductions or tax implications, consider consulting a tax professional for personalized advice.

By following these steps and using the appropriate forms, you can ensure that you properly report your rental income for tax purposes.

Citations:

[1] https://www.clic.org.hk/en/topics/taxation/property_tax/assessable_value_and_deductions/q1

[2] https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t776.html

[3] https://www.gov.hk/en/residents/taxes/property/propertyincome.htm

[4] https://www.ird.gov.hk/eng/tax/ind_cot.htm

[5] https://pen.do/blog/filing-rental-income-property-tax/

[6] https://www.gov.hk/en/residents/taxes/taxfiling/filing/types/index.htm

[7] https://www.ird.gov.hk/eng/tax/ind_ppt.htm

[8] https://brightstart.com/learn/how-does-a-529-plan-work/

Contributing to the Illinois Bright Start College Savings Plan can provide significant tax benefits for Illinois taxpayers. Here’s how it works based on your situation:

### Key Points

1. **State Tax Deduction**: As a married couple filing jointly, you can deduct up to **$20,000** from your Illinois state taxable income for contributions made to the Bright Start College Savings Plan in a single tax year. This means if you contribute **$18,000** before the end of the year, you can deduct that entire amount from your taxable income[3][4].

2. **Refund Expectation**: While contributing $18,000 allows you to reduce your taxable income by that amount, it does not guarantee a refund of that exact amount upon filing your tax returns. Instead, it will lower your taxable income, which may reduce your overall state tax liability. The actual refund or tax savings will depend on your total income, tax rate, and any other deductions or credits you may be eligible for.

3. **Qualified Withdrawals**: Withdrawals from the plan used for qualified higher education expenses are tax-free at both the federal and state levels. This includes tuition, fees, books, and other necessary expenses[4][7].

4. **Contribution Timing**: To benefit from the deduction for the current tax year, ensure that your contributions are made before December 31st.

### Conclusion

By contributing $18,000 to the Bright Start College Savings Plan, you will be eligible to deduct that amount from your state taxable income up to the $20,000 limit for married couples. This can lead to a lower state tax liability when you file your taxes; however, it does not directly translate into a refund of the contributed amount. For personalized advice and to maximize your tax benefits, consider consulting with a tax professional.

Citations:

[1] https://www.savingforcollege.com/529-plans/illinois

[2] https://www.isac.org/students/parents/saving-for-college.html

[3] https://illinoistreasurer.gov/Individuals/College_Savings/Bright_Start_College_Savings_Plan_Enhancements

[4] https://brightstart.com

[5] https://osfa.illinois.edu/types-of-aid/other-aid/pre-paid-tuition/

[6] https://financialaid.uic.edu/types-of-aid/pre-paid-tuition/

[7] https://brightstart.com/learn/how-does-a-529-plan-work/

[8] https://tax.illinois.gov/questionsandanswers/answer.206.html

Calculating your savings rate is a nuanced process, especially for someone pursuing Financial Independence (FI). There’s no single “correct” way to do it—it depends on what you want to measure and how you define “savings.” Here’s a breakdown of methodologies and considerations to help you decide:

Core Components of Savings Rate

  1. Gross vs. Net Income

    • Gross Income (Pre-Tax): Includes salary, bonuses, and all pre-tax benefits (e.g., 401(k), HSA contributions). This provides a more comprehensive view of savings relative to your total earnings.
    • Net Income (Post-Tax): Focuses on after-tax dollars, but it excludes pre-tax contributions like 401(k) or HSA, which might understate your actual savings effort.

Recommendation: Use gross income as your base for consistency across pre- and post-tax savings.

  1. What Counts as Savings?

    • Include:
      • Retirement accounts (401(k), HSA, IRA)
      • Post-tax investment contributions (e.g., taxable brokerage accounts)
      • Sinking funds (car, vacation, house)
    • Exclude:
      • Money spent from sinking funds, since it's not retained wealth.
      • Any savings “used” for planned expenses during the year.

  2. Handling Sinking Funds If you’re actively saving into these accounts, count the contributions as part of your savings rate but exclude withdrawals. This aligns with the concept that savings are for future financial stability, not immediate consumption.

