Author Topic: Where to put it all??  (Read 1648 times)

NewChap

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Where to put it all??
« on: July 29, 2018, 02:18:25 PM »
Topic Title: Where to put it all??
Synopsis - We're smart fools who are frugal and have saved but have no idea where to put everything - Married 6 years and have had one immigration, 2 moves, 2 kids and 4 job transitions between us in that timespan and to be fair both of us are intimidated by making investment choices. Regardless, we're looking at making the right choices ahead and becoming much more knowledgeable.

Life Situation: IRS filing status: Married filing jointly, 2 kids (5 and 3 years old), US residents of VT/work in MA aged 34 and 37

Gross Salary/Wages: Partner 1: $75000, Partner 2: $100,000

Other Ordinary Income: None

Qualified Dividends & Long Term Capital Gains: None


Taxes:We don't claim our dependents (i.e. we get taxed as singles- not sure if this is the right/wrong thing to do),Federal:~ 8% for each of us, State Taxes: 4% averaged between us

Take home combined monthly pay : $~9000

Current monthly expenses:
Rent $1350
Childcare: $2000 (set to decrease substantially since kids are starting school this year- yay!)
Car/ House Insurance : $115
Life Insurance: $80
Internet/ Landline: $109
Electric Bill: $90
Gas: $40 (will go up in winter)
Food: ~$500
Meat: $100
Cellphones: $50
Gas: $300
Eating out (mostly) $400
Various Savings (529 plans, Vacation fund, car repair fund,etc.): $450
Tithes: ~$200
CC: Use to Pay expenses every month but pay it off before due - no debt-$0
Total:$5784

Current Retirement Savings:
401K 1: $125000 (contribute ~$400/month)
401K 2: $8000 (JH Target Retirment Fun 2050) (Contribute ~$700/month)
Traditional IRA (rollover of previous 401K): $17000 (VAnguard Target REtirement fund 2050)
No Roth IRA - Working to get this in motion

Assets:
Car 1: $13,000
Car 2: $10,000
House Sale: $30,000 cash (we live in an economically depressed area, we don't want to buy since we'd like to move once our companies likely shut down in the next 1-2 years but the pay is enough to stick around and we're saving more by renting anyway)
Emergency Fund: $27,000 cash

Liabilities: None

Specific Question(s): Where do we put everything we've saved?
Our plan going forward is :

1) Max out both 401K - $18500 each
2) Max out Roth IRA - $5500 each
3) What else can we do with our surplus? Taxable account? Max out kids 529s?

A big thank you to this group for helping us on our way even though we're late to the game and kicking ourselves for it!

NewChap

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Re: Where to put it all??
« Reply #1 on: July 29, 2018, 02:26:20 PM »
Sorry for the multiple posts!! My computer kept timing out so I assumed they weren't going through.

MDM

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Re: Where to put it all??
« Reply #2 on: July 29, 2018, 03:21:29 PM »
IRS filing status: Married filing jointly, 2 kids (5 and 3 years old)

Taxes:We don't claim our dependents (i.e. we get taxed as singles...).
???

MMbergmann

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Re: Where to put it all??
« Reply #3 on: July 29, 2018, 03:44:03 PM »
IRS filing status: Married filing jointly, 2 kids (5 and 3 years old)

Taxes:We don't claim our dependents (i.e. we get taxed as singles...).
???

They are referring to their withholding. They claim single and do not use any allowances for their dependents.

They just said it in a dumb/wierd way.

MDM

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Re: Where to put it all??
« Reply #4 on: July 29, 2018, 04:25:30 PM »
Specific Question(s): Where do we put everything we've saved?
See Investment Order - that may answer many questions.  If there are still unclear things, just ask - and good luck!

If by "taxes" you meant "withholding" (as MMbergmann suggests), then there is no "best" way, as long as your total withholding is ~equal to your actual tax liability.

NewChap

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Re: Where to put it all??
« Reply #5 on: July 29, 2018, 07:44:55 PM »
Thanks MDM! That's exactly what I was looking for - still finding my way about.

reeshau

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Re: Where to put it all??
« Reply #6 on: July 30, 2018, 02:30:39 AM »
IRS filing status: Married filing jointly, 2 kids (5 and 3 years old)

Taxes:We don't claim our dependents (i.e. we get taxed as singles...).
???

They are referring to their withholding. They claim single and do not use any allowances for their dependents.

They just said it in a dumb/wierd way.

NewChap,
You did not confirm this observation, but if true then I suspect you get very large tax refunds each year.  This is an interest-free loan to the government, and a very poor financial move assuming you have a monthly budget under control.  What are you doing with the refund each year?

