Personal Finance 101 for Young Lawyers Forum

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polareagle

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Re: Personal Finance 101 for Young Lawyers

Post by polareagle » Fri Nov 25, 2022 9:24 pm

TLH is great, but please look into the "Wash Sale Rule" and make sure you don't run afoul of it. Most commonly, dividends can muck things up.

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Re: Personal Finance 101 for Young Lawyers

Post by Anonymous User » Tue Nov 29, 2022 4:39 pm

Thanks for the advice re tax-loss harvesting so far. One other set of questions for folks familiar with this. I had a call with the Fidelity guy who reached out to me, and he is pushing something called a separately managed account (SMA).

For background, I invested my entire bonus for the last few years in a single tech-heavy ETF and have lost around $30,000 this year alone. So the idea would be to TLH that by selling what remains, buying something similar, and applying the losses on my income as Big Law associate for tax savings for the next few years. The tax savings are modest, but not nothing: at least $1k/year, I think.

The SMA is a different option. I would move the investment into an account that Fidelity manages (passively) by tracking large-cap U.S. stocks (i.e., something called "Fidelity U.S. Large Cap Index") and also does year-round TLH themselves. The cost (i.e., the advisory fee) is .4%, which is higher than the .03% expense ratio of the ETF I have. But from what I understand, because of the TLH that Fidelity will do for me, on net, I will come about ahead even though the .4% cost is obviously higher than the .03% of the ETF.

Anyone have thoughts on this? The guy said that most people don't know about this SMA option, which is why they don't do SMAs more often and try to instead to TLH themselves in December (both annoying and dangerous if done incorrectly), or just don't bother (and miss out on the tax savings). My alternative would be to manually sell my ETF and try to find something similar to buy, I'm just wary of doing it wrong or making a mistake and worrying about the tax stuff myself.

Any thoughts would be very appreciated!

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nealric

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Re: Personal Finance 101 for Young Lawyers

Post by nealric » Mon Dec 05, 2022 5:47 pm

Anonymous User wrote:
Tue Nov 29, 2022 4:39 pm
Thanks for the advice re tax-loss harvesting so far. One other set of questions for folks familiar with this. I had a call with the Fidelity guy who reached out to me, and he is pushing something called a separately managed account (SMA).

For background, I invested my entire bonus for the last few years in a single tech-heavy ETF and have lost around $30,000 this year alone. So the idea would be to TLH that by selling what remains, buying something similar, and applying the losses on my income as Big Law associate for tax savings for the next few years. The tax savings are modest, but not nothing: at least $1k/year, I think.

The SMA is a different option. I would move the investment into an account that Fidelity manages (passively) by tracking large-cap U.S. stocks (i.e., something called "Fidelity U.S. Large Cap Index") and also does year-round TLH themselves. The cost (i.e., the advisory fee) is .4%, which is higher than the .03% expense ratio of the ETF I have. But from what I understand, because of the TLH that Fidelity will do for me, on net, I will come about ahead even though the .4% cost is obviously higher than the .03% of the ETF.

Anyone have thoughts on this? The guy said that most people don't know about this SMA option, which is why they don't do SMAs more often and try to instead to TLH themselves in December (both annoying and dangerous if done incorrectly), or just don't bother (and miss out on the tax savings). My alternative would be to manually sell my ETF and try to find something similar to buy, I'm just wary of doing it wrong or making a mistake and worrying about the tax stuff myself.

Any thoughts would be very appreciated!
.4% is a LOT of money for the occasional TLH transaction. Think about it this way: on a $1MM portfolio (maybe you don't have this yet, but you probably will sooner rather than later), you are paying them $4,000 a year for what can be done in literally 2 minutes on the Fidelity app. All you really need to do besides the trade is just be generally aware of what the market is doing on a given day (easy as glancing at an app).

You just need a TLH par that has a risk profile you are comfortable with. Personally, I just use VTI and VOO (vanguard total market and vanguard SP500). You can add something like VONG (Russel 1,000) if you need a third TLH partner if the market has a double dip within the wash sale window.

