Naked With Cash is the year-long series on Consumerism Commentary where seven readers’ households share their financial progress on a monthly basis. I’ve partnered with financial planners who will offer some guidance along the way. Read this introduction to learn more about the series. This month, the participants and experts will be discussing tax planning as part of their analyses.
Anonymous S is a 24-year-old engineer earning $67,000 a year plus bonus. He also builds websites on the side for an hourly fee of $20 to $35. Read his bio here. Anonymous S is on Team Roger, with Certified Financial Planner Roger Wohlner.
Last month, Anonymous S described his progress as of February 2013. You can also catch up on his net worth history through 2012 by reading his fist Naked With Cash monthly entry. Keep reading to see his net worth report for March 2013.
Following the analysis from Anonymous S., Roger Wohlner will offer his own thoughts and guidance. Following Roger’s feedback, Jacob Wade, budgeting expert and founder of iHeartBudgets, will provide additional commentary.
Roger Wohlner, CFP appears courtesy of The Chicago Financial Planner.
Analysis from Anonymous S
March was awesome. I left my job in mid-March. I then traveled to Malaysia for two weeks to visit my girlfriend (who is now back in the country), visited by grandparents for a week, and I will visit San Francisco for a week before my new job in New York City states.
I received by $2,700 tax refund, and converted all of my paper savings bonds to electronic bonds using TreasuryDirect. I then redeemed all of the bonds returning under 4%, all of which were actually returning under 1%. I’m not quite sure what the tax implications are, but I’ll make sure to have some liquid assets next year for the potential tax bill.
I also received a check from my old employer for the equivalent of my eight unused vacation days. This was truly unexpected, since I didn’t think I would be reimbursed for them. I was taxed at a very high rate for this check, so I’m expecting some of the taxes to be refunded next year.
I had a few more travel expenses than normal, but otherwise I spent less on food due to the travel. Food and travel in Malaysia are much cheaper than in the United States.
I decided to cash in and withdraw most of my non-passive index investments to consolidate my holdings. I will continue this in April. This includes Motif Investing and LendingClub. I’m not sure what my taxes will look like for these transactions, but my LendingClub account didn’t do so well last year.
I’ll be starting my new job in April, but without a company-sponsored 401(k), I’m not quite sure what to do with my savings. I think I will direct deposit most of it into my mutual fund account, and in the future will ask my employer about setting up a SIMPLE IRA.
I think I’ll leave my old 401(k) where it is right now. There aren’t any fees associated with leaving it, and the funds are pretty good. In the future I may move it.
Feedback from Roger Wohlner, CFP
The idea of lobbying your employer to start a SIMPLE retirement plan is a good one. I believe that you have funded your IRA for the current year, but if not this should be a priority. Other than that it is important to continue to fund retirement, even if you need to do this on a taxable basis. If at some point you do generate some self-employment income you can always start a retirement plan on your own for some of that income.
I would try to quantify the tax implications of the savings bonds and the investments you sold and factor any potential withholding shortfall into your W-4 withholding once you start working so you don’t get caught short at the end of the year.
Once you are settled in New York City and get into your routine you will have a better idea of where you stand in terms of any excess cash flow and can make some investing decisions if you have extra cash. I would suggest instead of “dabbling” as you did with Motif and Lending Club that you put together a financial plan and work that plan in terms of how you invest.
Feedback from Jacob Wade
You jumped up your net worth by about $7,000. Not much to say except congratulations! Keep rocking it! Since this month’s theme is taxes, you’ll want to know a few things about selling off your investments. The easiest way to break it down is between short and long-term capital gains. If an investment was held under a year, its realized gains are short-term. If over a year, long-term. The difference is in the tax rates. In 2013, the long-term rates are 15% (if you make under $250,000 a year). Short-term rates are taxed at your ordinary tax rate. You won’t see much of an impact if you had more losses than gains for the year, and since your LendingClub didn’t do so hot, I wouldn’t worry about it.
I do have a question for you, though. What percentage of your income are you putting away? It seems you have a knack for saving and are active in your investments, and I’m just wondering if you have a set percentage, or just put away everything you can outside of your regular monthly expenses? Have you put together a monthly budget? Since we’re getting into the details here, I’d love to see a breakdown of your spending. Either way, you’ve got a good thing going, and it’s cool to watch your progress in this.