Author Topic: 401K Advice for Purchasing a Home and ER Access  (Read 2759 times)

mpbaker22

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401K Advice for Purchasing a Home and ER Access
« on: March 29, 2013, 08:03:23 AM »
I've been living pretty mustachian for a while now, and I've had a full year+ of work under my belt.  I've gotten a pretty good track on my expenses, savings, etc.  I digress.  On to my question - I know this has been asked before, and maybe it's just a personal decision relative to each person, but I can't figure out how much to put in my 401K.

The story - I currently contribute the minimum required to receive full company match to my 401K.  This translates to $4,004.64/year.  My company matches that at $4505.22/year (They actually match more because they put a default 3% in regardless of employee contribution, then it goes up from there).  Because I do the minimum, and I make far more than I need, I save quite a bit of money.  I take home ~$1300 every 2 weeks plus tax refund every march and bonus every February.  I live on ~$12,000/year, or ~$1,000/month.  This means every month, I save ~$1,600 plus the 3rd paycheck of the month twice a year plus the tax refund plus the bonus.  I contribute the max (5000) to a Roth IRA.


Summary
401K total contributions/year - $8,509.86
Roth IRA contributions/year - $5,000
Donations - $5,000
non-tax-sheltered savings/investments ~ $15,000


My question also relies on the following details - I currently rent an apartment.  I hope to buy a house, probably a multi-family, within the next year or two.  I would like to pay cash, or at least have as small a loan as possible.  However, if it is more to my advantage to  contribute a larger amount to a tax-sheltered 401K, maybe I should do that. 

I guess I want to shelter as much from taxes as possible, but I don't want to make that $15,000 inaccessible for house-purchasing purposes.  Also, I want to be able to withdraw it before 59.5 when I get there.
I tried not to make this too verbose, but it looks like I failed again.

Thanks for the help everyone!

matchewed

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Re: 401K Advice for Purchasing a Home and ER Access
« Reply #1 on: March 29, 2013, 08:17:03 AM »
Let's break this up into chunks and please correct me if I'm off on this.

1. Short-term goal of purchasing a house. Personally I think that the investments/savings is perfect for this and will get you to a great downpayment in a short time frame, well within your year or two goal.

2. Tax Sheltering. If you really have concerns you would have to up your 401k contributions. I'm not sure what your main concern is with this, you may contribute more in order to reduce your income levels and make you eligible for certain tax credits and the like but unless there is something specific here it is sort of vague and hard to lend advice.

3. Accessing 401k before 59.5. Roth Pipelines or 72(t) should help with that. If you know your FIRE number, how much you need, start by working out with your current savings plan how much will be in what account. That will give you an idea as to how you may want to go about drawing down from your 401k.


mpbaker22

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Re: 401K Advice for Purchasing a Home and ER Access
« Reply #2 on: March 29, 2013, 08:24:56 AM »
2. Tax Sheltering. If you really have concerns you would have to up your 401k contributions. I'm not sure what your main concern is with this, you may contribute more in order to reduce your income levels and make you eligible for certain tax credits and the like but unless there is something specific here it is sort of vague and hard to lend advice.

I think I mainly see the tax code as being excessively complex (which it is).  The result is even though I'm proficient in finance and math, subjects I have degrees in, it seems that it should be easier to pay the least, but fair, taxes.  Because it's so complicated, I have the equivalent of "Don't exercise without seeing a doctor" syndrome.  I think I'll probably keep doing what I'm doing, but since I have uncertainty in my housing situation, it makes it a tough call.

GreenGuava

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Re: 401K Advice for Purchasing a Home and ER Access
« Reply #3 on: March 29, 2013, 08:30:32 AM »
Roth IRA contributions/year - $5,000

FYI, the 2013 Roth IRA maximum is $5500. 

By the way, with mortgage rates being incredibly low, you might want to consider getting the mortgage, making some more tax-advantaged contributions to your 401(k) (treat this as money for after 59.5 if you don't want to bother with the pipelines;  I like to think of my 401(k) and IRAs as insurance for post-59.5, making a reasonable retirement age an intermediate goal, and I'll know how many years my taxable investments must last) with the difference.  There is, at the very least, an immediate gain of your marginal tax rate.  Excess money left over afterward can be used to accelerate paying down the mortgage or placed in non-tax-advantaged investments, depending on your preferences (some prefer to be debt free, even from non-toxic debt.  Others believe they can make more with investments, and the leverage is worth it).