Tales from the Wallet – Tax Savvy Investments, Part 2

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1. After four years in biglaw, I am about to FINALLY get out of here. I am returning to a wonderful federal job I had before this soul-sucking abyss. 8-5 and decent pay. Woohoo! My husband and I had a great plan: return to the federal job, buy a house with land in the country, and raise our wonderful son. We put an offer on a beautiful house on Sunday, and it turns out that the sellers are completely illogical, over-attached to the house and land and detached from the reality of the market. They wrote us a letter saying that our offer was offensive and they didn’t want to have “folks like us” as neighbors (they are keeping an abutting parcel of land). Ugh. We have made a follow-up offer, but now I’m hesistant and worried that even after the sale is complete, they will continue to check-up on us/the land/the house. (I have zero confidence that they will accept our new offer, so we have time to think.) No one here knows I’m leaving, so just needed to rant….

   1. Run run run from those crazies. After selling and buying a house in the last year, I now characterize an contract on a house (not even an offer) as an agreement to negotiate. You’re better off not dealing with those people, particularly if you will still have to deal with them.

      I wish I’d sent our buyers on our house away – and that’s in this market. It is NOT WORTH IT.

   2. Turn head long and run — you don’t want “folks like them” as your neighbors either! There are other houses.

2. I think it’s worth specifying that most (if not all) HSAs are actually checking accounts. You would get a checkbook and debit card for paying expenses directly – you don’t have to go through a reimbursement cycle. I’d also note that the money is yours – you don’t lose it as the end of the year like you would with a FSA. Even if you don’t have a high deductible plan one year, you can use the money you’d saved in the past.

   1. Ours works with a debit card, but I’ve actually found it easier to use the reimbursement method. Otherwise, I get a request to submit documentation of every. single. purchase. with the debit card, so I have to download and fill out the online form and email it in. I’d rather just save a bunch of receipts and submit one documentation form.

      1. Really? The HSA I’ve had for years does not work like that at all. I’m responsible for keeping good records and receipts, but I never have to show them to anyone or justify the spending (to the bank or the insurance company). Sounds like an flexible savings account (FSA) instead or you’ve gotten stuck with a really burdensome program. Sorry you have to jump through all those hoops!

3. Hi everyone — apologize for the re-post, this was put up LATE last night which was bad timing.

   I am a junior associate in Biglaw and avid reader of NGDGTCO and corporette comments. I went relatively straight through college and law school, so I’m young and feel like I’m finally embarking on a career and I’m excited but nervous about it.

   The thing is, I keep comparing myself to my co-worker (she who started in the same practice the same year as me), and I get disheartened/jealous to see her trajectory going up, while mine is progressing … fine, but not to the same degree. Although we are only juniors, she’s been tapped to be a mentor to newer associates, and to join multiple planning committees (which tend to be run by the same people, sort of a cliquey thing I’m realizing). She also seems to get assignments with the more sought after attorneys in my group.

   I don’t know that her work quality is any better, although I do tend to think she might be more sociable and easy going than me (though I am generally sociable). Honestly, I know this is an unhealthy thing for me to worry about – and I’m looking for suggestions on how to either get over the comparing/competitiveness, or how to do something about it so I don’t continue to feel like my firm is only grooming my colleague to be a star associate.

   Also appreciate any generic advice from women about how they found their grooves at work, and what they did when they felt their career wasn’t starting off on the right path.

   1. I think it makes sense to try and shrink the problem. Give yourself a list of tasks and a reasonable time frame, and then focus on those tangible things. For example: 1.)ask to become a mentor, 2.) tell whoever is running the committees that youd love to be involved, 3.) identify someone you want to work for, and tell them that , 4.) brainstorm an article idea and ask someone to supervise.
      Taking care of yourself might help reduce the mental space she’s taking up

      1. I second all of Anne Shirley’s excellent advice.

         I know how you feel – I had a not-dissimilar experience during my first few years at Evil Empire LLP. A bunch of people in my year all wanted to do the same kind of work – work that there wasn’t enough of to go around. It’s hard not to get jealous, but remember that appearances can be deceiving. The “sought after” attorneys might be terrible people who will make your life miserable (trust me, I’ve been there). And the other associate might only get tapped for things like the mentoring because she knows the coordinator a bit better. And even if it looks like she’s got everything handled and loves working there as much as you think the firm loves her – she might be gone in a year or two.

