Author Topic: Reader Case Study- New Parents  (Read 10114 times)

Katsumi

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Reader Case Study- New Parents
« on: May 15, 2014, 04:17:51 PM »
Hello!

I'll jump right into it:I am 25, my wife is 28, and we just had our first child!  As we are adjusting to this new change, my wife will not be returning to her previous employment; therefore we are taking a hard look at the budget to make this happen.  There is one area of which, I am positive I can improve- the commute. I live 40 miles from work.  Other than that, here are the details!

Current Income
$48,000/year with possibility of $10,000 bonus.  Post deductions and insurance, this ends up being approximately $2,700/month. The bonus goes to Roth IRAs, and there is no 401k match at my current company.
$700/month side income
This ends up being approximately $3,400/month.

Expenses
Mortgage and property taxes- $900/month
Utilities- $200/month (water, gas, electric, trash)
Groceries- $200/month
Car Payment- $200/month
Car Insurance- $120/month (we have two cars, listed below)
Health Insurance- $95/month (Deductibles, co-insurance, meds, life insurance premium- does not include health insurance premiums taken out of paycheck)
Pets- $25/month (One Yorkie- Meds, food, vet, grooming)
Personal- $80/month (toiletries, haircuts, occasional work lunch)
Gas and Car Maintenance- $330/month
Charity- $250 (This is to family- will not be changed)
Total-$2400/month

$1000/month leftover (Roughly. Occasional unplanned expenses do happen.)

Assets
Home- $150,000 (Bought last year-before I got the job 40 miles away)
Retirement- $20,000 (spread between 401ks and Roth with vanguard)
Investments (taxable)-$4,000
Cash- $33,000
Total- $207,000

Liabilities
House- Owe $115,000- 4.5% interest rate
Cars- 2010 car is paid off, 2011 I owe $6000- 1.9% interest rate
Total- $121,000

Thanks in advance!

Gin1984

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Re: Reader Case Study- New Parents
« Reply #1 on: May 15, 2014, 04:19:26 PM »
If she is staying home you don't need a second car, sell it.

catccc

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Re: Reader Case Study- New Parents
« Reply #2 on: May 15, 2014, 04:39:34 PM »
If she is staying home you don't need a second car, sell it.

not so fast, if she doesn't have other ways to get around, you might want to keep it.  Or if in 3 years she will need to drive a kid to preschool, maybe you want to keep it rather than go through the trouble of selling it and having to buy another car.  I was a SAHP and I didn't drive much, but I did use the car to get to Dr. appointments, play dates, and run errands.  If you have reliable other transportation, sure, dump the car.  But a SAHP doesn't always just stay at home.

Gin1984

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Re: Reader Case Study- New Parents
« Reply #3 on: May 15, 2014, 04:44:12 PM »
If she is staying home you don't need a second car, sell it.

not so fast, if she doesn't have other ways to get around, you might want to keep it.  Or if in 3 years she will need to drive a kid to preschool, maybe you want to keep it rather than go through the trouble of selling it and having to buy another car.  I was a SAHP and I didn't drive much, but I did use the car to get to Dr. appointments, play dates, and run errands.  If you have reliable other transportation, sure, dump the car.  But a SAHP doesn't always just stay at home.
Yes, occasionally the family might need to rent a second car or take the bus, or drop dad at work and pick him up.  Those occasional small bumps are not worth a second car for a stay at home spouse, IMO.  But then again my husband and I were a one car family for almost five years and I hate the idea of spending more for a second car even though we will need one come august.

Lkxe

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Re: Reader Case Study- New Parents
« Reply #4 on: May 15, 2014, 04:51:31 PM »
I second the "don't leave a new mother 40 miles from reliable transportation" Without knowing the location and available transit, that is not a great idea. I do see how ever you have 10+ months of expenses in cash (emergency fund?) maybe you could pay off the second, and lower insurance by dropping comprehensive on one or both? I know it's only at 1.9% but it money you don't have to spend. ( probably minimally savings but I hate paying people)  Other that the 40 mile commute and associated costs, max out the retirement saving and keep saving I think it looks good.

homeymomma

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Re: Reader Case Study- New Parents
« Reply #5 on: May 15, 2014, 05:31:33 PM »
If she is staying home you don't need a second car, sell it.

