Ideal size of the non401k fund??

[kmh]

So, my husband and I are in our mid40s and love the whole Mustachian philosophy.   If our kids weren't school-age and thriving in a high-cost city where I feel they do well, I'd be tempted to claim the brass ring now... but I'm stuck partly by my own choice in believing where my kids are is good for them for the next 8 years or so, partly by my complete terror of trying to find a new place I actively want to live. Partly by the fact that our money is all really illiquid and I'm not sure how to free it up... but I just keep doing the same not-dumb, but not short-term nimble things.

So money stuff:
Here's the assets in play right now.

We have a house in which we have about 525k in equity. We're increasing that amount at a rate of about 1000 a month (killing off a 25k HELOC) -- a small amount of the 1000 is interest
No credit card debt (we revolve some but it gets zeroed every month or two and is never more than 1000 or so for biz travel, etc)

We have about 650k in 401ks and Iras...
We have about 30k in emergency cash...
We're currently maxing our 401ks every year. I put in the legal limit (17k) and the husband puts in 15% of salary (11,250) and I get a 4% corporate match.

I don't consider the kids 529s touchable for anything but school, but there's about 85k spread across them and we continue to fund them at a rate of 900 total per month.

So my answerable question is...
What should I be doing instead of crazy funding the 401ks like we do? And should we be trying so hard to squash the HELOC or doing something else?   I know we should be building funds that are post tax.

My unanswerable question is....
How do you find a second city full of people to love when you have a city too expensive that you already love plus a full time job?  I am very happy in my home city. I rather like my job even. I just know that I would also LOVE to be really free.

[sisto]

Where do you currently live? That might help us make suggestions on LCOL areas that might be a fit for you.

[MDM]

So my answerable question is...
What should I be doing instead of crazy funding the 401ks like we do? And should we be trying so hard to squash the HELOC or doing something else?   I know we should be building funds that are post tax.

Good question.  There are a few details you could provide that would help us answer.  See http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-%27case-study%27-topic/, and the more information described there you can provide, the better the answers are likely to be.

[seattlecyclone]

Are you aware that it is possible to get money out of your retirement accounts penalty-free before you turn 59½? (https://seattlecyclone.com/accessing-your-retirement-accounts-early-yes-you-can/)

It's certainly easier if you have some assets in a Roth or taxable account before you retire. Is your entire 401(k)/IRA balance pre-tax, or do you have some Roth basis in there that you could tap into for the first years of retirement while you're starting your Roth pipeline?

When do you expect to pay off your house? After that happens, you may be able to invest the money you're currently putting toward your mortgage into a taxable brokerage account instead, and that amount may end up being enough to last the first five years.

Also if you intend to move to an area with lower housing costs, the difference between your current equity and the cost of a home in your new location could also be used to pay for those first five years.

In short, there are lots of ways you could keep maxing out those retirement accounts, save money on taxes while you're working, and still not pay unnecessary penalties to get that money back when you retire.

[kpd905]

I'd say ideal size of taxable accounts is 5 years of expenses.  This way you can use it to bridge the gap between quitting work and accessing Roth conversions.

[sokoloff]

Zero your CC every month, without fail. You are in a strong enough position that you shouldn't be paying CC interest, which you will if you don't pay it in full every month. Honestly, I'd rather see you see dip $1K into the emergency fund and then pay that off the following month (assuming you really would) than paying even $25/mo in CC interest charges.

You get free float if you do, and you instill in yourself the discipline that CC is convenient payment method, not a financing method. Doing what you're doing is a slippery slope towards "every month or three" and then "a couple times a year" and then "well, we did last year sometime..."

[kmh]

Let's see... the quick and easy additional facts:
==Location
I'm in the DC metro area. 

==Retirement balance apportionment
My entire 401k/IRA balance is *NOT* pretax, but the numbers aren't very big in those accounts. I think the Roths are running maybe 80k of our investments. Are you asking exactly how much of that money is the contributed total post-tax amounts?  I'm not sure if I've answered your question.

==Credit Cards
Assume as a working data point that I zero my credit card every month. It's generally true -- sorry if I gave the impression otherwise.

==Paying off the house and details pertaining to it:
Ah. I should *definitely* have added the house details.
Unfortunately, it's got a fairly long run. We did it for the right reasons, but there's a chunk of debt there.
We've got 248k in a 1st mortgage at 4.5% 30 year fixed that won't reach maturity on its own until 2041. We refinanced in 2011 so that we could turn a 2BR tear down with high utilities into a middle of the pack healthy 4BR 2500 sq ft house with excellent insulation and low utilities. Note, the mortgage on the house isn't terrible, but the taxes are painful. We know we shouldn't stay here long term. The Principle and interest is only about 1300 a month, but the taxes are a whopping 800 a month and only getting worse as the house appreciates in value. (We're in a neighborhood that continues to boom ridiculously.)