         Your focus should be on doing excellent work for partners you like to work for – whether or not anyone else likes to work for them. Build your skill set and impress people who will advocate for you. In the long run, those things matter than any of the things you envy in the other associate. Also, build your networks outside your firm–for example, I am a fan of the American Inns of Court.

   2. Are you certain that she hasn’t been tapped to be a mentor to newer associates and to join multiple committees because she has volunteered to do so? And that she doesnt’ get assignments from the more sought after attorneys because she seeks *them* out?

      One thing that I wish I had known long ago is that good work usually goes to those who ask for it, not those who wait to be regonized. Try letting someone who runs the planning committees know that you’d love to be involved because you have the passion, time and committment to do so. You may be able to mention to the assigning attorneys that you heard so-and-so was working on X project/assignment and, gee, that is one area that you are really interested in and want exposure to. In fact, you just read an interesting article/opinion/white paper that said…. Learn to do this within the confines of the firm’s corporate culture and you’ll do very well. Don’t be afraid to put yourself out there.

      If I’m running a project and someone approaches me about helping out I generally respond very favorably. As a rule, I’d rather work with someone who is motivated and engaged than someone who has the most substantive knowledge (assuming that a ground floor is met.)

   3. What do you mean when you say she’s more “sociable”? Sometimes the promotions and opportunities go to the person who is the first person the boss sees when she looks up.

   4. She is being groomed; that is why she is being asked to do all these “firm service” committees in addition to her work. You need to find someone to help you get groomed, too. Find a mentor — or three! Tell them you are interested. Give one or two specific examples of things you would like to help with. Ask to be included.

      Two tips about what to ask for:

      1. You will advance into the higher ranks of BigLaw more readily if your experience is with something “hard” (finance, collections, anything about the business side of law) than with something “soft” (the diversity committee). I may get some flack for this, but: (a) I heard it at a SF Bar Assn Glass Ceiling presentation, and (b) it’s true.

      2. Ask for something that your classmate is not involved with so that you don’t have to deal with her and can’t be compared to her.

      1. Viola again – Thanks already for these great responses. I am fairly sure that she’s not volunteering for these things, she already told me she didn’t ask to be on any of the committees, and she’s mentioned that she hasn’t asked for work from these partners either. (I didn’t ask her, but it came up separately) Its almost more frustrating to hear that these things seem to fall in her lap! I like the idea of asking to be on different committees, I just need to find out what these are in my firm.

         As for being more “sociable,” I think it translates to being buddies with the more senior associates who seem to make some of these decisions. I agree that I need to seek out some mentors who are in positions like this, though there are few in my group and I worry they are already in my colleague’s corner. Involvement OUTSIDE of the firm sounds like a healthy idea as well.

         1. Just because they may like your colleague doesn’t mean they can’t be in your corner too. If you know who the movers and shakers are–the ones that you should cultivate relationships with–make that happen. Someone above suggested getting them to help on an article — do that. Take on an interesting pro bono and ask one of them to supervise/for input/to get involved. And try to interact with them as much as you can, even if it’s just to pop your head in and say “Hey, heard about that great win, congrats!” So much of BigLaw is political/social and about playing the right game. It can never hurt to befriend (or work befriend) the people senior to you in your group. You can more readily ask them for work, if you are slow, or work you like; you can ask for assistance when you need it on other project or for them to get your back with someone higher up if necessary. The more senior associates that I’ve snagged as mentors (and now consider friends) have been invaluable.

            Finally, part of getting on the radar in BigLaw, I’ve found, is being more noticeable or louder about what you want. Let the partners know you have time and would love to work for them on something. If something you like comes in the door, pop in and note that you’ve got great experience and would love to help (or just that you’d love to help). One thing I always found helpful was looking over the daily conflicts checks to get a sense of who has what going on and what is coming in the door… And if there is some way you can make yourself invaluable, make it happen. Spend a few minutes thinking about what you could do that would separate you from everyone else — maybe it’s tracking a partner’s key client in the news or looking at new cases filed against that client.

