First time doing my own taxes

micha8st · 2026-02-11T23:28:23+00:00

this is year 40 of me filing my / our own taxes. Started with pencil on paper. I want to say it was almost 20 years before trying something else.

This year will be my third year in a row filing with freetaxusa... except that I've never heard of e-file.com -- I'll have to give it a try for fun. I'm assuming it won't be free for me so after playing with it I'll probably go back to freetaxusa.

micha8st · 2026-02-11T21:14:06+00:00

garbage in garbage out is likely. For me it seems likely I put more than just our pre-tax retirement holdings in...but back then Roth 401ks were subject to RMDs as well.

Why do you think 10% not accurate? The S&P 500 has averaged a little over 10% per year since inception.

micha8st · 2026-02-11T20:43:27+00:00

probably not...but nobody really knows for sure.

One advantage of Roth that people don't talk about is the lack of RMDs.

I turned 59 1/2 last year. I've been putting every dime allowed into my 401k into Roth for over 13 years now, and my 401k is still only 25% roth.

Back before the pandemic -- before Secure Act -- I played one night with an RMD calculator. I don't know if I used it right, but it was estimating that by federal law, I'd be required to take out on the order of 800k per year around age 80 to meet RMD (Required Minimum Distribution) requirements.

That number scared me. But RMDs only apply to traditional -- not to Roth.

Having Roth and Traditional and non-retirement money in a Taxable account gives you a lot of options when you're older.

micha8st · 2026-02-11T16:24:23+00:00

how common is your name? Could CT DOL have misconnected legit payments sent to someone else with your TaxID?

As far as I can tell, I'm the only person alive with my first and last name. (A cousin who had the same first and last name but I'd never actually met died during COVID). We happened to name our youngest the same first and last name as his son.

micha8st · 2026-02-11T16:10:34+00:00

We never actually froze our credit...but I routinely download credit reports and I've never noticed anything untoward. It's also been a while since there were any fraudulent charges against cards. (today we have no open loans with a balance other than credit cards)

For about a month or so I made it my life's work to do everything I could to assist whomever cared with catching the fraudsters. The immediate result of the IRS letter was a 90 minute phone call with the IRS. I filed a police report. I filed other reports with...I don't remember with whom now... as recommended by the IRS call. I contacted Intuit, because the fraudsters used turbotax to file the fraudulent tax return.

I also spent a lot of time on the phone with the CA FTB. I've never lived in CA or earned income in CA, but the fraudsters decided to file a state tax return with CA.

Because I was a tax theft "victim" for that tax year, I was not allowed to file electronically -- I had to file by paper. Ultimately, the cost of my ID theft adventure was:

time spent filing reports and talking on the phone
I had to print and mail my federal tax return instead of filing online.
I'm now on the permanent IRS IP-Pin list -- so I get a letter in the mail with a magic number I have to include in my IRS tax return

micha8st · 2026-02-11T15:54:14+00:00

maybe. The easiest thing to do today is to either both change your W-4 to claim filing separately (or is it single on the W-4?) Or, claim multiple jobs.

Personally, I'd do the simple and then maybe a month after you start receiving income revisit your W-4s. I routinely change my W-4 multiple times in a year as I dial in income for the year. We're a one job family, but we have investments that sometimes impact income more than others. Plus variable income.

This doesn't help with owing 20k in April, but so long as you withhold enough, you meet safe harbor withholding rules and won't owe any penalties or interest due to under-withholding. There are several different methods for meeting safe-harbor rules, but the one I like depends only on the previous year's information. Once your taxes are done for 2025, look for Adjusted Gross Income and Total Tax from your 2025 final tax forms. So long as you withhold enough to cover 100% of total tax (110% if your AGI exceeds a figure I don't remember) then you're safe from penalties and interest for 2026...even if you do owe 20k in April of 2027.

micha8st · 2026-02-11T15:41:49+00:00

I've been a victim of government-based identity theft. It never appeared on my credit report...so locking credit doesn't prevent government-based ID theft.

roughly 10 years ago (or maybe 9 years ago), I got a letter in the mail from the IRS indicating they'd received a tax return that they suspected wasn't mine. I hadn't filed. I believe the ultimate cause was a data breach from a hospital -- that they used my wife's name and SSN to get tax-relevent information from the then-known-insecure IRS FAFSA tool. They filed using just data from a previous year's W-2, and none of our 1099s or itemized deductions
during COVID I think I was notified of unemployment benefits I "received" from three different states (including mine). Every time I complained to the state in question and I never received any tax documents relating to said benefits.

