Early Mortgage Pay-off or Save and Invest?

[steve.edmund]

I'm in the process of buying a new (first) home and am wondering, should I shoot to pay the mortgage off early or save and invest?  My monthly income is $8,600 and the mortgage will be $1,360.  After running some numbers in an Excel spreadsheet (amortization table) I've determined that by paying an extra $4,000 a month, a total of $5,360, I can pay the mortgage of $217,000 off by April 2020 and save approximately $120,000 in interest.  While that sounds great, it leaves us with $3,200 per month for all the bills and living expenses which at this point in time is about $3,000 total, per month.
So, should I go with the $5,360 toward the mortgage or would it make more sense to save and invest some of that money and pay off the house a bit later than 4 years?

[Cyaphas]

I have every intention of paying off my home first. It's a guaranteed positive return. I look forward to going to work everyday with no debt notes in my name.

My personal priority list: Debt > 401k > Roth IRA > House > Taxable Investment Accounts/Rentals.

I have strategic debt, but I consider myself debt free with the exception of the mortgage. I'm maxing my 401k and Roth. After the house is paid off I'll begin investing in rentals. Most likely sticking to cash deals (that's the best place I have found value in real estate.)

[arebelspy]

You didn't mention the most important number: your mortgage rate (and other terms).

Related MMM article: http://www.mrmoneymustache.com/2012/02/24/pay-down-the-mortgage-or-invest-more-a-winwin-question/

Best forum thread on the topic: http://forum.mrmoneymustache.com/investor-alley/paying-off-mortgage-early-how-bad-is-it-for-your-fi-date/

Read through that thread, and you can answer the question for yourself.  It covers all the pros/cons in different ways.  A random poll from people with lack of information of your situation isn't the way to answer the question.  :)

[kpd905]

How much will you be investing in the early payoff scenario?  Zero?  Will you be forgoing any employer matches on 401ks?

Also, what is the rate on the mortgage?

While that sounds great, it leaves us with $3,200 per month for all the bills and living expenses which at this point in time is about $3,000 total, per month.

You don't have to choose between $4,000 extra a month or nothing.  Just do less if you will be cutting it close like that.

[steve.edmund]

My apologies for forgetting the mortgage APR; it's 3.375 fixed.   I do not contribute to 401k but I do contribute to my employer's share purchase plan which is matched 100% on the first 3% I invest. 
I appreciate the responses and Arebelspy, thank you for the links; I will read through those. )
Kpd905, I try to budget every penny to something so anything not going toward bills I'd like to invest.  Given my initial scenario, it'd be, give or take, $200 monthly.
Cyaphas, I'm with you there.  The only debt I have is a car note from 2012 which is about $9k then the mortgage now.  I have a  couple credit cards but they get used little and are paid in full every couple weeks. 
I suppose I should mention too that I'm a contractor for the US government, living and working in Kuwait so there is no guarantee that my company will keep this contract forever.
Again, I appreciate you three responding. 

[NoStacheOhio]

Are you buying a house in the US or in Kuwait?
Details on the car and loan? Where is the car?
Does your employer offer a 401k?

[kpd905]

Is the rate on the car loan lower than the mortgage?

[steve.edmund]

The house and car are in the US. 
The car is financed through Ford at 3.9% so only marginally higher.
My company does offer 401k but I just hated the restrictions on it because who's to say I'll even live to see 65. Perhaps that's a short-sighted outlook.

[NoStacheOhio]

The house and car are in the US. 
The car is financed through Ford at 3.9% so only marginally higher.
My company does offer 401k but I just hated the restrictions on it because who's to say I'll even live to see 65. Perhaps that's a short-sighted outlook.

If you're living in Kuwait, why do you want a house and/or car in the US?
Contribute to the 401k. You don't have to wait until 65: http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

[steve.edmund]

If you're living in Kuwait, why do you want a house and/or car in the US?
Contribute to the 401k. You don't have to wait until 65: http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

I am buying there because my wife and child live in the US, I'm a US citizen and will not be here forever.  I keep my ties here to 0.  I live in company housing, I use company transport and use a pre-paid phone.
Thank you for the link.  I will certainly read that.

Sorry you all are having to post these blog posts that I could probably have found on my own but I'm brand-new here and still learning my way around.  I do appreciate all the help though.

[NoStacheOhio]

I am buying there because my wife and child live in the US, I'm a US citizen and will not be here forever.  I keep my ties here to 0.  I live in company housing, I use company transport and use a pre-paid phone.
Thank you for the link.  I will certainly read that.