4. I have an HSA. I am pretty happy with it. HSAs are only available with a high deductible health plan (I think the minimum eligible deductible is $2500-$3000 for a single–correct me if I’m wrong). My deductible is $3000.

   The issue arises though when having a first child. Until the first child, the HSA maxes out at $3100/yr. But the moment the child arrives, the child has her own deductible or you switch to a family deductible. The Family deductible can be huge. I think the family deductible for my plan is $6000 (so basically 2 deductibles). So basically, to have a child, I need to have been contributing for at least 3 years (considering that I normally have ~$400/yr in medical expenses) just to cover the first child.

   My HDHP only has a single deductible and a family deductible but my employer contributes at an employee-only level, a higher employee+1 level, and a (highest) family level. It’s pretty unfair to two-person households–same deductible, smaller employer contribution.

   So, unless you have at least 3 years before having a first child, I wouldn’t recommend a HDHP and HSA.

   1. In our HDHP plan, we can switch policies annually. So, I can participate in the HDHP plan now (and if my health care costs are low, I get to keep all the $$ I contribute to my health savings account), and switch to a “normal” plan when I have a family.

      Unlike flexible spending plans, you can roll-over monies in your health savings account from year to year, you don’t lose the money if you don’t spend it.

   2. I was the one who asked about this yesterday. Does anyone know how it works when you go through a portion of your pregnancy on a HDP/HSA plan and switch to a PPO part way through? I can elect to switch in a few weeks (and intend to based on the issues with the duel deductibles), but I just wanted to see if anyone had experience changing mid-stream. Will I be double billed at all?

      1. I don’t know. I do know that with both the HDHP and the PPO at my firm, pre-natal care is covered 100%, no co-pay, no deductible. I think this means that I wouldn’t get billed for any pre-natal care and only pay the double deductible when the child is born. I think they were worried about everyone trying to get pregnant in December/January to avoid having to pay a pregnancy-year deductible and a childbirth-year deductible.

5. Kat: regarding your comment that gift taxes apply after $13k, that’s true, but only if you are giving ALL $13K to one person. We have three children and 3 529 plans. We contribute more than $10K per year total (among all three accounts)-after $10K, we don’t have a state tax deduction, but we also would not have to worry about gift taxes unless we contributed more than $39K total (or more than $13K for one child).

   I know you only have one child, but some readers might be confused and think that gift taxes apply if you contribute more than $13K among multiple accounts for multiple children-that’s generally not the case.

   1. Also, you and spouse combined can donate $26K before the gift tax kicks in. (My mom could only give me $13K, but she and my dad could give me and my husband $52K.) Plus, there is a $1 million lifetime gift tax exclusion in addition to the annual $13K exemption.

      1. The lifetime gift tax exemption is actually now $5M, as is the federal estate tax exemption, both adjusted for inflation so I think the 2012 number is $5.125M. This is only through 2012, though, so if Congress doesn’t change anything this year it goes back to $1M in 2013.

         (Sorry, T+E geek here).

   2. Yes. Also, for 529 plans, you can elect to treat the gift as made ratably over 5 years. So you can give 65K to one person’s 529 plan in year 1 (so it starts earning interest/return right away) and still not pay any gift tax on it – you just have to make the election on your gift tax return and not give anything more to that person in years 2-5.

      1. Wow, great tips guys — did not know all of that!

6. I’ve had an HSA for a few years now. My tax/investment guy told me at the time that the best thing you can do — if you can afford it — is to sign up for the high-deductible health plan and put as much as you’re allowed into an HSA, and then not use that money until you retire. Yes, you can use the money in the HSA to pay your current medical expenses, but the real value is in letting that money grow tax free and then using it to pay your medical expenses when you’re old (and presumably have way more medical expense than you do now). Also it can be used for things like long-term nursing care (which is super expensive) so it’s a good way to save for some significant expenses, albeit ones hopefully very far down the road. Yes, you have a high deductible, particularly if you are a family, but once your kids are past the baby/go to the pediatrician every two seconds stage, you may find that paying for your medical expenses out of pocket isn’t actually that big a deal (and if there really turns out to be a bad year medically, then insurance kicks in after the deductible is satisfied).