The thing that is so pernicious about advisory fees is that they accumulate over time. .4% doesn't sound like a lot in absolute terms, but think of someone living off an income portfolio in retirement earning 4% a year. A .4% fee is giving away 10% of your income- all to do something that won't take more than 10 minutes a month of your time. There's a reason why Fidelity reps love to sell that stuff. It's an easy stream of income for them.

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Re: Personal Finance 101 for Young Lawyers

Post by Anonymous User » Mon Dec 05, 2022 7:28 pm

nealric wrote:
Mon Dec 05, 2022 5:47 pm

.4% is a LOT of money for the occasional TLH transaction. Think about it this way: on a $1MM portfolio (maybe you don't have this yet, but you probably will sooner rather than later), you are paying them $4,000 a year for what can be done in literally 2 minutes on the Fidelity app. All you really need to do besides the trade is just be generally aware of what the market is doing on a given day (easy as glancing at an app).

You just need a TLH par that has a risk profile you are comfortable with. Personally, I just use VTI and VOO (vanguard total market and vanguard SP500). You can add something like VONG (Russel 1,000) if you need a third TLH partner if the market has a double dip within the wash sale window.

The thing that is so pernicious about advisory fees is that they accumulate over time. .4% doesn't sound like a lot in absolute terms, but think of someone living off an income portfolio in retirement earning 4% a year. A .4% fee is giving away 10% of your income- all to do something that won't take more than 10 minutes a month of your time. There's a reason why Fidelity reps love to sell that stuff. It's an easy stream of income for them.
Interesting. So you just alternate between VOO and VTI every month (as applicable if there's a loss, of course) in order to do the tax-loss harvesting? And do you need to sell the entirety of your holdings in the ETF and then buy the other one, or just some portion of your holdings based on the "lot" you bought at a higher cost-basis?

I think Fidelity would say they do more than just the "occasional TLH transaction" to justify their .4% cut, but you make a fair point that people can do this on their own once they are comfortable with the mechanics of how to do it -- especially if you really can just alternate between VTI and VOO back and forth each time!

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nealric

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Re: Personal Finance 101 for Young Lawyers

Post by nealric » Mon Dec 05, 2022 10:11 pm

Anonymous User wrote:
Mon Dec 05, 2022 7:28 pm
nealric wrote:
Mon Dec 05, 2022 5:47 pm

.4% is a LOT of money for the occasional TLH transaction. Think about it this way: on a $1MM portfolio (maybe you don't have this yet, but you probably will sooner rather than later), you are paying them $4,000 a year for what can be done in literally 2 minutes on the Fidelity app. All you really need to do besides the trade is just be generally aware of what the market is doing on a given day (easy as glancing at an app).

You just need a TLH par that has a risk profile you are comfortable with. Personally, I just use VTI and VOO (vanguard total market and vanguard SP500). You can add something like VONG (Russel 1,000) if you need a third TLH partner if the market has a double dip within the wash sale window.

The thing that is so pernicious about advisory fees is that they accumulate over time. .4% doesn't sound like a lot in absolute terms, but think of someone living off an income portfolio in retirement earning 4% a year. A .4% fee is giving away 10% of your income- all to do something that won't take more than 10 minutes a month of your time. There's a reason why Fidelity reps love to sell that stuff. It's an easy stream of income for them.
Interesting. So you just alternate between VOO and VTI every month (as applicable if there's a loss, of course) in order to do the tax-loss harvesting? And do you need to sell the entirety of your holdings in the ETF and then buy the other one, or just some portion of your holdings based on the "lot" you bought at a higher cost-basis?

I think Fidelity would say they do more than just the "occasional TLH transaction" to justify their .4% cut, but you make a fair point that people can do this on their own once they are comfortable with the mechanics of how to do it -- especially if you really can just alternate between VTI and VOO back and forth each time!
You don’t need to sell all your holdings, just the tax lots that have losses (in fact you don’t want to sell any that might have gains). For example, if I bought VTI in January 2022 and March 2020, I would only swap the January 2022 tranche for VOO because the March 2020 would still have a gain.

I’m sure Fidelity runs an algorithm for it. You might get a very slightly bigger tax loss with Fidelity by making sure you TLH at the absolute bottom, but in practice you get the vast majority of the benefit of TLH by getting “close enough.” You also make sure the TLH partners are ones you are comfortable (and low fee) by doing it yourself. No guarantee fidelity will use low cost TLH partners.

