Financial Independence Daily FI discussion thread - Tuesday, March 09, 2021

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• Daily FI discussion thread - Tuesday, March 09, 2021
• PSA on Missed Deferral Opportunities
• On the job hunt committed to FIRE but frustrated by weak 401k matches/long vesting periods - advice on where to look?
• What are good coast-fire hustles?
• Quantifying the current value of Social Security

Daily FI discussion thread - Tuesday, March 09, 2021 Posted: 09 Mar 2021 02:00 AM PST Please use this thread to have discussions which you don't feel warrant a new post to the sub. While the Rules for posting questions on the basics of personal finance/investing topics are relaxed a little bit here, the rules against memes/spam/self-promotion/excessive rudeness/politics still apply! Have a look at the FAQ for this subreddit before posting to see if your question is frequently asked. Since this post does tend to get busy, consider sorting the comments by "new" (instead of "best" or "top") to see the newest posts. submitted by /u/AutoModerator [link] [comments]

PSA on Missed Deferral Opportunities Posted: 09 Mar 2021 06:45 AM PST I work at a big TPA, and a quarter of my time is spent fixing this specific type of operational failure called a missed deferral opportunity (MDO). The biggest correction I've done for this type of operational failure was over $200K. What is an MDO? If your employer doesn't allow you to defer money from your paycheck to put into your 401(k) plan or 403(b) plan, but you are eligible to participate in the plan, they likely owe you money. There is a subset of the DOL called EBSA that takes this very seriously. If you call them, the issue will (eventually) be corrected. However, I recommend speaking to your employer first. If they don't view it as an issue, let them know there are hefty penalties they may have to pay...and the DOL just made them, literally, 10 times worse. Common Example of Failure You were not automatically enrolled as intended You changed your election amounts (e.g. 3% up to 6%), but the change was never made Your employer keeps saying they will get to it, but they don't. I recommend sending this via email for records, whether or not you speak to them directly. Someone forgot to start deferring money when you became eligible HR person went on vacation when you became eligible and there was a delay How Much Does My Employer Owe Me? Your employer owes up to 50% of the amount you elected to defer (i.e. the MDO), and 100% of the match you would have received, plus interest. The MDO + interest are deposited to your account as a qualified non-elective contribution (QNEC), which is 100% vested. The match you would have received + interest, which I will now just refer to as match, is subject to standard vesting requirements. Why Am I Only Receiving 50% of My Deferral? The government views this as a joint failure between employee and employer. You still received the money you were owed, it just wasn't tax-deferred, and now your employer has to pay you twice. Keep in mind this is my understanding of the government's rationale, and not necessarily my personal opinion on the matter. I Told My Employer, But Didn't Receive A QNEC! This might be correct, but it's very unlikely if you notify them of the issue. Example 1 - 0% QNEC Your employer must begin correct deferrals by the earlier of: the end of the month following the month you notified them of the issue, or, on or before 3 months from the date the error occurred. They must also give notices to affected participants within 45 days of the date correct deferrals began. This notice must contain specific details, one of which is the amount they will be depositing into your account...and I doubt they will have the calculations completed in that time-frame. However, if they manage to do all that correctly, you are owed a 0% QNEC and 100% match. Example A: Employer notified of issue by you on: 03/09/21 Correct deferrals must begin on or before: 06/09/21 Employer begins correct deferrals on: 03/30/21 Notice must be given on or before: 05/14/21 If correction is made and notice is given on or before 05/14/21, you are owed a 0% QNEC and 100% match. Otherwise, see example 2. Example 2 - 25% QNEC Your employer must begin correct deferrals by the earlier of: the end of the month following the month you notified them of the issue, or, on or before the last day of the plan year following the year the error occurred. They still have to give the notices, so again...it's unlikely for your employer to qualify for a 25% QNEC. However, if they manage to do it all correctly, they owe you a 25% QNEC and 100% match. Example B: Employer notified of issue by you on: 03/09/21 Correct deferrals must begin on or before: 12/31/22 Employer begins correct deferrals on: 08/30/21 Notice must be given on or before: 10/14/21 If correction is made and notice is given on or before 10/14/21, you are owed a 25% QNEC and 100% match. Otherwise, see example 3. Example 3 - Plan With Auto-Enrollment Feature If the plan has an auto-enrollment feature, and you didn't notify your employer of the issue, they have 9 1/2 months to begin correct deferrals. They are still required to supply a notice with 45 days of the date correct deferrals begin. Fortunately, there is a "sunset" on this rule, so it only applies for failures occurring on or before 12/31/2020. Example C: Employer notified of issue by you on: 01/01/21 Not eligible for Auto-Enrollment safe harbor (i.e. pay you a 0% QNEC or 25% QNEC), because the failure occurred after 12/31/20 Example D: Employer notified of issue by you on: 03/09/20 Correct deferrals must begin on or before: 01/15/21 Employer begins correct deferrals on: 01/15/21 Notice must be given on or before: 03/01/21 You are owed a 0% QNEC and 100% match Example E: Employer notified of issue by you on: 03/09/20 Correct deferrals must begin on or before: 01/15/21 Employer begins correct deferrals on: 01/16/21 Notice must be given on or before: 03/01/21 You are owed a 50% QNEC and 100% match Example 4 - Other Scenarios If your situation doesn't fall under any of the example listed above, you are most likely owed a 50% QNEC and 100% match. Does It Work For My Plan? Unless you have some sort of collective bargaining agreement or 457 account, yes, this likely applies to your retirement plan. ​ So...this got a lot longer than I expected, but I'm trying to snipe out questions before you ask them. ​ Edit 1: Changed the opening statement for u/RevolutionaryCat4 and 5 other grumpy people. Edit 2: Clarifying a couple things. Edit 3: Thank you for the awards. I was able to afford a monocle for my avatar, and I'm feeling pretty bougie. At this rate, I'm gonna FatFIRE next week. submitted by /u/serene_badlands [link] [comments]