Our HELOC was some debt consolidation and a bit of construction over run. It stands at 25,500 and is dropping 1000 a month as noted. I *could* crush it tomorrow, but that would reduce our cash cushion from 35k to 10k and I dislike that intensely.

So the current layout of our cash usage looks like this:
-------------------
12,000 HELOC
17,000 my 401k
11,000 his 401k
------------------
40,000 working

We have to keep the following in place
------------------
3600 HELOC (Minimum payment is a little less than 300 a month and continues to drop, but let's say 300 a month for automation purposes)
6000 my 401k to keep employer match
3750 his 401k to keep employer match
------------
13,350 have to stay allocated exactly has they are

But that leaves 26,650 that could be moved around.
Also, I hesitate to mention what we refer to in our house as the "stupid bonus" but every year there's a potential, though not a guaranteed additional 25000 or so pretax. After taxes and 401k get pulled out it comes to about 16,000 if we get the whole thing.

So our entire flexible investable pool runs between 26,650 and 42,600, but we can only plan for sure on the low number.

So.... the debate stands.  Keep putting it all to the 401k? Divert everything to killing the HELOC in the short term, then turn and tackle the mortgage with both fists?
Allow the HELOC and mortgage to reduce slowly and start a post-tax investment account?

I feel like none of the things we *can* do are necessarily bad choices, but what's not obvious to me is how to turn my thinking and behavior from "I will tread the work-to-65 course and take my benefits when I can" and "I need to get agile and start building accessible wealth now".

[seattlecyclone]

Did you read my blog post (https://seattlecyclone.com/accessing-your-retirement-accounts-early-yes-you-can/)? You still seem to be suffering from the misconception that your 401(k) is not "accessible" prior to traditional retirement age. It's just not true! The Roth contributions are "accessible" with no tax and penalty when you leave your job. The pre-tax balances can be removed with no penalty five years after converting to Roth.

The early withdrawal penalty is only 10%. Depending on your current and future tax brackets, it's entirely possible that contributing to a pre-tax 401(k) and paying penalties during retirement will actually be a better deal than skipping the 401(k) contributions in favor of taxable investing while you're still working.

However I don't think you'll need to worry about that. You say you're still a few years from retirement. At your current rate of debt repayment, the HELOC should be gone in a year or two, depending on your "stupid bonus." Once that's gone, you'll have at least $12k/year to put somewhere. Whether that somewhere is your mortgage or a taxable account is up to you. As you say, you don't want to remain in your current home long-term, so you could consider at least part of that equity to be your "accessible" taxable money as long as you do plan to move into a cheaper house when you retire.

Why not move into a smaller house before you retire? Plenty of families with kids live perfectly happy lives in less than 2,500 square feet.

[kmh]

seattlecyclone, I'd read a bit about this, but not understood exactly what it means for my nearest term savings goals. That was super helpful.

So assuming just for academic purposes that all you were going to live off of in retirement was 401k conversions for a while... let me see if I've got this. For 5 working years before you retire, you would need to move 1 year's worth of expenses over into a Roth IRA -- which means for each of those 5 years you'd definitely need to have planned ahead to have enough cash to cover the high taxes that were going to result because you were also earning a salary.

So one way to look at a post-tax fund would be to consider it the place to save the cash to cover my taxes on Roth conversions...

[seattlecyclone]

I would definitely recommend making Roth conversions each year after you retire so that you can have some penalty-free money available five years later. This is pretty much a no-brainer for most of us.

Where to get the money for the first five years is a bit of a harder question, and everyone's situation is different.

Making Roth conversions pre-retirement is one option, but as you state it will lead to some pretty high taxes during those years. Instead of draining your taxable account to pay for those taxes, you could instead just wait on the Roth conversions until you retire and spend your taxable funds on your expenses during the first five years. I think this is a better plan for most people, but it depends on your tax brackets now and later.

[MDM]

I'm not sure if I've answered your question.

A few things:
 - what is your current marginal tax bracket (federal+state+local)?
 - what do you expect it to be in retirement?
 - what is the interest rate on the HELOC?

Guessing at this point that
 - maximize traditional 401k
 - maximize Roth IRAs (either directly or via backdoor)
 - flip a coin on HELOC payoff rate
will be the "right" answers but need those few things above to reduce the guesswork.