European completely lost in 401k, IRA, 529 ...

[abongiov]

Hello and happy new year,

I am trying to optimize our tax and I am completely lost.
Some background;
Me 37 years old, income $90,000 on regular USA contract with 401K with employer matching at 9%. I contribute up to total company match so I am putting about $8,100 in 401K from my money but end up with $16,200.
Dear Wife 35 old, income including alot of expat advantage $160,000. Does not have access to 401K because company is still paying her pension plan back in Europe.
We have two kids (8 and 4), mortgage deductions, rental and mortgage in Europe...so for 2012 our taxable income was $232,000.

Now the questions:
What does max out 401k means ? Total match company like I do ? Or some magical amount fixed by the gov ? Should I put more in my 401K ?
Can she make contributions to a IRA to lower our taxes ? if so, how much ?
And the very tricky, should we open 529 for our kids ? if so, how much ? Can we use that money for college in Europe should we decide to go back ?

The expat contract should end up in two years. So far we plan to stay and want to sell the house we bought two years ago to go in a better school district. Today the kids are in private schools included in expat benefits. That operations should be either neutral or bring some money, no cost as we agree on getting a smaller house. Also we plan on selling the European house which should bring about $400,000 to invest.

Today we already have an emergency fund of $30,000 in saving and a taxable account at Vanguard with $80,000.

All of these questions about tax optimization is because now that I am starting to discover all these cool things about USA, I figured we could get to FI in about 15years without changing our lifestyle. Our lifestyle is not at all frugal but not extravagant neither, we do go out a lot (trying to reduce this) and love to travel but never cared for cars or latest cool gadgets.

Thanks for your help and I wish you the best for the new year.

[ender]

Me 37 years old, income $90,000 on regular USA contract with 401K with employer matching at 9%. I contribute up to total company match so I am putting about $8,100 in 401K from my money but end up with $16,200.

This is a great match by the way!

What does max out 401k means ? Total match company like I do ? Or some magical amount fixed by the gov ? Should I put more in my 401K ?

Generally "max out 401k" means to hit the IRS limit each year. This is $17,500 in 2013 and 2014. People may say "max the company match" or "max 401k match" but generally when people say it it refers to the $17,500 figure. This is per person, as well.

Can she make contributions to a IRA to lower our taxes ? if so, how much ?

My guess is with a combined income of well over $200k a year you won't get a deduction. But I'll let others with more experience answer this better :)

And the very tricky, should we open 529 for our kids ? if so, how much ? Can we use that money for college in Europe should we decide to go back ?

It looks like you can at some schools.

[abongiov]

Thanks enderland,

So I should increase my 401K up to $17,500. Do I have to do it at my employer 401K, which I am not sure offers Vanguard funds or can I do this in a Vanguard IRA ?
Meaning continue to matching company (yeah I know 9% is great, unfortunately there are rumors it might drop to 6% in a couple of years, after companies fusion) and then 17,500-this contribution into an IRA ?

Also for 529, I am in GA and fought out I won't have state tax advantages if going to Vanguard 529. Should I follow the state plan or neglects the limited state tax advantage and go with Vanguard ?
Is a target of $100,000 for the time they enter college (each of course) enough ?

[Zaga]

A 401-K is employer sponsored and has a $17,500 limit per person.  This is generally pre-tax, but in an increasing number of workplaces you also may have the option to invest in a Roth 401-K.  At your income level though, the tax deduction is surely very valuable and should not be missed.

An IRA is a different thing entirely, it is not attached to your employer.  The IRA limit is $5,500 per person.  At your income level there is about zero chance that you would be able to deduct IRA contributions on your taxes.  There are 3 basic types of IRA's - deductible (which you almost certainly don't qualify for to to income limits), Roth (which you probably also don't qualify for due to income limits), and non-deductible.  That last one everyone can qualify for, you don't get a tax deduction, but the earnings are tax deferred, so that is a minor tax advantage.

You should put in $17,500 into your 401-K, for the tax deduction.  Then you can contribute $5,500 each to an IRA.  You'll have to check with an accountant to see what type of IRA you qualify for. 

[Eric]

What does max out 401k means ? Total match company like I do ? Or some magical amount fixed by the gov ? Should I put more in my 401K ?

Generally "max out 401k" means to hit the IRS limit each year. This is $17,500 in 2013 and 2014. People may say "max the company match" or "max 401k match" but generally when people say it it refers to the $17,500 figure. This is per person, as well.

Just so you're clear, this $17,500 limit for 401k contributions is only your personal contribution amount.  The limit is independent of your (awesome) employer match.