Keep in mind that TLH has two benefits: the best piece, albeit a small one, is the ordinary income offset. It allows you to take $1500 (or $3000 if married) of capital loss against ordinary income. That’s not a ton of money in savings, but it’s a couple hundred (give or take) in free tax savings you can get just about every year (if you are regularly buying into taxable in decent amounts). Beyond that, TLH is a timing benefit and can give you flexibility to liquidate other investments without worrying about paying tax. That timing benefit is worth something, but certainly not .4% of your portfolio every year. In practice, you aren’t likely to sell much in your taxable accounts until retirement, so you already have a big benefit from simply waiting to recognize gain.

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butonawednesday

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Re: Personal Finance 101 for Young Lawyers

Post by butonawednesday » Tue Dec 06, 2022 6:00 pm

What I have seen over decades is that when you try to be cute and clever with moves in and out of exotic financial products, it ends badly. I can boil it down to one sentence. Buy the S&P 500 index and don't look at it. You already have enough to do. You're over-complicating things.

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Re: Personal Finance 101 for Young Lawyers

Post by nealric » Wed Dec 07, 2022 10:45 am

butonawednesday wrote:
Tue Dec 06, 2022 6:00 pm
What I have seen over decades is that when you try to be cute and clever with moves in and out of exotic financial products, it ends badly. I can boil it down to one sentence. Buy the S&P 500 index and don't look at it. You already have enough to do. You're over-complicating things.
Just to be clear, the TLH discussion above isn't that. The underlying exposure is either to the S&P500 or something substantially equivalent. TLH just optimizes tax within an S&P500 buy and hold strategy. It does require looking at your taxable investment account from time to time, however.

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Re: Personal Finance 101 for Young Lawyers

Post by Anonymous User » Mon Dec 26, 2022 4:19 pm

Wanted to get people's perspectives on the "premium" credit cards (Amex Platinum, Chase Sapphire Reserve, etc.). I'm a junior in NYC/DC/LA making market, and wondering if the card is worthwhile. I'm happy in BigLaw atm, but want to go to the government eventually so my salary will go down. I travel a decent amount for fun, and that amount will probably go up. Curious what others have done on the credit card front.

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Re: Personal Finance 101 for Young Lawyers

Post by NyuIwantu » Tue Dec 27, 2022 1:08 pm

I'd like to open a 529 account for my daughter. I live in NY. I understand there is a small NYS tax break for contributions. My question is, must I have an account with the official NY 529 account or can I get the same deduction if I have a 529 set up through fidelity?

Thank you, oh wise ones.

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Re: Personal Finance 101 for Young Lawyers

Post by NyuIwantu » Tue Dec 27, 2022 2:01 pm

nealric wrote:
Wed Dec 07, 2022 10:45 am
butonawednesday wrote:
Tue Dec 06, 2022 6:00 pm
What I have seen over decades is that when you try to be cute and clever with moves in and out of exotic financial products, it ends badly. I can boil it down to one sentence. Buy the S&P 500 index and don't look at it. You already have enough to do. You're over-complicating things.
Just to be clear, the TLH discussion above isn't that. The underlying exposure is either to the S&P500 or something substantially equivalent. TLH just optimizes tax within an S&P500 buy and hold strategy. It does require looking at your taxable investment account from time to time, however.
Just don't call it "substantially similar" :wink:

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Re: Personal Finance 101 for Young Lawyers

Post by jake768 » Tue Dec 27, 2022 8:18 pm

NyuIwantu wrote:
Tue Dec 27, 2022 1:08 pm
I'd like to open a 529 account for my daughter. I live in NY. I understand there is a small NYS tax break for contributions. My question is, must I have an account with the official NY 529 account or can I get the same deduction if I have a 529 set up through fidelity?

Thank you, oh wise ones.
you can do it through fidelity

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Re: Personal Finance 101 for Young Lawyers

Post by flyinglow » Thu Dec 29, 2022 8:45 pm

Wish I could anon-post this to prevent people from thinking I am an idiot… rules are rules. :mrgreen:

Say I had family and a passport in a “2nd world country” with very LCOL. I am also fluent in the language.

