Vestnomics Wealth Management, LLC
Russ Blahetka, CFP® is the founder and Managing Director of Vestnomics Wealth Management, an independent, fee-only, Registered Investment Advisory firm serving individuals, families, and self employed individuals. He founded Vestnomics on the simple concept that everyone has the right to achieve their financial goals. Prior to this, he was a Financial Advisor and District manager at Waddell & Reed.
At Vestnomics the focus is on the human side of finance. Together, Russ and his team cut through the jargon and media noise and focus on the personal, human aspect of their client's finances. Vestnomics is a personal, economic advisor. The fee structure for the firm is transparent and reasonable. They offer hourly or flat fee for financial planning and also offer assets under management based fees. Russ' clients receive regular communications on their portfolio's performance as well as timely updates of market conditions. All advisors at Vestnomics are bound by the CFP® Board's code of ethics. This means Russ and his team are bound by the "best interest" standard, not the less strict "suitability" standard.
In addition to helping clients towards their goals, Russ teaches "Investments in Personal Financial Planning" at the UC Santa Cruz Extension. Additionally, he teaches "Financial Statement Analysis" in the extension's CPA and Business Administration program. Outside of his professional endeavors, he can be found taking lessons in an Evektor Sports Star working towards his Sport Pilot License. Furthermore, he serves on the board for Title IX Media, an organization which promotes gender equality in sports, and the Academy of Finance at Independence High School.
DBA, International Business, Argosy University
MBA, Global Business, San Jose State University
Assets Under Management:
Information contained in this posting is informational and educational in nature. Do NOT take information provided here as legal, tax, or investment advice pertinent to your specific situation. Any information posted here is not a solicitation of any type, nor does it constitute an opinion on the appropriateness of any investment either in general or specific to the reader's situation. Do NOT act on any information or answer without obtaining legal, tax, and/or investment advice specific to your situation from an appropriately licensed professional.
You don't say whether you are married, have children, have a job that offers some life insurance (should not be your sole source for protection), etc. That said, I believe most young adults should have some life insurance if only to cover final needs and reduce the stress on their parents/spouse/SO. At 24, having some term is a good thing. Having some form of whole life can be a good thing as well as it is something you will never lose if you keep up the premiums. Later in life, you may not qualify for life insurance due to health, but you will have some money set aside for final needs, etc.
Notice, I didn't discuss whole life as a 'bucket' for retirement. This is, in my opinion, an inefficient use of money. There are, as with anything, reasons to use a whole life policy for some purpose like this, but it should only be considered once you have taken advantage of other vehicles available such as your company retirement plan, a ROTH or traditional IRA, your emergency fund, etc., AND if you are in a high enough tax bracket to make such a policy more tax efficient than other vehicles. Also, the traditional whole life policy generally pays a low fixed interest. Other types of whole life, such as Universal life or Variable Universal Life, may be a better choice based on time horizon. However, remember, the main purpose of any life insurance is to provide cash to your beneficiaries.
Unfortunately, as you realized, if you stop paying on the whole life policy, you will lose at most the premia you paid. However, if you consider what you could do with the money (fully fund your retirement contributions, start a nest egg, etc.), it could be a better choice than continuing to make payments.
Insurance is an important part of anyone's financial life. It helps shift risk to provide protection to your property and loved ones. As with any tool, it works best when properly used. You may want to sit down with a non-commissioned advisor (may cost you some money now but could save you more ongoing) for a second opinion.
If your country has a tax treaty with the US, it could take precedence over the general withholding rules. Per the IRS and IRC Section 1441(a), there is a 30% withholding on the payment from the IRA. There are some exceptions that could reduce this, but that would depend on your country, treaty, etc.
This is a complicated part of the US tax code. If you haven't already perused ith, take a look at the Non-Resdent Alien Withholding page at the IRS:
As for refunds, while I could not find anything specifically on this, if one over pays their taxes,the IRS does refund the money. Just don't expect accrued interest on the amount. In general the custodian should be withholding the taxes. The withholding is for US taxes, not the other country. If it has its own requirements, you would likely need to handle that.
It may seem paying off the debt would be the simplest solution, but it could affect your lifestyle much later in life and be more expensive overall than you may realize. Without knowing some details about you, such as age, current income, interest rates on the loans, etc., I can only provide you with some general information to consider.