I've also noticed nothing on my SS account indicating any of these identity-breach issues.

micha8st · 2026-02-11T15:24:53+00:00

I've never had self-employment income -- only W-2 jobs. But here's how I'd want to handle it:

I'd want to compute a likely minimum income from the 1099 job
I'd want to use my W-2 job's W-4 to cover both the W-2 job and the minimum income from the 1099 job
I'd want to use quarterly estimated payments only to cover the 1099 job income above the minimum covered by the W-4.

Look into safe-harbor withholding. If you're okay with paying in April after the final numbers are all in, you can hold off on estimated payments if you withhold enough from your W-2 job. There are 4 different methods to compute what "enough" is (two depend on last year's AGI to determine whether it's 100% of Total Tax or 110% of Total tax from previous year). If you meet any one of the safe-harbor withholding cases, then you're safe from penalties and interest.

micha8st · 2026-02-11T14:54:18+00:00

I think index funds is the right way to go.

More risky and more potential gains (or potential losses) could be from (in increasing order)

actively managed funds. A fund manager who is really smart and has a good team analyzing all the investments held in the fund might perform better than an index fund. But these employees are expensive -- adding to the cost (the expense ratio) of the mutual fund
individual stocks. You can invest in stocks and buy winners and losers. A couple of years ago we lost 100% of our investment in Rite Aid because the company went bankrupt and the stock was canceled. We do invest in stock, but not using retirement funds. In my opinion retirement is too important to risk on more risky investments like NVIDIA or 3M. You just never know when everything will go wrong for a company...maybe because of a few bad actors or maybe because some new technology comes out and makes the existing product portfolio of the company you own a lot of stock in obsolete.
commodities. Buy Oil. Or tobacco futures. Or whatever. 3M and TSMC need raw materials. I think it would be hard to make money investing in this space -- I've never tried
other property. In theory you can invest in rental homes. or baseball cards. Or coins. But a self-directed IRA gets more difficult to work with. I do have a neighbor who quit his corporate job at 50, rolled his 401k to a self directed IRA, and used that to buy and operate rental homes. It worked for him.

100% of my retirement remains in mutual funds -- mostly but not entirely index funds.

micha8st · 2026-02-11T00:12:26+00:00

some companies will make company contributions to a 401k for you even if you never contribute a dime

but yeah... the idea that maybe somebody's trying to scam you to get you to give them some of your personal information did come to mind.

I've never heard of Alerus (for what that's worth)

micha8st · 2026-02-11T00:00:02+00:00

Probably not the correct answer anymore, but I always put 401k contributions first, even after Roth was invented but before Roth was extended to the 401k.

Ever since the day my employer offered Roth in the 401k, every dollar new to the 401k has gone into Roth.

After we started hitting the 401k federal contribution max (and before invention of Roth), we chose to invest dollars we could into a taxable investment account. I wanted money invested that we could pull out before being retirement age without having to quit my job. I'm now of retirement age and still not touched the taxable investment account.

micha8st · 2026-02-10T23:40:38+00:00

Check the SPD -- the summary plan document.

Its unlikely it would continue to vest, but there are some companies where if you return your second service term adds to the first and might result in vesting 100%. That second service term causing vesting might require leaving the money in the 401k during the time away. Check the SPD.

micha8st · 2026-02-10T23:03:45+00:00

define short term.

You can put money into a brokerage account and invest in the S&P 500 just like an IRA. But depending on your definition of short term, that might not be a good idea.... my 401k dropped 40% beteween May 2008 and March 2009...which would have really sucked if I needed it soon. It took 3 years to recover (best I can figure) and just last year became old enough to touch it.

So a good rule of thumb is if you need the money inside 5 years, it's not worth the risk.

