Author Topic: First Time on Here - Advice Please  (Read 1238 times)

Getmeouttahere

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First Time on Here - Advice Please
« on: January 21, 2020, 03:20:50 PM »
Hello,

Long-ish time lurker, first time poster, 29-year old male married with 175k combined income. Soon to drop with first kid on the way and wife will drop to part time at most.

Heres the question: I just opened up a Roth IRA for both my wife and I as well as a taxable account. Both of these accounts when opened included a mandatory Money Market (they call it settlement account) for which money transfers from to fund the Roth's and Taxable account. The default "settlement" account is their VMFXX which I believe earns about 1.5% APY. Right now I have the below financial situation:

- House is paid off (150k)
- 100k in work Roth 401k (not moving this) with Fidelity.
- 27k combined total in both Roth IRA's.
- 60k cash in BOA account.

I plan to transfer my Roths over to the new Vanguard acc's (27k). I would like to keep most of the 60k in the taxable VMFXX account and slowly fund the taxable account (after maxing Roths of course) from there. I would also like to keep my emergency fund of 15k in the VMFXX account at all times. Does this seem like a reasonable strategy? I realize I didn't get into what the funds would be invested in. Im more concerned with the overall strategy of funding the Roths, then taxable and then keeping the 15k minimum emergency fund amount in the VMFXX. My bank savings would only have $500-$1000 for expenses and outside of that, well, all my money is accounted for I guess. Is the VMFXX a good place for this?

MDM

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Re: First Time on Here - Advice Please
« Reply #1 on: January 22, 2020, 02:12:50 PM »
There are worse places (e.g., a checking account) than VMFXX to hold that much cash.

At a glance, it's surprising that you are using Roth instead of traditional for the 401k.  See Investment Order for generic suggestions. 

ixtap

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Re: First Time on Here - Advice Please
« Reply #2 on: January 22, 2020, 02:42:24 PM »
If you just opened Roth IRA's, how can they total $27k? Do you mean you just opened new accounts at a new to you institution?

However, even before you answer that question, you should see the above mentioned investment order, as it will answer your general questions well.

As to how much cash to hold, it does depend somewhat on your annual expenses. Since these are about to change for your family, cautious is probably a good thing for the next year or two.

Getmeouttahere

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Re: First Time on Here - Advice Please
« Reply #3 on: January 22, 2020, 04:43:14 PM »
Thank you. Two questions;

1)MDM, why are you surprised by the Roth IRA? Because of our income? My wife and I both have one. Should we both go traditional? I also have a roth 401k for the record?

2)ixtap, you are correct, I would be transferring from Ameriprise.

Seems like VMFXX would be an "ok" choice to hold my emergency stash. If not, im oblivious to why it wouldn't be other then not being FDIC insured.

Financial.Velociraptor

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Re: First Time on Here - Advice Please
« Reply #4 on: January 22, 2020, 04:51:53 PM »
You are 29 and already have net worth of 337k including home and robust income.  Your plan is fine and you may be overthinking/overworrying.  You are in a FANTASTIC place for 29.  You can expire to retire very early and still end up stupid wealthy.

Welcome and gratz!

MDM

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Re: First Time on Here - Advice Please
« Reply #5 on: January 22, 2020, 06:15:50 PM »
1)MDM, why are you surprised by the Roth IRA? Because of our income? My wife and I both have one. Should we both go traditional? I also have a roth 401k for the record?
Not the Roth IRA - that makes sense if a tIRA would be non-deductible.

It's the Roth 401k that caused a double take.  Do you expect your marginal tax rate in retirement will be higher than it is today?

marty998

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Re: First Time on Here - Advice Please
« Reply #6 on: January 23, 2020, 12:05:29 AM »
You are 29 and already have net worth of 337k including home and robust income.  Your plan is fine and you may be overthinking/overworrying.  You are in a FANTASTIC place for 29.  You can expire to retire very early and still end up stupid wealthy.

Welcome and gratz!

I hope not to expire before I retire....

Getmeouttahere

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Re: First Time on Here - Advice Please
« Reply #7 on: January 23, 2020, 08:08:01 AM »
Thank you all for your responses so far. MDM, thats a good point. I would expect with my wife not working full time anymore for that to go down if anything (current income reduced by 60k). Should I therefor be in a traditional 401k account?

EvenSteven

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Re: First Time on Here - Advice Please
« Reply #8 on: January 23, 2020, 08:16:52 AM »
Thank you all for your responses so far. MDM, thats a good point. I would expect with my wife not working full time anymore for that to go down if anything (current income reduced by 60k). Should I therefor be in a traditional 401k account?

If your marginal tax rate will be lower at the time of withdrawal than at the time of contribution, then you should do traditional. For most people this is the case.

Because none of us know the future, you won't know what tax rates will be like, or what your financial situation will be, but you can make reasonable estimates. For this reason it's reasonable to have some tax diversity with a little of both types. It looks like you already have a bunch of Roth, so I would switch the 401k contributions to traditional from here on out.

MDM

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Re: First Time on Here - Advice Please
« Reply #9 on: January 23, 2020, 10:08:00 AM »
Thank you all for your responses so far. MDM, thats a good point. I would expect with my wife not working full time anymore for that to go down if anything (current income reduced by 60k). Should I therefor be in a traditional 401k account?
Probably.  See Investment Order and links therein for more.