I am going to assume you are under age 59-1/2. For some very basic calculations, I will assume you will retire in 21 years. There is a reason for this specific number that will become apparent in a few moments. I am also going to assume for now the loans you have are high interest rate loans.
Let's assume you want to pay off $50K of the debt you have. We need to understand the costs of doing so using your 401(k). So, let's first look at simply taking a distribution from your 401(k)... If you are allowed to do so (some plans do not allow what is called an "in service distribution" before a certain age). If you simply remove $50K, you will be taxed on the distribution. You will also pay 10% penalty to the feds. If you live in a state that has state income taxes you will need to pay state taxes and likely a state penalty. So, if we assume you are in the 25% federal tax bracket, 9% state tax bracket, and if you are under 59-1/2, you will pay 10% penalty to the feds, and lets assume 2% state penalty, you will pay 46% in taxes and penalties. You will pay $23,000 for that $50,000 withdrawal.
However, this isn't the only cost. Let's assume you are averaging (long term) 7% per year return on your 401(k). At 7% average return you should double your money every 10 years or so (this is a rule of thumb called the Rule of 72). So, in 21 years, your money could double twice. The potential is for that $50K to become $100K in the first ten years, then $100K the next ten years. That $100K could potentially fund several years of your retirement.
An alternative to simply removing the money is to see if your 401(k) allows you to borrow the money. You would essentially be paying yourself back, (it isn't a taxable event no taxes or penalties), and while there would be several years where the $50K won't be growing as a whole, as you pay yourself back, those loan payments will potentially grow along with the rest of your portfolio as you make the payments.
However, taking money out of a growing account only makes sense IF your loan interest payments are higher than your average returns in your 401(k). For example, if your 401(k) is averaging (long term) 7%, and your student loans are 4% interest, then you are losing money overall by taking something paying 7% to remove a debt that costs 4%. However, if the student loans are 10%, and a 401(k) loan is 4%, the refinancing through the 401(k) loan may make sense for you.
However, in my experience, the best choice would be to develop a plan to pay down the debt. I know this may be painful, but it could be the least expensive overall. Typically you would want to tackle the higher interest rate loans first. However, if you have a loan nearly paid off (though it doesn't appear you do) then paying it off first could free up money to pay off the higher interest rate loans faster.
By making a plan you could use your hard earned money in a more effective manner. For example, if the personal loan is 10% and you are paying $200/mo. on it, then in 23 months that money could be used to start reducing the student loan. That extra $200 would really help budge that loan balance. Student loans have long payment schedules and low payments. However, this just means more time to pay interest. You can pay more than the minimum payments, shorten the payback period, and pay less interest overall.
Congratulations on building so much wealth at such an early age. You have done very well for your self.
I think there are several reasons for your reluctance to invest more, but likely it comes down to uncertainty. Where should you put your money? What instruments? What amount of your hard earned money should you put at risk (seen sitting in a CD has risk, such as not keeping pace with inflation)? We tend not to act until we have some idea what actions would be appropriate. This is normal.
You obviously have money skills. However, just like a star athlete, you could benefit from some coaching. Is there a cost? Yes, but consider it another investment. You are investing in knowledge and having someone you can trust help you navigate some of the choices you have.
I would suggest you find a fee only financial advisor in your area. Someone that would charge you for financial consulting. There are firms that will do planning without you moving money to their management. You want someone who will act as a fiduciary, such as someone with an independent Registered Investment Advisor. You should also look for someone who is a Certified Financial Planner or PFS. This way you will get as near unbiased advice as possible.
Congratulations on paying off your student loans! That is a great accomplishment.
By a TSP, I assume you are referring to a a Thrift Savings Plan, the defined contribution plan for Federal employees. If you take a second job, the IRS will still limit your total contributions between multiple TSP plans or between your current TSP and another defined contribution plan such as a 401(k) plan or a 403(b) plan. The same holds true if you split contributions between a ROTH TSP and a traditional TSP.
However, there is an alternative. You can still contribute the maximum to your TSP and contribute to either a traditional IRA or a ROTH IRA. The limit for 2016 is $5,500. Like the TSP, this is a combined maximum. You cannot contribute $5,500 to three separate IRAs. This is short of a full $18,000, but it is helpful.
For the remainder of the money you could use tax efficient Exchange Traded Funds (ETFs) or mutual funds. The growth may not be 100% tax deferred as it would in an IRA or other retirement plan, but it would be tax efficient.