All Forum Posts by: Account Closed

One thing I forgot to mention is a few states treat HSAs as they would a taxable account. California (where I used to live) is one of them (http://www.hsaforamerica.com/state-income-tax.htm).

Some SDIRA custodians also offer SDHSAs.  On the funding side, IRAs and HSAs are different animals. Retirement account (401Ks, IRAs) contributions must be made from earned income. HSAs, on the other hand, require only a high-deductible health care plan where the deductible is high enough to qualify the plan for an HSA. No earned income is required to contribute to an HSA.

Unlike an FSA (which you lose every year if you don't use it), an HSA balance can be carried forward into retirement (but no more contributions can be made to the HSA once enrolled in Medicare). There are also differences in how distributions from these two types of accounts are taxed. When used for eligible medical expenses, for example, HSA distributions are tax free. Otherwise, non-medical HSA distributions are treated like Traditional IRA distributions in that they are taxed at the earned income rate.

I'm not a tax specialist. A good primer on tax-advantaged accounts (IRAs, HSAs) can be found on the Mad FIentist site (https://www.biggerpockets.com/forums/846/topics/563476-ep-18-accessing-retirement-funds-before-59-1-2-w-the-mad-fientist, https://www.madfientist.com/ultimate-retirement-account/).

My background: I worked for many years as an independent contractor through a temporary help agency. The agency had a 401K plan I contributed to regularly, but I was on my own for health insurance. I chose an HDHC plan and an HSA when they became available in the 2000s. Most HSA custodians offer savings accounts and some offer an investment option, usually mutual funds (https://www.nytimes.com/2017/07/07/your-money/health-savings-accounts-morningstar.html, https://20somethingfinance.com/best-hsa-account/). I'm starting to see reference to SDHSAs and want to learn how they are the same and different from SDIRAs.

I looked into this issue three years ago when I moved from California to Florida for retirement. Here is a high-level checklist for getting started:

https://www.thebalance.com/how-to-become-a-florida-resident-officially-3505215

Several years ago, Florida brought its driver license requirements in line with the tougher DHS requirements. I needed multiple ways to prove my identity and street address:

http://www.hsmv.state.fl.us/dhsmv/newflres.html

Definitely check out doing an "in-service rollover" with your 401K.

THE GOOD NEWS: Before I retired, I was able roll over my 401K balance to an IRA while continuing to work at my job. I did custodian-to-custodian transfers to avoid any hassles with the IRS.

THE BAD NEWS: By law, I had to wait until I was 59 1/2 years old before I could start doing these rollovers. Luckily, my 401K plan was one of those that allowed these in-service distributions.

I'm told 70% of the 401K plans allow in-service rollovers, but HR departments don't advertise this fact. Since I've been retired for awhile, I don't know if the legal requirements have changed.

When I first started investing way back when, I thought that outperforming the market was the way to go. When I first read The Intelligent Investor by Benjamin Graham, for example, I just had to be the Enterprising Investor and not the Defensive Investor.

Now I look for good investments that generate a sustainable positive net cash flow. Practically speaking, the analysis of a dividend-paying company is not that much different from the analysis of a rental property. In both cases, I look for the reasons why the investment is going to continue to be a good one for me over the long run if I buy it, along with the red flags that warn me to stay away.

What is different between the two types of investments is that publicly-traded companies file reports under penalty of perjury with the SEC. Their liquidity (ability to buy and sell quickly at low transaction costs) is higher as a result because the shares trade on an exchange, but they are priced closer to fair value most of the time also. With private real estate, investors are on their own to do a proper vetting of an investment. Real estate investors must surround themselves with a good team. Because the investments are illiquid and can be financed with a higher LTV ratio, the savvy and patient real estate investor can also do well over time.

My approach is strategy and asset diversification. My goal is to generate multiple streams of non-correlated income: some of it from global dividend-paying companies, some of it from local rental properties, and some of it from savings accounts and bonds (and in a prior life, some of it from royalties on intellectual property such as books I tried to write). The idea is that enough of my investments will be performing well enough to allow me to live on the passive income they generate no matter what the overall economy and markets are doing. 

