Hi, I'm new to MMM and have being reading a lot about ER and different strategies. I'm looking for some advice on where to put extra money to invest. Traditional IRA, Roth IRA, or Taxable?
Backgound: My wife and I are both 26, have an annual household income of 70K(pre-tax) and want to go into ER around 45 but will both still work part-time. We both contribute 5% and our employers match 5% to our 401Ks. We've both contributed to a roth IRA in the past but are not currently. We bought a house last year and are making extra payments to pay that off in 8 years. After those extra payments and our other expenses we'll have around $4k to invest a year until the mortgage is paid. After the mortgage is paid we should be able to invest $22k a year.
Looked into putting it into a traditional IRA then doing the roth conversion ladder at ER. I've read a lot about the conversion and was wondering if it worth it for someone that is in the 15% tax bracket now and will be during the conversion? Plus there's the 5 year wait before I can withdraw it. We will be doing the conversion ladder for our 401ks.
The roth IRA seems to be a good option because the money can grow tax free in the account and we can withdraw the contribution at anytime. The contribution withdraws will be helpful while we wait the 5 years for the conversion ladder of our 401ks. My only thought is, will just the contributions be enough to cover our expenses for 5 years. That's why I thought a taxable account might be good since my tax rate is only 15% and then we could withdraw contributions and earnings.
Just looking for advice on which account to invest in?
Thanks in advance!
Update: Thanks for getting back to me! Not sure what all information you need but here's some more, I went off the case study post. If there's any other specifics that would help let me know.
Status: Married filing jointly
Kids: 0
Location: South Dakota, USA
Gross: $70k
AGI: $64K(Last years tax return)
Taxes: 15%, No state tax
Expenses: Just started tracking this on Mint a couple months ago so my expenses are a work in progress. I've always had a budget but just for the necessities.
$1900/month (The necessities: Mtg, Utilities, Car Ins., Groceries, Phone, Fuel, Internet)
$650/month(everything else: Eating out, clothes, gifts, hygiene, car maintenance, entertainment, pharmacy, chiropractor, etc.) This is just what's left over every month, goes into checking and rolls into next month if its not spent. Some of this ends up going to vacation fund.
$300/month (Vacation)
$833/month (extra payments to mortgage)
$300/month (investing money)
Total: $3983
Expected ER Expenses: About the same as above minus Mtg, Extra payments to mortgage, and investing money. So around $2,150/month.
Assets:
House $205k
Vehicles $18K
401ks $26k (most of this is Roth, switched to traditional recently)
Roth IRA $12K
HSA $3k
Liabilities:
Mortgage $134k 3.875% $962/month (includes Ins. and Property tax) 30yrs