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Message
Evaluating brokerage account vs 401k
Posted on 12/21/23 at 8:58 am
Posted on 12/21/23 at 8:58 am
So I have a new job opportunity that has fallen into my lap. I'm trying to evaluate what some of the impacts would be to my retirement planning because the new job opportunity would have a much different setup than my current job. My current job gives me some good benefits in my 401k where as the new job most of the benefit would be in higher salary and less in 401k.
So in a tiny nutshell of oversimplification, I'm trying to evaluate how much equivalent money it would take in a brokerage account in a year to provide the same performance as my 401k.
Here are the numbers with current job (everything is traditional, not ROTH):
- 401k gets maxed out by me at $23k/yr
- matching contribution of $5k/yr
- profit sharing (doesn't count toward 401k limit) of $21k/yr
- Total 401k yearly contributions $49k/yr
- $1k/yr into wife's IRA
New job:
- $23k/yr 401k (standard vangard fund options instead of schwab ETFs)
- $12k/yr employer match contribution
- probably no longer eligible to contribute to wife's IRA tax deferred
- $35k/yr total tax deferred retirement investments
For basic calculations sake I'd say marginal tax rate will be 22% for the new job and my retirement marginal tax rate will be 12%.
So how much would I have to put into a taxable brokerage account in a year in addition to the $35k/yr in the 401k to be equivalent to $50k/yr in traditional tax sheltered accounts? Assume I can do tax loss harvesting on the brokerage account if needed.
This stuff really makes my head spin so I'm not sure how to account for all the extra costs/taxes associated with a brokerage account and how that impacts long term growth potential.
So in a tiny nutshell of oversimplification, I'm trying to evaluate how much equivalent money it would take in a brokerage account in a year to provide the same performance as my 401k.
Here are the numbers with current job (everything is traditional, not ROTH):
- 401k gets maxed out by me at $23k/yr
- matching contribution of $5k/yr
- profit sharing (doesn't count toward 401k limit) of $21k/yr
- Total 401k yearly contributions $49k/yr
- $1k/yr into wife's IRA
New job:
- $23k/yr 401k (standard vangard fund options instead of schwab ETFs)
- $12k/yr employer match contribution
- probably no longer eligible to contribute to wife's IRA tax deferred
- $35k/yr total tax deferred retirement investments
For basic calculations sake I'd say marginal tax rate will be 22% for the new job and my retirement marginal tax rate will be 12%.
So how much would I have to put into a taxable brokerage account in a year in addition to the $35k/yr in the 401k to be equivalent to $50k/yr in traditional tax sheltered accounts? Assume I can do tax loss harvesting on the brokerage account if needed.
This stuff really makes my head spin so I'm not sure how to account for all the extra costs/taxes associated with a brokerage account and how that impacts long term growth potential.
This post was edited on 12/21/23 at 9:01 am
3
Posted on 12/21/23 at 9:09 am to notsince98
You're doing a lot of thinking for not a lot of benefit IMO.
So you're looking at $50k currently and $35k with the new job.
$15k difference. Throw ~$20k into a brokerage account and call it a day.
So you're looking at $50k currently and $35k with the new job.
$15k difference. Throw ~$20k into a brokerage account and call it a day.
Posted on 12/21/23 at 9:44 am to SLafourche07
How do the jobs compare? I assume Job 2 is better if you are trying to justify the jump. Health benefits the same? If the salary increase is that significant just make sure you are putting $15,000 - $20,000/year into a taxable account and I think you will be right on track.
Posted on 12/21/23 at 10:01 am to notsince98
You also seem to be missing some opportunities with maxing the wife's IRA (assuming she doesn't work), or back door Roth IRA's (beware pro rata rules on your rollover), and then as other's have mentioned brokerage accounts.
eta. forgot to say, check to see if you can do after tax contributions to the 401k as well.
eta. forgot to say, check to see if you can do after tax contributions to the 401k as well.
This post was edited on 12/21/23 at 10:02 am
Posted on 12/21/23 at 12:03 pm to SLafourche07
That sounds great. I just wasn't sure how much growth potential is eaten away in a taxable account. I didn't know if earnings were taxed every year or what and if they were they'd be taxed at the marginal rate.
I like keeping it simple.
I like keeping it simple.
Posted on 12/21/23 at 12:04 pm to notsince98
quote:
profit sharing (doesn't count toward 401k limit) of $21k/yr
Is this pretty volatile or very consistent?
You're presumably in the 22% marginal rate based on the numbers you mentioned. Saving around $15k in a taxable brokerage in tax efficient investments would get you to a similar spot in retirement - may even be better given the flexibility of those accounts.