I'm using this same approach of investing in Dividend Aristocrats. I bought individual stocks in a Roth IRA and set them up as DRIPs. Much more capital is needed when purchasing individual stocks than when purchasing a fund of dividend-paying stocks.

The advantage, however, is the dividend growth aspect. My go-to strategy is to find proven dividend payers that grow their dividends by 10% or more per share per year. Using the Rule of 72, this means the dividends double every 7 years. A dividend of $1 today becomes $2 seven years from now, $4 fourteen years from now, and $8 twenty-one years from now (assuming the companies continue to grow their dividends over the next two decades).

I started by finding the stocks that were on both the DJIA and Dividend Aristocrats lists (the seven I came up with are JNJ, KO, MCD, MMM, PG, XOM, and WMT). I now have around two dozen dividend growers in the portfolio, with most of these on the Dividend Aristocrats list (at least 25 years of growing dividends). The remaining stocks are on the Dividend Achievers list (at least 10 years of growing dividends). I have to keep GE in mind, which has been paying dividends for over 100 years. The company increased its dividends for 70 years (from 1937 through 2008). Then it cut its dividend when the financial crisis hit and the company appears again to be in trouble as it finds its way in this new economy.

I consider dividends from stocks to supplement whatever income I generate from investing in real estate. I've learned that markets run in cycles. Dividend paying stocks have been riding high for a long time, but perhaps GE is a proxy for changes to come (or perhaps not, who knows). Perhaps real estate income will play a greater role in my future and if so, I want to be positioned in this space.

FYI -- For those mortgage and other lenders within the financial community who want to pay the $2 fee, the IRS offers an Income Verification Express Service (https://www.irs.gov/individuals/international-taxpayers/income-verification-express-service) to confirm the income of a borrower during the processing of a loan application.

My parents grew up during The Great Depression, so I inherited their basic attitude towards spending money (as in "no, we can't afford that"). Then I learned to think "how can I afford that" as I went through life. But I've merged the two approaches now to think "how can I afford that without going into debt to get it" (even if the debt is considered "good debt").

The problem with "good debt" (borrowing money at a low rate of interest and investing it at a high rate of return, also known as the "carry trade" or "leveraged investing") is that when the world goes through an economic calamity, the high rate of return comes to a halt, but the low rate of interest on the borrowed money continues to be owed (based in my experience with a HELOC used to finance various purchases of income-producing assets over the years).

Also, if the asset used to secure the borrowed money goes into free fall, the lender sometimes has the right to reset the loan (in the stock market, this is known as a "margin call"). One is forced to sell this asset at exactly the wrong time to raise the cash needed to meet the margin call. As Warren Buffett puts it: "It's insane to risk what you have for something you don't need."

"Good debt" can morph into "bad debt" in the blink of an eye.

I've gotten to the point where I won't even use discount coupons anymore. I discovered that I was spending $9 to save $1 on a $10 item I didn't really need (and perhaps doing so to impress people I didn't even like).

However, I agree that frugality can sometimes go to unhealthy extremes. Every once in a while, there is a news story of an older couple who froze to death in their apartment in the middle of winter because they didn't have their furnace turned on. But some of these people also had a savings account with a $100,000 balance in it, suggesting that they could have afforded the power.

John Templeton was a legendary value investor with a track record rivaling Warren Buffett (as described in the book Investing the Templeton Way by his grand niece Lauren Templeton).

Templeton grew up during The Great Depression and watched the sheriff sales on the courthouse steps from his father's law practice across the street. Farmers were losing the family farm for the 50 cents in back taxes they couldn't afford to pay. Templeton's father would go over there just before the sale closed and make the winning bid (he never had any competition). It was that life-shaping experience that cause Templeton to come up with his signature saying "at the point of maximum pessimism" for when he bought good assets on the cheap.

One of Templeton's core beliefs was to pay cash for his personal residence, or if that wasn't possible, be able to pay back any mortgage easily within a year of buying the house.

Cell phones are not a luxury any more for our modern way of life.

When the world was ruled by landlines, the government mandated the Lifeline Assistance Program. That program is being extended to include cellphones (https://www.freegovernmentcellphones.net/).

I'm thankful I don't meet the eligibility requirement for a free cellphone.