frugal living

Frugal Living? 2 Smart Money Moves to Make Before Year End

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I’m That Frugal Pharmacist, so clearly I should have some ideas about frugal living, right?

2020 has been a heck of a year for everyone. I’ve got two big tips to either make the most of your frugal muscle, or make some smart money moves and start maximizing your money. Clearly, you should be tracking your income and paying attention to basic budgeting. If you’re not, check out Personal Capital here, or for a bit more intensive process, try YNAB (You Need A Budget) free for 34 days here.

Have you reconsidered your tax and investment plans given potentially reduced income or ongoing low income? Frugal living means learning to use the tax code to your benefit!

For many people, the retirement savings account situation is not looking anything like they expected it to this year.  Managing your money if you’ve been furloughed, laid off or otherwise out of work is hard enough.  I myself am on my 8th month of leave of absence. That’s eight whole months I haven’t been contributing to my 401k.  Sad. Luckily my finances are in order and we are debt-free, as this was not what I was expecting this year.

Luckily, I funded almost the max of the Roth IRA contribution for me and my spouse early in the year. It’s nice not to have that to worry about given the lack of highly liquid funds currently. Since we have a fully-funded emergency fund and good saving habits, we can usually get our IRAs funded.

If you have not funded a an IRA, you can fund your IRA up until tax day.

When you start living frugally you might consider a Roth IRA conversion aka IRA rollover!

Since retirement planning probably went off the rails this year for many people, perhaps there is something else you can take advantage of.  An IRA rollover!

Not the kind of rollover where you move your investment from one institution to another, but a rollover to another type of account.

If you found that this year significantly cut into your overall earnings this may be the year to do a traditional IRA to Roth IRA conversion.

Unlike funding an IRA, a rollover DOES need to be completed before year end. These are two totally different things. You can only do a rollover of funds that you invested in a previous year.

If you are changing from a traditional to a Roth IRA in the same year, that’s actually a Roth IRA recharacterization and is something else to research and consider.

Since a Roth IRA conversion effectively reclassifies the amount rolled over as new income for that year, it needs to be completed by December 31.  

Why is a Roth IRA Rollover considered taxable income?

Well, let me explain further as I did this myself last year too:

Since my income was quite low last year during my son’s cancer treatment, I did a conversion to take advantage of that low income. 

The year I contributed to my traditional IRA, I was incentivized to save for my retirement by having that amount deducted from my taxable income. I get an initial tax break on the income that year, but then I am taxed in the future for any withdrawals from the account (after age 59 1/2). If I had contributed that same amount of money to a Roth IRA, I would have not gotten the tax break.

Basically, I just decide to do that now, after the fact. I don’t want a traditional IRA anymore, I want a Roth IRA where my money grows tax free. By applying the Roth conversion in a year with very little earnings, I effectively pay less taxes on it given my marginal tax rates.

So I’ll pay taxes on the same amount of money – but my taxed rate will be lower.

Is a Roth conversion a good frugal living strategy?

That’s really up to each person to decide based on a whole bunch of factors. For me, I have a dependent child right now and tax rates are pretty low. It’s probably a good time to take advantage of paying my taxes while I have multiple factors going for me.

Let’s also consider this (overly simple) example:

  • I have $6,000 in a traditional IRA or a Roth IRA. I’m 33 years old. If this money grows for the next 26 years at 8% on average, it will be worth about $47,000 when I’m 59 years old.
  • For 2020 the tax marginal tax rate is 12% for those filing jointly with income of $19,751 to $80,250
  • I can pay $720 in additional taxes on the money I convert from a traditional IRA to a Roth IRA this year and then it grows tax free OR
  • I can leave it in the traditional IRA and have to pay taxes on the roughly $47,000 when I withdraw it in retirement.
  • If ALL THINGS remain the same (which they won’t) and I took a full the full $47,000 out as a withdrawal at 59 years old, I would pay $5,640 in taxes.
  • So, (again, this is inappropriately simple) pay $720 in taxes now, or $5,640 in 26 years. (Using an online inflation calculator, comparing 1996 to 2020, another 26 year period, $720 was equivalent to about $1,205 twenty six years later). A lot of money could be saved over those years!

Hope all my mouth checks out, but this is how I work through things. So, given my lower tax bracket, multiple dependents, etc. I think it’s worth it to roll over a fair amount of my traditional IRA investments to a Roth. I could save more in the long run given my relatively long potential investment horizon. In the long run, it really does add-up.

You should investigate if it would be a good move for you too! Caveat – do consider that though your marginal tax rate is the same, you may phase yourself out of some tax credits and tax deductions. Here’s a guide to some of those deduction for this year to be aware of. Want to see how my thoughts and strategy might have changed? Here were my thoughts on which account to choose in 2018, and figuring it all out.

Living a Frugal Life in Early Retirement by Accessing Your Retirement accounts. Financially stable contingency plans!

I don’t yet know exactly how I am going to live in early retirement. I do hope to bring enough income each month to not need to tap into my actual retirement accounts before standard retirement age. Still, being a frugal person and a potential early retiree means planning for contingencies. I am happy to be padding my accounts with funds that I can access without penalty if needed.

I’m no expert on Roth conversion ladders as I’m honestly not thinking that far ahead.  I used to think of those things, but my son’s cancer, pandemic, life being a dumpster fire.. Well, let’s just say my ability to think straight and plan for the future isn’t currently what it used to be.

But I still know it’s a good money move to make when my annual taxes are likely to be less than standard deductions.  I still made standard Roth IRA contributions which I can access at any time.  And I can access the Roth conversions beginning 5 years after that amount was converted from traditional Roth IRA.

