Author Topic: ROTH vs. Rental  (Read 2529 times)

AJ

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ROTH vs. Rental
« on: April 06, 2012, 11:58:13 AM »
Hey All,

As the deadline for prior year contributions is nearing, I am unsure whether I should make a 2011 contribution to our Roth IRAs. Here's our stats:

* We fully fund both our 401ks each year. Total value is currently $110k. (we plan to 72t in ER)
* We are *barely* in the 15% bracket (would be in 25% if we didn't fully fund 401ks)
* We have $8k in liquid savings, which is our 4 month emergency fund
* We have $2k in taxable investments.
* I have a 401k loan for $24k that I recently took so that we could refi our primary residence. It's our only debt.

My plan was to save $20k in the taxable accounts and buy another rental. But I could delay that and take the $2k plus some of the e-fund* and put it in our Roths. We will qualify for Roths for the next couple years, but probably not after that. We will qualify for them again in ER with part time income.

We have 1 rental which is worth about what we owe on it ($125k @3.875%), and it just breaks even on cash-flow (incl. mgmt, maintenance, and vacancy). I really want to continue to invest in real estate, but the Roth contributions are use-it-or-lose-it.

What would you do?

* If either of us lost our job, we could easily live on the other's income. We would need to both become unemployed to tap the e-fund, so I feel like we can cheat down on it. Separate $6k in HSA for medical emergencies.

Edit: If it helps to know, we have about $2500 cash flow each month to invest with (after taxes, HSA, and 401k contributions).
« Last Edit: April 06, 2012, 01:02:00 PM by AJ »

salmp01

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Re: ROTH vs. Rental
« Reply #1 on: April 06, 2012, 01:00:53 PM »
Personally, Id save up and purchase a rental property.  Owning a rental property is a great way to defer your income.  Also, a couple other questions.  You said your only debt was your 401k loan and later in your question you mentioned a loan at 3.875.  Is your 401k loan your only debt minus mortgages? 

Are you the property manager of your one rental?  If not, why not?  That will save you some money in the long run and you have the most incentive to ensure its managed properly.

sol

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Re: ROTH vs. Rental
« Reply #2 on: April 06, 2012, 01:09:08 PM »
What sort of dramatic increase in income are you expecting they you will go from the 15% bracket to being disqualified from the Roth?

AJ

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Re: ROTH vs. Rental
« Reply #3 on: April 06, 2012, 01:39:32 PM »
Personally, I’d save up and purchase a rental property.  Owning a rental property is a great way to defer your income.  Also, a couple other questions.  You said your only debt was your 401k loan and later in your question you mentioned a loan at 3.875.  Is your 401k loan your only debt minus mortgages? 

Are you the property manager of your one rental?  If not, why not?  That will save you some money in the long run and you have the most incentive to ensure it’s managed properly.

Yes, sorry, I meant our only non-mortgage debt. I should have specified. Our rental is professionally managed. They are flat-rate of $75 a month. Plus, they were able to rent the place for $50 more a month than we (as inexperienced landlords) would have asked. So, they really costs us $25 a month. Well worth it, IMHO. DH and I work time-intensive jobs and are not available during the day if needs arose. I would consider self-managing in ER, but our time is better spent elsewhere at the moment.

What sort of dramatic increase in income are you expecting they you will go from the 15% bracket to being disqualified from the Roth?

15% was what we squeezed last year. I was promoted last month, DH will likely be in the next year. He also freelances on the side which is expected to increase (he has more side work than he can handle, and every time he increases his rates no one blinks, so we're still trying to find that sweet spot where his prices are high enough that he gets just enough work and no more). Both our career tracks are pretty starkly defined. It is, of course, dependent on both DH's side business continuing as is, and neither of us losing our jobs, but it is likely that we will hit that level in the foreseeable future.