Would it be remotely realistic to aim for ~5 years of Texas BL before relocating to my home country, where I could work part-time remotely? I could live like a king on ~50k/year.

IIRC, I have read about some form of work, perhaps death row appeals (?), where moderate litigation experience is sufficient credentials-wise. IIRC they pay per appeal and one can take on as many as one wishes, remotely. I believe it came out to roughly 100$/hr.

Are there any remote legal work opportunities that fit the bill, permitting a quasi-retirement?

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Re: Personal Finance 101 for Young Lawyers

Post by jamestaylorrecordsas » Sat Dec 31, 2022 9:00 am

Are you saying death row appeals for someone in a USA prison, and you're doing them remotely from another country? I hope you're not suggesting that.

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Re: Personal Finance 101 for Young Lawyers

Post by flyinglow » Sat Dec 31, 2022 3:36 pm

jamestaylorrecordsas wrote:
Sat Dec 31, 2022 9:00 am
Are you saying death row appeals for someone in a USA prison, and you're doing them remotely from another country? I hope you're not suggesting that.
Apologies, I’m not trying to suggest anything. There was an older thread, which I can’t find, discussing remote legal jobs. I believe somebody mentioned something along those lines. I have no clue if I am remembering correctly.

I am asking about legal jobs that could be done (in accordance with US law) from a different country. I am not a lawyer, was just curious about the idea.

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Re: Personal Finance 101 for Young Lawyers

Post by Anonymous User » Sun Jan 01, 2023 3:44 am

I can only speak for biglaw. Most firms are reluctant because of ongoing headaches with international tax compliance and business development (assuming the firm allows you to work remotely full time in the first place, which is starting to dwindle as an option). Also, don’t underestimate time zone difficulties in a job where you are expected to be always available and working at peak capacity. Finally, speaking as someone who WFH full time, you can really get screwed by workplace politics if you are not often visible with your key decision makers.

I would suggest searching for “digital nomad lawyers” to see what others have done. I’m sure there’s ways it can work, but it’s not as easy as coding overseas for example.

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Re: Personal Finance 101 for Young Lawyers

Post by lshopeful17 » Mon Feb 13, 2023 10:22 pm

Sorry if this has been asked, but is there a tax advantage to putting your bonus into your 401k instead of regular income? Thinking NYC resident specifically.

I’ve been getting mixed info online, but it seems like bonuses are taxed higher because they’re “supplemental income” especially on the New York State/local tax level. So does that mean it’s more advantageous to contribute your bonus to the 401k?

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Re: Personal Finance 101 for Young Lawyers

Post by ughbugchugplug » Tue Feb 14, 2023 9:52 am

flyinglow wrote:
Sat Dec 31, 2022 3:36 pm
jamestaylorrecordsas wrote:
Sat Dec 31, 2022 9:00 am
Are you saying death row appeals for someone in a USA prison, and you're doing them remotely from another country? I hope you're not suggesting that.
Apologies, I’m not trying to suggest anything. There was an older thread, which I can’t find, discussing remote legal jobs. I believe somebody mentioned something along those lines. I have no clue if I am remembering correctly.

I am asking about legal jobs that could be done (in accordance with US law) from a different country. I am not a lawyer, was just curious about the idea.
Setting death row aside, there absolutely are CJA panel/state public defender contract cases where you can file habeas or its state equivalent on people’s behalf. The appeals work on those cases probably could be done abroad because of how rarely your case will be meritorious and thus warrant a hearing. But you’d have to come back at least a few times a year.

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Re: Personal Finance 101 for Young Lawyers

Post by Wanderingdrock » Tue Feb 14, 2023 5:10 pm

lshopeful17 wrote:
Mon Feb 13, 2023 10:22 pm
Sorry if this has been asked, but is there a tax advantage to putting your bonus into your 401k instead of regular income? Thinking NYC resident specifically.

I’ve been getting mixed info online, but it seems like bonuses are taxed higher because they’re “supplemental income” especially on the New York State/local tax level. So does that mean it’s more advantageous to contribute your bonus to the 401k?
Can't comment on state/local, but for federal the tax rate is the same - bonuses are considered earned income, same as your salary. The *withholding* rate may be different, but it shakes out at tax filing time.

