Author Topic: Reduce 401k contribution or sell stocks/index funds  (Read 783 times)

sounders2019

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Reduce 401k contribution or sell stocks/index funds
« on: October 22, 2021, 06:06:29 PM »
In the midst of COVID and having our first baby, my husband and I relocated to a LCOL area from Seattle. Unfortunately we lost a good amount of money on our Seattle home so find ourselves without as much liquid cash as we'd hoped.

Historically, we maxed out both of our 401ks, my husband's ESPP program, and then invested any leftover funds in Vanguard index funds. Now I make 40% less than I did in Seattle and my husband makes about 15% less (still working for his Seattle-based company). We are still maxing out our 401ks and ESPP but this only leaves us with about 500 per month to invest/save.

We are looking at a kitchen remodel in 2022 (don't get me started, it is ridiculous but my husband cannot be swayed) that would cost about $30,000. We have a 4 month emergency fund but do not have liquid cash beyond this. My question is, to save towards this goal, should I reduce my 401k contributions (no company match), reduce ESPP contributions (we get a 10% discount and lookback) pull from our index funds, or sell my husband's company's stock?

Basic numbers:

401ks + IRAs: 405k
Vanguard index fund: 105k
Company stock: 50k
HSA: 8k
Emergency fund: 20k

We are 33 and have a 1 year old.

Please let me know if there's any additional information that would be helpful. Thank you for your advice!

terran

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Re: Reduce 401k contribution or sell stocks/index funds
« Reply #1 on: October 22, 2021, 08:48:21 PM »
Sell the company stock. I'd be selling this as soon as you're allowed to under the rules of the ESPP as I don't individual stock investing is the best option for almost anyone, and especially investing in the same company on which a large portion of your income relies.

MustacheAndaHalf

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Re: Reduce 401k contribution or sell stocks/index funds
« Reply #2 on: October 22, 2021, 09:37:16 PM »
We are looking at a kitchen remodel in 2022 (don't get me started, it is ridiculous but my husband cannot be swayed) that would cost about $30,000. We have a 4 month emergency fund but do not have liquid cash beyond this.
Maybe others can speak to how often remodeling goes over budget.  I would expect "about $30,000" to turn into a much higher number.

Do you have company stock that has been held at least 366 days?  That's the most efficient thing to sell, since it also diversifies your holdings.  You might have room in the 0% bracket for long-term capital gains.

If you're looking for least tax impact, paying medical expenses from the HSA would be it.  You can even use past medical expenses, if you still have receipts.  Money in an HSA is pre-tax, but for medical expenses, it can be spent without paying tax.

lhamo

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Re: Reduce 401k contribution or sell stocks/index funds
« Reply #3 on: October 23, 2021, 01:04:24 PM »
In the midst of COVID and having our first baby, my husband and I relocated to a LCOL area from Seattle. Unfortunately we lost a good amount of money on our Seattle home so find ourselves without as much liquid cash as we'd hoped.

First thought -- HOW?

Second thought -- damn, wish I could have bought it....

More useful feedback/additional info that would help:

1)  What is your taxable income likely to be in 2021/2022?  If you have any room to harvest some LTCG on either the company stock or your taxable accounts at 0%, I would lean toward using that first.  Take some of your gains off the table for now and put them toward this thing that will improve your day to day lives.

2)  If that doesn't give you enough for the remodel, can you get a low-interest HELOC to fund the rest?  Obviously you wouldn't want to carry that for too long, but it would give you some flexibility about when/where to sell other assets or redirect savings/investment money.

3)  How easy is it for you to change the amounts you are putting into retirement and ESPP?  If easy, then I would cut way back on those in early 2022 and build up the money for the remodel -- then once it is done you can bump them back up for the rest of the year.

Personally, a 4 month E fund is way to little for my comfort level.  Would you be able to live on one salary if you had to (stopped investing, etc)?