Author Topic: Becoming Two-Income Household  (Read 4904 times)

texaslady22

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Becoming Two-Income Household
« on: January 10, 2016, 02:57:48 PM »
My  husband has been staying home as a stay-at-home dad since 2010. Now, he's almost finished with his Masters in Education. He's going to be a teacher!

I make about 65K, and we're able to live off that. We have no credit card, car, or student loan debt. We DO have a mortgage around $170K. I think our interest rate is around 4.5%. We have about 40K in the bank. We are 30 with 3 children. The youngest is 4 years old. My husband will make around 50K.

Our goal is to continue to live off 1 salary and save the rest. Our expenses won't really increase, as our daughter is already in preschool while my husband does college and student teaching.

So what should be our plan?

I'm thinking I need to up my contribution to my 403b, right? Right now, work pays 6% and I'm paying 4%. What % should I do?

The 403b couldn't be used to pay off our house, though, so I'm a little bothered about that.

What else do we do with our money? Ideally, we'd like to save for paying off our house and retirement. How do we do that? I know we want to take advantage of tax benefits, as our income is going to increase considerably, but I'm not really sure what to DO.

GrowingTheGreen

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Re: Becoming Two-Income Household
« Reply #1 on: January 10, 2016, 03:37:34 PM »
There are about a million ways you could slice it. First and foremost, you're in a fantastic position with $40k in the bank. If I were in your same position, this is what I would choose to do:

1) Up your 403b until you hit your employers match.
2) Max your and your partner's Roth IRA
3) Pay off your house
4) When house is paid off, open up a non-retirement account and invest there or jump back to the 403b. Choose the non-retirement account if you'd like to retire early. If you'd like to work until 60, then go with the 403b. Or split the difference!

Vanguard's target date funds are great investment vehicles for all of the above investments.

You could switch #3 and #4 above if that's what you prefer.

texaslady22

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Re: Becoming Two-Income Household
« Reply #2 on: January 11, 2016, 12:32:12 PM »
My employer only pays 6% total, so I'm at the total match.

Roth IRA for both of us sounds like a good next step!

Murse

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Re: Becoming Two-Income Household
« Reply #3 on: January 11, 2016, 12:51:20 PM »
My employer only pays 6% total, so I'm at the total match.

Roth IRA for both of us sounds like a good next step!

My opinion- dump 5.5k into a Roth for 2015 now (as in today,) then DCA 11k into roths for 2016. As far as after that there's really no wrong answer, just optimal answers. My next step would be to max your retirement (depending on your tax situation) then put all the extra into a vanguard taxable account. Once this account reaches your mortgages balance you can then decide if it's best for you to pay it off or not. Also if it were me that emergency fund would become 10k maximum (again, you can DCA this if it makes you more comfortable) because the taxable account could be used as an emergency fund if needed, the extra would go to the taxable account.

CindyBS

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Re: Becoming Two-Income Household
« Reply #4 on: January 11, 2016, 03:04:16 PM »

Also, be as deliberate as you can about not falling into the trap of spending a lot more on convenience stuff (esp food) once your DH is working full time.  Good planning (including batch cooking on the weekend) can help you avoid having your costs skyrocket once time is shorter.

I totally agree with this!  We recently went from long time 1 income to 2 income and the plan was to save all of income #2.  However, there were a few labor intensive things that are difficult to do when you are not home all day (like make and can homemade chicken stock), that we came to the realization just were not going to happen with both of us working.  So, instead of saving all income #2, we put aside $20 of it/month to accommodate the things we buy now that had a very low EROEI and wasn't happening anymore.

MDM

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Re: Becoming Two-Income Household
« Reply #5 on: January 11, 2016, 03:40:26 PM »
Do make sure you put enough into traditional (401k/403b or IRA) accounts to get the full $3K child tax credit when you add DH's income.  See chart below: your marginal savings rate for the first ~$7400 of traditional contributions is 25%-30%.  Beyond that, the marginal rate drops to the tax bracket rate, 15% - making it a tougher call on the traditional vs. Roth question.

Probably worth looking at your 2015 tax situation soon and deciding whether traditional or Roth IRAs would be better.  Need to consider possible EIC and/or saver's credits in addition to the regular tax brackets.

