Author Topic: Where would you put $850/month?  (Read 2776 times)

SimpleLifer

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Where would you put $850/month?
« on: June 12, 2019, 07:50:50 AM »
I recently paid off debt, and I'd like to keep paying that $850/month to myself. 

I'm mid-40's, planning FIRE in 3 years.

About 1/4 of my networth is in tax-deferred retirement accounts.

I've maxed out 401k and HSA.  Due to income limits, I don't qualify for Roth IRA contribution, and I don't want to put that $850/month in my Rollover IRA because the Rollover IRA is funded with pre-tax dollars.

My employer offers the option to contribute to an after-tax 401k, or I could put the $850/month in my taxable account, and every month purchase more VTSAX (this is what I'm considering at the moment).

What would you do? 

Edited to Add:  the only other debt I have is my mortgage, with an effective interest rate of 2.3%.
« Last Edit: June 12, 2019, 07:56:19 AM by SimpleLifer »

Car Jack

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Re: Where would you put $850/month?
« Reply #1 on: June 12, 2019, 08:13:39 AM »
What *I* would do....and what I actually did do in your shoes was buy US Savings bonds to the limit and pay down the mortgage (not in that order).

Today, my house is paid off, I have no debt and I have several million in retirement savings.  It worked out quite well to dump the mortgage for me.

Steeze

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Re: Where would you put $850/month?
« Reply #2 on: June 12, 2019, 10:08:24 AM »
I am in this situation too - considering a mega back door Roth, or simply a taxable account. Everything else is maxed and no debt. So far just investing in the taxable but I question if it the right choice. My 401k allows the conversion once a year for $100 fee. Also have not considered the savings bonds much. What is the compelling reason to own savings bonds?
« Last Edit: June 12, 2019, 10:12:56 AM by Steeze »

SimpleLifer

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Re: Where would you put $850/month?
« Reply #3 on: June 12, 2019, 02:15:21 PM »
What is the compelling reason to own savings bonds?

I'm also curious to know, if you wouldn't mind sharing, the benefit of owning savings bonds (other than AA).  Was that part of your mortgage payoff strategy?

I have about $1M in home equity (HCOL)...and a relatively small mortgage.  Probably won't pay the current mortgage down because I'm planning to downsize soon-ish, so that I can FIRE sooner.

Congrats on the accomplishment, @Car Jack!  Getting to your level requires a lot of skill, perseverance, and dedication!  I aspire!


Lady Stash

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Re: Where would you put $850/month?
« Reply #4 on: June 26, 2019, 11:43:58 AM »
Personally I'd go for the after tax IRA which I believe you can then convert to a ROTH via a backdoor Roth.

It will grow tax free and the withdrawal rules are pretty generous. 

Aggie1999

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Re: Where would you put $850/month?
« Reply #5 on: June 26, 2019, 01:41:55 PM »
Personally I'd go for the after tax IRA which I believe you can then convert to a ROTH via a backdoor Roth.

It will grow tax free and the withdrawal rules are pretty generous.

+1. If the OP has no IRA balance anywhere then this is the thing to do up the the IRA limit. Then take advantage of the after tax 401k as long as they allow in-service withdraws to your Roth IRA (note: any growth would go to your tIRA). Even nicer would be an after tax 401k conversion to the Roth 401k bucket if your 401k allows it.

OP needs to decide how useful Roth accounts are to him. Depending on your tax bracket in retirement, a Roth account is no more advantageous than a normal brokerage account with long term capital gains. Of course a Roth account shields you from changes in tax brackets in the future.

MustacheAndaHalf

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Re: Where would you put $850/month?
« Reply #6 on: June 27, 2019, 07:09:03 AM »
Investing in bonds in the 1980s would have been a good stroke of luck.  Bond yields fell over time, making the old bond look better - and building up capital gains.  But if it's lucky to buy bonds once, that doesn't mean it's always the same.  Right now 30-year treasuries pay 2.57%, which takes about 27 years to double.  It's not the best investment for those trying to accumulate wealth.

OP - You didn't describe your investments, just that you plan to go 100% VTSAX with your $850/mo.  In that case, I'd encourage you to add VTIAX to the mix: Vanguard Total International.  In some decades, U.S. beats international.  Other decades, international performs better.  Almost everyone would benefit from 20% allocation, and those with more tolerance for risk could even scale that up to 40% (both according to Vanguard's white paper on International diversification).
https://www.vanguard.com/pdf/ISGGEB.pdf

Buffalo Chip

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Re: Where would you put $850/month?
« Reply #7 on: June 30, 2019, 09:43:00 AM »
I’d probably put the funds in a taxable account. Diversification and  potential for tax harvesting. As for what specific investment, I don’t happen to be a fan of the “VSTAX and let r’ ride” that is popular amongst many here. You could do a lot worse, but why not do better? I’d suggest going to portfoliocharts and playing around. Design a portfolio that meets your risk/reward criteria.

seattlecyclone

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Re: Where would you put $850/month?
« Reply #8 on: June 30, 2019, 12:48:14 PM »
Can you roll your pre-tax IRA into the 401(k)? If so, that would open up the backdoor Roth IRA as an option. I'd go with the after-tax 401(k) next. Even if you can't do in-service distributions, if you FIRE in three years it probably won't accumulate too much growth in there before you have the chance to roll it back into an IRA.

As to why you might want to own savings bonds, they can be a reasonable way to fill out your bond allocation. The interest on the I bonds isn't bad, and has some favorable tax treatment (no tax on the interest until you sell, and sales for education expenses are tax-free).