Author Topic: Help me prioritize my accounts  (Read 859 times)

kat608

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Help me prioritize my accounts
« on: May 15, 2019, 11:07:48 PM »
Hello all. Iím hoping you can help me rank the order of accounts I should invest in. Here are my options:

1) 401k or Roth 401K
2) 457 or Roth 457
3) Traditional IRA or Roth IRA
4) Taxable brokerage
5) HSA
6) I have a mortgage of 268k at 3.6% plus PMI.

I make about 100k gross per year. Iím 31. Iím hoping to retire in 15 years. I have a pension with a mandatory contribution of 8%, my employer contributes 13%. If I retire early and take the pension money out I get to keep all of my contributions but only half of my employers. If I let it sit till Iím 58 then I keep 100% of both. Thereís no match for the 401k or 457. Neither have particularly high fees.

MDM

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Re: Help me prioritize my accounts
« Reply #1 on: May 16, 2019, 12:53:59 AM »
kat608, welcome to the forum.

The Investment Order sticky might be useful for this.

ysette9

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Re: Help me prioritize my accounts
« Reply #2 on: May 16, 2019, 11:27:52 AM »
Iíd recommend posting your fund choices and fees. Many people starting out think their fees are low and later learn than 1.5% is highway robbery.

I second the advice to read the investment order tab and then come back with any follow up questions.

kat608

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Re: Help me prioritize my accounts
« Reply #3 on: May 16, 2019, 12:03:46 PM »
The fees for the 401k and 457 are around 0.35%. I currently split contributions between small cap, large cap, and international. My IRAs are in vtsax and vti.

I discovered FIRE about 1.5 years ago, read all of MMM and most of the other major bloggers so Iím familiar with the investment order posts. However, Iím looking for what order you personally would invest in taking all those articles and my circumstances into consideration.

If I went by the Investment Order sticky, itíd be:
1) HSA
2) Roth IRA
3) 401K
4) Taxable brokerage

It completely leaves out the 457, which is probably the dream early retirement account. It also doesnít mention Roth 457, Roth 401K, or if the order would change if you already have a pension (which could be rolled to a 401K with early retirement). So my reason for asking this question here is because Iíve been unable to find the answer anywhere else.

ysette9

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Re: Help me prioritize my accounts
« Reply #4 on: May 16, 2019, 12:30:01 PM »
Well the Roth vs traditional account is an ďit dependsĒ based on your current tax bracket and anticipated future tax bracket. If you get a match in your 401k you should prioritize that because free money = awesome sauce.

MDM

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Re: Help me prioritize my accounts
« Reply #5 on: May 16, 2019, 01:02:55 PM »
...Iím familiar with the investment order posts.
...
It completely leaves out the 457, which is probably the dream early retirement account. It also doesnít mention Roth 457, Roth 401K, or if the order would change if you already have a pension (which could be rolled to a 401K with early retirement).
Perhaps not familiar enough? ;)

See the beginning of that sticky:
Quote
In the lists below, thinking "first your governmental 457 (if you have one), then your 401k/403b/SIMPLE/etc." wherever "401k" appears is likely correct -           
   unless your governmental 457 fund options are significantly worse than those in the 401k/403b -         
   due to penalty-free access to governmental 457 funds at retirement, even if younger than 59 1/2.
   Non-governmental 457b plans have deficiencies, including the inability to roll the balance into an IRA.

As ysette9 noted, Roth vs. traditional depends on current vs. future marginal rates.  A pension would affect future marginal rates.  See toward the end of the sticky, following
Quote
*Estimating withdrawal tax rates is not an exact science, but here is one approach:

tamuaggie2011

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Re: Help me prioritize my accounts
« Reply #6 on: June 04, 2019, 03:08:38 PM »
To give a personal answer since that is what you are looking for:

I guess I would start by saying for myself personally:

I max out 401k: With approximately 15% going to ROTH 401k and 85% to a traditional deferred. I do believe the benefits of deferring tax and investing the extra tax dollars outweighs the guarantee of no tax on capital gains. I put some into a ROTH though just in case something goes crazy politically and we end up with sky high tax rates.
I then max out HSA: The contributions here are split 60-20-20 between Large, Mid, and Small Cap Vanguard Institutional Index Funds
I also max contribute to a ROTH IRA (backdoor)- see comment on 401k about having some assurance against sky high rates and this was also started when i was in a much lower income tax bracket.
Remaining amounts goes to brokerage (Again Vanguard Admiral Index Funds) and cash online savings.

I don't have access to a 457 myself however from what I've read it sounds like contributions here would be the starting point.

As to any questions about fees. I would NEVER (personally) invest in a fund with fees over 1% and I always look for ones less than .50%. If you go with the good ol' boring Vanguard Index Funds you can have your pick for less .1%

Hope that helps