NewChap

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Re: Where to put it all??
« Reply #7 on: July 30, 2018, 04:05:45 AM »
Yes I was referring to Income Tax Witholding - the tax refunds have made up a large part of our emergency fund which we're happy with. We've been living on one income for 2 years previously (got laid off while newly pregnant, baby refused to bottle feed and then our house flooded - it's been a fun ride!).

I see what you're saying though - we're losing out on the money we could be making on a year's refund trying to minimize our tax bill - I'll get the witholding changed.

NewChap

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Re: Where to put it all??
« Reply #8 on: October 08, 2018, 07:32:05 AM »
Just wanted to stop by and say thank you for the directions to Investment Order - it helped clean things up massively.

We're experiencing so much relief (especially with how stressful the job  has been lately) knowing we have an end date in sight and that this is not forever.

Right now we've got :
Emergency Fund $27K
Investments: $200k (Roth for both of us, both our 401Ks & taxable acct) and we're set to max out every year - Accounts are 75% stocks (90%VTSAX or as representative as we could get in 401Ks, 10% international) and 25% VTBLX or similar at 401Ks
529s: ~8k
Went through our budget (At both 1 income and 2 since layoff is looking imminent) and found places to cut (Brought down monthly budget to 5K from almost 6K) and will decrease more once kids are out of daycare.

The plan is to get to ~1M and then start working part-time ish. Just wanted to thank everyone on this great community for guidance and the continual encouragement!

MDM

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Re: Where to put it all??
« Reply #9 on: October 08, 2018, 09:50:34 AM »
Just wanted to stop by and say thank you for the directions to Investment Order - it helped clean things up massively.

We're experiencing so much relief (especially with how stressful the job  has been lately) knowing we have an end date in sight and that this is not forever.

Right now we've got :
Emergency Fund $27K
Investments: $200k (Roth for both of us, both our 401Ks & taxable acct)
Good for you - well done!

I assume by "taxable acct" you mean IRA.  Roth IRA makes sense, because you are likely above the income limit to deduct traditional IRA contributions. 

While you could be saving 22% federal tax plus whatever state tax (i.e., while you have the two incomes), using traditional 401k might be better than Roth 401k. 

Unless you expect a pension or other "guaranteed" income at retirement, having a minimum of $600K in traditional accounts at retirement is probably best. 

The $600K number comes from filling the $24K standard deduction at a 4% withdrawal rate.  To reach the 22% bracket at a 4% withdrawal rate would require ~$2.5 million.

NewChap

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Re: Where to put it all??
« Reply #10 on: October 08, 2018, 10:33:42 AM »


We have:
Annual gross income $175k

401Ks - maxed to the $18500 each by end of year plus company match - Currently ~ $145k total - options suck and fees are super high (John HAncock and MAss Mututal)- mostly DH's
Roth IRA - maxed to $5500 - newly opened - $11k total - Vanguard
Rollover IRA - from previous position - $17k - Vanguard
529s - $8k 
Vanguard joint brokerage acct (or what I'm referring to as taxable acct) - $35k - Vanguard

We don't have HSA options currently as part of our health plans.

Does this make sense? Am I missing out on any tax breaks here? - I'm a Canadian who moved to the US recently so still trying to navigate the system. Thanks again!

MDM

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Re: Where to put it all??
« Reply #11 on: October 08, 2018, 10:51:18 AM »
Ah, the missing Oxford comma. :)

Thought from "Roth for both of us, both our 401Ks & taxable acct" you meant you both are contributing to Roth 401k and Roth IRA.

Understand now you mean traditional 401k, Roth IRAs, and taxable accounts - which seems just right!

thd7t

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Re: Where to put it all??
« Reply #12 on: October 08, 2018, 11:18:10 AM »
IRS filing status: Married filing jointly, 2 kids (5 and 3 years old)

Taxes:We don't claim our dependents (i.e. we get taxed as singles...).
???

They are referring to their withholding. They claim single and do not use any allowances for their dependents.

They just said it in a dumb/wierd way.

NewChap,
You did not confirm this observation, but if true then I suspect you get very large tax refunds each year.  This is an interest-free loan to the government, and a very poor financial move assuming you have a monthly budget under control.  What are you doing with the refund each year?
The interest free loan argument is silly to me.  It's only ineffective if you adjust your investments at the same time that you adjust your withholding.  Meanwhile, getting a lump sum return is a pretty good reminder and incentive to invest.  Yeah, you miss an average of 6 months in the market, but that's peanuts.

NewChap

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Re: Where to put it all??
« Reply #13 on: October 08, 2018, 01:25:02 PM »
Thanks everyone for your help - we'll keep plugging away at it. MDM - wherever you are I owe you a beer or two or six :). We'll stick around and continue to lurk and learn!