Am I saving the right way? Should I be funding more account types? Help Please

[HMM12]

Hi folks - need some advice on if I should continue at what I'm doing or start contributing dollars elsewhere.

I'm a 38 y/o man with a wife and 2 kids 5 and 2

So 401k (wife and I both have one), Brokerage Account, BlockFi account, 2 529 plans and some cash savings. We own a house with about 23 years left to pay off.

I'm wondering if I should be taking advantage of an IRA (Traditional or Roth) or Roth 401k. Maybe other things I'm not thinking about.

Thanks

[MDM]

See Investment Order.  How does that look to you?

[Watchmaker]

I'm wondering if I should be taking advantage of an IRA (Traditional or Roth)

Probably. Take a look at the link MDM posted. Beyond that, we'd need more info from you.

[HMM12]

Thanks for the link. What other info do you need from me.

So I have the following:
0. Emergency Fund
1. At the 401k company match
2. no debt with interest greater than 5%
3. No HSA
4. No IRA
5. Not maxing 401k
6. Not sure what a mega back door roth is or if I qualify
7. No debts above 3% except mortgage 3.50%
8. I invest in a taxable and 2 529 plans.
Bonus! I have some money in BlockFi account invested in BTC, ETH and Uninvested Cash

[MDM]

Given what you have, what do you think you should do - and why?

[ixtap]

Assuming you aren't eligible for the HSA, why did you choose taxable and 529 before IRA and maxing 401k?

BlockFI is just a type of taxable account, in a specific type of investment. I suppose they could offer IRAs, in which case that may be how you choose to fund IRAs going forward.

[HMM12]

Maybe increase my 401k contributions or start a roth IRA.

Given what you have, what do you think you should do - and why?

[HMM12]

Well when I was younger I was saving a lot of cash and I ended up just starting to buy mutual funds in brokerage account. That got me pretty much investing into my brokerage account.

Assuming you aren't eligible for the HSA, why did you choose taxable and 529 before IRA and maxing 401k?

BlockFI is just a type of taxable account, in a specific type of investment. I suppose they could offer IRAs, in which case that may be how you choose to fund IRAs going forward.

[HMM12]

I don't mind laying out what I have in $ terms and % terms.

Given what you have, what do you think you should do - and why?

[Morning Glory]

Read this:
https://jlcollinsnh.com/stock-series/

In my state you get a $500 tax credit on the first $1000 you put in 529's, provided that you are under a certain income threshold. That puts it right after 401k match in the investment order.

OP did not say how much he has in any of his accounts. My advice would be to sell the crypto and fund an IRA for himself and his spouse, with index funds in them. There's lots of debate on traditional vs Roth. It really depends on your income level and state tax situation.  Just pick one for now. You can recharacterize up until tax day of next year if you find out the other one is better for your situation.

If you have extra cash flow then you can start increasing your 401k contributions. One popular method is to increase it by the amount of your raise each year until you are maxing it out. 

[draco44]

Maybe increase my 401k contributions or start a roth IRA.

Given what you have, what do you think you should do - and why?

First, welcome! Second, basically do this (quoted above).

Fill both pots if you have enough money to fully fund both your 401k and a Roth IRA. Without specific numbers of how much money you have to work with, what your household total salary is (Roth IRAs have income-based contribution restrictions), or what your life goals are (do you have kids and want to pay for college? will you stay in your current house forever? when do you want to retire?) it's hard to give more specific advice than to just put as much money as you can into any tax-advantaged accounts, then put any additional money into a non-tax-advantaged brokerage account. There is a separate channel of this forum for posting a full case study if that is of interest.

For the "why" of investing, the JL Collins Stock Series (https://jlcollinsnh.com/stock-series/) is a popular read around here.

[HMM12]

I can tell you some info-  I live in a Mass. Combined salaries are ~$235k. Own a house with about 23 year left to pay off @ 3.50%. Mortgage balance is about ~$200k. Own 2 cars both paid off and won't need to replace either for about 8 years or so. No other debt.

401k: $675k  - maxing match from company
Wife 401k: $307k - maxing match from company
Taxable: $198k - mix of stocks and 2 mutual funds (FCNTX and WMICX). 50/50 between stocks and funds. AAPL, MSFT, AMZN, TSLA, SQ, FB. Putting in about 15% of my gross income.
Crypto: $83k total - $35k of which is un-invested cash - earns 8.6%
Cash:$10k in a savings account
529 1: $7.5k
529 2: $7.5k
House: ~$300k in equity.

