Retirement strategy

[youdontkillmoney]

So am I missing any options to save for retirement, wife (37 years of age and ten years at her present employer) has a Traditional IRA and 401k type plan at work, plus her work contributes to a separate defined contribution plan for her at their sole cost; I make sure she maxes out her IRA  at $5,000 and the 401k type plan at $18,000 a year (which the employer matches up to their limit). She cal also rely on social ssecurity, hopefully.

But the post is more about me (41 years of age and 10 years at present employer), I have:

1. I hope social security will still be around andwill rely on this as appropriate

2. Traditional IRA--I max to the $5,000 limit

3. I teach college part-time so have a California State teachers retirement system (CalSTRS) account which a par tof my paycheck goes into, I consider it as a small part of my overall retirement as this is only in existence due to my part time job as a college professor

4. I have a 401k type account at work, which I max out at $18,000 (no employer contribution)

5. I have a retirement pension at my full time job (basically I get 80% of my highest salary, which would be $96,000 or 80% x $120,000 if I stay stuck at my $120,000 which is hopefully unrealistic as I can still get promoted at top out at $150,000, and health care covered, I think for spouse too)--I work for a City government

6. I just opend an annuity retirement account with my full time employer (City gov), contribute $200 a pay period and figure for the next 20 years I'll have accummulated $100,000 and any earnings, just consider it a supplmentary account for retirement pocket money

7. I have a Vanguard variable annuity which I contribute $250 a month; again just considered an extra retirement account for pocket money

That's all, am I missing any retirement accounts I can open as someone who earns W2 income that helps defer taxes until I retire. Of course there's plain old savings accounts too and investing disposable income to have money in retirement, but that's a given? (I guess I can open annuity accounts for her too and stash money there)

 (And I can always work part time when I retire,but let's assume we do not work part time for extra pocket cash or I do not even go back to work full time at a different place and collect a paycheck and a pension at the same time)

I'm 41, plan to retire in 20 years, at 60 years old, or maybe stay longer with the City gov as long as it is bearable/enjoyable, maybe stay five more years and retire 65.

[tacpoly]

There are a few things I would do differently from you:

1.  I wouldn't bother contributing after tax money to the traditional IRA because there really isn't any advantage to doing it specially if you cannot do a conversion to a Roth because of maximum income limits.  Here is why:  when you finally take distribution from your traditional IRA, all your gains will be taxed as ordinary income (regardless of whether the original contributions were before or after tax).  Why is this bad?  Because if you invested the same amount into individual securities outside the IRA all the gains you take out (after 1 year) will be taxed as long-term capital gains, which I believe is much lower than ordinary income tax rate.  Investing outside the IRA also gives you more flexibility in terms of not having to pay the 10% penalty for withdrawal.

2.  I would be consulting a financial planner.   

3.  Do you already own a house or is that in the future?

[youdontkillmoney]

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@tacpoly wrote:

There are a few things I would do differently from you:

1.  I wouldn't bother contributing after tax money to the traditional IRA because there really isn't any advantage to doing it specially if you cannot do a conversion to a Roth because of maximum income limits.  Here is why:  when you finally take distribution from your traditional IRA, all your gains will be taxed as ordinary income (regardless of whether the original contributions were before or after tax).  Why is this bad?  Because if you invested the same amount into individual securities outside the IRA all the gains you take out (after 1 year) will be taxed as long-term capital gains, which I believe is much lower than ordinary income tax rate.  Investing outside the IRA also gives you more flexibility in terms of not having to pay the 10% penalty for withdrawal.

2.  I would be consulting a financial planner.   

3.  Do you already own a house or is that in the future?

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^^^

Thanks for advice.

I will have to consider your advice on contributing to the Trad IRA given what you said, I suppose you are right that if I invested in a regular brokerage account it also is tax deferred until I cash out, same with Trad IRA but in a non retirement account I have more flexiblity to withdrawal; the income limitations may have neutralized any IRA advantages. I suppose one good thing about the IRA is it "forces" me not to sell or touch it (except for one time $10K max. withdrawal for buying a home, but stil lpay taxes just no penalty)

As for a home, been trying to avoid it as I do not want to stay in Cali, but roots are too many and strog here from work to family and friends so plan to make a first home purchase in 2016, mid to late 2016.