I’ll put it another way - if I was comparing jobs with $15k less in profit sharing contributions vs one with $15k more in gross pay, I’d go with the former. However, if the job with less profit sharing was paying me $20k+ more in gross pay, I’d go with the latter.
Posted on 12/21/23 at 12:10 pm to TheWiz
quote:
How do the jobs compare? I assume Job 2 is better if you are trying to justify the jump. Health benefits the same? If the salary increase is that significant just make sure you are putting $15,000 - $20,000/year into a taxable account and I think you will be right on track.
I am just trying to figure out what I need to ask for in new base salary to make the salary and retirement planning equivalent at a minimum. So I think making sure the new salary is at least $20k more per year sounds like a good starting point. There is increased risk with the new job so I will also increase the ask based on how much risk I think it is. My current job is essentially no risk and I am really happy with it.
The new benefits will be better than what I have now and even stress should be less. It seems like an opportunity too good to pass up but who knows. The upside to this is potentially near six figure bonuses as long as the market for this industry stays strong.
Posted on 12/21/23 at 12:12 pm to slackster
quote:
Is this pretty volatile or very consistent?
Stable. Worst case is 10% and best is 12% of salary.
Posted on 12/21/23 at 12:17 pm to notsince98
Now that I am thinking about it again, $20k into a brokerage account is going to be around $30k in salary due to taxes. So maybe $30k is the proper starting point for salary.
Posted on 12/21/23 at 1:50 pm to notsince98
I know you didn’t ask for career advice here, and your post is too vague to really make any judgment on what’s the right call, but I’ll chime in on this anyway.
You said:
The value of those factors cannot be understated. New job sounds high risk/high (potential) reward, which in my experience does not equal less stress. Be careful of a company selling you a dream that is not reality. Talk to current employees of the new company if you can.
If it were me, I would be asking for at least 1.5x my prior base salary to take the risk, maybe more. “Potential 6 figure bonus” means jack shite IMO, unless the company has an established history of paying these out.
Sometimes a bird in the hand… anyways best wishes
You said:
quote:
My current job is essentially no risk and I am really happy with it.
The value of those factors cannot be understated. New job sounds high risk/high (potential) reward, which in my experience does not equal less stress. Be careful of a company selling you a dream that is not reality. Talk to current employees of the new company if you can.
If it were me, I would be asking for at least 1.5x my prior base salary to take the risk, maybe more. “Potential 6 figure bonus” means jack shite IMO, unless the company has an established history of paying these out.
Sometimes a bird in the hand… anyways best wishes
Posted on 12/21/23 at 3:04 pm to Sir Saint
quote:
The value of those factors cannot be understated. New job sounds high risk/high (potential) reward, which in my experience does not equal less stress. Be careful of a company selling you a dream that is not reality. Talk to current employees of the new company if you can.
If it were me, I would be asking for at least 1.5x my prior base salary to take the risk, maybe more. “Potential 6 figure bonus” means jack shite IMO, unless the company has an established history of paying these out.
Sometimes a bird in the hand… anyways best wishes
Definitely all that for sure. I know the 2 people I'd be working with very well and have known them several years. The risk is market based concern and not company based. It is primarily the data center industry. You'd think that market would be growing for the long term but you just never know. And truth is if that happened, it would impact my current job too. So maybe that concern is just wasted energy.
Posted on 12/24/23 at 11:44 am to notsince98
quote:
I know the 2 people I'd be working with very well and have known them several years.
Have they received the 6 figure bonuses ever?
Posted on 12/25/23 at 8:24 pm to Sir Saint
quote:
Have they received the 6 figure bonuses ever?
yes. They are not a performance based bonuses like folks are familiar with. It isn't commission, either. It is a setup I dont have much experience with because it involves actual property ownership, leases, sales, etc. Employees get an ownership stake in every project/property development.
I'm still trying to study up on how this setup works to fully understand it. I have always been on design side and never the owner's side. This is all sausage to me at this point.
Posted on 12/26/23 at 6:34 pm to notsince98
quote:
Now that I am thinking about it again, $20k into a brokerage account is going to be around $30k in salary due to taxes. So maybe $30k is the proper starting point for salary.
Taxable brokerage accounts can be very useful, especially for early retirements. Qualified dividend income gets advantageous treatment on Fed tax returns as well, plus with taxable accounts you can generate tax loss carry forwards through the years to offset future capital gains. Most growth oriented ETFs etc generate very little dividend income. I wouldn't put all my investments in retirement accounts.
Posted on 12/26/23 at 9:00 pm to tirebiter
Thank you. I am not great at taxes. Are those things that can be handled and tracked with turbo tax?
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