As I plan to still have income of some kind for a significant amount of time, I’m not relying on any of this money yet.  So, honestly, I don’t feel the need to do that much research on all the specifics. You may need to depending on your life plans and circumstances.

And – don’t forget some of these financial decisions you should always be on top of that will leave you better prepared for rough times like we’ve experienced in this pandemic.

Frugal Living Tip: Don’t Leave Benefits on The Table

Was the last topic a bit overwhelming and a bit too much long term strategy for you? That’s ok. The next tips for saving money in your penny-pinching life are much easier. Viva la frugality!

Being frugal means don’t forget to take advantage of your insurance benefits!

I know it sounds silly, but people do it every dang year. And this year in particular, many people have been putting off taking care of their health in light of the pandemic.  Most have been more cautious about making time to deal with actual health issues.  But even if you you’re healthy, you may still be leaving some of those benefits on the table.

My family had done pretty well keeping up on our health.  Given my son has cancer, not following up is not an option for him.  Still, we haven’t been able to attend to everything that we would like.  For example, both my and my husband need some physical therapy for issues that started or were exacerbated by living life sharing a hospital bed with a toddler for a year.

Doctor, Dentist, Eye Care

The three basic umbrellas that most people have coverage under are for medical care, dental care and eye care.  I have all three for my family.

It’s probably too late to book an annual physicians appointment if you haven’t done so already.  Even so, you should at least try to get in to see your doctor because preventative care is often free. Check you plan documents of course.

For my family, we’ve all made sure to get to our doctors and dentists for routine care, and we even had our eye exams done.  But, as usual, for me, we put off getting glasses until December. I’m not perfect either!

Glasses and Contacts

This week we finally went to get our glasses. 

I actually am likely to leave my $150 benefit toward new frames on the table.  Can’t optimize everything as they say! I’m making the decision that the stress and risk isn’t worth it to shop for frames as I normally do, but I am going to get new lenses in some of my old frames.

The pandemic has been a huge shift for how I shop.  I live in a really small area.  The eye care office we go to has a very small selection of frames.

Additionally, I tend to like nicer or designer frames.  I did find a place in Portland that has a lot of cool options for good prices. Most are within my $150 benefit amount. But that’s in the big city, and it’s 3 hours away.  Not going there during a pandemic.  (The place is called See Eyewear BTW… super cool… not an ad. I like them and their staff were fab! Hey See Eyewear… if you’re seeing this you need to sponsor your gal here!)

Can’t get out to shop? You can order frames online to test them out and have them shipped to home!

I am aware that there are inexpensive options and ways to try on frames at home.  But, I haven’t been comfortable tackling that yet.  I prefer to shop for eyeglasses in person. This may not be the case for you though.

It may be a bit late to get this done by year end, but it’s something to keep in mind for next year. I’m expecting things are going to be fairly disrupted in 2021. So best to be mindful of ways to tackle those hurdles right now.

Can you buy sunglasses or spare frames with your insurance? Maybe! Might help you avoid paying full price for sunglasses!

I checked and my insurance does allow me to purchase frames without getting the lenses put in.  So I am doing some research and maybe I will get some sunglasses and hold onto them for a bit without getting lenses in them.  This is where being “ecofrugal” is a bit tough.  I don’t really need new frames and I don’t want to be wasteful.  I’m just being a bit greedy about losing benefits.

I’m not going to tell you what to do with these. But know that it may be an option. Maybe you plan to put lenses in them later. Maybe you give them to your friend, partner or kids. But do see if it’s an option!

Do you wear contacts not glasses? Make sure you order up on backup contacts with any funds available.

I don’t wear them so I can’t give much advice. But if that’s a benefit you have and that you haven’t used make sure you order up. Maybe you have been wearing frames more often because you never leave the house and have a back stock of contacts? If it works out and the expiration dates are good for a while, build that hoard!

I’m “ecofrugal” so I’m going to reuse my old high quality glasses frames. Living frugally does not always mean you have to maximize every benefit.

I have an old pair of frames that are awesome, flexible (i.e. preschooler safe-ish) and super lightweight.  I like them quite a bit and they were a good $350-$400 new.  I did not pay full price of course, but don’t remember what my frame benefit was.

Since my prescription hasn’t changed this year, I am just planning to get new lenses in these quality frames I have owned for 3+ years.

My husband on the other hand was quite easy (though more expensive).  His prescription also didn’t change.  He likes his current frames, though they are getting a bit beat up.  So we found a frame for him (that had some cool magnet attached sunglasses, good, as we didn’t pay for transitions this time) that were only $30 over his frame allowance. We’re calling them a backup, though it will cost about $190 after insurance. Still not bad for his progressive lenses (i.e. the new bifocals).

This wasn’t the ideal way for us to get our glasses.  We would have liked some more options.  But, given that we’re in the worst phase of the pandemic yet, at least we are getting some glasses we can use.  That benefit resets (for us) on January first.  So, as with so many things in this year of compromises, something is better than nothing.

At least I know I am aware of what I’m doing and I won’t kick myself for forgetting to use the benefit later!

What other last hour frugal living money moves do you recommend?

Please share your ideas in the comments. I’d love some reminders of the things I know I’ve forgotten this year!

Regina is That Frugal Pharmacist. She’s a PharmD, mother to a son with cancer, breadwinning wife, personal finance enthusiast, artist, writer, and entrepreneur. Regina’s single-income household has been debt-free, including her home, since she was 28 years old.
Her money approach is “holistic financial health.” She encourages mindful spending, awareness of the non-monetary costs of choices, and aligning personal values with money habits. Regina sees a frugal lifestyle and mindset as an important part of environmental stewardship. As such she’s interested in ongoing efforts towards self-sufficiency and sustainability.

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