[youdontkillmoney]

Gave it some more thought regarding Trad IRA, I suppose the benefit is that contrib to a Trad IRA is tax deferred esp. if I expect my tax bracket to be lower in retirement, but also compared to a plain brokerage account with more flexibility to withdrawal, a Trad IRA contribution forces me or anyone to not withdrawal the money or be penalized, so it helps one not actually spend the money. Most can benefit from the restriction to avoid spending it. I suppose I want that as well, to have measures in place tht stop me from spending money I have access to and lock it in a retirement account. I'll keep maxing all retirement accounts.

[bada_bing]

An underutilized savings program useful for retirement is the HSA.

If you qualify, mostly by having a qualifying high deductible insurance

policy, they are very attractive. Fund with pretax money, no tax for healthcare

Related withdrawals and can be used for general expenses after retirement.

Great way to augment IRA/401k contributions.

[youdontkillmoney]

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@bada_bing wrote:

An underutilized savings program useful for retirement is the HSA.

If you qualify, mostly by having a qualifying high deductible insurance

policy, they are very attractive. Fund with pretax money, no tax for healthcare

Related withdrawals and can be used for general expenses after retirement.

Great way to augment IRA/401k contributions.

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^^^^^^^

Thanks for the additional thought. I never contributed money to this account since we (37, and 41 years old) do not have much healthcare expenses and no kids.

Besides, my work plan states:

"It is important to estimate expenses carefully and set aside only the amount you think you will need while you are contributing to the account during 2015. You must file claims for 2015 expenses by April 30, 2016. If you do not file claims by this deadline, you forfeit any money left in your account. This is an IRS rule and the Flex program cannot make exceptions."

At most I'd prob. just put $300-$500 in for Rx glasses/contacts, our copays for medical, maybe $50 under each year. It's interesting for HSA under my employer's benefits, I forfeit any unused money. I just rather keep life simple and not contribute to HSA since I don't use it much anyway.

[tacpoly]

I think you're confusing HSA with FSA (use or lose).

The only drawback with HSA - and I'm not really well versed with it so can be wrong - is having to have a high deductible insurance. Is this in addition to what may be current insurance coverage?

[youdontkillmoney]

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@tacpoly wrote:
I think you're confusing HSA with FSA (use or lose).

The only drawback with HSA - and I'm not really well versed with it so can be wrong - is having to have a high deductible insurance. Is this in addition to what may be current insurance coverage?

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^^^^

You are probably right. I don't think it's a good fit for me still since our deductibles are not high, I use Kaiser. I'll look into HSA a bit more: https://www.wellsfargo.com/investing/hsa/

Looks like after age 65 the HSA funds can be used for everyday spending: https://www.wellsfargo.com/investing/hsa/hsa-benefits/

Thanks for letting me know about this, this would be good for someone who has extra to put away for retirement and HSA is another vehicle for doing so but has the added benefit of being able to use it NOW for qualified medical expenses through retirement

[youdontkillmoney]

My research indicates I do NOT qualify for HSA since I AM covered by my spouse's health insurance (PPO) also, and I also have Kaiser through my employer, and she also has Kaiser through my employer--we both have double coverage since Kaiser through my employer for thw whole famly--though it is only 2 of us--is free (no premiums for me to pay):

You must not be:

• Covered by any other health plan, including your spouse’s health insurance
• Covered by your own or spouse’s medical Flexible Spending Account (FSA)
• Enrolled in any part of Medicare or Tricare
• Receiving Veteran’s health benefits now or in the past 90 days
• Claimed as a dependent on another person’s tax return

[Anonymous]

It still might be worth switching depending on the plans. I was covered by my wife's plan but we moved ourselves to a HDHP with HSA and get $1,000 contribution from my employer and save another $1,500 in income tax for an increased deductible of around $3,000. The out of pocket maximum is actually lower than it was on the other plan too

Also, if you pay for medical expenses out of pocket and keep the receipt, you can use the "reimbursement" to withdraw funds any time. So if I have to pay $2,000 for a procedure tomorrow, I can save the invoice and send it in 10 years later if I need $2,000 for whatever reason. No penalty or taxes.