   1. This is why I had an HSA for a while — I did a big cost analysis comparing an HSA with the lower deductible plan my employer offered, and it turned out that in a “bad year” with a lot of medical expenses, our max out of pocket costs would be essentially the same because of the siginficantly lower premiums and employer HSA contribution. In a good/average year, the HSA was a significant savings and most of the contributions rolled over. We’ve temporarily switched to a regular plan because the difference in premiums with the plans offered by DH’s new employer make the HSA not-quite-as-advantageous, and we’re TTC. Potential pregnancy-related+pediatric expenses would practically guarantee max out of pocket for the HDHP, but would be much less under the traditional plan. I definitely intend to go back to an HDHP/HSA in the future, though. The whole thing was just easier, even aside from the tax/general $$ savings.

      It’s worth mentioning that an HSA is NOT the same as an HRA, which (generally) you can’t take with you when you leave an employer. Also, worth mentioning that many HSAs – since they are basically checking accounts – have a monthly fee associated with them. Typically the fee is paid by your insurance company while you are enrolled in the plan, but if you switch providers, you may have to pay the fees if you keep your money in the same account.

   2. Me and my family are currently on our high deductible and HSA plan. I’ve maxed out our contributions for the year, and our company matches half of the maximum, which is great. The problem I’ve run into is the asthma medications my daughter is on are exceptionally expensive until we meet that three grand deductible, and then we still have to pay 20% of it. Luckily (or unluckily I guess), I’ve already single-handedly met our deductible for our family by myself even before the end of the first quarter of the year :( My CT scan tomorrow will essentially be free. And then hopefully I’m done for the year. We signed up because (other than the asthma meds) our medical and dental expenses are low thanks to healthy lifestyles and young age. I joked during open enrollment that something would happen and we’d spend all our $$ at the beginning, and now I don’t joke about anything for fear of it coming true :(

      Ideally, next year, I’ll be normal and we will be rolling over about 1/2 of what we throw in annually.

7. Please correct me if I’m wrong, but it has always seemed to me that the HSA option is not a good choice for anyone who has a chronic medical condition. In that case, you would not be able to let the money sit and accrue interest because you would need it on an ongoing basis for things like regular physician office visits, prescriptions, etc.

   1. No, that’s not right. You don’t HAVE to use the money in your HSA for current health care expenses. You can, but you don’t have to. So you could choose to fully fund your HSA, pay your medical expense out of pocket up to the amount of your deductible, and then let your insurance kick in for the rest. Your HSA can sit for as long as you want, accruing interest. If I wanted to, I could use money that I’ve saved in my HSA account to pay for current medical expenses not covered by my insurance plan (i.e., either things I have to pay before I’ve hit my deductible, or non-covered expenses after that). But I don’t have to, and indeed it would be disadvantageous from a financial planning perspective.

      1. Actually, it IS sort of right even if you don’t have a chronic illness, in that when you start (before you have any balance built up in the HSA), if you have a big expense you have to carry it out of pocket until you’ve made the deposits and can withdraw to “pay yourself back.”

         I signed up for an HSA this year. It was the first year my employer offered it AND it was a no brainer. I could afford to front the deductible if necessary (and it was eyeopening to hear over the proverbial water cooler who could not. What DO these people do with their money?) But what really made it a no brainer is that my employer contributes $175 per mo to my account – in other words, pays $2100 of my $2500 deductible. But if it weren’t for that, it would have been a totally bad deal for me.

         The way mine works (maybe they are all this way) is that I pay the insurance company’s negotiated rate. I don’t have a chronic illness, but I so see a counselor about once a month, every this year was one of the ones where I bought glasses (with high index lenses because of my strong Rx), and I’ve had $1000 0f PT this year for my injured-at-the-gym shoulder. I’ll easily hit my deductible and so have no savings in the account at the end of the year. Yes, I’ll be out only $400 thanks to my employer’s contribution, but it has been a PITA tracking what I paid for with the card, what I’ve gotten and EOB for and reimbursed myself for, etc. And I doubt my out of pockets under a traditional plan would have added up to much more than the $400. As it is, since I’ve carried so many costs ahead I feel like I’ve had a lot of out of pocket expenses.

