Author Topic: New Homeowner - not sure where to put money  (Read 3431 times)

Lis

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New Homeowner - not sure where to put money
« on: August 24, 2016, 08:10:44 AM »
I've come to find that I have a 'good' problem - I have extra money coming in, and I just don't know where to put it.

Background info on me:
  • 26
  • New co-op owner, which means new mortgage owner
  • No other debt (paid of student loans last year)
  • Have a company sponsored 401k with Fidelity and my own Roth IRA with Vanguard (that I haven't touched in a year)

I spent the last year focusing on saving for a downpayment on my co-op and for all the fees and expenses that come with purchasing a home (which, unfortunately, there were a lot more of than I thought). Water under the bridge now, my finances are settled down enough that I need to come up with new goals. Goal number one is to save six months worth of expenses in cash, and if my calculations are correct I'll hit that with my 11/30 paycheck (gunning for 11/15 though). My question is, what do I do when that's done?

Random musings:
  • Not currently maxing out 401k contributions and haven't contributed to my Roth IRA in 2016. I did just increase my 401k contributions last pay period but I want to finish saving for six month emergency fund before increasing again.
  • I'm expecting a bonus of ~$10k at the end of the year - my thought is to throw 100% of that into my 401k (would be applicable for 2016). That would put me close to maxing out. I could also plan on doing that again next year (contribute $8000 through the course of the year then $10k during bonus). I know shit can hit the fan at any time, but I have high job security and no plans on leaving in the next year or so.
  • My mortgage payment is $430.93 and that bugs me. Interest rate is 3.375%. I want to bump it up to $500 a month because I like round numbers, but would that $70/mo be better spent in my 401k/Roth IRA? I paid nearly double my minimum payment on my student loans when I had them so I'm not used to just paying the minimum (but student loans were at 7% so it made sense then).
  • Obviously nothing is guaranteed, but I work in finance and am at the beginning on my career, so I am expecting my salary to increase as time goes by. Should I focus on my Roth IRA before my 401k?

I know there are no "right" answers necessarily. I feel like all these thoughts of what to do with my money are so scattered and wide, and I'd like to bring them into a linear way of thinking (if that makes sense).

boarder42

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Re: New Homeowner - not sure where to put money
« Reply #1 on: August 24, 2016, 08:35:52 AM »
6 months expenses in cash is not what i would do but if you cant be moved off that.  you should do 401k to match then max your Roth IRA, do you have an HSA option with your healthcare plan that can be salary deduct?  Max that next, then max your 401k ... then go to taxable.

Lis

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Re: New Homeowner - not sure where to put money
« Reply #2 on: August 24, 2016, 08:50:09 AM »
6 months expenses in cash is not what i would do but if you cant be moved off that.  you should do 401k to match then max your Roth IRA, do you have an HSA option with your healthcare plan that can be salary deduct?  Max that next, then max your 401k ... then go to taxable.

Do you not keep an emergency fund? I admit I'm an overly cautious person and would like that safety net but I can be persuaded.

No HSA - my company gives us $1100 a year in an FSA. We have the ability to contribute more (I forget the max) but we lose it at the end of the year. As it stands, I'm always running around at the end of the year to buy medical-related things to get that full $1100.

ooeei

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Re: New Homeowner - not sure where to put money
« Reply #3 on: August 24, 2016, 09:01:50 AM »
I'd max the IRA/401k before putting extra toward the co-op.  Especially if you end up losing your job or something, you'll be happier to have the extra $ in your Roth IRA (that you can take out) than having extra $ in equity that you'll lose if you get foreclosed on anyway.

boarder42

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Re: New Homeowner - not sure where to put money
« Reply #4 on: August 24, 2016, 09:11:39 AM »
6 months expenses in cash is not what i would do but if you cant be moved off that.  you should do 401k to match then max your Roth IRA, do you have an HSA option with your healthcare plan that can be salary deduct?  Max that next, then max your 401k ... then go to taxable.

