Investing without a tax-deferred account

My new job does not have a tax-deferred account option – other than an HSA.  I don’t believe we can even *have* an HSA until the end of the year.  We’re using Dad’s Health Care FSA (although, we can drop it when we update his coverages because our health insurance has changed – “qualifying event”).  The new company contributes $1500/year to an HSA (high deductible plan – hope I can use Dad’s high deductible plan, and their HSA – since I hopefully won’t be there long).  We may be able to contribute $6,550 to the HSA for the year (which I’m going to see if I can make happen almost all at once if we can contribute – might as well get in on the fun while I can).

I *was* going to max my 401(k) contributions starting in August, but well, that plan is shot at the moment.  So, the best I can do is the HSA (if I can contribute), and try to get a deduction for a traditional IRA contribution – not sure if I can because I was covered under a plan for part of the year.  And then sock away a lot into a taxable account.  I *think* we’ll be able to contribute to a Roth, but our taxes will be *super* high this year without me being able to shelter some (at least 6k extra), so it probably doesn’t make sense.

I am getting ~$8,800 in accrued paid time off – no idea when that’s coming through or in what form (will taxes be taken out of it? will it be as part of payroll from the new company?).  It will be a nice pad to our emergency fund – which I had just almost drained to pay off my loans (talk about bad timing).

We’re moving into “save a lot” mode where we’re going to try to save 90% of my net salary, or about 35% of our total gross (we still have to pay daycare if I work, so we can’t do 100% of mine).  That extra money will be invested in a taxable account.  I’ve so far only been investing in ETFs in my taxable account – in about a month, I should have enough to switch those over to mutual funds.

We’re going to use Dad’s health insurance, because it’s too annoying to switch again, and at the moment, his job is more stable.  I’m hoping to find a new position in the next month.  I already had to cancel my annual exam (originally scheduled for 6/2 and way overdue – should have been in April) because I had no clue what my insurance status would be. I just need to get the paperwork from our HR that says I was “laid off” to give to Dad’s company to start under their plan next week.  From what I can tell, their prices are about the same as Dad’s.

Does anyone else have to deal without a tax-deferred savings?  I’m already looking for another job, but aside from that, how do you deal with investing for retirement?

8 thoughts on “Investing without a tax-deferred account

  1. donebyforty

    That’s a tough one. If I were I were in your shoes, I might focus on any sort of tax breaks I could finagle by the end of the year to make up for the loss of a 401k. It might be worth it to talk to a CPA.

    Reply
    1. Mom Post author

      We worked with a great CPA when we were audited – I’ve put in a call to him to set up an appointment to talk about our options. Dad’s company won’t let us sign up for the HSA this year because he was covered under an FSA so far this year. So no HSA for us. His company contributes 2250 to an HSA though!

      Reply
  2. evenstevenmoney

    There are options out there, but as done by forty mentions it might be worth talking with a “fee only” investment or tax advisor. If I had no tax deferred vehicles, I would start moving more towards real estate, dividend producing stocks, and tax-free bonds.

    Reply
    1. Mom Post author

      Right now, the plan is to continue buying no-fee ETFs with low turnover (whole stock index funds) in the taxable account – at least until we have enough to change over to the equivalent mutual funds. We’ve done real estate in the past, and have no interest in doing it again, so our only RE exposure is through our house and about 5% of our investments in an REIT fund in a tax-deferred account.

      Reply
  3. DaddyTheInvestor

    My advice is to obviously maximize contributions to tax advantaged accounts (i.e. 401Ks and IRAs) You should be able to contribute $5,500 to an IRA regardless of whether you participated in an employer plan or not. You will have to determine if your income levels allow you to contribute to a ROTH IRA. If not, you can still put the money into a “regular” IRA. Again, whether you will be able to deduct the contributions from your taxes will depend upon your income levels. Even if you can’t deduct your contributions, it still makes sense to put the money in an IRA vs a taxable account because at least the earnings will grow tax deferred (or tax free in the case of a ROTH.)

    After maximizing tax advantaged contributions, I would focus your taxable savings on low fee ETFs or mutual funds. I use a mix of the two. I avoid the trading costs on ETFs by using a brokerage that sells its own ETFs directly with no transaction fees. And by low fees, I mean in the range of 0.1% to 0.5% at the most. Over the long haul, lower fees, really helps to boost your returns over comparable investments.

    Finally, I would also focus the taxable account on investments the generate the least amount of “net loss due to taxes”. I say net loss due to taxes because a “tax free” investment (think municipal bonds, may generate less total returns than a comparable taxable bond investment after you pay the taxes. You have to take into account your personal situation (i.e. what’s your marginal tax bracket and any state taxes). And your situation may change from time to time so be sure to reassess as circumstances change.

    In general, you want your income producing investments in tax deferred accounts and long term gains investments in your taxable account to minimize the tax bite.

    I hope this helps.

    Reply
    1. Mom Post author

      I did a totally different choice – I got a different job that has a 403(b) 🙂 I’ve still contributed some to my taxable account during the 3 months I couldn’t contribute to a tax-sheltered account, and pretty much everything went into either ITOT or DVY (both index ETFs).

      Reply
  4. DaddyTheInvestor

    Congrats on getting a job that offers a 403(b) option.

    Both of those ETFs are good choices with respect to fees. FYI, a quick web search indicates that both of those ETFs trade commission free through Fidelity. Commission free trading is something worth considering if you are making frequent (i.e. monthly) small investments. There are other brokerages that also offer commission free trades on various ETFs. I haven’t used Fidelity so I can’t comment on their service. I have used Vanguard and TD Ameritrade and have been happy with both of them.

    Reply
    1. Mom Post author

      I picked them because they were free-to-trade index funds via Fidelity (where I have most of my money). I use a filter when searching: NTF – if it’s not NTF, I don’t even bother evaluating it. I will be getting a Vanguard account soon(-ish) as that’s where my new 403(b) is held, but I haven’t gotten the paperwork I need to register for online access yet.

      Reply

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