Read this:
https://jlcollinsnh.com/stock-series/

In my state you get a $500 tax credit on the first $1000 you put in 529's, provided that you are under a certain income threshold. That puts it right after 401k match in the investment order.

OP did not say how much he has in any of his accounts. My advice would be to sell the crypto and fund an IRA for himself and his spouse, with index funds in them. There's lots of debate on traditional vs Roth. It really depends on your income level and state tax situation.  Just pick one for now. You can recharacterize up until tax day of next year if you find out the other one is better for your situation.

If you have extra cash flow then you can start increasing your 401k contributions. One popular method is to increase it by the amount of your raise each year until you are maxing it out.

[draco44]

Thanks! Others will likely dive in with this new info, but quickly:
- Your income is looks too high to contribute directly to a Roth IRA. Specifically, if you're married and file jointly your Modified Adjusted Gross Income (MAGI) must be under $206,000 for the tax year 2020 and 208,000 for the tax year 2021.
- On your salaries it seems like it would be easy to fully fund both of your 401ks. I'd prioritize doing that.
- I'm not a crypto person. If it were me I'd take all that money and switch to index funds in a traditional IRA and then brokerage account after the IRA was full. I know crypto is a "let's agree to disagree" point for some, but just putting it out there that my personal vote on that is no.
- The conventional wisdom on this forum is to invest in index funds rather than individual stocks. Having half my taxable investments in single stocks would keep me up at night.

[HMM12]

Thanks I appreciate the candor. I really opened the crypto account to take advantage of the 8.6% interest on cash but got sucked in a little on the coins. My cost is about $30k split 75/25 between BTC & ETH.

I do think about the individual stocks a lot because it's a big # but I'm a long term investor and think they will return over decades.

Thanks! Others will likely dive in with this new info, but quickly:
- Your income is looks too high to contribute directly to a Roth IRA. Specifically, if you're married and file jointly your Modified Adjusted Gross Income (MAGI) must be under $206,000 for the tax year 2020 and 208,000 for the tax year 2021.
- On your salaries it seems like it would be easy to fully fund both of your 401ks. I'd prioritize doing that.
- I'm not a crypto person. If it were me I'd take all that money and switch to index funds in a traditional IRA and then brokerage account after the IRA was full. I know crypto is a "let's agree to disagree" point for some, but just putting it out there that my personal vote on that is no.
- The conventional wisdom on this forum is to invest in index funds rather than individual stocks. Having half my taxable investments in single stocks would keep me up at night.

[joe189man]

Thanks! Others will likely dive in with this new info, but quickly:
- Your income is looks too high to contribute directly to a Roth IRA. Specifically, if you're married and file jointly your Modified Adjusted Gross Income (MAGI) must be under $206,000 for the tax year 2020 and 208,000 for the tax year 2021.
- On your salaries it seems like it would be easy to fully fund both of your 401ks. I'd prioritize doing that.
- I'm not a crypto person. If it were me I'd take all that money and switch to index funds in a traditional IRA and then brokerage account after the IRA was full. I know crypto is a "let's agree to disagree" point for some, but just putting it out there that my personal vote on that is no.
- The conventional wisdom on this forum is to invest in index funds rather than individual stocks. Having half my taxable investments in single stocks would keep me up at night.

what @draco44 said, max the 401ks probably with traditional over roth because your income is so high, others might offer more there.

other than that maybe save cash (or pump money into the blockfi wallet to get that 8.6% return) and buy a rental. Add to the 529 plans?

what are you and your wife's goals? You need a why to help focus your what to do. You have nearly $1.3 million in investments/cash and over $300k in equity. thats a great position to be in at 38 y/o.

You could move to a LCOL area and FIRE now or at least coast FIRE.

[HMM12]

it's a good question of what we want to do. I've never given it much thought to be honest. I'd say I've always just done what was recommended in terms of saving/investing and living below my means. I'd like to pay for most of my kids education and retire somewhat early but I love my job and so does my wife.

You've given me a lot to think about.