The best way to confirm your answer is with commercial tax software: TaxAct, TaxSlayer, TurboTax, H&RBlock, etc.  You can do graphical "what if?"s (e.g., the one below) with the case study spreadsheet.



texaslady22

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Re: Becoming Two-Income Household
« Reply #6 on: January 12, 2016, 05:39:00 PM »
Do make sure you put enough into traditional (401k/403b or IRA) accounts to get the full $3K child tax credit when you add DH's income.  See chart below: your marginal savings rate for the first ~$7400 of traditional contributions is 25%-30%.  Beyond that, the marginal rate drops to the tax bracket rate, 15% - making it a tougher call on the traditional vs. Roth question.

Probably worth looking at your 2015 tax situation soon and deciding whether traditional or Roth IRAs would be better.  Need to consider possible EIC and/or saver's credits in addition to the regular tax brackets.

The best way to confirm your answer is with commercial tax software: TaxAct, TaxSlayer, TurboTax, H&RBlock, etc.  You can do graphical "what if?"s (e.g., the one below) with the case study spreadsheet.



Please forgive me, but I really don't have enough financial knowledge to know what you're talking about. Does the 3k child tax credit "phase out" at some point? We've never been higher income, so I'm not sure how this all works.

texaslady22

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Re: Becoming Two-Income Household
« Reply #7 on: January 12, 2016, 05:46:25 PM »
Okay, I googled it. It seems that the phase out threshold for married filing jointly is 110K. Let's say we make 114K but I put 5K in an Dependent care FSA (which we have) (or contribute more to my 403B or a medical FSA). Those reduce our income and help us still qualify?

MDM

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Re: Becoming Two-Income Household
« Reply #8 on: January 12, 2016, 08:45:51 PM »
Okay, I googled it. It seems that the phase out threshold for married filing jointly is 110K. Let's say we make 114K but I put 5K in an Dependent care FSA (which we have) (or contribute more to my 403B or a medical FSA). Those reduce our income and help us still qualify?
Yes!

Most (all?) tax credits go away as AGI goes up.  Different credits have different AGI thresholds.

The 30% marginal rate is 25% tax bracket + 5% child tax credit.  After you reach the maximum $3K child tax credit (by reducing your AGI with pre-tax deductions) you have a few thousand dollars left in the 25% tax bracket, and then you drop to the 15% bracket.

Easye418

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Re: Becoming Two-Income Household
« Reply #9 on: January 13, 2016, 09:20:39 AM »
My  husband has been staying home as a stay-at-home dad since 2010. Now, he's almost finished with his Masters in Education. He's going to be a teacher!

What else do we do with our money? Ideally, we'd like to save for paying off our house and retirement. How do we do that? I know we want to take advantage of tax benefits, as our income is going to increase considerably, but I'm not really sure what to DO.

I am shocked no one mentioned this.... continuing living like you are on 1 income still.  Maybe 1.25 to make life a little sweeter.  Seems like you are in a GREAT spot financially.  Good luck. 

FLBiker

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Re: Becoming Two-Income Household
« Reply #10 on: January 13, 2016, 09:27:29 AM »
I have no formal financial background, but we switched from Roth's to Traditional a few years ago, and our income is similar.  The tax savings (between tIRA, 403b and 457) has been amazing.

Only if we max all three of these (which would be 83000, not likely) would I pay extra on the house.

zephyr911

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Re: Becoming Two-Income Household
« Reply #11 on: January 13, 2016, 10:00:17 AM »
Congratulations! You're poised to kick some ass!

I agree with the above comments that you should be able to beat that APR on your house. Minimizing the APR is a big long-term benefit. Once you've sorted that out, get that $40K invested! I'd never leave so much cash idle... too many ways to get it working for you.

texaslady22

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Re: Becoming Two-Income Household
« Reply #12 on: January 13, 2016, 07:30:03 PM »
My  husband has been staying home as a stay-at-home dad since 2010. Now, he's almost finished with his Masters in Education. He's going to be a teacher!

What else do we do with our money? Ideally, we'd like to save for paying off our house and retirement. How do we do that? I know we want to take advantage of tax benefits, as our income is going to increase considerably, but I'm not really sure what to DO.

I am shocked no one mentioned this.... continuing living like you are on 1 income still.  Maybe 1.25 to make life a little sweeter.  Seems like you are in a GREAT spot financially.  Good luck.

Thanks!! I can't wait for my daughter to start K. We're paying over 6K for daycare right now, and she'll have one more year before she can go to the public school right next door to our house. That, in and of itself, will feel like a giant raise. Woohoo!