On the job hunt committed to FIRE but frustrated by weak 401k matches/long vesting periods - advice on where to look? Posted: 09 Mar 2021 03:58 PM PST After a year of working with a company with a crappy matching plan (3% for 5% put in, but only after 5 years), I'm determined to find a new job with a decent matching plan, honestly even 5% for 5% immediately vested I would be happy with. Unfortunately, I work as a nurse in the public/health/non-profit sector (clinically and also policy/program support) and am not having much luck in finding strong 401k matches. Since I'm already not in a lucrative career (not yet breaking 100k), I feel like I have to maximize all the retirement/benefit support I can get. I saw a few months ago a great post of top companies for 401k matching, but feel left out since most of these were in the finance industry. Any advice from the community on companies to check out in my job search? Perhaps try to shift to private sector like fancy tech companies that might have positions for on-site nurses? I used to work federally, was I silly to leave and should I just go back to that (6% for 5%)?? Between my student loan debt, my immigrant family, and my dreams of FIRE, just feeling the pressure more and more as I get older and lose the time for compound interest! P.S. also would be interested to hear which companies would help with student loan repayment! submitted by /u/thxwy [link] [comments]

What are good coast-fire hustles? Posted: 09 Mar 2021 03:55 PM PST I'm looking for business opportunities for "Coast FIRE" that have several characteristics: Ownership. I'm the business owner and don't report to anyone else. Reliable income (needn't be consistent but should be reliable, i.e. some weeks might be down and some up but overall the droughts don't last more than a couple of months) ~$30-$40k baseline income for low effort (~20 hours a week) but high correlation between effort and income in case I want to increase my effort some months to make up for a shortfall Locality: easy for any one of us to start up, but difficult for the "big guy" in the country to displace us. Also something that Redditors on this thread are comfortable sharing (i.e. it's not some obscure stock trade you've perfected). Moderately low barrier to entry (price for entry might be capital investment <$100k but ideally not a license that requires >1 year to obtain). So my question is, what businesses are you all doing on the side that have one or more of these characteristics? I realize that this is a long wishlist but curious about all of your coast-fire hustles. submitted by /u/entitie [link] [comments]

Quantifying the current value of Social Security Posted: 08 Mar 2021 06:57 PM PST I've been trying to figure out a way to quantify the current value of my Social Security annuity, based on my knowledge of its future value. What I'm trying to do is decide how my knowledge of future payments from Social Security should affect my stock/bond asset allocation ratio. Here is a potential approach I've come up with that I'd like some opinions on. Lets say that I'm 60, and I know that at age 70 Social Security will pay me $40,000/year, and I'm sure that I'm going to wait until I'm 70 before I ask the government to start sending the money. If we pretend that Social Security is a "bond" that magically always grows at 4% each and every year, whether or not we are withdrawing from it, then we can say that the bond is worth $1M at age 70. If we extrapolate backwards, that would give the bond a current valuation of around ~$676K. It will grow at 4% for 10 years, and then continue to grow but we'll be pulling $40K out every year at that point. If I've currently got e.g. $1M in a brokerage, that I've decided to split 50/50 between stocks and bonds, wouldn't it make sense to say that I've "really" got around $1.7M, and put $850K in stocks to give me the desired ratio? I'm sure there must be some flaws in my logic, but I can use some help figuring out what they are. Is there a better way to approach this? submitted by /u/orange_kangaroo [link] [comments]

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