So many people on these forums assume this with no further information. She very well may need a car!

Milspecstache

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Re: Reader Case Study- New Parents
« Reply #6 on: May 15, 2014, 05:47:53 PM »
That car insurance rate is crazy!  What is your deductible?  I always raise mine as high as possible.  Is one car listed as pleasure only?

Second, I really recommend that you and your wife cut your own hair.  Saves a lot of money, particularly as you start adding to the family!

lady brett ashley

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Re: Reader Case Study- New Parents
« Reply #7 on: May 15, 2014, 06:25:23 PM »
Congrats, y'all.  I'll add one thing to the car debate: you already said (or at least implied) that you're working on cutting that 40 mile commute down.  I agree with the folks who say don't leave your wife and kid 40 miles from transit (lacking any info saying otherwise).  But once you're close to work, you are open to lots of transportation options with one car.  Assuming you find a short commute, even if the wife and kid drop you off at work every day in order to have the flexibility of using the car, you're in a way better position than you were with 2 cars and a 40 mile commute.  And chances are with some planning ahead and communicating about plans/appointments/errands, that will only need to happen occasionally, so most days the car will just go to and from work without leaving anybody in the lurch (assuming you have enough flexibility at work to run home in case of an emergency/big deal thing - something that isn't really an option for you 40 miles away, even if your work is cool with it).

MayDay

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Re: Reader Case Study- New Parents
« Reply #8 on: May 15, 2014, 06:34:26 PM »
If she is staying home you don't need a second car, sell it.

So many people on these forums assume this with no further information. She very well may need a car!

Such as to keep her sanity and not go off the deep end.

Oh wait, am I the only one who drove to either the mall or target almost every day during that first horrible winter from hell with a newborn?

CarDude

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Re: Reader Case Study- New Parents
« Reply #9 on: May 15, 2014, 06:37:56 PM »
Congratulations! Regarding the car issue, I'd use your savings to pay off your car and then focus on reducing your commute.

Gin1984

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Re: Reader Case Study- New Parents
« Reply #10 on: May 15, 2014, 06:51:51 PM »
If she is staying home you don't need a second car, sell it.

So many people on these forums assume this with no further information. She very well may need a car!

Such as to keep her sanity and not go off the deep end.

Oh wait, am I the only one who drove to either the mall or target almost every day during that first horrible winter from hell with a newborn?

I have a 15 month old but only stayed home for two weeks, then extremely part time for six more (grad student, I went to classes but did not have to work).   The idea that one would keep a car to drive to the mall, when there has already been sacrifice so one parent can stay home seems odd to me.  Then again, I could not be that parent so no judgement from me on what you decided to do. 

MayDay

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Re: Reader Case Study- New Parents
« Reply #11 on: May 15, 2014, 07:37:06 PM »
If she is staying home you don't need a second car, sell it.

So many people on these forums assume this with no further information. She very well may need a car!

Such as to keep her sanity and not go off the deep end.

Oh wait, am I the only one who drove to either the mall or target almost every day during that first horrible winter from hell with a newborn?

I have a 15 month old but only stayed home for two weeks, then extremely part time for six more (grad student, I went to classes but did not have to work).   The idea that one would keep a car to drive to the mall, when there has already been sacrifice so one parent can stay home seems odd to me.  Then again, I could not be that parent so no judgement from me on what you decided to do.

I didn't think I would either, until I experienced a Minnesota winter with an infant who cried all the time. 

I am all for reducing to a one car family, but unless you live somewhere with a magical combination of mild weather and excellent public transport, if your spouse takes the car 40 miles away for work, it is highly likely that the SAH spouse needs a car.  Obviously there are a million caveats (does she have friends close by who can give her rides?  Family close by?  Does she have play groups and a doctor's office and a pharmacy close by?  Can she get a zip car if needed?  on and on)  but she probably needs fairly reliable access to a store where she can get emergency goods, some kind of socialization for her own mental health, and a doctor.  That can be accomplished in many ways, see above list, but for most of the country, it likely means she needs access to a car since her spouse can't just zip home over lunch.




catccc

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Re: Reader Case Study- New Parents
« Reply #12 on: May 15, 2014, 08:17:16 PM »
Any chance you can telecommute part of the time?  1 day a week would be 20% less miles.  Also, maybe try some hypermiling techniques?  We have a not-so-efficient pick-up truck that is rated 14 city/20 hwy, and I can easily get 20 city (country?  It's back-ish roads over creeks with a fair number of stop lights) out of it with some mild hypermiling, primarily coasting to stops and driving at or near the speed limit.