         What it DID do is sensitize me to the cost of things – both the negotiated rates and the out of pocket rates. I made different choices as a result. One of the reasons I believe that health care costs are such a huge part of GNP and rising is that most of us – the insured – are so insulated from the actual cost of things. It’s easy for suppliers to continue increasing prices without justifying the added value. And I’m in health care, so this shouldn’t have been such a huge surprise.

         1. One of the reasons I believe that health care costs are such a huge part of GNP and rising is that most of us – the insured – are so insulated from the actual cost of things. It’s easy for suppliers to continue increasing prices without justifying the added value

            THIS! and hello from a fellow healthcare professional.

8. I think you’re right — preventive care is covered 100%, but if you have recurring visits (even routine things like allergy shots) that are specifically for “treatment,” not just check-ups, these are each billed separately as a specialist visit and can add up quickly.

   I’m not so sure about prescriptions. My HDHP had prescription coverage that was very similar to that of a traditional plan. $3-5 for generics, maybe $10-25 for name brands (not sure on the numbers. I only had BC and that was $3). That could add up, too, if you have a lot of prescriptions, but you don’t have to pay full price for them up to the deductible the way you do with office visits.

9. Timely post! I finally went to the bank today to open a Roth IRA, which I know I should have done years ago. It took over an hour (which is why I’d been putting it off–tiny credit union with little infrastructure, for lack of a better word) but it was an hour well-spent!

   I didn’t realize you could start a 529 for no specific person in case you have kids later. That is something to ponder.

10. Any investment pointers for someone who is currently doing contract work?

11. I had no idea that one can use a 529 plan to fund self education.
    Is it possible to use the plan to pay student loans if one is currently a student?

    1. No. Sucks! It would be great to use pretax $ for those huge payments!

       1. 529 contributions ARE NOT PRE-TAX!!! You don’t pay taxes when you withdraw $$, so in reality only the gains are tax-free.

12. I’ve had an HSA for three years and love it. I contribute the $3,100/yr max, and hope to not touch the money until I retire and can use it to help with my healthcare costs when I’m old.
    A good thing to be aware of: you don’t have to leave your HSA money in a checking account, losing value to inflation. Once your balance reaches a certain amount–in our plan it’s $2,000–you can choose to invest it.
    Our HSA plan has 9 fund options. I split my HSA contributions, which go directly from my paycheck into my HSA, equally among 4 funds (a bond fund, an international stock fund, a small cap stock fund and a balanced fund). It’s automated, so the money moves straight into those 4 funds each month without me having to do anything.

13. Does anyone have the same hesitation about the 529’s that I do? I am pregnant, and we’ll probably start one, but I don’t like that there are many unknowns in the next 18 years I will likely have one kid. Not to be fatalistic, but anything could happen, ranging from her being ill/killed to just being one of those people who doesn’t go to college, or just not in the US. I hate the idea of all that money being stuck with penalty or going to a relative or something instead. I got royally screwed on an FSA when I switched employers in past (lost money) so can’t help but not like this.
    Like all the rest of the tools, this is what’s available, so I’ll likely do it, but I resent that it is so rigidly structured.

    1. I feel the same way. I’m pregnant with my first (and likely only) child, and have similar concerns. I’ve only just started looking into 529s, but my current thought is that I’ll probably start one, but fund it somewhat lightly (not max it out) so that it’s available to at least give our child a start on funding his/her college education if she/he so chooses … but it won’t be so heavily funded that we pay too much in penalties if it’s not used for that purpose for whatever reason. But I have no idea if that’s a good compromise.

14. Would love to hear advice on whether it’s worthwhile for a young person to open a Roth IRA if you qualify now, but (hopefully!) will pass the $125k earnings cap sometime in the next 10 years. Better to have the Roth keep accruing interest for whatever I earn until I hit $125k, or put it all in a 401k?

15. I guess I’m late to the party, but I want to put in a plug for HSAs. We use ours as a part of our ‘retirement plan’ in that we contribute the maximum amount each year and let it sit. Ours is invested in mutual funds. It is deductible going in, grows tax free, and comes out tax free. I’m not aware of any other investment with this ‘triple tax’ benefit – so if you can afford it, it seems like a no-brainer. We just pay our medical expenses with taxable income for now, and when we retire, hopefully very early, we’ll have a nice chunk of money to pay for medical expenses.

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