Do you not keep an emergency fund? I admit I'm an overly cautious person and would like that safety net but I can be persuaded.

No HSA - my company gives us $1100 a year in an FSA. We have the ability to contribute more (I forget the max) but we lose it at the end of the year. As it stands, I'm always running around at the end of the year to buy medical-related things to get that full $1100.

i dont but i have sizeable taxable accounts and an SO who works.  3 months is more than sufficient for most and i'd invest it but thats just me.  if you have an FSA you're likely on an HDHP meaning you can open your own HSA at HSAbank or the like and contribute there.  it wont bypass FICA like a salary deduction but it will bypass state and federal taxes.

nereo

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Re: New Homeowner - not sure where to put money
« Reply #5 on: August 24, 2016, 09:19:11 AM »
6 months expenses in cash is not what i would do but if you cant be moved off that.  you should do 401k to match then max your Roth IRA, do you have an HSA option with your healthcare plan that can be salary deduct?  Max that next, then max your 401k ... then go to taxable.

Do this.
Regarding the ER fund - everyone needs to determine what they are comfortable with.  A lot of factors go into that decision, including your level of job security, whether you have extra income (like a spouse who works or a second job), your cash flow, savings rate, access to cheap credit (like a HELOC) your expenses, and your level of risk.

6 months is a decent 'middle-ground' for someone with a low net worth, though as you build up your savings and investments you may find that holding so much cash isn't necessary.  I would make sure you are contributing enough to get your 401(k) match and max out your IRA for 2016, even if it means you might hit your 6-month E=fund target a few months later.  You have until December 31st to contribute to your 401(k) but until April 15th to max our your 2016 IRA.

Miiki

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Re: New Homeowner - not sure where to put money
« Reply #6 on: August 24, 2016, 09:24:22 AM »
6 months expenses in cash is not what i would do but if you cant be moved off that.  you should do 401k to match then max your Roth IRA, do you have an HSA option with your healthcare plan that can be salary deduct?  Max that next, then max your 401k ... then go to taxable.

Do you not keep an emergency fund? I admit I'm an overly cautious person and would like that safety net but I can be persuaded.

No HSA - my company gives us $1100 a year in an FSA. We have the ability to contribute more (I forget the max) but we lose it at the end of the year. As it stands, I'm always running around at the end of the year to buy medical-related things to get that full $1100.

i dont but i have sizeable taxable accounts and an SO who works.  3 months is more than sufficient for most and i'd invest it but thats just me.  if you have an FSA you're likely on an HDHP meaning you can open your own HSA at HSAbank or the like and contribute there.  it wont bypass FICA like a salary deduction but it will bypass state and federal taxes.

You cannot have a FSA and a HSA in the same year. Next year, OP would need to opt out of the FSA (and the free money that comes with it) to open a HSA.
« Last Edit: August 24, 2016, 09:26:56 AM by Miiki »

Lis

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Re: New Homeowner - not sure where to put money
« Reply #7 on: August 24, 2016, 10:45:43 AM »
You cannot have a FSA and a HSA in the same year. Next year, OP would need to opt out of the FSA (and the free money that comes with it) to open a HSA.

Can you explain why? It may be that I'm not understanding HSA correctly. To me, it doesn't make sense to leave $1,100 on the table when it's free money,  my healthcare costs the past two years have been low (sub $500, including copays of doctors visits and prescriptions), and my health care is good and deductibles low (I have the highest deductibles allowed on my work's plan). What's the benefit of forfeiting up to $1,100 and opening up another investment account when I can't max out the two types that I have open already?

Nereo - I consider myself low net worth (for now). According to mint, I'm at about $60,000, which includes my home value ($80k) and mortgage (-$60k). That rationale about eventually keeping less cash on hand makes sense, but not something I'm comfortable doing right now.

It's just me in the household - no partner or significant other. I also support two freeloading furbabies who I don't trust to hold jobs. They pay rent in cuteness and cuddles.