Sorry you all are having to post these blog posts that I could probably have found on my own but I'm brand-new here and still learning my way around.  I do appreciate all the help though.

OK, that makes a lot more sense.

The link I posted is one of the popular stickies. If you browse the sub-forums, there are really useful threads highlighted at the top.

Forgive my ignorance, but since you're working overseas on a government contract, is your income taxable? If not, then the 401k is less appealing, though contributing to a Roth account would probably be a good idea.

[Bucksandreds]

Pay off the house, is my opinion. I look at things through a lower expenses as quickly as possible filter, however.  I'm not trying to get to retirement pre 40.  Im trying to get to part time work pre 40 and lowering expenses is the easiest way there.  I could easily enjoy my work 16-20 hours per week 45 or so weeks per year for 30 years.  It's the 40 hour rat race with only a couple of full weeks off per year that's killing me.  Cutting out the mortgage allows for part time work.

[steve.edmund]

Forgive my ignorance, but since you're working overseas on a government contract, is your income taxable? If not, then the 401k is less appealing, though contributing to a Roth account would probably be a good idea.

Please, I think as far as monetary concerns go I'm probably the most ignorant one on this thread. lol

My income is exempt from any income taxes.

[steve.edmund]

Pay off the house, is my opinion. I look at things through a lower expenses as quickly as possible filter, however.  I'm not trying to get to retirement pre 40.  Im trying to get to part time work pre 40 and lowering expenses is the easiest way there.  I could easily enjoy my work 16-20 hours per week 45 or so weeks per year for 30 years.  It's the 40 hour rat race with only a couple of full weeks off per year that's killing me.  Cutting out the mortgage allows for part time work.

I'm with you there.  I don't ever see myself completely retiring.  I have to be doing something.  I just don't want to HAVE to work at something I don't necessarily enjoy and I certainly don't enjoy being in this desert, 7k miles from my girls. 
I currently work 84 hours a week and believe me, it wears you out.

[retiringearly]

You didn't mention the most important number: your mortgage rate (and other terms).

Related MMM article: http://www.mrmoneymustache.com/2012/02/24/pay-down-the-mortgage-or-invest-more-a-winwin-question/

Best forum thread on the topic: http://forum.mrmoneymustache.com/investor-alley/paying-off-mortgage-early-how-bad-is-it-for-your-fi-date/

Read through that thread, and you can answer the question for yourself.  It covers all the pros/cons in different ways.  A random poll from people with lack of information of your situation isn't the way to answer the question.  :)

Thanks for the link to that article.  I am struggling with this decision right now regarding my rental properties.  I have been paying down the mortgages pretty aggressively even though I know that it probably makes more sense to keep the mortgages.  It takes less guts to pay off the mortgages vs. keeping the cash in the stock market.

[Sibley]

Why do you have a car loan with that income? It would take you a 2-3 months to pay it off.

My pick: put some extra towards the mortgage, maybe $1k or something, then invest the rest.

[2buttons]

I have been wrestling with these ideas for weeks.  Here is where I netted out. 

1. You will likely come out ahead if you invest the money, but depending on how long, it may not be a ton. I ran some calculations and on a 7 year time horizon, I would come out ahead by something like $10-20k. If its much longer, then the delta widens, so you need to figure out your time horizon, because that matters.

2. Investing, at least up front, makes a lot of sense on a fixed rate/payment mortgage from a risk mitigation perspective. The idea is that  you are basically building a war chest to insulate yourself against catastrophe - meaning the cash is fairly liquid and you could tap into if you needed it whereas if you paid it in to your mortgage already you wouldn't be able to tap it - unless you had a heloc, but I wouldn't want to borrow if a catastrophe struck.  You could also do this with cash, but for me I have an emergency fund, so I am investing it. My plan is to get at least a year's worth of payments invested, 1 so I have it and 2. so it is big enough that it will start to grow decently on its own.

3. Once that is done, because I am on a shorter time horizon, I will likely drop everything on the mortgage, or a heavier on the mortgage, some back into investments split. 

People are pretty entrenched in their positions on this debate and some see this as completely black and white.  I saw good arguments on both sides.  At the end of the day, I didn't like the risk of carrying a mortgage long, but I also wanted to be on enough stable ground that by accelerating my principal reductions I wasn't leaving myself open to a ton of risk. 