Step-by-Step Calculation Example

Let’s walk through a method to calculate your savings rate:

  1. Determine Total Savings Add together all contributions made to:

    • 401(k) (include any employer match)
    • HSA
    • IRA
    • Sinking funds (e.g., vacation, house, car)
    • Taxable brokerage accounts
    • Other cash savings or investments

Subtract any planned withdrawals from sinking funds for major expenses.

Example:

  • 401(k) contribution: $19,500 (employee) + $6,500 (match) = $26,000
  • HSA contribution: $3,850
  • Brokerage account: $10,000
  • Sinking funds: $5,000 contributed, $2,000 spent = $3,000 net savings
  • Total savings: $26,000 + $3,850 + $10,000 + $3,000 = $42,850

  1. Determine Income

    • Use gross income for consistency.
    • Include salary, bonuses, freelance/beer money, etc.

Example:

  • Salary: $100,000
  • Bonus: $10,000
  • Freelance income: $5,000
  • Total income: $115,000
  1. Calculate Savings Rate Divide total savings by gross income:

Savings Rate=Total SavingsGross Income×100\text{Savings Rate} = \frac{\text{Total Savings}}{\text{Gross Income}} \times 100Savings Rate=Gross IncomeTotal Savings​×100

Example:

Savings Rate=42,850115,000×100=37.3%\text{Savings Rate} = \frac{42,850}{115,000} \times 100 = 37.3\%Savings Rate=115,00042,850​×100=37.3%

Tracking Year-over-Year (YoY)

To compare YoY, keep consistent definitions. For example:

  • Always calculate based on gross income.
  • Separate contributions into categories (pre-tax, post-tax, sinking funds) for a detailed breakdown.
  • Add “used sinking funds” as a separate line item to track planned spending versus retained savings.

Other Considerations

  1. Why Gross Salary is Best for FI Comparisons Using gross income ensures your savings rate reflects your true ability to save, regardless of tax treatment or employer benefits. It’s also a standard in the FI community.

  2. Treat Pre-Tax and Post-Tax Equally While pre-tax dollars grow tax-deferred, they’re still part of your future savings, so it makes sense to count them. For FI, focus on total dollars being set aside, regardless of tax status.

  3. Track Net Worth Growth In addition to savings rate, monitor how your total net worth changes YoY. This will capture investment growth and reflect actual progress toward FI.

You’ve made great progress starting with a secured credit card, but there are a few things affecting your credit score that we can address. Here’s a breakdown and action plan:

Why Your Score Is Dropping

  1. High Credit Utilization

    • Using 90-100% of your credit limit (even if you pay it off in full) signals high credit usage to lenders, which can negatively impact your score.
    • Fix: Keep your utilization below 30%, ideally below 10%. For a $300 limit, aim to use no more than $30-90 at any given time.

  2. Delinquency or Serious Indicator

    • This suggests a past late payment, collections account, or other negative mark on your credit report.
    • Fix: Pull your full credit report for free at AnnualCreditReport.com to verify the details. If the delinquency is inaccurate, dispute it with the credit bureau.

  3. Multiple Accounts Listed

    • The 3 accounts reported likely include:
      • 1 Installment Loan: Likely a past car loan, student loan, or personal loan.
      • 2 Revolving Credit Accounts: Your Discover card and your old Apple Card (even closed accounts can stay on your report for up to 10 years).
    • Fix: Closed accounts generally aren’t bad if they were in good standing, but confirm that the old accounts don’t show unpaid balances or errors.

  4. Short Credit History

    • While your oldest account is listed as 5 years (from the closed Apple Card), your current active credit is only 7 months old. Lenders prefer longer credit histories.
    • Fix: Keep your Discover card open and active to grow your history over time.

Action Plan

  1. Monitor Your Credit Reports

    • Check all three bureaus (Experian, TransUnion, Equifax) for accuracy. Look for:
      • Delinquencies you don’t recognize.
      • Closed accounts showing balances owed.
    • Dispute any errors immediately.

  2. Reduce Credit Utilization

    • Keep your balance below $90 at all times. Instead of maxing out the card each month, make smaller, frequent payments to stay under the limit.