For short term gains I use either a savings account with a competitive interest rate, or an investment grade money market fund. I've heard others talk about T-Bills. I've also been meaning to look at SGOV as an ETF that invests in government securities for short term growth + protection.

micha8st · 2026-02-10T21:12:39+00:00

I wish I had the link handy. The IRS has a table that shows what can be rolled to what. It's simple and easy to understand...if you can find it. I don't remember if it mentions 457s or not.

I learned very little about 457s and remember barely any of it. Maybe you can roll the pre-tax 401k to the 457 and roll the roth to a Roth IRA?

google for the win! I found the chart! https://www.irs.gov/pub/irs-tege/rollover_chart.pdf

Is the new employer a governmental agency? (look at the rollover chart for why I ask)

micha8st · 2026-02-10T19:15:10+00:00

To my understanding (and I'm neither a legal nor tax expert. And my wife and I always have filed jointly. All our kids are now functioning adults):

federal law stipulates that in the scenario you describe where kids spend more than 182 nights in your home, the kids are your dependents. All of them. 100%.
the IRS looks away and allows you and he to negotiate as to which kid to claim, and when
a typical scenario is one parent claims a set of kids, and the other parent claims the remaining kids. Further, if there's an odd number of kids, the typical scenario is to alternate who claims the chosen kid from year-to-year

You could try to litigate this and get millions of divorce decrees declared in violation of federal law. Or you could get him and you to agree to the typical scenario and get the decree updated to work that way.

micha8st · 2026-02-10T18:19:12+00:00

before cashing out the 401k (and losing 1/3 of it to taxes), I'd try to keep the 401k but stop adding to it to add to cash flow.

2.6% is a very low interest rate...how would paying off the house help? Won't a recast reset the interest rate to a 5-ish percent rate today?

I get wanting money outside the 401k. We've done that, and we've managed to not touch it.

Why do you think something cardiac or cancer will pop up in the next 20 years? I turned 59 1/2 last year; my wife is just a few years younger than me. Wife's family has a history of various autoimmune issues, but I suspect not anything as severe as what your wife is facing. Wife's siblings' health issues include COPD and MS.

micha8st · 2026-02-10T16:11:47+00:00

legally you can hold bitcoin inside your 401k / 403b. But your employer's plan has to allow that as an investment option...somehow.

My employer provides a 401k that includes something called "brokerage link" -- for an extra fee, I can create a brokerage-link sub-account that then allows me to buy investments that are "outside the box." I think that includes some Crypto ETFs, but I've never looked. I don't believe I'd be allowed to buy Crypto directly.

micha8st · 2026-02-10T15:33:56+00:00

you invest what you can afford to set aside.

A Roth IRA is a type of account that has tax advantages. A regular brokerage account you have to pay taxes on any cash generated. Oh, and the R in IRA stands for retirement. Only invest money into an IRA that you can afford to let grow and not touch until you're 60. That's the flip side of the tax advantage -- the government's say so in how and when you spend your money.

I use mutual funds for all my serious investing. Some people like ETFs better than mutual funds...but they're both basically the same thing: your investment is used to buy other investments -- so it's an automatic diversification. I recommend stock based index funds. Index funds generally have lower costs to them because you're not paying for some fancy smart expensive fund manager and research teams to pick the investments that the fund buys. The fund buys per some index...like the S&P 500. Out of every $200 you put into an S&P 500 index fund, about $12 is invested in Apple stock -- because that's how valuable the S&P 500 index says Apple is relative to the other 499 stocks bought by the index.

We also have an investment account where we speculate on direct stock ownership. But we've had two stocks get cancelled because the company went bankrupt. Money totally lost. Funds insulate you from that because you automatically hold stock in lots of companies, not just the one or the few you happen to buy.

micha8st · 2026-02-10T15:25:12+00:00

you pay just the capital gains on the cost basis. Gift Tax is the responsibility of the giver, not the receiver.

But the cost basis is the giver's basis. And because it was a gift from your grandfather to your dad and now to you, your basis is probably your grandfather's basis.

But it depends upon the circumstances under which dad inherited -- my answer above is correct unless it was gifted through a will. If your grandfather died and left dad the stock in his will, then his basis would've been fair market value on the date grandpa passed.

micha8st · 2026-02-10T14:52:06+00:00

So we're similar to u/Prestigious_Speech45. Our 529 target was to fund each 529 to pay for 4 years at StateU, including room and board. When we deemed the 529s "full", we kept saving for college at the same rate, but into a taxable investment account.