The good news is that whatever direction you choose, you are going to be ahead of 99% of everyone else - save for the folks on this forum that is.

[dandarc]

My income is exempt from any income taxes.

If you invest in a retirement account such as a 401K or IRA, be sure it is Roth.  The 0% tax rate means Roth is a slam dunk over traditional.  No tax going in, no tax coming out = big win for Roth.  I'd personally max any Roth accounts available to you before doing anything else in this scenario.

[boarder42]

yeah with no tax i'd max that roth IRA and Roth 401k.  if your company allows after tax contributions i'd do the super back door roth as well. esp. on that high income level. 

[NoStacheOhio]

With no income tax, you want to get as much money as humanly possible into Roth accounts. Backdoor, mega backdoor, whatever it takes. It'll be a huge win for you and your family down the line.

[steve.edmund]

Why do you have a car loan with that income? It would take you a 2-3 months to pay it off.

My pick: put some extra towards the mortgage, maybe $1k or something, then invest the rest.

I bought the car new (I know now, big no-no to a Mustachian) back in 2012 when my income was 1/4 of what it is now.
I'm leaning toward splitting mortgage and investment now but I'll put more than $1k.  Thanks for the reply.

[steve.edmund]

With no income tax, you want to get as much money as humanly possible into Roth accounts. Backdoor, mega backdoor, whatever it takes. It'll be a huge win for you and your family down the line.

Now that I know more about Roth accounts this sounds like a great idea.  Thanks!

yeah with no tax i'd max that roth IRA and Roth 401k.  if your company allows after tax contributions i'd do the super back door roth as well. esp. on that high income level. 

If I'm not mistaken, they only do pre-tax contributions but I'll certainly look into this.

If you invest in a retirement account such as a 401K or IRA, be sure it is Roth.  The 0% tax rate means Roth is a slam dunk over traditional.  No tax going in, no tax coming out = big win for Roth.  I'd personally max any Roth accounts available to you before doing anything else in this scenario.

Now that all of you have been telling me about the Roth, I'm finding it very appealing.  I will definitely look into this.

1. You will likely come out ahead if you invest the money, but depending on how long, it may not be a ton. I ran some calculations and on a 7 year time horizon, I would come out ahead by something like $10-20k. If its much longer, then the delta widens, so you need to figure out your time horizon, because that matters.

2. Investing, at least up front, makes a lot of sense on a fixed rate/payment mortgage from a risk mitigation perspective. The idea is that  you are basically building a war chest to insulate yourself against catastrophe - meaning the cash is fairly liquid and you could tap into if you needed it whereas if you paid it in to your mortgage already you wouldn't be able to tap it - unless you had a heloc, but I wouldn't want to borrow if a catastrophe struck.  You could also do this with cash, but for me I have an emergency fund, so I am investing it. My plan is to get at least a year's worth of payments invested, 1 so I have it and 2. so it is big enough that it will start to grow decently on its own.

3. Once that is done, because I am on a shorter time horizon, I will likely drop everything on the mortgage, or a heavier on the mortgage, some back into investments split. 

People are pretty entrenched in their positions on this debate and some see this as completely black and white.  I saw good arguments on both sides.  At the end of the day, I didn't like the risk of carrying a mortgage long, but I also wanted to be on enough stable ground that by accelerating my principal reductions I wasn't leaving myself open to a ton of risk. 

Those are excellent points.  Here's my dilemma; because I'm a contractor out here, there are no guarantees my company will always win this contract.  Also, I could get hired with any companies that do win it, however, I'm not guaranteed to make what I make now.  And moreover, I'd rather not stay past 2020 and miss my daughter's entire childhood.  She's already 6.  I've already been out here 1.5 years and would like to have everything paid and done by 2020, at least in a perfect world. 
So that's my main reason for the rush on the mortgage.  Then anything after that is just the proverbial "gravy".

Sorry for the long-winded post but I just wanted to make sure I responded to everyone because I do appreciate all of your inputs.  Thanks again.

[Bucksandreds]

With no income tax, you want to get as much money as humanly possible into Roth accounts. Backdoor, mega backdoor, whatever it takes. It'll be a huge win for you and your family down the line.

Now that I know more about Roth accounts this sounds like a great idea.  Thanks!

yeah with no tax i'd max that roth IRA and Roth 401k.  if your company allows after tax contributions i'd do the super back door roth as well. esp. on that high income level. 

