Author Topic: Maxed 401K, ROTH IRA - what to do with last 40k  (Read 3556 times)

Phorensic

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Maxed 401K, ROTH IRA - what to do with last 40k
« on: May 21, 2016, 11:10:37 PM »
Greetings! First post and I had a question.

I am a new adherent to MMM. I maxed out my 401K, set up two vanguard IRAs (wife/mine) using VTSMX, and set up three 529s for my kids. I still have nearly 40K in cash. I have the option to do a 457 through my work, but I am going to wait until next year to consider that as I had to up the 401K to a lot. With only 16 pay periods left, it is a fairly large percentage jump for me.

I am seeking opinions as to whether I should use the Betterment's Safety net approach for 20K (our emergency fund). Also, with the other 20k I could open a taxable account with vanguard in order to avoid the larger fees of Betterment. Lots of options, but as the sum will be far below the 100K needed to get Betterment's reduced rate, I thought maybe a Vangurd index fund would be a good spot for the money.

If it matters for any advice - I make about 80-90k a year. I am the sole breadwinner.

I also started biking to work this week! I enjoy the site and the forum. Thanks in advance for your thoughts.

Phorensic

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Re: Maxed 401K, ROTH IRA - what to do with last 40k
« Reply #1 on: May 22, 2016, 01:07:39 AM »
Ah yes - I also have 12 years left on my 15 year mortgage with 137 left. Thanks again.

MDM

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Re: Maxed 401K, ROTH IRA - what to do with last 40k
« Reply #2 on: May 22, 2016, 01:51:49 AM »
Phorensic, welcome to the forum.

We probably need a little more info to provide specific advice - see http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-%27case-study%27-topic/.

As a conversation starter, consider the picture below.  It assumes $85K gross income, your IRA contributions were traditional instead of Roth, and "401k" means "401k and 457 combined" - and that "3 529 plans" means you have 3 children eligible for the EIC and child tax credit.


Phorensic

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Re: Maxed 401K, ROTH IRA - what to do with last 40k
« Reply #3 on: May 22, 2016, 06:22:35 AM »
Thanks, MDM. I'll read that post and get it right next time! :-)

seattlecyclone

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Re: Maxed 401K, ROTH IRA - what to do with last 40k
« Reply #4 on: May 22, 2016, 08:53:44 AM »
I am a new adherent to MMM. I maxed out my 401K, set up two vanguard IRAs (wife/mine) using VTSMX, and set up three 529s for my kids. I still have nearly 40K in cash. I have the option to do a 457 through my work, but I am going to wait until next year to consider that as I had to up the 401K to a lot. With only 16 pay periods left, it is a fairly large percentage jump for me.

Are you just hesitant about this option because you aren't used to your paycheck being less than your spending for the month? Would it help as thinking about this as "transferring money from your savings account to your 457" instead of "spending more than you're taking in"?

Phorensic

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Re: Maxed 401K, ROTH IRA - what to do with last 40k
« Reply #5 on: May 26, 2016, 11:39:34 AM »
Hey Seattlecyclone, thanks for the response.

Tomorrow will be the first paycheck where the contribution rate on my 401K goes from 6% to 33%. I am waiting to see what that amount looks like. My investment priority is currently Roth IRA before 401K. I maxed the Roth IRA this year in a one time purchase (so much for dollar cost averaging. I'll get to that next year!). When I changed the 401K from 6-33%, I became concerned that this rate change (high due to only 16 pay periods left in the year) could occlude the necessary savings to run the family.

I could put more towards the 457 in the hopes of reaching 18K there this year and then use some of the excess cash in the savings account to fund the family until next January. Is this the course you would take? In January I'll set up monthly deposits into the Vanguard Roth IRA and reduce the amount of 401K contribution to take advantage of the 26 pay periods and a step increase at work. I think it will end up being around 17-19% contribution in order to get 18K into the 401K over the course of 26 pay periods. I felt that might be the right time to consider the 457 as I'll have a better idea as to what the monthly take home would be given the numerous variables and added 916/month now directed towards the Roth IRA.

I am still working on completing the excellent spreadsheet MDM linked to earlier. I appreciate your time and expertise.

MDM

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Re: Maxed 401K, ROTH IRA - what to do with last 40k
« Reply #6 on: May 26, 2016, 11:58:13 AM »
Tomorrow will be the first paycheck where the contribution rate on my 401K goes from 6% to 33%. I am waiting to see what that amount looks like.
To make the black box of taxes a little more transparent, you might try predicting what that net amount will be.  See the explanation starting on page 42 of https://www.irs.gov/pub/irs-pdf/p15.pdf for the federal process.

Davids

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Re: Maxed 401K, ROTH IRA - what to do with last 40k
« Reply #7 on: May 26, 2016, 07:34:19 PM »
Can you do HSA, that's another $6,750 you can throw in.

Vagabond76

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Re: Maxed 401K, ROTH IRA - what to do with last 40k
« Reply #8 on: May 26, 2016, 08:21:53 PM »
You can open Coverdell accounts for the kids 3x$2000 or just contribute more to the 529 plans. I prefer Coverdells because you get unlimited choice and opportunity for near-zero expenses. Which 529 did you choose? California's plan using T Row Price passive funds was the lowest cost plan I could find.

Phorensic

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Re: Maxed 401K, ROTH IRA - what to do with last 40k
« Reply #9 on: May 28, 2016, 12:21:07 PM »
We currently have an HSA that gets $150/paycheck. We will max it out next year. Our 529 is the Vanguard aggressive option. Still working on getting that spreadsheet completed. Thanks for all of your help. I am leaning towards a Betterment account with half of it 60/40 for their safety net approach and the rest 90/10.

Gin1984

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Re: Maxed 401K, ROTH IRA - what to do with last 40k
« Reply #10 on: May 28, 2016, 01:23:20 PM »
You can always stop the 457 if you need to, you know.  Max out THAT before a taxable account.

Phorensic

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Re: Maxed 401K, ROTH IRA - what to do with last 40k
« Reply #11 on: May 28, 2016, 02:50:33 PM »
Gin1984 - thanks for your input. It is exactly what I was looking for. I feel a bit sheepish, but I was ignorant of the benefits of the 457 plan. I didn't realize it could be withdrawn penalty free. Given this information, it seems as though I should invest the 401K to 6% to ensure I receive the full employer max, and then put the rest of our savings towards a 457. Still pre-tax, same access to the Vanguard retirement milestone dates, and no penalty if some awful circumstance happened that required getting access to it.

I'll do some more research this week. I may not /ever/ be in a position to open a taxable account then. Haha. Since my employer offers both 401K and 457 with 18K/year for each, the chance of me having enough income to max those and two Roth IRAs is negligible.

Thanks again for your continued feedback.

Gin1984

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Re: Maxed 401K, ROTH IRA - what to do with last 40k
« Reply #12 on: May 28, 2016, 03:02:04 PM »
Gin1984 - thanks for your input. It is exactly what I was looking for. I feel a bit sheepish, but I was ignorant of the benefits of the 457 plan. I didn't realize it could be withdrawn penalty free. Given this information, it seems as though I should invest the 401K to 6% to ensure I receive the full employer max, and then put the rest of our savings towards a 457. Still pre-tax, same access to the Vanguard retirement milestone dates, and no penalty if some awful circumstance happened that required getting access to it.

I'll do some more research this week. I may not /ever/ be in a position to open a taxable account then. Haha. Since my employer offers both 401K and 457 with 18K/year for each, the chance of me having enough income to max those and two Roth IRAs is negligible.

Thanks again for your continued feedback.
And that is ok, given that you can access the 457 plus the Roth if you retire.