Income:
Me - $45k/annually. - I recently switched careers after being in business for 5yrs. I am currently finishing my 1st year of teaching & also will be completing my masters degree soon in education to increase my pay.
Wife - $60k/annually - She is also a teacher & has been doing so for 6 years. She has her masters & in the next few years could move into an administrative role.
...
Assets:
Vanguard Index Fund - $25k
Vanguard IRA - $34k (was from 401k rollover)
Vanguard Roth IRA - $12k (was from 401k rollover)
Checking Account - $4k (just use for bills)
Ally Savings Account - $30k
Total - $105K
Vehicles - $10k - We own our cars outright. Have a 2004 Toyota Corrolla & a 2013 Honda CRV
Liabilities:
Mortgage - $111k - Home is valued at $180k
First thing, what are your work-related retirement plans? Traditional pensions, or 403b's? You are asking some specific questions, and looking to monkey around with your IRA's. No advice will be good advice, yet, unless you detail your whole picture.
As I stated earlier, my wife & I recently had our first child so if there are any mistakes I apologize & blame it on the lack of sleep! We see more kids in the future (3-4 total if we are lucky enough) & don't see ourselves staying in our current home for more than 5yrs. A few specific questions or areas where I could use your expert advice...
1) The $30k in our Ally account. I struggle with how much to keep in this account. Currently we have $1,000 of each of my wifes paychecks going directly into this account. We do have some future expenses on the horizon such as possible down payment on a new home, buying a new car (with cash), & potential home improvements or educational expenses. With that being said, we don't foresee any of these expenses happening within the next year or 2. Would it be better to take a lump sum of this & invest? We currently get 2.2% return with Ally. Overall, I often feel I am missing something when it comes to where we are keeping our money.
Generally speaking, you shouldn't be investing in stocks or real estate with short-term money--the potential loss within an economic cycle is too great for money that you might need. And while nobody knows when the next downturn will hit, we look a lot closer to the eventual top than the bottom, at the moment, in basically all asset classes. So, what is short term? Think 5 years, not just 2. Two years would have gotten you through 2008-2009, but that is just the down leg. You would want your money to recover before withdrawal.
So, your cash needs to include: an emergency fund of 3-6 months' expenses, your house down payment, a (new to you, not brand new) car, plus the "wants". Add that up. Time it over the years, if you need to. Keep funding it, or accelerate your funding, if you won't make your spending plan. After you've reached that number, then look to taxable investments as you wish.
This will be a big number, but you are looking to do big things. Don't focus only on the headline return. Cash means options, which allow you to act when others are running the other way.
And don't forget to save up for the other kids you are thinking of having, too.
2) College Savings. We have heard mixed things about 529 accounts & many people have suggested using a Roth IRA. Should I just consider my Roth IRA from my 401k rollover as our college savings & add to that or should we open an account for our son (& future children) & do that separately?
Yes, a lot has been said, here as anywhere, about this. From what you have shared, you need your IRA for *you*--put on your own oxygen mask, before you help others. But as teachers, I have to think there is something else there...
I will also say that, with plans for 3-4 kids, you have a way of addressing one of the most-often cited issues with the 529: what if I don't need it all? You simply change beneficiaries to one of the others. At least get started with this one; tuition is high, and there are only 18 years for returns to compound--a much shorter time than your retirement planning window.
3) Life Insurance. We currently do not have any life insurance other than the super basic amount ($40k) that is included in our teaching contracts. Considering our financial standing, the fact that both my wife & I work, are highly educated, & have families who could provide support, what amount do you think is best for us?
@lhamo 's comments aside, traditional advice is 10-12 times your income, assuming your family will need that to replace your savings for retirement. If you are on a FIRE path, think about what the costs would be for one of you as a single parent: do you need to pay off the house? What about more help: cleaning, cooking? And of course, a single income would change the college savings equation, too. It's never fun to think about one of you going, but being prepared can be a great gift to give each other: not just the numbers, but a plan behind them.
4) Real Estate Investing. When we purchased our current home a year ago, we did so knowing that we likely wouldn't stay there more than 5-10 years. However, we felt we got a good deal & there is great rental potential for the home. The previous owner was renting out the home for $1,600/month. With this knowledge we plan to keep the home when we move & rent it out as our mortgage payment is $1k/month so this will provide additional income. However, we would love to buy my grandmothers home (& she wants us to as well) but we obviously don't know when she will no longer be living there. Hopefully she lives a long long time (she is 89 & fiesty as heck!) but it makes planning difficult & if we keep our current home for rental we obviously will need to have additional money for a down payment. Does it seem like a good idea to keep our house to rent out & get the $1,600/month or sell the home (would likely get $180k)? Also, a neighbor invests in multi-family homes & apartment complexes. He has done this successfully for about 5 years & essentially is financially independent & work when he wants to doing what he wants to do! He has encouraged me to look into this avenue of wealth building. Is there a certain point of financial stability that I should achieve before doing this or should I avoid this all together?
I'm not one to comment on real estate, but I think you have some financial fundamentals to work out before getting fancy. Just remember, that's another job! Don't make the mistake of thinking gross rent vs. mortgage = net profit. I would do a lot more research on what makes a profitable rental before mentally committing to this route. (think about it: how long did the former owner own the house? His mortgage payment was probably a lot lower than yours now)