Author Topic: $1000 a month to invest.... What's the next step?  (Read 4737 times)

Stachebound

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$1000 a month to invest.... What's the next step?
« on: March 05, 2014, 05:05:05 PM »
I could use some advice regarding next steps as we suddenly find ourselves at a crossroads.  Here's our big picture:

43 and 47 yrs old
$350k mortgage at 2.9% (value $900k)
No other debt
$300k in 401k - majority at First Investors actively managed
6 months emergency fund liquid

Immediate goal is to start college savings for 3 kids.  Need about $40k to fill accounts

We currently put $1700/mo in 401k and have another $1000 that we would like to invest and/or start paying down the mortgage.

Question:

Do we max out our ROTH first ($11,000) and then add to a 529 or use the money to invest in an index fund?

Do we pay down our mortgage and save for college?

I don't want to make the wrong decision.

Thanks for the advice!




Ftao93

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Re: $1000 a month to invest.... What's the next step?
« Reply #1 on: March 05, 2014, 06:41:39 PM »
I'm coming from a position of total ignorance here but:

At 350k, isn't that 10k if INTEREST a year?

since you seem to be fine overall, I might even consider taking a couple month's of emergency fund and making a direct principal payment.

The mortgage at that size would be my priority after maxing out 401k.

This is without hearing a peep about the rest of the pie.

fmzip

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Re: $1000 a month to invest.... What's the next step?
« Reply #2 on: March 05, 2014, 07:56:51 PM »
Although your not asking, I would suggest getting out of First Investor's. My close cousin worked there for a number of years, their products are all under performers.

The mortgage debate will be a personal preference. At 2.9%, that's cheap money especially with the tax deduction.

Stachebound

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Re: $1000 a month to invest.... What's the next step?
« Reply #3 on: March 05, 2014, 08:25:39 PM »
I'm coming from a position of total ignorance here but:

At 350k, isn't that 10k if INTEREST a year?

since you seem to be fine overall, I might even consider taking a couple month's of emergency fund and making a direct principal payment.

The mortgage at that size would be my priority after maxing out 401k.

This is without hearing a peep about the rest of the pie.

Yes, $10k a year...I would like to pay it off just to get clear of a payment. Taxes are still high here though...

Stachebound

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Re: $1000 a month to invest.... What's the next step?
« Reply #4 on: March 05, 2014, 08:28:48 PM »
Although your not asking, I would suggest getting out of First Investor's. My close cousin worked there for a number of years, their products are all under performers.

The mortgage debate will be a personal preference. At 2.9%, that's cheap money especially with the tax deduction.

I guess this is part of my question: should any new investing be in Vanguard Index funds? Is the ROTH from First Investors not a good investment? Not sure how else to get a ROTH.
Also, as a follow up, can the investments even be moved if they are IRA rollover?

Cheddar Stacker

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Re: $1000 a month to invest.... What's the next step?
« Reply #5 on: March 05, 2014, 08:49:53 PM »
None of the items you mentioned are the "wrong decision", they are all good things. Some of them might be less optimal than others, but you're in a good position to start really building up investments.

The very last thing you need is more equity in your house. With an interest rate under 3% I wouldn't pay a dime more than required. Eventually you might want to consider cashing out of that house and investing that $550K equity into something that makes you some money, but that's a hard step for most people so take your time.

If you can get the money out of your 401K and into an IRA, there are many place to invest it that will have low fees. The questions is, can you get the money out of your 401K? Many times this requires leaving your job. Sometimes plans allow for in service distributions. Talk to your HR department to find out.

If you're going to do a Roth, do it through Vanguard not first investors.

Since your immediate goal is to fund college tuition you should do either the 529 plan, Roths, or both. Roth's have income limitations, but you can do a backdoor Roth if you make too much money. Many 529 plans have somewhat limited investment options, so check into that when setting it up. 529 plans also must be spent on tuition, so if all 3 get scholarships or don't go to college you would have to either pay a 10% penalty to get the funds out, or transfer them to another beneficiary.

ASquared

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Re: $1000 a month to invest.... What's the next step?
« Reply #6 on: March 05, 2014, 09:03:58 PM »
You're in a great position.

You can set up a Roth anywhere.  Vanguard is a great option.  Sharebuilder has one.  Betterment has one.  Don't feel tied to an institution because you have other accounts there.  If you already have a Roth somewhere you don't want it - you can move it pretty easily.  All those pesky fees add up! 

I vote for not paying your mortgage off asap.  At 2.9%, and with (assuming) at least 25% tax bracket, not sure this makes sense for you. 