  3. Set Up Payment Alerts

    • Ensure you never miss a payment or have one reported late. Payments over 30 days late are a common cause of delinquencies.

  4. Consider a Credit Builder Loan

    • If your secured card isn’t enough to improve your score over time, a credit builder loan from a local credit union could help diversify your credit mix.

  5. Patience and Consistency

    • Building credit takes time. Stick to responsible habits—pay on time, reduce utilization, and monitor your report—and your score will improve gradually.

Key Reminders

  • Your score might dip temporarily while rebuilding, especially if past issues are affecting it.
  • Credit repair takes persistence, but with good habits, you’ll climb back up from 450 in no time.

Congratulations on paying off your credit cards! Here’s a tailored plan to maximize your financial health and creditworthiness:

Next Steps for Your Credit Cards:

  1. Keep Cards Open

    • Closing accounts can lower your credit utilization ratio (percentage of credit used versus available) and shorten your credit history, both of which are key factors in your credit score.
    • Leave them open, even if you don’t actively use them.

  2. Use One or Two Cards Strategically

    • Use a card occasionally (e.g., for recurring bills like streaming services) to show activity and prevent automatic closure due to inactivity.
    • Pay the balance in full each month to avoid interest.

  3. Set Alerts and Automatic Payments

    • To maintain your discipline, set up balance alerts and automatic payments for any card usage.

  4. Know Inactivity Policies

    • Most issuers will not close accounts immediately, but after a prolonged period (typically 12-24 months) of no activity, they might. Check with your issuers to confirm their inactivity policies.

Why Keep Them Open?

  • Boost Credit Score: Open accounts improve your credit utilization and average account age.
  • Access to Emergency Credit: Even if you don’t plan to use them, having access to credit during unexpected events can be invaluable.

Avoid Excessive Cards:

  • If you have multiple cards and feel overwhelmed managing them, consider closing cards with:
    • High annual fees (unless the rewards outweigh the cost).
    • Minimal credit limits or features you’ll never use.

However, prioritize keeping older cards open to maintain your credit history.

Based on your detailed breakdown, here are some concrete suggestions to optimize your spending and increase savings:

  1. Restaurants ($615):

    • This is your biggest opportunity for savings. Aim to reduce this by 30-40%.
    • Meal prep on weekends for busy workdays.
    • Use a cooler for travel meals when possible.
    • Target: $400/month, saving $215.

  2. Personal ($500):

    • Now that you've settled, this should decrease naturally.
    • Prioritize essential purchases and delay non-urgent ones.
    • Target: $300/month, saving $200.

  3. Physical Fitness ($230):

    • Look for free or low-cost alternatives (e.g., running instead of golf).
    • Buy used equipment when possible.
    • Target: $150/month, saving $80.

  4. Entertainment ($200):

    • Seek free or low-cost entertainment options.
    • Use library services for books and games.
    • Target: $150/month, saving $50.

  5. Gifts ($200):

    • Set a stricter budget for gifts.
    • Consider homemade or experience gifts.
    • Target: $150/month, saving $50.

  6. Subscriptions ($50):

    • Review and cancel unused subscriptions.
    • Share accounts with family/friends where possible.
    • Target: $40/month, saving $10.

  7. Car Insurance ($190):

    • Shop around for better rates.
    • Consider increasing deductibles if you have sufficient savings.
    • Target: $160/month, saving $30.

  8. Utilities ($207):

    • Implement energy-saving measures.
    • Consider a programmable thermostat.
    • Target: $180/month, saving $27.

Total Potential Monthly Savings: $662Additional Recommendations:

  1. Increase 401(k) contributions to at least 10-15% of your salary.

  2. Start an emergency fund if you haven't already.

  3. Consider opening a Roth IRA for additional tax-advantaged savings.

  4. Track your spending closely for 2-3 months to identify any other areas for potential cuts.

  5. When sales improve, allocate a portion of your commission to savings/investments.

By implementing these changes, you could potentially save an additional $7,944 annually. This would increase your monthly savings from $1,230 to around $1,892, a significant 54% increase. Remember to balance frugality with quality of life, and adjust as needed based on your personal priorities and financial goals.