I think someone may have mentioned paying off that car.  Unless you are earning more than 1.9% on that $33K in cash, I would kill that car loan.

I also think that your car insurance bill is high.  Are you guys on the same policy?  I've been married for 6 years and we only got around to combining policies a year ago.  It saved us ~$800/yr, I cannot believe I waited so long to do it...

Does your employer have a medical/health flex spending plan?  That could reduce your misc. medical (deductibles, rx, etc) cost a bit w/ the tax savings.

can you quit paying for hair cuts?  We pretty much stopped doing that in our house for a good while.  I had long hair and DH would just cut it straight across occasionally.  Then I thought I'd go for a change and got a pixie cut.  I like it, but I've had to pay for 2 haircuts now since November, and also invested $3 in a little tool to try to stave off a professional cut for as long as possible.  DH cuts his own hair with a trimmer thingy.

new person expenses.  Since you already had your baby, you probably know that breastfeeding and cloth diapering are great money savers.  (with a lot of other advantages, as well)  Cloth is also great if you plan on having more.  I spent maybe $300 max on diapers for 2 kids, and that was with buying some fancy diapers that I wouldn't buy again.  And that was also when one size covers were not as prevalent.  If she is going to be home with the baby, you might even want to consider "elimination communication," a practice in which you take your infant to the bathroom when you think they need to go.  It's not for everyone, but I really liked it.  Cuts down on laundry and ick factor.  My babies pretty much stopped pooping in diapers at 3 months.  Potty training was a breeze, too.

iris lily

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Re: Reader Case Study- New Parents
« Reply #13 on: May 15, 2014, 08:20:24 PM »

Oh wait, am I the only one who drove to either the mall or target almost every day during that first horrible winter from hell with a newborn?

That is a very important point. :)

MayDay

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Re: Reader Case Study- New Parents
« Reply #14 on: May 15, 2014, 08:42:43 PM »

Oh wait, am I the only one who drove to either the mall or target almost every day during that first horrible winter from hell with a newborn?

That is a very important point. :)

For the record I didn't shop!  I walked around in temperatures above 0 degrees with that screaming ball of fury strapped to my chest, while making periodic eye contact with other adults, a glorious sensation. 

LAL

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Re: Reader Case Study- New Parents
« Reply #15 on: May 15, 2014, 11:07:17 PM »
I couldn't ever stay at home without a car and I do with two kids. I run around a lot. And yes my dh could bike to work he already does and uses public transit sometimes but he doesn't like to be tied to one car without flexibility. He's also the one who would go without with the number of appointments I have for my two kids.

I have public school provided therapy for my four year old 3x week. I get early intervention with my 20 month old three times a week. But suggesting a stay at home parent just stay at home?  Do you really turn down services for your kids? Or have children with lots of Dr appointments. That's my kids.

Only the parents can determine the situation and cost benefit. And sometimes people keep two cars and make other sacrifices to have two cars. Living in smaller condo or not a sfh. Heat at 55. No cable. It's all a matter of priorities.

Sent from my Nexus 7 using Tapatalk


Gin1984

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Re: Reader Case Study- New Parents
« Reply #16 on: May 16, 2014, 06:34:07 AM »
If she is staying home you don't need a second car, sell it.

So many people on these forums assume this with no further information. She very well may need a car!

Such as to keep her sanity and not go off the deep end.

Oh wait, am I the only one who drove to either the mall or target almost every day during that first horrible winter from hell with a newborn?

I have a 15 month old but only stayed home for two weeks, then extremely part time for six more (grad student, I went to classes but did not have to work).   The idea that one would keep a car to drive to the mall, when there has already been sacrifice so one parent can stay home seems odd to me.  Then again, I could not be that parent so no judgement from me on what you decided to do.

I didn't think I would either, until I experienced a Minnesota winter with an infant who cried all the time. 

