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In general, you should save money in the following accounts in order:

  1. 401k, 403b, or thrift savings (up to employer-match)
  2. Traditional or Roth IRA (up to IRS limit)
  3. 401k, 403b (up to IRS limit)
  4. Investing account
  5. High-yield Savings, Cash account, or CD
  6. Checking account
  • 1-3 will be tax-advantaged (either tax-free or tax-deferred) since they are retirement accounts
  • 4-6 will not be tax-advantaged


A 401(k) or 403(b) is an employer-sponsored retirement plan.
That means, it is managed by a company cooperating with your employer.
If you work for a for-profit company, you will have a 401k. If you work for a public school or non-profit company, you get a 403b.
If you work for the federal government, you will have a thrift savings plan.
For the most part, 401k and 403b rules are identical.

  • Employees can contribute up to $19,500 for 2020 ($19,000 in 2019) [1]
    • These are called "elective deferrals" which are tax-deferred. You may also contribute after-tax deferrals subject to the total maximum contribution below.
  • In total, you can add up to $57,000 to your 401k each year, or up to 100% of your income, whichever is lower. This includes both your contributions and your employer's contributions

Individual Retirement Account (IRA)

A tax-advantaged retirement account you can control.
The IRS allows you to deposit up to $6000 ($7000 if 50 or older) per year or up to your income, whichever is lower. Note that this limit is for all your IRAs combined. Typically, you should save in a Roth IRA unless you surpass the income limit. If you're not eligible for the Roth IRA, you may consider the backdoor Roth IRA.

Traditional IRA

In a traditional IRA, you deposit pre-tax money (see notes). Thus, your deposit counts as a tax-deduction. You pay taxes when you withdraw your money.

  • Early withdraws (before age 59.5) are subject to a 10% penalty plus taxes
  • You must start taking required minimum distributions (RMDs) at age 72
  • No more contributions after age 70.5
  • While there are no income limits to contributing to a traditional IRA, there are income limits to deducting from your taxes

Roth IRA

In a Roth IRA, you deposit post-tax money. However, your money grows tax-free.
There is an income limit to the Roth IRA of $124,000 in 2020.

  • No required minimum distributions on your own Roth IRAs
    • There are RMDs on inherited Roth IRAs
  • You can withdraw your contributions (but not earnings) without penalty
    • Note that any further contributions will count towards your annual limit so you cannot "borrow" from your Roth IRA.
  • No age limits on contributions

Backdoor Roth IRA

If you are a high-earner and believe you will earn more money in retirement, you may want to do a backdoor Roth IRA to grow your retirement account tax-free rather than tax-deferred.

Basic Idea
  • Contribute to a traditional IRA
  • Convert the traditional IRA into a Roth IRA
  • To avoid tax complications, you should eliminate all other pre-tax IRAs beforehand by rolling them over to a 401k

Mega Backdoor Roth IRA

Requirements: Your 401k allows after-tax contributions and non-hardship withdrawls.

Basic Idea
  • Max out after-tax contributions to your 401k
  • Rollover or withdraw the after-tax portion to a Roth IRA


Exchange-traded funds. Typically these will have a fee called an expense ratio.
However, since they are not usually actively managed, their fees are often lower than mutual funds.
The expense ratio is measured in basis points.
25 basis points is an annual fee of 0.25%.
The following classifications are stolen from Wealthfront and Acorns


The classical brokers are Vanguard, Fidelity, and Charles Schwab.
Some of the newer app-based players include Robinhood, Webull, and M1 Finance.





M1 Finance



  • Tax-Loss Harvesting

Cash Account

Wealthfront offers a cash (i.e. savings) account. This account is distributed between 4 banks so it is FDIC Insured up to $1 million


Acorns is a robo-investor. They charge a flat monthly fee of $1.
You can select between 5 different portfolios of ETFs based on your risk level.

Acorns invests in the following ETFs:

  • Large Company Stock (VOO)
  • International Large Company Stocks (VEA)
  • Small Company Stock (VB)
  • Corporate Bonds (LQD)
  • Government Bonds (SHY)
  • Real Estate Stock (VNQ)
  • Emerging Market Stock (VWO)
  • Acorns charges $50 per ETF to transfer out via ACAT.
    I no longer recommend Acorns since they can change their portfolio at any time and it will cost you $350 to transfer out.
    Other brokers typically charge a much lower fixed rate to transfer out, if at all. E.g. Robinhood charges $75 and Vanguard doesn't charge anything.


Acorns later is an IRA account. You need to upgrade to the $3 tier to get it.
They offer a traditional IRA, Roth IRA, and SEP IRA.
You can signup and deposit money but you have no other choices.
Your portfolio is selected by Acorns based on your age.