Miiki

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Re: New Homeowner - not sure where to put money
« Reply #8 on: August 24, 2016, 10:49:37 AM »
You cannot have a FSA and a HSA in the same year. Next year, OP would need to opt out of the FSA (and the free money that comes with it) to open a HSA.

Can you explain why? It may be that I'm not understanding HSA correctly. To me, it doesn't make sense to leave $1,100 on the table when it's free money,  my healthcare costs the past two years have been low (sub $500, including copays of doctors visits and prescriptions), and my health care is good and deductibles low (I have the highest deductibles allowed on my work's plan). What's the benefit of forfeiting up to $1,100 and opening up another investment account when I can't max out the two types that I have open already?

Nereo - I consider myself low net worth (for now). According to mint, I'm at about $60,000, which includes my home value ($80k) and mortgage (-$60k). That rationale about eventually keeping less cash on hand makes sense, but not something I'm comfortable doing right now.

It's just me in the household - no partner or significant other. I also support two freeloading furbabies who I don't trust to hold jobs. They pay rent in cuteness and cuddles.

Quote
Other employee health plans.   An employee covered by an HDHP and a health FSA or an HRA that pays or reimburses qualified medical expenses generally cannot make contributions to an HSA. Health FSAs and HRAs are discussed later.
  However, an employee can make contributions to an HSA while covered under an HDHP and one or more of the following arrangements.
Limited-purpose health FSA or HRA. These arrangements can pay or reimburse the items listed earlier under Other health coverage except long-term care. Also, these arrangements can pay or reimburse preventive care expenses because they can be paid without having to satisfy the deductible.

Suspended HRA. Before the beginning of an HRA coverage period, you can elect to suspend the HRA. The HRA does not pay or reimburse, at any time, the medical expenses incurred during the suspension period except preventive care and items listed under Other health coverage . When the suspension period ends, you are no longer eligible to make contributions to an HSA.

Post-deductible health FSA or HRA. These arrangements do not pay or reimburse any medical expenses incurred before the minimum annual deductible amount is met. The deductible for these arrangements does not have to be the same as the deductible for the HDHP, but benefits may not be provided before the minimum annual deductible amount is met.

Retirement HRA. This arrangement pays or reimburses only those medical expenses incurred after retirement. After retirement you are no longer eligible to make contributions to an HSA.

This is from the IRS.
https://www.irs.gov/publications/p969/ar02.html#en_US_2015_publink1000204039


I guess I was a little inaccurate. You can have a FSA and a HSA, but the FSA must either be limited or MUST NOT pay for the first $1300 (for a single person) of your deductible.
« Last Edit: August 24, 2016, 10:55:00 AM by Miiki »

Lis

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Re: New Homeowner - not sure where to put money
« Reply #9 on: August 24, 2016, 10:53:05 AM »
Sorry, I meant that as a reply to boarder - what's the benefit of giving up my FSA in favor of an HSA?

Miiki

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Re: New Homeowner - not sure where to put money
« Reply #10 on: August 24, 2016, 10:55:29 AM »
Sorry, I meant that as a reply to boarder - what's the benefit of giving up my FSA in favor of an HSA?

That's the question isn't it?

Miiki

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Re: New Homeowner - not sure where to put money
« Reply #11 on: August 24, 2016, 10:58:15 AM »
I've decided to give up my HRA of $500 because it only pays after I've spent $1000. I've yet to do that and it keeps me from having a more useful HSA.

Your situation is different. Your $1000 is much more useful because you can use that first.

HotPotato

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Re: New Homeowner - not sure where to put money
« Reply #12 on: August 24, 2016, 11:09:48 AM »
I also support two freeloading furbabies who I don't trust to hold jobs.

My life in a nutshell, I'm glad someone else feels the pain too.