If I'm not mistaken, they only do pre-tax contributions but I'll certainly look into this.

If you invest in a retirement account such as a 401K or IRA, be sure it is Roth.  The 0% tax rate means Roth is a slam dunk over traditional.  No tax going in, no tax coming out = big win for Roth.  I'd personally max any Roth accounts available to you before doing anything else in this scenario.

Now that all of you have been telling me about the Roth, I'm finding it very appealing.  I will definitely look into this.

1. You will likely come out ahead if you invest the money, but depending on how long, it may not be a ton. I ran some calculations and on a 7 year time horizon, I would come out ahead by something like $10-20k. If its much longer, then the delta widens, so you need to figure out your time horizon, because that matters.

2. Investing, at least up front, makes a lot of sense on a fixed rate/payment mortgage from a risk mitigation perspective. The idea is that  you are basically building a war chest to insulate yourself against catastrophe - meaning the cash is fairly liquid and you could tap into if you needed it whereas if you paid it in to your mortgage already you wouldn't be able to tap it - unless you had a heloc, but I wouldn't want to borrow if a catastrophe struck.  You could also do this with cash, but for me I have an emergency fund, so I am investing it. My plan is to get at least a year's worth of payments invested, 1 so I have it and 2. so it is big enough that it will start to grow decently on its own.

3. Once that is done, because I am on a shorter time horizon, I will likely drop everything on the mortgage, or a heavier on the mortgage, some back into investments split. 

People are pretty entrenched in their positions on this debate and some see this as completely black and white.  I saw good arguments on both sides.  At the end of the day, I didn't like the risk of carrying a mortgage long, but I also wanted to be on enough stable ground that by accelerating my principal reductions I wasn't leaving myself open to a ton of risk. 

Those are excellent points.  Here's my dilemma; because I'm a contractor out here, there are no guarantees my company will always win this contract.  Also, I could get hired with any companies that do win it, however, I'm not guaranteed to make what I make now.  And moreover, I'd rather not stay past 2020 and miss my daughter's entire childhood.  She's already 6.  I've already been out here 1.5 years and would like to have everything paid and done by 2020, at least in a perfect world. 
So that's my main reason for the rush on the mortgage.  Then anything after that is just the proverbial "gravy".

Sorry for the long-winded post but I just wanted to make sure I responded to everyone because I do appreciate all of your inputs.  Thanks again.

Maximize roth ira and use whatevever is left to pay off mortgage.  The end.  Get out of Kuwait ASAP, you have a child to spend time with and the entire Arabian Peninsula is in a pressure cooker and about to pop.

[2buttons]

Here's my dilemma; because I'm a contractor out here, there are no guarantees my company will always win this contract.  Also, I could get hired with any companies that do win it, however, I'm not guaranteed to make what I make now.  And moreover, I'd rather not stay past 2020 and miss my daughter's entire childhood.  She's already 6.  I've already been out here 1.5 years and would like to have everything paid and done by 2020, at least in a perfect world. 
So that's my main reason for the rush on the mortgage.  Then anything after that is just the proverbial "gravy".

Sorry for the long-winded post but I just wanted to make sure I responded to everyone because I do appreciate all of your inputs.  Thanks again.

If you do this, look into mortgage recasting while still maximizing your principal reductions.  Some lenders only allow you to recast once or twice and some require you to bring $5k or 1% of the balance to the table when you do it, but it will reduce your risk especially on an aggressive pay down.

Do you have a sense on how long the contract will run?  Like you said, if another contractor picks up the contract, you can probably get hired on especially if you are highly specialized.

Be safe, and thanks for your service.

[Alex321]

Steve - Do the Roth, but you know that already now. See if you can make Roth contributions on your wife's behalf, too.

I wanted to ask more about what you do out there, if you're able to share anything. I'm a military vet who's a little bored with all this stability at home. Probably won't switch, but I'm curious what's available.

[NoStacheOhio]

Those are excellent points.  Here's my dilemma; because I'm a contractor out here, there are no guarantees my company will always win this contract.  Also, I could get hired with any companies that do win it, however, I'm not guaranteed to make what I make now.  And moreover, I'd rather not stay past 2020 and miss my daughter's entire childhood.  She's already 6.  I've already been out here 1.5 years and would like to have everything paid and done by 2020, at least in a perfect world. 
So that's my main reason for the rush on the mortgage.  Then anything after that is just the proverbial "gravy".

