Author Topic: Paying off Sallie Mae this Month, what to do with that extra $$$ a month??  (Read 3858 times)

ashwihi

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Relatively new 'stachian here, but I'd like to think I've made generally 'intelligent' investment and life choices regarding money and spending... except for the early 20s which I think a lot of us 30 somethings regret... sometimes learning is indeed painful.

I happen to actually enjoy work and my career and have no plans to retire before at least 50-55 (32 now) because I find it enjoyable and mentally stimulating and other than the fact it's known for it's ups and downs and massive layoffs (Oil and Gas Industry) I feel pretty confident about my future .

Here's the dilemma, DW's income has mostly gone to paying off her student loan debt, we've managed to shred her $30K (probably pretty low in comparison to others) in ~2 years, but what's the best approach after this month to invest all this extra cash?!? which will amount to around $900 (spend it all, right?, haha)

Here's the stats:
1.) My 401K is currently maxed
2.) Another $500 a month is going to savings/taxable investment accounts already. (I'm using Betterment)
3.) The existing debts:
Mortgage at 2.75% on a 15 year, (13 years left, ~$85K, home worth $135K)
Auto at 0.9% , half paid off, no rush to really finish it either with that interest rate, better returns elsewhere.

Our spending is about 35-40% of our after tax income, with the remainder going to savings already, so while we're not living the most absolute frugal lifestyle I think we're both comfortable with where we are in that regard and as our incomes rise it probably won't change... we don't really need anymore stuff.

Option as I see them: (I'm leaning towards option 2)

1.) Open the DW a separate 401K or IRA and max it out (her employer contributions and options are terrible - 401k is through Bank of America, ugh.)
2.) Split 401K/IRA and Betterment funds 50/50 with the "new" $900 a month
3.) All into the betterment (more access to liquidity without penalty)
4.) Pay off house/car? (seems illogical due to the above interest rates?)

Any other thoughts or suggestions???

Thanks all in advance!

forummm

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Quote
1.) Open the DW a separate 401K or IRA and max it out (her employer contributions and options are terrible - 401k is through Bank of America, ugh.)

Need more details on this. What are the options and fund ERs? What's the match?

ashwihi

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Her employer match is dollar based at $650 a year....  The fund options (in my opinion) are pretty terrible, it's all the managed fund retirement year target date funds with high fees, I'd rather have the flexibility and ability to invest in VTI or something similar in her own IRA or 401K with a low fee base.

seattlecyclone

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If your wife can contribute to a pre-tax IRA, you might want to start there. After that, her 401(k) is a good option even with high-fee funds, as long as she isn't planning to spend another decade or two working there. The tax deduction is nice and you can always move the money to something better when she switches jobs.

KCM5

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Do you have a traditional IRA and are you under the limit where it's fully deductable? If not, I would open two of them, one for you and one for her and max them both.

Also, at least do the 401(k) up to the match.

forummm

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Her employer match is dollar based at $650 a year....  The fund options (in my opinion) are pretty terrible, it's all the managed fund retirement year target date funds with high fees, I'd rather have the flexibility and ability to invest in VTI or something similar in her own IRA or 401K with a low fee base.

How high are the fees? Target date funds can be just fine. She can always roll over the 401k to an IRA when she changes jobs--then just pay the low Vanguard fees for the IRA. It's not a permanent problem to have bad funds--but it's a permanent loss of the ability to contribute to a tax-advantaged account if you don't contribute each year.

ashwihi

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I have an individual IRA, she does not, and we're at her 401K match with the employer.  However, my individual IRA is not at the $5500 max either, but that was sort of what I was (very poorly) attempting to illustrate as option 1's scenario.

ashwihi

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Her employer match is dollar based at $650 a year....  The fund options (in my opinion) are pretty terrible, it's all the managed fund retirement year target date funds with high fees, I'd rather have the flexibility and ability to invest in VTI or something similar in her own IRA or 401K with a low fee base.

How high are the fees? Target date funds can be just fine. She can always roll over the 401k to an IRA when she changes jobs--then just pay the low Vanguard fees for the IRA. It's not a permanent problem to have bad funds--but it's a permanent loss of the ability to contribute to a tax-advantaged account if you don't contribute each year.

We're actually actively trying to find her new employment, she's not really very happy with her current job but has been there for 3 years, which is sort of my hesitation to add further to that 401K, but regardless I do need to research her fee structure and options with those funds more!

forummm

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Her employer match is dollar based at $650 a year....  The fund options (in my opinion) are pretty terrible, it's all the managed fund retirement year target date funds with high fees, I'd rather have the flexibility and ability to invest in VTI or something similar in her own IRA or 401K with a low fee base.

How high are the fees? Target date funds can be just fine. She can always roll over the 401k to an IRA when she changes jobs--then just pay the low Vanguard fees for the IRA. It's not a permanent problem to have bad funds--but it's a permanent loss of the ability to contribute to a tax-advantaged account if you don't contribute each year.

We're actually actively trying to find her new employment, she's not really very happy with her current job but has been there for 3 years, which is sort of my hesitation to add further to that 401K, but regardless I do need to research her fee structure and options with those funds more!

If she's leaving soon, then there shouldn't be any hesitation. Put as much in there as you can, then roll it over to Vanguard. Easy. You won't have to pay high fees for long at all.

mandy_2002

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Go for the tax advantaged accounts.  If you two can put more into 401k's, do it.  If you can invest for either of you in a trad IRA (and get the tax benefits), do it.  If not, you could always do the Roth IRA option (either standard if your incomes are low enough or back door, rolling a non-advantage traditional investment into a Roth immediately after investing, if not). 

My first goal for investing is to reduce my tax exposure, and for me, 401k's are the best way to do this.  (Look into the rules of your wife's 401k.  Check if she can do in-service rollovers.  If so, awesome, the fees don't matter; if not, weigh the likelihood of her changing jobs with the lower fee options in the portfolio.)

slugline

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You didn't mention your income level, but it would be worth checking to see if a hypothetical traditional IRA contribution for the wife is deductible, and then compare that against what might happen in the 401(K). Sometimes you just have to run the numbers and decide.

ashwihi

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Jointly we're in the 25% income tax bracket, ~120K annually, it fluctuates some based on bonuses, but that's a pretty decent average, our annual non-debt spending is somewhere in the ~30-35K range, which is what we've based our  'retirement' goals around.     

Thanks again all for the advice!

forummm

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Jointly we're in the 25% income tax bracket, ~120K annually, it fluctuates some based on bonuses, but that's a pretty decent average, our annual non-debt spending is somewhere in the ~30-35K range, which is what we've based our  'retirement' goals around.     

Thanks again all for the advice!

So you probably don't qualify for the deductible traditional IRA contribution. Best to max out the 401ks first and then do Roth IRAs.

Roboturner

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BUY A CAR! CONSUME! THE ECONOMY NEEDS YOUR SPENDY WAYS!