I am all for reducing to a one car family, but unless you live somewhere with a magical combination of mild weather and excellent public transport, if your spouse takes the car 40 miles away for work, it is highly likely that the SAH spouse needs a car.  Obviously there are a million caveats (does she have friends close by who can give her rides?  Family close by?  Does she have play groups and a doctor's office and a pharmacy close by?  Can she get a zip car if needed?  on and on)  but she probably needs fairly reliable access to a store where she can get emergency goods, some kind of socialization for her own mental health, and a doctor.  That can be accomplished in many ways, see above list, but for most of the country, it likely means she needs access to a car since her spouse can't just zip home over lunch.
Lol, May I don't think I communicated well.   I meant I could not be a stay at home parent for a long period of time, I'd go nuts from just that.  I don't know about your child but mine wanted to be held 100% of the time that she was not sleeping.  Work and class was more restful than home with her.  Granted she has gotten much more independent now, but the first bit, my hat is off to ALL parents able to stay home and not lose their minds.  And frankly I am not going to judge how one did it because I could not.

Thegoblinchief

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Re: Reader Case Study- New Parents
« Reply #17 on: May 16, 2014, 06:37:01 AM »
Other than the commute related expenses, your budget is good for two stressed-out parents of a newborn. Way,way better than where I was at with my first.

Seems really odd that people are harping on the two cars when you have over $1,000 surplus even on a single income. I wouldn't make an issue of it, but consider how walkable/bikable the neighborhood is. My area isn't super bike-friendly, but I could very easily have gotten by with just a stroller or bike trailer with only one kid.

Keep up the good work, maintain your sanity, and watch that personal category. Avoid impulse/convenience spending, no matter how tempting it is with small kids :)

La Bibliotecaria Feroz

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Re: Reader Case Study- New Parents
« Reply #18 on: May 16, 2014, 07:17:15 AM »
Congrats on your new baby!

Is your wife open to doing a side hustle from home once she gets used to the baby's schedule? I do Leapforce at Home, and two big advantages for SAHPs are that it avoids the dreaded "resume gap" if she wants to go back to work later and it's an excuse to sit down in a chair with a laptop and a cup of coffee when baby is sleeping instead of feeling like you have to clean something :-). Might be worth considering--it would loosen things up and let savings built a bit faster.

 (full discussion at http://frugalparagon.com/2014/02/05/why-the-frugal-paragon-loves-leapforce-at-home/)

catccc

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Re: Reader Case Study- New Parents
« Reply #19 on: May 16, 2014, 07:50:00 AM »

Oh wait, am I the only one who drove to either the mall or target almost every day during that first horrible winter from hell with a newborn?

That is a very important point. :)

For the record I didn't shop!  I walked around in temperatures above 0 degrees with that screaming ball of fury strapped to my chest, while making periodic eye contact with other adults, a glorious sensation.

you go, mama!  It isn't easy to deal with a fussy baby, but wearing and walking, at least you feel like you are doing something for your kid and your sanity.

Gin1984

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Re: Reader Case Study- New Parents
« Reply #20 on: May 16, 2014, 07:53:14 AM »
Other than the commute related expenses, your budget is good for two stressed-out parents of a newborn. Way,way better than where I was at with my first.

Seems really odd that people are harping on the two cars when you have over $1,000 surplus even on a single income. I wouldn't make an issue of it, but consider how walkable/bikable the neighborhood is. My area isn't super bike-friendly, but I could very easily have gotten by with just a stroller or bike trailer with only one kid.

Keep up the good work, maintain your sanity, and watch that personal category. Avoid impulse/convenience spending, no matter how tempting it is with small kids :)
The reason I said it is because when we moved almost five years ago we found out that we would have to rent a car 33 times to equal the cost of keeping our year every year.  That is about once every other week.  So for me, if you stay home, unless you are out in the middle of no where (which his commute does not tell us that she is), I don't think it is normally needed to have a second car.  It means that you have to plan, but I can't see needed to borrow a car, or dropping off the dad more than every other week.  Just my opinion.

Katsumi

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Re: Reader Case Study- New Parents
« Reply #21 on: May 16, 2014, 09:01:21 AM »
Wow, lots of responses very quickly!

Thank you all for the input thus far, a bit more background:

Checked on the auto insurance, and got it lowered to $90/month for both cars. Still not too sure if that's actually good or not.

