Sorry, didn't mean to post and run. That's not a very good mustache community member. I have been devouring info over the last few weeks through from not only MrMoney Mustache, but also places like jlcollinsnh, RootofGood, and the MadFientist. Learned a lot and hope to continue.
Since so many people took the the time to give their thoughts on my post, I'd like to give them a response.
tonysemeail
Yes, all these options would improve your finances.
But which one is best? I need the best, most efficient, optimized solution!
You seem to care about minimizing taxes.
I care only in that avoiding 15% or 25% "losses" off the top goes a long way towards building wealth.
MustacheAndaHalf
Thanks for the encouragement towards a taxable investment account. My reference to avoiding taxes was income taxes, not capital gains taxes, which is why everyone recommends maxing out tax advantaged accounts first.
talltexan
I would emphasize traditional 401(k) over the Roth...when you are retired, your effective tax rate is even lower.
You hit on a key point I have picked up from some other sources as well. In the past I did some pretty extensive reading in the "mainstream" financial world on Roth vs. Traditional. Since there was no clear answer, I decided to keep it roughly 50/50. However in the FIRE world, there is a huge advantage to avoiding taxes in your working years and then "paying" them on withdrawal. The trick is your income is so much lower in the withdrawal phase, that your effective tax rate can be extremely low. I think MadFientist says a couple can withdraw up to $43,000 per year and pay only a couple hundred in taxes. If that withdrawal is from a tax deferred account, you essentially never pay income taxes on that money.
This is the biggest mistake I found I was doing. I have switched everything possible over to Traditional rather than Roth.
MDM
Thanks for the links on the mega backdoor Roth. My decision is down to that or just a taxable investment account. Also, a huge thank you for pointing out the "Investment Order" tab in the case study spreadsheet. The What and Why is the most thorough yet simple advice I think I have ever seen.
etselec
Thanks for steering me towards an index fund rather than a target date fund in a taxable account. Makes sense if I go that way.
Grogounet
Thanks for the suggestion, but we're looking to work less, not more, even in the short-term.
Based on the Investment Order, it looks like we're on #6 (mega backdoor Roth) or #8 (taxable account). Paying extra on the house just doesn't make any sense when rates are so low.
WHAT
0. Establish an emergency fund to your satisfaction
1. Contribute to 401k up to any company match
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.
3. Max HSA
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)
6. Fund mega backdoor Roth if applicable
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.
8. Invest in a taxable account with any extra.
WHY
0. Give yourself at least enough buffer to avoid worries about bouncing checks
1. Company match rates are likely the highest percent return you can get on your money
2. When the guaranteed return is this high, take it.
3. HSA funds are totally tax free when used for medical expenses, making the HSA better than either traditional or Roth IRAs.
4. Rule of thumb: traditional if current marginal rate is 25% or higher; Roth if 10% or lower; flip a coin in between (or see
5. See #4 for choice of traditional or Roth for 401k
6. Applicability depends on the rules for the specific 401k
7. Again, take the risk-free return if high enough
8. Because earnings, even if taxed, are beneficial
I'm continuing to learn about the mega backdoor Roth and will go that way if it works out. Otherwise, I will just open a taxable account and buy a bunch of VTSMX per jlcollinsnh.