liqudity and planning for big purchases

[Neverstop]

I am planning my 2017 budget at the moment and I would like some advice on how to go about investing my money while planning for a few big purchases. At the start of 2017 I will be debt free, making ~$61k gross annually with my income due to go up with experience, and have about $3k in my E fund. I am single, no kids, and still living with my parents at the moment.

Sometime next year I want to be able to purchase a motorcycle in the amount of $5k. I plan on using it as a source of transportation during the riding season and I currently commute to work 40 miles round trip with my current vehicle getting ~20 MPG. A motorcycle will give me ~45 MPG and probably be cheaper to insure. My 16 year old current car is high mileage (225k+), burns about a quart of oil every 1k miles, and is beginning to wear down so I would like to have money set aside ready to purchase a more fuel efficient car for about $10k or less. lastly, I want to purchase a home in two years and i would like to have about $20k saved up for a down payment on one. I also have and HSA that I contribute $2350 to with my employer contributing $1K.

At this point I don't know where to go in terms of my retirement investments. If I put $0 into tax deferred retirement accounts I can have all $35K saved next year. The down side to that is that I will be in the marginal 25% tax bracket and thus pay more in income taxes. If I max out a tax deferred IRA and 401K next year I will be about half way there and have ~$17k saved while being in the marginal 15% tax bracket.

Seeing as how my income is due to rise with experience would it be best to forego all tax deferred retirement account contributions and just put enough into those tax deferred accounts to keep me in the 15% marginal tax bracket with the rest in a Roth IRA or Taxable investments? This would allow me to take advantage of the long term capital gains' tax free benefits. Eventually in my current positions I will reach the point in income where maxing out a HSA, tax deferred IRA, and 401K will not drop me into the 15% marginal tax bracket

My employer 401K is not that great but its decent and they only match $750 per year so I need to put at least that much to get the match. Seeing as how I can have the $35k i need saved in a year where should I put that money until I need it while maintaining liquidity? I have both a traditional and Roth IRA with Vanguard and my 401k allows both traditional and Roth contributions.

According to my 401k fee disclosure my 401K will have a 7% return when in an aggressive portfolio after fees, but as far as I know vanguard index funds will return 10% when in a taxable account. Would it be best to forgo tax deferred accounts next year(2017) and put all that money into taxable ones(Roth IRA/401K, index funds) which will maintain the liquidity I will need in a couple of years? I have also considered putting $20k in a consumers credit union account which has a 4.59% APR that will net me and additional $900 per year and putting the other $15k into tax deferred ones.

[TomTX]

As a data point, my Saturn was 4 years older, burned 3x as much oil and had 45k more miles when I finally sold it.

I replaced it with a $2,200 2009 model year car this year, not a $10,000 car plus a $5k rationalized motorcycle.

Oh, and most of the "new" car was paid for with this year's Craigslist sales (including $550 for the Saturn.)

[clarkfan1979]

You are justified with your long commute because you are living at home with your parents. I don't think you are going to get anyone here to agree with you on the motorcycle.

Two years ago, I bought a 2003 Pontiac Vibe with 165,000 miles on it for $2,500. It burns a quart of oil every 600 miles. However, it averaged 32.5 mpg last year (mostly highway). It gets about 34 mpg if it's all highway.

I would contribute to retirement accounts to just come up short of the 25% tax bracket. Once you get enough money for 20% down on a house, buy a 3 or 4 bedroom house within biking distance to work and get two roommates. I would also have at least 5K in an emergency fund before doing the house thing and renting out rooms. 

[Neverstop]

Whats wrong with a motorcycle? Gas mileage is great and they're cheap to insure.

Ok I see your point on the car, I'm not quite sure why i was thinking $10k for another car.

Buying a house closer to work is out of the question since it would cost me more in taxes than it would save me in gas. I work in chicago but live out of state and right now people are fleeing illinois because of all the tax mumbo jumbo. That's a definite no for me.

If I put $10k into tax deferred accounts that will drop me into the 15% bracket by about $600 and give me about $28k net for the year after my cost of living. What would be the best thing to do with that money for a couple of years? Since I'm going to need it somewhat soon index funds would be the best choice, right?

[begood]

How old are you? How long do you plan to live with your parents? Are you paying them rent?

I don't understand a mindset that says, "Hey, since I can live with my folks, I'll spend money on a motorcycle!"

Beef up the emergency fund. Consider moving closer to work and renting a place where you can get a roommate or two to split the costs.

You have a good foundation to launch from with a good job and supportive parents. Sounds like it would be a good time for you to spread your wings and jump.

[rothwem]

Whats wrong with a motorcycle? Gas mileage is great and they're cheap to insure.

I've had three motorcycles, and they were fun, but they're never going to be money saving devices.  Mileage is never THAT good (my bikes got high 30s using premium gas), tires wear really fast, oil changes are more frequent, the gear is expensive and when your mode of conveyance hits 84 mph in first gear like mine did, you're going to get some speeding tickets. 

Go into it with your eyes open and do the math on the costs. 

[TomTX]

If I put $10k into tax deferred accounts that will drop me into the 15% bracket by about $600 and give me about $28k net for the year after my cost of living. What would be the best thing to do with that money for a couple of years? Since I'm going to need it somewhat soon index funds would be the best choice, right?

If you are going to pull money out, do NOT put it in tax deferred accounts. You will just pay the tax in a couple of years, plus a 10% penalty ("additional tax")

Just pay your taxes and either put it in CDs or a 1% savings account.