Sorry for the long-winded post but I just wanted to make sure I responded to everyone because I do appreciate all of your inputs.  Thanks again.

Investing in a taxable account is also a good thing to do, just not as advantageous with regard to the tax implications. I'm not sure how it works when you're not subject to income tax at all, but the low tax brackets don't pay any tax on dividends or capital gains, and the higher brackets still pay low taxes on them.

[steve.edmund]

If you do this, look into mortgage recasting while still maximizing your principal reductions.  Some lenders only allow you to recast once or twice and some require you to bring $5k or 1% of the balance to the table when you do it, but it will reduce your risk especially on an aggressive pay down.

Do you have a sense on how long the contract will run?  Like you said, if another contractor picks up the contract, you can probably get hired on especially if you are highly specialized.

Be safe, and thanks for your service.

First of all, it's my pleasure.  I was never able to join the military for reasons I'll leave unnamed in this discussion but I've always wanted to give back to my country.

The contract right now actually ends Aug 31 this year but we're in negotiations for a renewed contract.  For the last year we've been operating on extensions.  From what I'm told we're looking good as far as getting a new 5 year contract but you never know.

I will most certainly look into recasting.  I've never heard of it before now.  This is exactly why I'm so grateful to have found this site and all of you.  You've all been most helpful and I'm learning so much already.

Investing in a taxable account is also a good thing to do, just not as advantageous with regard to the tax implications. I'm not sure how it works when you're not subject to income tax at all, but the low tax brackets don't pay any tax on dividends or capital gains, and the higher brackets still pay low taxes on them.

I'm not sure my exempt status would have any affect on anything I invest in whether it's taxable or not.  I know the share purchase plan I invest in via my company is post-tax.  I will research some more on what taxable accounts are good to get into.  Thanks for the info!

[MilesTeg]

The house and car are in the US. 
The car is financed through Ford at 3.9% so only marginally higher.
My company does offer 401k but I just hated the restrictions on it because who's to say I'll even live to see 65. Perhaps that's a short-sighted outlook.

Typically even if you have to pull money out of a 401k before 59.5, you still are better off. For three reasons:

1.) The penalty is only 10% and is a one time penality. With average investments you will see 5-8% COMPOUNDING returns which will easily eclipse that penality -- especially since your investment contributions are tax deferred.

2.) If your employer offers a match, it's an instant ROI.

3.) In the event you need to pull that money out, it's mostly likely going to be because you lost your job and need the cash to make ends meet. In that event your taxes on the money you pull out will probably be substantially less than the taxes you would have paid on the money you put in the 401k.

So the restrictions kinda suck, but you're still better off putting that money in a 401k even if you pull it out before you retire.

[boarder42]

The house and car are in the US. 
The car is financed through Ford at 3.9% so only marginally higher.
My company does offer 401k but I just hated the restrictions on it because who's to say I'll even live to see 65. Perhaps that's a short-sighted outlook.

Typically even if you have to pull money out of a 401k before 59.5, you still are better off. For three reasons:

1.) The penalty is only 10% and is a one time penality. With average investments you will see 5-8% COMPOUNDING returns which will easily eclipse that penality -- especially since your investment contributions are tax deferred.

2.) If your employer offers a match, it's an instant ROI.

3.) In the event you need to pull that money out, it's mostly likely going to be because you lost your job and need the cash to make ends meet. In that event your taxes on the money you pull out will probably be substantially less than the taxes you would have paid on the money you put in the 401k.

So the restrictions kinda suck, but you're still better off putting that money in a 401k even if you pull it out before you retire.

there are many other ways to get money out without the penalty. but he doesnt pay taxes so it makes little sense to put anything in over the match unless they have a roth option

[Chris @ Saturday Financial]

I hate to ruin the excitement about Roth IRAs, so someone please correct me if I'm wrong. (Any CPAs care to weigh in?)

It's my understanding that you have to have taxable income to contribute to an IRA or a Roth IRA. It's also my understanding that foreign earned income is not taxable income. Even so, there may still be some hope. OP, if a portion of your income is not foreign earned, then you could contribute to a Roth IRA from that portion of your income. Similarly, if your wife earns any income, you could contribute to a Roth IRA in her name.

[boarder42]

i mean at the end of the day taxable accounts invested properly opperate very much like Roth's in that you dont pay tax on LTCG's or QDs if you stay in the 15% bracket upon withdrawal.