Thanks! Others will likely dive in with this new info, but quickly:
- Your income is looks too high to contribute directly to a Roth IRA. Specifically, if you're married and file jointly your Modified Adjusted Gross Income (MAGI) must be under $206,000 for the tax year 2020 and 208,000 for the tax year 2021.
- On your salaries it seems like it would be easy to fully fund both of your 401ks. I'd prioritize doing that.
- I'm not a crypto person. If it were me I'd take all that money and switch to index funds in a traditional IRA and then brokerage account after the IRA was full. I know crypto is a "let's agree to disagree" point for some, but just putting it out there that my personal vote on that is no.
- The conventional wisdom on this forum is to invest in index funds rather than individual stocks. Having half my taxable investments in single stocks would keep me up at night.

what @draco44 said, max the 401ks probably with traditional over roth because your income is so high, others might offer more there.

other than that maybe save cash (or pump money into the blockfi wallet to get that 8.6% return) and buy a rental. Add to the 529 plans?

what are you and your wife's goals? You need a why to help focus your what to do. You have nearly $1.3 million in investments/cash and over $300k in equity. thats a great position to be in at 38 y/o.

You could move to a LCOL area and FIRE now or at least coast FIRE.

[Morning Glory]

If you have that much saved then you must be doing something right!!! How did you even get that much in the 401k without maxing it out?

[HMM12]

Yeah thanks - I know I'm doing something right I'm just wondering if I should be doing something more. I guess the consensus is max my 401k. I did max or was close to maxing my 401k a few times when I was much younger. I must of needed some money when I bought a house or something so I stopped.

As for how I saved that much my company has a very generous match program. Between matching and profit sharing they contribute about 15% of my salary on top of my contribution.

I've also been aggressive in my fund selection from the beginning. My wife's 401k is a 90/10 equity/FI split. The equity is split 50/50 between a target date and Fidelity Contra fund. I can't remember what the FI fund is. Probably PIMCO total return or Fid Total Bond

FGKFX   FID GROWTH CO K6   20.22%
FNCMX   FID NASDAQ COMP INDX   20.11%
FLCNX   FID CONTRAFUND K6   20.01%
FXAIX   FID 500 INDEX   9.19%
WMICX   WASATCH MICROCAP   6.84%
FLKSX   FID LOW-PRICED ST K6   5.39%
FOCSX   FID SMALL CAP GR K6   5.07%
FOSKX   FID OVERSEAS K   4.92%
FKEMX   FID EMERGING MKTS K   4.82%
ADNPX   AMERICAN BEACON ARK TRANS INNOVTN INVSTR   3.41% - recently bought this but thinking of getting rid of it.

If you have that much saved then you must be doing something right!!! How did you even get that much in the 401k without maxing it out?

[Watchmaker]

I can tell you some info-  I live in a Mass. Combined salaries are ~$235k. Own a house with about 23 year left to pay off @ 3.50%. Mortgage balance is about ~$200k. Own 2 cars both paid off and won't need to replace either for about 8 years or so. No other debt.

401k: $675k  - maxing match from company
Wife 401k: $307k - maxing match from company
Taxable: $198k - mix of stocks and 2 mutual funds (FCNTX and WMICX). 50/50 between stocks and funds. AAPL, MSFT, AMZN, TSLA, SQ, FB. Putting in about 15% of my gross income.
Crypto: $83k total - $35k of which is un-invested cash - earns 8.6%
Cash:$10k in a savings account
529 1: $7.5k
529 2: $7.5k
House: ~$300k in equity.

Maxing the two 401ks is a good next step. As was mentioned, your income is too high to make regular Roth IRA contributions. Look into backdoor Roth contributions as an alternative. If you don't want to do that, saving in taxable index funds sounds good.

[RWD]

2. no debt with interest greater than 5%
7. No debts above 3% except mortgage 3.50%

Steps #2 and #7 are relative to the 10-year treasury note yield. "2. Pay off any debts with interest rates ~5% or more above the current 10-year Treasury note yield."

As the current yield is 1.63% for step #2 you should be targeting debt above 6.63% and for step #7 you should be targeting debt above 5.13%. Your 3.5% mortgage is well under this threshold.

[MDM]

2. no debt with interest greater than 5%
7. No debts above 3% except mortgage 3.50%

Steps #2 and #7 are relative to the 10-year treasury note yield. "2. Pay off any debts with interest rates ~5% or more above the current 10-year Treasury note yield."

As the current yield is 1.63% for step #2 you should be targeting debt above 6.63% and for step #7 you should be targeting debt above 5.13%. Your 3.5% mortgage is well under this threshold.

Further, there is "the assumption that your alternative [to paying down debt] is "all stocks" or a "fund of funds" (e.g., target retirement date) that provides a blend of stock and bond returns.  If you wish to consider separate bond funds, compare the yield on a fund with a duration similar to the time remaining on the loan, and put your money toward the one with the higher after-tax interest/yield."