Two cars- We are not in an area with public transportation, and both my wife and I are a bit uncomfortable with her and the new one not having transportation if needed.  The rental car is a good idea, and we do have neighbors we could rely on in a pinch, or even selling the car with the note on it (according to KBB it's worth about $12,000 here) and getting a cheaper, older car.  Not sure what the right solution is for us, but I'll take a look at those options, thanks!

Cash on hand- Honestly, that kind of got away from me.  Before we decided for my wife to stay home we, I hit a work bonus as did she from her work that really boosted that, and I decided not to mess with it until after the baby was born in case any unforeseen medical expenses came up.  Not exactly rationale, but there it is. I'm not sure what the best use for this cash is at the moment, obviously not what it's doing though.  Thanks for lighting the fire for me to figure out what to do with that.  I'm debating paying off some of the mortgage, investing, or splitting between the two.  But that seems to be a common theme around these parts.  I'd welcome any input with thoughts around that as the mortgage is 4.5%.

DIY haircuts- Great idea, I'll check with the wifey.

Wife side hustle- Once she is adjusted with the newborn, we have looked into babysitting for some friends of ours. I suppose it's more like daycare than babysitting, but if that works out it would be $500-$600 a month.   I'll show her the leapforce as well, I have not heard of that before. Thanks for bringing that up.

College- We are planning on helping as we can- I paid for my own education and it was a good experience, but I think it would be neat to at least cover some/most of the cost for college for the kiddo.

Charity- We are actually hoping to increase that a bit.  I do understand the long term cost of this, but for where the money goes, the cost of not doing this is much greater to us.

Regarding the commute- I'm scouting a place to move closer to work, it's a start-up so part of me wants to wait until it's a bit more stabilized, but that's probably just me rationalizing because I hate moving and love our home.  We'll probably rent out the house and rent somewhere for a bit if I can get all the details worked out.  I can telecommute occasionally, but that will not be possible starting in about a month-hopefully I'll at least have  a gameplan of where to move to by then.  Depending on where we move, this could actually allow us to get rid of one vehicle, which would be the goal.

I realized I did not at mobile phone plans and internet in the expenses category- those are both paid for by work.

The wife is breastfeeding, and we actually somehow ended up with enough diapers for the the kiddo from baby showers etc. that were thrown to last us until he's potty trained as far as I can tell. 

My employer does not have a flexible spending plan.

I've heard about the elimination communication thing before, but I didn't know it had a name.  I have family in Japan and apparently that's the normal way to potty train over there according to them. I'll check with the wife and see how she wants to do that as she will be the one with the baby most of the time.

Regarding the leftover amount each month, what would the going recommendations be on that front?  I was thinking something along the lines of:
$300 to mortgage (allows us to pay it of in 15 yearsish instead of 30)
$500 to investing
$200 to college

Thoughts?

And thank you very much to everyone who has responded so far.

nordlead

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Re: Reader Case Study- New Parents
« Reply #22 on: May 16, 2014, 11:58:56 AM »
I would seriously look into a Traditional IRA instead of a Roth IRA (you can recharacterize 2013 contributions up until Oct 2014. recharacterize is essentially a free do over).

There are a few reasons for this.

1) You can bump your AGI down to earn more "savers" tax credit. Theoretically, you could be leaving $1600 in free money on the table (not realistic, since it isn't a refundable credit, but the additional child tax credit is). More likely, you are leaving $400 on the table (instant 3.6% ROI).
2) You save 15% federal taxes now and depending on the state 0-6%. This can be used for taxable investments or paying down debt. (don't forget the time value of money, I'd rather have more now)
3) When you take the money out of the tIRA you pay 0% taxes on the first part for the year (standard deduction and exemptions at minimum), making at least some of it completely tax free, which is a much better deal than paying 15-21% now.
4) Even if things go horribly wrong and the tax rates get adjusted, the additional savers credit should more than make up for it.

The only downside is losing the ability to pull the money out quickly with no penalty before 59.5. I guess technically there is a risk of taxes increasing, but the odds of the 10% and 15% brackets going up significantly is low, and it is highly unlikely they will eliminate or slash the standard deduction or exemptions.