*If* New York taxes bonuses at a higher rate than other income (not withholding, but the actual tax rate), *and* New York exempts 401(k) contributions from taxes, then yes, seems like it would be advantageous to put more of your bonus straight into the 401(k). But I suspect there's just some confusion over the difference between withholding rates (the legally mandated rate at which taxes are withheld from paychecks) and actual tax rates (those applied at tax filing time to determine whether you owe or are owed on the final bill).

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Re: Personal Finance 101 for Young Lawyers

Post by The Lsat Airbender » Tue Feb 14, 2023 7:34 pm

Yeah, it doesn't make a difference in the size of your refund come filing time, just the withholding. Making that small, zero-interest loan to NYS/NYC is suboptimal—but then again so is waiting till the end of the year to max your 401(k). Best practice is to max as fast as you can (setting aside the possibility of employer match which almost never happens in biglaw)

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Re: Personal Finance 101 for Young Lawyers

Post by Anonymous User » Sun Apr 23, 2023 8:40 pm

traditional vs roth 401k?

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Re: Personal Finance 101 for Young Lawyers

Post by Wanderingdrock » Mon Apr 24, 2023 1:24 am

Anonymous User wrote:
Sun Apr 23, 2023 8:40 pm
traditional vs roth 401k?
Pros and cons to both. There's value to putting money in both traditional and Roth accounts, so your answer may depend on what other accounts you have. For example, at a firm that offers the option of doing the mega backdoor Roth, you may want to put your other 401(k) contributions into traditional. Generally the argument in favor of traditional is that you're probably in a higher tax bracket in your earning years than during retirement, so you're getting the advantage of that arbitrage. However, if you think you're going to reach retirement age rich enough to have significant taxable income, then maybe paying taxes on your income now (particularly as a junior associate) makes sense, with the freedom and flexibility of having tax free money in a Roth account later.

Basically for most people the right answer is probably to put money into traditional accounts until you reach your caps, then put anything extra into Roth accounts (backdoor Roth IRA and mega backdoor Roth) up to those caps, but in some circumstances it might make sense to choose Roth 401(k).

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Re: Personal Finance 101 for Young Lawyers

Post by Anonymous User » Mon Apr 24, 2023 2:49 am

Wanderingdrock wrote:
Mon Apr 24, 2023 1:24 am
Generally the argument in favor of traditional is that you're probably in a higher tax bracket in your earning years than during retirement, so you're getting the advantage of that arbitrage. However, if you think you're going to reach retirement age rich enough to have significant taxable income, then maybe paying taxes on your income now (particularly as a junior associate) makes sense, with the freedom and flexibility of having tax free money in a Roth account later.
Could you elaborate? What are the break-even points here? At this risk of sounding financially illiterate, I have no sense of retirement age/annual expenditure and what it means in terms of what account to use.

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Re: Personal Finance 101 for Young Lawyers

Post by DisappointedSummer » Mon Apr 24, 2023 9:17 am

Based on your lazy original question, lack of initiative in doing any basic research before asking others for help, and failure to comprehend fairly simple concepts, I’d say you should do traditional. On top of being the correct answer for 90%+ of people, it is surely the correct response for you, as your earnings have likely already peaked.

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Re: Personal Finance 101 for Young Lawyers

Post by nixy » Mon Apr 24, 2023 9:40 am

DisappointedSummer wrote:
Mon Apr 24, 2023 9:17 am
Based on your lazy original question, lack of initiative in doing any basic research before asking others for help, and failure to comprehend fairly simple concepts, I’d say you should do traditional. On top of being the correct answer for 90%+ of people, it is surely the correct response for you, as your earnings have likely already peaked.
Oh for fuck’s sake

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Re: Personal Finance 101 for Young Lawyers

Post by Antetrust » Mon Apr 24, 2023 9:52 am

DisappointedSummer wrote:
Mon Apr 24, 2023 9:17 am
Based on your lazy original question, lack of initiative in doing any basic research before asking others for help, and failure to comprehend fairly simple concepts, I’d say you should do traditional. On top of being the correct answer for 90%+ of people, it is surely the correct response for you, as your earnings have likely already peaked.
nothing like some unsolicited internet bashing to boost the ole' ego

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