Newbie- trying to prioritize finances and reduce taxes

[Nikii]

Hello everyone, I am new to this board and just heard about MMM yesterday for the first time and after reading a few blog posts and going through the forum decided this is the best place for me to start-
Just to give an idea about my financial picture- We are a married couple, both in 30s and one 2 year old. hoping to have another baby in the next year.
We grossed about 140k in 2014 and paid very high taxes this year. I do not get any benefits from work and just set up a ROTH IRA this year and put 11,000 for 2014 and 2015. DH gets 401k benefits from work and since we didn't know much about retirement/ 401k in the past, we did not contribute to it. so basically we have hardly any funds for retirement.

Currently we have about 48,000 in savings account and I am trying to manage this money better since it is just sitting there and not earning any interest. I had intentions to save this money for house downpayment but we are not planning on buying a house for the next 1.5 years, so I think we can place this money at a better place. We make about 8600/ month after taxes and will be able to save about 4500 from that every month if we try to control our expenses. (around 3500 per month after we have another baby). Please also note that we are not US citizens but on work permit visas and our permanent residency is currently under process and that is the reason I am a little more concerned about investing this money some place if our PR does not work out.

Can someone please give me some ideas for our situation. Thank you!!!

[Nikii]

Also do you think I should open a ROTH/ trad IRA and maximize contributions for my husband too? we definitely have the money to do that but not sure if that makes the most sense financially.

[dsmexpat]

On your income you should be deferring as much as possible in taxes. ROTH is your precious, precious post-tax money, each $ you put into ROTH costs you like $1.25 of pre-tax. Put your expendable pre-tax $ into the IRA in the form of a Traditional IRA by claiming the tax back with the deductible. Take advantage of the HSA too.

[Nikii]

Thank you for the feedback!
My husband does have FSA thru work but not HSA.
I was very confused about Trad vs Roth IRA too and when I was doing my taxes this year, I tried entering 5500 contribution towards both Trad and ROTH IRA to determine which one would lower my taxes. But the system was telling me that my contributions were not tax deductible (even when I entered 5500 for trad) since my husband was eligible for 401k thru work and our MAGI was over 118000 (I think). I really don't know what this means.
Hence the reason I chose ROTH since I was paying taxes now anyway, I may as well not pay taxes when collecting the money. Please let me know if I have an incorrect understanding here.

Also since we are not sure how long we will live in the US, ROTH seemed like a good option too because we can withdraw our contributions at any point

[dsmexpat]

Honestly it may be worth speaking to a specialist given your income and circumstances.

[sisto]

If you are not covered by a 401K you can contribute to the traditional IRA and get partial credit (under you not your husband), not full credit due to the income as you stated in the original post. You should definitely max out your husbands 401K pre tax. It's your call about whether or not to contribute to a traditional IRA for your husband or invest that along with the $48K savings in a vanguard account.

[Retired To Win]

You should sequester a portion of those savings in an emergency reserve fund held separately from all your other money (and preferably in a liquid savings account).  I would advise keeping at least 6 months worth of your basic expenses ($32,000 minus whatever in your budget you would not consider to be basic and necessary in case of an income interruption).  For comparison, I keep one year's worth of my basic living expenses in an emergency reserve fund.

Good luck.

[frugalnacho]

Max that 401k out.  That's $18k right off the top of gross, no taxes.

Since you do not have a 401k account you should have a much higher income threshold for contributing to a tIRA.  Assuming you completed your 2014 tax return by the deadline yesterday you can re-characterize your 2014 roth contribution up until Oct 15, 2015.  This will amend your taxes and should net you some more money back for 2014.  I would recommend you re-characterize the full $5,500 contribution you made for 2015 also since you are actually eligible for that also.  Since your husband has a 401k through his work his income thresholds for IRA deductions is different than yours.

Also open up a traditional IRA and a roth IRA for your husband.  If your husband contributes the max to his 401k your MAGI should be around $108k, which would qualify him for a partial tIRA deduction.  Contribute the max allowable into a tIRA for him, and put the remainder of the $5,500 limit into his roth. 

That should get you some money back for 2014, and also lower your 2015 taxable income by about $25k (im not sure exactly how much the partial IRA deduction for your husband will be this year, this is just an approximation).

[Gin1984]

See this for the amount you can earn to deduct your trad IRA: http://www.irs.gov/Retirement-Plans/2015-IRA-Deduction-Limits-Effect-of-Modified-AGI-on-Deduction-if-You-Are-NOT-Covered-by-a-Retirement-Plan-at-Work
If my math is right, and you max out your husband's 401k, you should have no problem meeting the requirements ($183,000 gross) to deduct your traditional IRA.
Do you have access to a daycare FSA in addition to your husband's health care FSA?