Gin1984

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Re: Reader Case Study- New Parents
« Reply #23 on: May 16, 2014, 12:03:41 PM »
I would NOT put money aside for college.  Max out everything for your retirement and then when college comes around cash flow it or tax some of the extra money out of your Roth and use that.  Any money in a Roth that has been opened for more than 5 years can be used for college.  I'd only put money in a 529, if everything else is maxed.

desrever

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Re: Reader Case Study- New Parents
« Reply #24 on: May 16, 2014, 12:46:23 PM »
That sort of commute distance might put you in Nissan Leaf territory. A lease payment might be less than you currently spend on gas for your commute (leasing cars is idiotic, normally, but the presence of state and federal subsidies distorts the equation).

catccc

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Re: Reader Case Study- New Parents
« Reply #25 on: May 16, 2014, 01:01:20 PM »
Glad you got the car insurance lowered, I think that is just a hair over what we pay in philly suburbs for 2 cars, an 05 matrix and an 04 dodge dakota.

We have 529s for both of our kids, whether you help with college or not is a personal decision.  But since we max out our roths and my 401K, another tax advantaged account for something we will probably end up spending money on makes sense.  Check w/ your state on what is tax deductible in terms of contributions, and look for low cost plans.  We are in PA, which allows contributions to any state's 529 be backed out of taxable income, and NY's vanguard plan seemed to have the lowest costs, so we went with that.  This is nice since in PA your taxable income is not reduced by 401K contributions.  I really hate that.

Someone mentioned the savers tax credit, here is the form for that, you can look at the table for more info on whether you would be eligible.  http://www.irs.gov/pub/irs-pdf/f8880.pdf

Looks like you are in pretty good shape.  Enjoy the little one and these early days, they really go so fast!

catccc

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Re: Reader Case Study- New Parents
« Reply #26 on: May 16, 2014, 01:06:24 PM »
Also, I guess technically the mortgage at a higher rate makes more sense to pay down than the car.   keep enough cash for peace of mind, throw the rest at the mortgage, maybe?

Gin1984

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Re: Reader Case Study- New Parents
« Reply #27 on: May 16, 2014, 01:12:15 PM »
Glad you got the car insurance lowered, I think that is just a hair over what we pay in philly suburbs for 2 cars, an 05 matrix and an 04 dodge dakota.

We have 529s for both of our kids, whether you help with college or not is a personal decision.  But since we max out our roths and my 401K, another tax advantaged account for something we will probably end up spending money on makes sense.  Check w/ your state on what is tax deductible in terms of contributions, and look for low cost plans.  We are in PA, which allows contributions to any state's 529 be backed out of taxable income, and NY's vanguard plan seemed to have the lowest costs, so we went with that.  This is nice since in PA your taxable income is not reduced by 401K contributions. I really hate that.

Someone mentioned the savers tax credit, here is the form for that, you can look at the table for more info on whether you would be eligible.  http://www.irs.gov/pub/irs-pdf/f8880.pdf

Looks like you are in pretty good shape.  Enjoy the little one and these early days, they really go so fast!
WTF?  Really?

catccc

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Re: Reader Case Study- New Parents
« Reply #28 on: May 16, 2014, 01:41:34 PM »
Glad you got the car insurance lowered, I think that is just a hair over what we pay in philly suburbs for 2 cars, an 05 matrix and an 04 dodge dakota.

We have 529s for both of our kids, whether you help with college or not is a personal decision.  But since we max out our roths and my 401K, another tax advantaged account for something we will probably end up spending money on makes sense.  Check w/ your state on what is tax deductible in terms of contributions, and look for low cost plans.  We are in PA, which allows contributions to any state's 529 be backed out of taxable income, and NY's vanguard plan seemed to have the lowest costs, so we went with that.  This is nice since in PA your taxable income is not reduced by 401K contributions. I really hate that.

Someone mentioned the savers tax credit, here is the form for that, you can look at the table for more info on whether you would be eligible.  http://www.irs.gov/pub/irs-pdf/f8880.pdf

Looks like you are in pretty good shape.  Enjoy the little one and these early days, they really go so fast!
WTF?  Really?

Yes.  For really realsies.
https://revenue-pa.custhelp.com/app/answers/detail/a_id/273/~/are-my-contributions-to-a-401(k)-plan-excluded-from-employer-withholding%3F

It is also not taxed when you draw from it in retirement (contributions and earning).  But yeah, I get nothing now.  It operates essentially like a Roth at a state level in PA.  Sorry for sidetracking this conversation...