Max out 401k.  Fund the Roth's for both of you.  Invest the excess in your 529's (check out Vanguard for 529 if you don't already have one set up).  They are out of Nevada, you don't need to live in Nevada, your child doesn't need to go to school in Nevada, etc.  I believe they have the best 529 program though some states offer specific advantages if you use their program, so check it out for your specific situation.

Cheddar Stacker

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Re: $1000 a month to invest.... What's the next step?
« Reply #7 on: March 05, 2014, 09:19:55 PM »
I believe they have the best 529 program though some states offer specific advantages if you use their program, so check it out for your specific situation.

As an example of ZsMom's point, Missouri has a program called MOST which gives you a tax deduction on your Missouri return for every $ you invest up to something like $8K/child. This is a huge tax savings in addition to the federal tax rules for a 529 plan, but the drawback is their invesment platform. It's just not the best around, so it has limitatons.

Stachebound

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Re: $1000 a month to invest.... What's the next step?
« Reply #8 on: March 06, 2014, 12:51:45 PM »
Thanks guys - I am happy to hear you think we are in a reasonable position....I feel like we are so far away from FI, especially with living in such a high cost of living area.

I think I need to look at eventually moving everything from First Investors to Vanguard, as I think my fees are too high.  We do have a 529, but we are charged a sales charge (5%) off the top of every deposit, so I'm not so sure this is the best product for us to be using.  It's really hard to make a change when you have known your advisor for so long (20 years).

I think the overall direction we will go is to start an account with Vanguard (ROTH) and then go from there. 

Thanks for the feedback, I really appreciate it.



meadow lark

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Re: $1000 a month to invest.... What's the next step?
« Reply #9 on: March 06, 2014, 01:17:09 PM »
5% is bad. So you have to make 8%  to even break even (5% + 3% inflation.). Can you get a Vanguard index fund through your 401k?  I have mine through a 401k, and my management fee is 0.04%.
If you are already maxing out your 401k I think the Roth is a great idea.  Don't pay off your house - yes $10,000 is a lot, but pay attention to the %'s.  If you have that same $350,000 in the market and it goes up 8%, that is $25,000.  (8% is not a crazy number.). So you can pay that $10,000 and keep the tax deduction and and end up with an extra $15,000.
When you retire are you planning on staying in the same area and house?  If you are willing to downsize, you may not be as far away as you think.

ASquared

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Re: $1000 a month to invest.... What's the next step?
« Reply #10 on: March 06, 2014, 01:20:41 PM »
YOU are your own best advisor.  I understand he/she may have a "relationship" with you - but you need to remember that your family's financial health is above theirs!  Seriously:)

5% to deposit/invest whatever to a 529 is BS.  Vanguard is free.  I'm sure there are other free options too.  You are talking about investing 40k, 5% is $2000.  (Enough to also fund an ESA by the way)

Stachebound

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Re: $1000 a month to invest.... What's the next step?
« Reply #11 on: March 06, 2014, 02:38:21 PM »
YOU are your own best advisor.  I understand he/she may have a "relationship" with you - but you need to remember that your family's financial health is above theirs!  Seriously:)

5% to deposit/invest whatever to a 529 is BS.  Vanguard is free.  I'm sure there are other free options too.  You are talking about investing 40k, 5% is $2000.  (Enough to also fund an ESA by the way)

Thank you for this - you are so correct!

Stachebound

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Re: $1000 a month to invest.... What's the next step?
« Reply #12 on: March 06, 2014, 02:45:23 PM »
5% is bad. So you have to make 8%  to even break even (5% + 3% inflation.). Can you get a Vanguard index fund through your 401k?  I have mine through a 401k, and my management fee is 0.04%.
If you are already maxing out your 401k I think the Roth is a great idea.  Don't pay off your house - yes $10,000 is a lot, but pay attention to the %'s.  If you have that same $350,000 in the market and it goes up 8%, that is $25,000.  (8% is not a crazy number.). So you can pay that $10,000 and keep the tax deduction and and end up with an extra $15,000.
When you retire are you planning on staying in the same area and house?  If you are willing to downsize, you may not be as far away as you think.





Yes, it's 5% on all "new" money invested off the top and then nothing on the growth... I honestly haven't been that impressed with it anyway and might just roll it over to Vanguard just to get rid of it.

I am not sure if we will stay in the same area or not but we are totally willing to downsize once the kids are out.  I am hoping to live part of the year on Maui and part of the year here once we retire.  I imagine we will live in a one story townhome or similar with not a lot of upkeep.
« Last Edit: March 06, 2014, 02:46:54 PM by Stachebound »