Hey folks, long time blog reader, short time forum lurker, first (technically second) time poster. I need some FIRE-planning advice. Here is my current situation.
Age: 30
Salary: $120000
401k at new job: $2800 (maxing contributions)
Traditional IRA: $120000 (rollovers from old 401ks)
Roth IRA: $75000 (maxing contributions)
Principal on rental property: $54000 @ 5.5% (expected to pay off in ~1 year)
Taxable investments: $0
Fund allocation: 50% S&P Index / 25% International Index / 25% Bond Index
Annual living expenses: $24000
Annual rental property income after pay off: $9000
I’m currently throwing all extra cash into paying off the rental property mortgage because:
1) Eh, 5.5% is close enough to market returns
2) I get a warmer fuzzier feeling from reducing cash outflows than from increasing cash inflows
3) I’m sort of timing the market (I know, bad tempesttenor). S&P is at all time highs and, as previously mentioned, I just feel better paying the thing off anyway.
Once the mortgage is paid off in ~1 year, I will have $55000 a year to fund taxable investments.
My DFW (dear future wife), also 30-years-old, is in the medical field and currently earning $50000 at her residency. She expects to make $100000 when she finishes her residency in 2 years. We plan to get married and start a family ~3 years from now. I would like to FIRE and be a stay-at-home dad when that happens.
Here’s the dilemma:
I am concerned about the current lack of access to my retirement money. I would like to implement a Roth IRA pipeline as that is the simplest most flexible method. I currently have no money whatsoever in easily-accessible taxable investment accounts, though I expect to have a $120000 - $170000 balance when I FIRE.
So normally when one FIREs, one can use the standard deduction and personal exemption to build one’s Roth pipeline tax free each year. Living expenses are supplemented by tax-free income from qualified dividends and cash reserves. (I’m oversimplifying here, see Go Curry Cracker’s excellent series of tax articles for the details)
In my case, however, my spouse will still be working and earning a significant salary when I FIRE so I won’t be able to take advantage of the tax free Roth pipeline. I ran the numbers and compared our future Single/MFJ/MFS tax scenarios. While it would be slick to stay Single so that I can implement the Roth pipeline, the numbers just don’t add up and DFW would save so much in taxes if we filed MFJ.
Got any advice for how to build my Roth pipeline? It seems my current options are:
1) Suck it up and build the Roth pipeline while in the 15% bracket
2) Live as a complete leech off of DFW’s salary. Wait until DFW FIREs and then we both start building our Roth pipelines. This is problematic for obvious ethical reasons and also because DFW has no concrete plans to retire early. She really likes her field and her career is just beginning (sigh, medical professionals)!
3) Cut off contributions to all tax-advantaged accounts right away and instead put all money towards taxable investments. This will allow access to tax-free qualified dividends while in the MFJ 15% tax bracket.
4) SEPP the Traditional IRA. I’d rather not deal with SEPP though.
5) Something else I’m not seeing?