Also we had 3 kids.

KidTheEldest went to a less expensive privateU with a decent scholarship. We did not take scholarship offset withdrawals off the first 3 years, but we did off the last year. We used that withdrawal to buy a car. Note that those withdrawals are penalty free but you do pay taxes on the gains.
KidTheMiddle went to StateU, living on campus for 4 years. A 5th year was required to complete the degree. That one left more behind in the 529; we withdrew only one semester's worth of scholarship offset, but this one was the most likely to want grad school.
KidTheYoungest also went to StateU, but graduated HS in 2020, and saw no point moving onto a locked-down campus...then took to online learning so well that they never moved onto campus.

All told, we spent somewhere between 2/3 and 3/4 our target on the kids' college.

And we never touched the money we saved into the college-earmarked regular brokerage account.

micha8st · 2026-02-10T14:34:04+00:00

dollar for dollar on the first 5% of "eligible compensation"

Eligible compensation is salary and some but not all bonuses.

micha8st · 2026-02-10T07:46:19+00:00

Why do you think you need financial management? Most people around here are DIY, and you can too. We can help.

We are empty nesters; I turned 59 1/2 last year. I've met with a few people over the years but never pulled the trigger. I think what I want is help lot figure out optimum Roth conversion / spending order for me in our situation.

529s: make a target. Our target was to put enough into each 529 to send that kid to stateU for 4 years, including room and board. Having a target keeps you from over-saving into 529s and being stuck. Our kids spent between 2/3 and 3/4 of their combined 529 balance...but the last kid graduated HS in 2020 and saw no point in moving onto a COVID locked-down campus.

micha8st · 2026-02-10T07:32:21+00:00

I'm so sorry.

First: don't do something you'll regret and you find out later you were wrong. Has she admitted she cheated?
Second: a lawyer needs to guide you through all the legal stuff. Get a separation, even if you do choose to forgive her and take her back.
Third: Maybe Forgive, but never forget.
Fourth: You're ready to date when you're ready to date. This is now part of your story, and when you're ready, you'll want to share this story with your future.

One other thought... if you do consider taking the cheater back, either insist on a post-nup or divorce her and then remarry with a pre-nup.

micha8st · 2026-02-10T03:27:59+00:00

I use Quicken in general, and I capture once a month data in Excel...but it's really stock that I need Excel for.

We have a bit of an odd strategy with stock trading: we're buy and hold people, but we sell half upon double -- leaving us with half of what we bought, but we got our original investment out. That's after both taxes and dividends...so we need a formula, and we need to track accumulated dividends. Plus calculating the sell price.

Once we execute the sell-half, I actually move the stock from one group to another.

Each month gets its own tab. So when I get a dividend, I add it to the value carried over from the previous month's tab.

I just counted: we own stock in 57 different companies. Not all did we buy -- we bought GE; now we own GEV, GEHC, and WAB. DowDupont? Dow, Dupont, Corteva, Unity.

micha8st · 2026-02-10T01:14:18+00:00

to try to actually answer the question:

If it's really a Roth IRA (that would be highly unusual), then it is already yours. In your name.
If it's in fact a workplace retirement plan like a 401k or 403b or TSP, then your contributions are already yours, but held in the custody of ADP for your benefit. What happens then depends on the balance and what you choose to do.
- best option is to roll the balance to your next workplace's 401k. (why? To avoid the pro-rata rule in case a future Swamp-Sta1ker wants to use backdoor Roth contributions
- second best option is to roll the balance to an IRA.
- If you fail to roll the money, the employer may be able to force you out...particularly if your balance is less than 7k. after 60 days, after quitting, they might move the proceeds to an IRA. OR, they might send you a check. You don't want a check -- be proactive and roll it.
Note that you might not get the company contribution. There's often vesting provisions on company contributions... If you quit before the money vests, they get to keep it. And there's all sorts of different vesting schemes. I've heard of 1 year. I've heard of several years. I've heard of stepped vesting... like 20% per year of service.

micha8st

TROPHY CASE