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Re: New Homeowner - not sure where to put money
« Reply #13 on: August 24, 2016, 11:31:53 AM »
For the mortgage, I would personally just pay the minimum and invest the difference. Mathematically, you would get ahead doing this and you have some pretty good mortgage terms. Focusing on maxing the 401k and IRA would be the logical next step. Once you have done that, open a taxable account and stuff any extra in there.

snogirl

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Re: New Homeowner - not sure where to put money
« Reply #14 on: August 24, 2016, 11:38:56 AM »
I also support two freeloading furbabies who I don't trust to hold jobs.

My life in a nutshell, I'm glad someone else feels the pain too.

Me 3!

Lis

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Re: New Homeowner - not sure where to put money
« Reply #15 on: August 24, 2016, 11:51:02 AM »
For the mortgage, I would personally just pay the minimum and invest the difference. Mathematically, you would get ahead doing this and you have some pretty good mortgage terms. Focusing on maxing the 401k and IRA would be the logical next step. Once you have done that, open a taxable account and stuff any extra in there.

That makes sense. Mathematically and logically, I get that paying the minimum and investing the difference is the best move. But I'm so used throwing every extra penny at debt (student loans) that it just feels so foreign. 401k before Roth IRA, or Roth IRA then 401k?

boarder42

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Re: New Homeowner - not sure where to put money
« Reply #16 on: August 24, 2016, 11:53:06 AM »
For the mortgage, I would personally just pay the minimum and invest the difference. Mathematically, you would get ahead doing this and you have some pretty good mortgage terms. Focusing on maxing the 401k and IRA would be the logical next step. Once you have done that, open a taxable account and stuff any extra in there.

That makes sense. Mathematically and logically, I get that paying the minimum and investing the difference is the best move. But I'm so used throwing every extra penny at debt (student loans) that it just feels so foreign. 401k before Roth IRA, or Roth IRA then 401k?

really kinda depends.  and if you can go Trad IRA math says that beats a roth.  but you go 401k up to match then IRA then back to max 401k.

Dicey

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Re: New Homeowner - not sure where to put money
« Reply #17 on: August 24, 2016, 12:01:16 PM »
I am a firm believer in a fat and sassy EF, one that could effortlessly shout FU, only now I characterize it as "Opportunity Money". I had a career in comission sales, so I never lived on my current income. I also delayed funding retirement vehicles because I was saving for a DP. Sound familiar?

That said, for now, fuck the 6 mo. EF goal and stuff it into tax advantaged options such as H- or FSA, Roth, etc. Grab any matching funds that might be available to you. If you miss the window marked 2016, it's gone forever. Take advantage, even if it means another year or two to fully stock your EF.

Congratulations on the new house!

Oh, and I'm not a fan of prepaying low-interest mortgages , but understand the round numbers thing. Might I suggest $450?

boarder42

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Re: New Homeowner - not sure where to put money
« Reply #18 on: August 24, 2016, 12:10:07 PM »
there are definitely "right" answers to your questions esp. if you arent maxing tax advantaged accounts.  when you get to taxable accounts it can some what be a debate on funnelling more to a home but that debate is much more emotional than mathmatic.

Lis

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Re: New Homeowner - not sure where to put money
« Reply #19 on: August 25, 2016, 08:05:49 AM »
Ok, I think I'll stop sending money to the regular savings account and start sending it to my Roth IRA. If everything goes according to plan, I should be able to put away $2250-$2500 by December, leaving me about $3000 short. I'll probably split my year end bonus between that and my 401k. I also want to start saving money for my bathroom "remodeling" (at most, get a new toilet and flooring - the current toilet is in a questionable state and the flooring is bubbling and peeling from the walls (THE WALLS!)). That, along with a fresh coat of paint, shouldn't put me too far back.

And yes, to all those who've been wondering, I do already contribute to my 401k and get the match. Been doing that since I was eligible :)

Thanks for all of your advice!

boarder42

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Re: New Homeowner - not sure where to put money
« Reply #20 on: August 25, 2016, 08:28:18 AM »
remember you have until tax day in april 2017 to fully fund the Roth for 2016