Case Study: Optimal investment strategy?

[kalynda08]

Hello! I am new to the FIRE/investing world and am looking for some advice. I am feeling a little over my head in terms of how to optimize, it feels like there are so many options and competing time horizons and goals.

Overview:
- Late 20s, Married no children, HHI is $180K with additional $25K bonus opportunity and $15K in stock vesting annually
- HCOL, but have family in area and no desire to move away in foreseeable future (15+ years)
- Emergency fund is 6 months
- Own townhome with $280K mortgage, worth ~$570K
- No debt beyond mortgage

Goals:
- Grow family in next year (take up to 3 months unpaid, daycare costs ~$1,500 monthly for our area)
- Move out of townhouse in next few years -- high HOA, noisy neighbors etc. (save additional for downpayment)
- Continue to donate $10K to $15K annually
- Anticipate car replacement in next few years - already saved $25K for this purchase

Current Investment / Savings Strategy:
- My 401(k): 12% contribution with 5% company match (below $18.5K limit)
- Husband 401(k): 10% contribution with ~3% company match  (below $18.5K limit)
- ESPP: 10% contribution with 15% discount, sell immediately upon shares depositing
- Stock Grant: RSUs, sell periodically (I was mistaken about tax treatment for RSUs and held onto some for a long period unnecessarily. Planning to sell immediately on vest in future)
- Auto-Save $1,500 monthly from paychecks to savings accounts at bank

Investment / Savings Options:
- Roth 401(k) -- I currently only use the traditional 401(k) but am able to also contribute to a Roth 401(k) through work
- ESPP: Contribute 10% of salary for 15% discount, but could increase contributions to 15%
- Stock grant: Currently just transfer the cash back to savings, but could be investing instead? Or using stock for charitable donations?
- Roth / Traditional IRA: I was under the impression I could not contribute due to income, not seeing benefit for investing in T-IRA vs just maxing out 401(k)??

Welcome any and all thoughts on how to optimize. I'm thinking I should be doing some non-retirement investment to help with intermediate savings in addition to just hoarding cash.

[MDM]

kalynda08, welcome to the forum.

See
Investment Order,
How to withdraw funds from your IRA and 401k without penalty before age 59.5, and
Backdoor Roth IRA - Bogleheads
for some thoughts on various items that seem pertinent.

See also cells S14:U20 in the case study spreadsheet for some idea of how much it takes in traditional accounts to reach various tax brackets based on 4% withdrawals from those alone.

[Laura33]

With a 6-month EF, you are already set for any maternity leave.  For your other priorities, it is hard to say how much you should be sending to what without knowing how much you already have in the other accounts and how much you want to save.

But I will say that the first thing should be to max your 401(k)s.  At your income - $240k combined - you will get a tremendous benefit from the additional tax deduction, so you can sock significantly more cash away without seeing much of a hit to your monthly budget.  Honestly, you shouldn’t even be considering the purchase of additional expensive consumer goods ($25k+ cars, bigger houses) until both of you have your 401(k)s fully funded (and, at your income, your Roth IRAs/backdoor Roths).

[Mr. RME]

1) Make sure to fully fund the 401k ASAP!  The tax benefits are tremendous and make a substantial impact over the years.

2) Look into the back door roth as mentioned above.

3) Make sure to sell any restricted stock units as soon as they vest, not necessarily for tax purposes, but to ensure you are properly diversified away from your employer.  You already receive your paycheck, 401k, and health care from them, you should try to move your investments as far away as possible.  Take this cash and make sure the 401k is fully funded, push it to the back door roth, and then open a personal brokerage account and start automatic weekly investments into total market index funds.

With a strong income and good savings in your 20s you are well on your way, but don't let lifestyle inflate once you start to grow the family!