Author Topic: Need some help optimising my plan here  (Read 1472 times)

ChrisRMK

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Need some help optimising my plan here
« on: April 16, 2016, 04:42:55 PM »
Hey everyone,

First time poster - A little background:  My wife and I have basically been sort of pursuing FI unknowingly for a little while.  I stumbled onto this site and we are going to make a run at it.  I am 32, shes 34.

Income: Ignoring bonus time (~20% of my pay, none of hers), 150k me, 70k her.  About 10k take home right now each month.

Debt:  The house (283k at 3.5%) and some student loans (15k at 2.03%) thats it.

Savings:

170k in my 401k, maxed getting 6% match
45k in a cash balance (rolls into an IRA upon quitting / retiring), 5% added from work
12k invested in my HSA (left 5k in cash just incase), maxed contribution
11k my roth
5k wife roth
10k checking
10k savings

My wife is a professor and contributes 6% of her pay into the pension.  Which is awesome if it pans out.

Options going forward:

We have child care expenses for the 2 kids, so outside of that we have roughly 4k every month saveable/investible income.

My wife has a 401k/403b available to her but does not use it right now. 

Bonus time I typically pay taxes, set money aside for home modifications, and put about half into savings / investments.   

Option 1 is for her to max out her 401k/403b, save some to backdoor the roths, and either (a) invest the remainder of the extra money or (b) mortgage paydown with the extras.   The nice thing about this is that it will reduce our considerable taxes right now...but it 'traps' that cash.

Option 2 is to invest all of the cash, roughly 3k a month into vanguard funds and 1k to save / backdoor into the roths.  Deal with the tax hits but have liquidity sooner in a form we can use more readily. 

Option 3 is to pay down the house quickly while continuing to max my retirement accounts.  Once the house is down, then throw 5-6k into vanguard funds. 

Our jobs are very secure, engineering professor and licensed nuclear operator.  The big perk to paying off the house first is that I would be able to maybe get of rotating shift work sooner and take something lower paying while maintaining the same standards of living.

I can post a detailed budget if needed, but we have trimmed it as much as we are willing / can.  All expenses childcare, xmas, pocket money, vacation fun, and bills take roughly 6k right now (including mortgage).

Thanks for the help everyone!

MDM

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Re: Need some help optimising my plan here
« Reply #1 on: April 16, 2016, 06:32:07 PM »
Income: Ignoring bonus time (~20% of my pay, none of hers), 150k me, 70k her.  About 10k take home right now each month.

Debt:  The house (283k at 3.5%) and some student loans (15k at 2.03%) thats it.

Option 1 is for her to max out her 401k/403b, save some to backdoor the roths, and either (a) invest the remainder of the extra money or (b) mortgage paydown with the extras.   The nice thing about this is that it will reduce our considerable taxes right now...but it 'traps' that cash.

ChrisRMK, welcome to the forum.

Given $220K/yr (plus bonus), putting every dollar you can into pre-tax investments is most likely your best strategy.  Does the university offer a 457 in addition to the 401/403?  The $18K limit applies to the sum of 401k and 403b contributions, but 457 plans have a separate $18K limit.

Do either of your 401k plans allow the mega backdoor Roth (google that if unfamiliar) strategy?

See http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/ regarding your concern about "trapped" cash.

Good luck!

ChrisRMK

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Re: Need some help optimising my plan here
« Reply #2 on: April 16, 2016, 07:15:41 PM »
From a quick look, I think the mega backdoor roth will work with my work 401k.

Optimal strategy looks like maxing her 401/403 and maybe 457 and working my roth up to 34k a year via the mega back door strategy.

If I can achieve the maximum mega-roth and can withdraw the post-tax contributions with no penalty, I can ride that wave tax free while I do the roth ladder.

Seems to make sense... got more research to do!  Thanks!