Author Topic: Homestretch to FI ... continue ROTH contribution or not?  (Read 2345 times)

Coach Carson

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Homestretch to FI ... continue ROTH contribution or not?
« on: April 10, 2014, 07:56:17 AM »
Hey everyone,
I'm brand new to the Mustachian community, but I've been digging into articles and comments for a week. I feel like I found my people:)

My wife (36) and I (34) are pushing hard to reach FI so we can travel abroad for a year and so I can spend more time with our two little girls in 2015 or sooner.  We're working to live even more frugally and save big stashes each year to make this happen.  This community helps!

My situation is a little complex, but I was hoping to get collective advice about whether I should:
1. Continue contributing to my ROTH IRA with the first part of my savings each year
2. Stop Roth contributions and just invest for income outside my IRA (primarily by paying down real estate investment debt).
3. Do some combination

A little background which might help with my question:
- I've been full-time real estate flipper and investor for 11 years since graduating from college
- Income fluctuates, but $70,000 - $100,000/yr (pre-tax) is consistent range.
- Wife was community college professor, stays at home with 1 and 3 yr old now and teaches part time in fall ($7-10k)
- no personal debt (except $95k mortgage on $180,000 house)
- $3,800/month living expenses (used to be $3,000 before kids ... it's why I'm here!)
- About $205,000 in retirement/HSA accounts
- $21,000 in cash emergency fund
- $5,000 in personal checking
- $6,400 in cash for other misc stuff (property tax/insurance savings, in case need another used car, etc)
- $7,500 in individual stocks (BrkB, 3M, SO) - mainly old gifts from family we never sold
- $72,500 in personal loans to my real estate partnership (6% interest)
- leveraged real estate portfolio of 52 units (with 50:50 partner) about $2.9 million value, 2.1 million in debt
- Real estate debt is mostly seller/private financing (not banks), low interest, amortizing heavily ... good for long-term net-worth, not as good for short-term cash-flow.
- We're also working on selling a portion of portfolio to free up equity, payoff debt (it was hard during downturn)

On paper our stash (without retirement or home equity) is:
$400,000 (50% of real estate portfolio)
   $7,500 = stocks
   $6,400 = misc cash
   $5,000 = checking
   $72,500 = loans to business
$491,400 = Total

So I think I should prioritize savings OUTSIDE my Roth to payoff real estate investment debt because it instantly reduces risk and increases FI cash flow.  But I don't want to miss opportunities to contribute to ROTH, either?

Any advice on ROTH contributions? Other advice?  thanks for your thoughts.


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Re: Homestretch to FI ... continue ROTH contribution or not?
« Reply #1 on: April 10, 2014, 08:11:30 AM »
The principal in a ROTH can be withdrawn penalty free at any time. Only the capital gains are subject to penalty.

So why NOT contribute?

Also, you need to get your expenses down quite a bit to be close to FI. 3800 a month requires 3800x300=1.14 million for a 4% SWR.

Kids do not add $800 a month, especially with a SAHP.

Posting your actual budget, or at least estimates, will help us give better advice. But the answer to your main question is keep plugging that ROTH.


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Re: Homestretch to FI ... continue ROTH contribution or not?
« Reply #2 on: April 10, 2014, 08:15:45 AM »
Yes, keep contributing to the Roth for both yourself and wife.  Consider also contributing to a TIRA so you get a tax deduction now if in the future you anticipate your income being lower to allow for future Roth conversions.  But, you'd lose the access to the contribution basis if you did that.


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