2014 Planning- Income,taxes,investments needing help

[Mrs.FamilyFinances]

I'm looking at the year ahead of us, and can't seem to wrap my brain around what we should be doing. We discovered MMM in October and have quickly become on track and detailed. This makes me anxious to begin a new year living this way, and I'm worried that I'm trying to accomplish more than I have the current skill set to understand and execute effectively. I have general ideas, and some specific goals, but not enough to make them happen. I hoping for some guidance, some learning on my end and maybe even an idea we hadn't considered. My biggest fear is that I am in way over my head...


Income for 2014. We are projecting 75k. This is a goal, one we feel is reasonable and achievable, but of course not guaranteed. My husband is a mechanic, and his income is a reflection of available work, not salary.
 
One change that is out of our hands is the new medical his employer is providing. It is an HSA with a family deductible of $5,000. Monthly cost is $326.81. The employer does not make any contributions to the $6,450 limit. Open enrollment begins in April for coverage beginning May 1. His employer pays both mine and his medical in full, and his dental in full.

. My husband and I are healthy, with little need beyond yearly exams, same with our son, but he has been to the ER 2x in the last year. My daughter has had a host of medical issues since birth, esp GERD and has seen a specialist every 2-4 months and takes expensive medication. This seems to be improving, and we hope to have her off medicine in the next year. Prior to marrying my husband in Oct.'12, the kids had state provided medical coverage, so I don't know what their yearly costs were.

Our current 401(k) withholding is 10%. We will be increasing this to 15% January 1.  They match a %, but I don't know what it is at the moment.


Questions:

1) What should we be contributing to our HSA? Is there a magic number? I don't think we will meet our deductible, but do have the cash reserves if that were the case.

2) Is going from 10% to 15% too little? His salary this year was just under 70, so a goal of 75k for '14 would put away $11,250. I want to be at the max contribution at some point sooner rather than later.

3) Should we be contributing to our Roth at this point?We have a Roth that was started by a family member years ago, but have not contributed anything to it.

4) Our monthly expenses are $3,100. I don't know what his net pay for 2013 was because I didn't pay any attention or track expenses. Is there a way to figure out net pay?

We live in Washington state, so no income tax, we take the standard deduction and have 1 wage earner, 2 young kids, and no debt besides a mortgage and small ish student loan. The student loan has a balance of 19k, and will be getting paid off in the next 2 years. Emergency fund is $20k.

My fear is that while income is rising a bit, we suddenly have new health care expenses, new HSA contributions and hopefully a higher 401(lk) withholding and will run our budget to the max.

I appreciate any input.

[aj_yooper]

Welcome to the Forum!  It's easier when both partners are on board with the MMM concepts so good on you.  You also have a good emergency fund and a reasonable income.

First, you need more data so you can develop a plan.  Gather up your bank statements, payroll data, cc statements, gas and power bills, etc., and income tax statements.  Start writing down your daily purchases and expenses.  Set up a family expense spread sheet.  Talk over the bills and future anticipated expenses.  My wife and I use YNAB (http://www.youneedabudget.com) as an expense tracker and budget tool and find it very helpful.  If you decide to buy the program, use a link from someone on the forum and you will save $6 and the link person gets $6.  There also was a recent sale, but it may be over now.

1.  A HSA can be a powerful savings instrument.  Find out the terms of the HSA; if it is a payroll plan, you may be able to avoid paying all taxes and Social Security taxes on the money.  For some general information:  http://news.morningstar.com/articlenet/article.aspx?id=621737

2.  At a minimum, contribute to the 401k so that your husband reaches the maximum contribution from his employer.  That is a high profit margin investment.

3.  Roth accounts are very beneficial as a retirement account.  They need to be set up with a low cost financial provider, like a Vanguard, rather than with a bank or insurance company, as their expenses are typically high.  Review your current Roth to see if it is an efficient way of saving. 

4.  Collect all your data.  If you need help on the budget, you could post your budget details, but please read the guidelines for posting your budget.

You have made a great start.  Best wishes.

[FloridaStache]

Hi Mrs- welcome to the forum.  Here are a few ideas for you. In order of preference, I recommend that you:

1. Contribute at least as much to the HSA as you anticipate that you will need for your family's 2014 medical expenses.  You seem to have a pretty good grasp of what those are, so figure that out.

2. After that, contribute the 15% to the 401(k), and go even higher if you can, to the max.  This will lower your family's overall taxable income, meaning you pay less tax and thus have more to invest!

3. At your income level (and mine too) I would not make contributions to a Roth at the expense of a 401(k).  If you are contributing 15% and still have extra funds to invest, put those funds into the 401(k) as well instead of into the Roth.  The rationale is that again, you will defer tax on that income until retirement, when you will likely be in a lower tax bracket.  Roth contributions are taxed at your current tax rate.

4. If for some reason you are maxing the 401(k) ($17,500 in 2014) then you should invest the surplus in a TRADITIONAL IRA.  You can put up to $5500 in there, tax-deferred, for you and your husband each (i.e. $11,000 for both of you).  You can deduct this at tax time, further lowering your tax bill.

5. Since you have access to an HSA, you might also consider using that as another way to lower your tax bill.  Check out this great article by the Mad FIentist on the topic: http://www.madfientist.com/ultimate-retirement-account/

6. That $20K emergency fund is great, but sounds perhaps too high.  You should get an idea of what your monthly expenses are (that means MANDATORY expenses, like food clothing, and shelter not INCOME or luxuries that you'd cut in an emergency) and target your emergency fund to be 6 months of those expenses.  Take any surplus from that $20K and use it to pay down those student loans to save yourself some interest expense.

7. My family has benefited immensely from http://www.mint.com.  This will give you a great picture of your overall financial situation and let you get a grasp of your expenses, etc.  I think this will really help you out.

Hope this helps- you are on the right path!