[nereo]

Read through that thread, and you can answer the question for yourself.  It covers all the pros/cons in different ways. A random poll from people with lack of information of your situation isn't the way to answer the question.  :)

But.. but... but... a random poll from random people who generally lack the relevant information is exactly how we choose our leaders!

[Chris @ Saturday Financial]

I'm doing a little further research on my own Roth IRA question... The Foreign Earned Income Exclusion is capped at $101,300. If the OP's gross pay is $8,600 per month ($103,200 per year), then he'll have $1,900 of taxable income that he could contribute to a Roth IRA. If the OP's net pay is $8,600 per month, the he'll be able to contribute up to the normal limits for Roth IRAs.

[steve.edmund]

Typically even if you have to pull money out of a 401k before 59.5, you still are better off. For three reasons:

1.) The penalty is only 10% and is a one time penality. With average investments you will see 5-8% COMPOUNDING returns which will easily eclipse that penality -- especially since your investment contributions are tax deferred.

2.) If your employer offers a match, it's an instant ROI.

3.) In the event you need to pull that money out, it's mostly likely going to be because you lost your job and need the cash to make ends meet. In that event your taxes on the money you pull out will probably be substantially less than the taxes you would have paid on the money you put in the 401k.

So the restrictions kinda suck, but you're still better off putting that money in a 401k even if you pull it out before you retire.

You know, I honestly never looked at it from that perspective.  You make a very compelling argument.  I'm definitely going to start contributing with this new information given from all of you wonderful people. 

there are many other ways to get money out without the penalty. but he doesnt pay taxes so it makes little sense to put anything in over the match unless they have a roth option

I definitely will not put anything in beyond what my employer will match.  Thanks Boarder!

Read through that thread, and you can answer the question for yourself.  It covers all the pros/cons in different ways. A random poll from people with lack of information of your situation isn't the way to answer the question.  :)

But.. but... but... a random poll from random people who generally lack the relevant information is exactly how we choose our leaders!

That really made me laugh bro!  Absolutely hilarious.  I only put a poll up because I'm new to the site and was learning how it all worked and it was a "new shiny thing" to me.  lolol
I seriously thank you for that.  :)

I'm doing a little further research on my own Roth IRA question... The Foreign Earned Income Exclusion is capped at $101,300. If the OP's gross pay is $8,600 per month ($103,200 per year), then he'll have $1,900 of taxable income that he could contribute to a Roth IRA. If the OP's net pay is $8,600 per month, the he'll be able to contribute up to the normal limits for Roth IRAs.

You are correct, there is a cap on the exempt income.  However, I still get to claim deductions on my tax filing which brings me beneath that threshold. 

Also, while it may or may not be relevant, my actual income is higher than 103,200.  The $8,600 is after I've paid medicaid (yep, still have to pay for the "social programs"), health, dental, vision insurances and my Share Purchase Program contribution.  My gross income is more in the range of $135,000.  Again, I don't know that this would have any bearing on anything but just so anyone in the know has all the information, there it is.

[Chris @ Saturday Financial]

You are correct, there is a cap on the exempt income.  However, I still get to claim deductions on my tax filing which brings me beneath that threshold. 

Also, while it may or may not be relevant, my actual income is higher than 103,200.  The $8,600 is after I've paid medicaid (yep, still have to pay for the "social programs"), health, dental, vision insurances and my Share Purchase Program contribution.  My gross income is more in the range of $135,000.  Again, I don't know that this would have any bearing on anything but just so anyone in the know has all the information, there it is.

If your gross income is in the range of $135,000, I think you are in the clear to contribute to a Roth IRA. Check with an accountant to be sure, but this is my understanding: The Foreign Earned Income Exclusion reduces your taxable income. After your "taxable income" is calculated, other deductions and credits can reduce the amount of taxes you actually have to pay. But you should still have "taxable income" if your gross income is roughly 135k.

[steve.edmund]

If your gross income is in the range of $135,000, I think you are in the clear to contribute to a Roth IRA. Check with an accountant to be sure, but this is my understanding: The Foreign Earned Income Exclusion reduces your taxable income. After your "taxable income" is calculated, other deductions and credits can reduce the amount of taxes you actually have to pay. But you should still have "taxable income" if your gross income is roughly 135k.

Sounds good to me.  I think the best route at this point, with everything that has been discussed, is to contribute to the 401k up to the amount my employer will match and roll that into a Roth afterward.
Thanks for your input!