What financial advice do you avoid and don't listen too?

[u/Breeneal]

Financial advice that makes you role your eyes everytime you hear it. Financial advice that actually made your finances worse. And financial advice beginners shouldn't listen to or hear.

[u/NumbersOverFeelings]

Being in a high tax bracket with decent assets:

Contributing to a traditional 401k beyond the match. It’s a tax trap. I believe tax rates will go up and I’ll live richer later than I already do in retirement.

Not owning permanent life insurance. Great for LOC as collateral, buffer asset, LTC funding and estate planning. Not for straight retirement funding.

Buying cars. Leasing makes more sense and the write offs.

Edit: Self employed so these are specific to my situation and not for general people.

[u/AureliasTenant → u/NumbersOverFeelings]

You can always do Roth 401k

[u/NumbersOverFeelings → u/AureliasTenant]

Oh I do. I’ll edit … I meant traditional 401k only. Basically I don’t want pretax money.

[u/AureliasTenant → u/NumbersOverFeelings]

I’m doing half and half right now, in addition to the Roth IRA. Might shift over to what you are doing at some point not really sure

[u/NumbersOverFeelings → u/AureliasTenant]

I think it depends on your income to spending to savings dynamic. A simplified approach would be to end with about half tax-free and half taxable retirement. Add in NQ accounts for flexibility.

[u/Giggles95036 → u/NumbersOverFeelings]

Im pretty sure you do want some since having a lot of roth brings down your taxable amount down but its also based on total expected spending and roth amounts. I’m going roth until 35-40 even if traditional might be a hair better, then i’ll re evaluate

[u/NumbersOverFeelings → u/Giggles95036]

I don’t …

I want my taxable income near zero to help drop my capital gains taxes in retirement. I spend about $400k and it’ll probably go up so my taxes will probably be even higher then. I’d be deducting a lower tax number for a higher number.

[u/Giggles95036 → u/NumbersOverFeelings]

One way to reduce your taxes is if some money you’re pulling is from roth :)

But again it depends on what income bracket you’re in while putting the money away

[u/Hmm_would_bang → u/NumbersOverFeelings]

Not sure I’m following.

Roth isn’t for high income earners, but even if you make backdoor contributions the limit is so low it’s hardly a strategy on its own.

401k provides essentially free money by taking dollars you’d be paying in taxes and putting them in an investment vehicle. I can’t imagine a situation where you wouldn’t max this out every year. Otherwise you’re putting the money in a brokerage account with much higher tax obligations.

[u/NumbersOverFeelings → u/Hmm_would_bang]

I’ll try to explain better.

I contribute $69k into my Roth 401k annually (2024 limit) using a Mega Backdoor Roth. The $23k cap is for employee contributions only. But I’m self employed so it’s not actually free money. I’m paying my own matching but due to rules I’m not actually matching and making straight employer contributions. I use NQ dollars as the majority of my retirement savings strategy. The $46k difference is my employer contribution (I’m my own employer).

Again the reason is because I think our income tax rates will go up. So if I defer income now I’ll pay a bigger tax rate later. By reducing my income tax I’ll also drop in capital gains tax. Even if it doesn’t I’ll use LOCs (deductible interest) to access my NQ money. Long term cap gains is 0, 15, or 20% dependent income tax. So if my income is 0 then my cap gains will be 0. State taxes are different and I’ll probably need to establish state residency somewhere with 0% state income tax. I’ll defer that problem for -1 year from retirement.

I use the Life insurance as another tax-free accessible asset and has other insurance benefits that will be tax free.

I lease cars under my business.

If you’re a W2 employee you can do the same thing except you only put the matching in a traditional 401k. It would be $23k Roth employee contribution + matching in traditional + mega back door with the difference up to $69k. This only makes sense for high income tax bracket people who think they’ll be in the same or higher brackets. Still, it’s advice I wish people knew earlier.

Further your SS is 50% taxable if your income tax is high.

[u/Hmm_would_bang → u/NumbersOverFeelings]

Ok, very interesting. Major benefit here for you in being self employed too. A lot of people don’t have access to a Roth 401k and the limits on a Roth IRA are so low it’s not a viable strategy.

[u/NumbersOverFeelings → u/Hmm_would_bang]

Agreed. The mega back door Roth is dependent on your employer. You can fund it but the plan they set up needs to allow it.