Hello,
Questions:
1. With the current balances in my 401k and our Roth IRAs, and with plans to continue maxing them out, should we be contributing to my wife’s 403b as well, or would those funds be better directed towards something else, such as saving for college for our two children, putting money in a taxable account so all our money is not tied up in retirement accounts, etc? Since my wife is several years younger than me, should that factor into whether or not we should be funding her 403b vs. 529s, taxable accounts, etc? She has a 457 option as well, but I am trying to see what the options are and with which companies.
2. For my 401k, should I be using all Roth, all traditional, or a mix of contributions to my Roth? Since I am maxing my 401K contributions, is it beneficial to do all Roth as that would allow me to effectively save more?
3. If we decide to move into a more expensive home in the next few years (2-5), how would that affect your advice on our investing priorities? Should we stop contributing to my wife's 403b, for example, to save up for the new house, etc?
4. We may be getting a $5k-$10 gift within a year. Where would you advise putting it?
5. We also get a large tax return every year (I know, it’s an interest free loan to the government. Not a good financial idea). Where would you advise putting an $8k-$10k refund when filing next year’s taxes?
6. If I sell my ETFs and buy back the mutual fund equivalent, does anyone see that as any type of issue when it comes to reporting taxes? I don't think wash sale rules would apply since overall I will be reporting a gain.
Thank you again,
Daniel
1) I'm no expert on college savings outside of a 529 plan. There are plenty of nuances, but at a high level, you should try to shoot for less than what you expect to spend on kids college... unless you are comfortable giving away the remaining balance to someone else (or keeping for grandkids) or paying the 10% penalty to withdraw for other purposes.
2) Given you are solidly in the 25% federal bracket, probably still under the FICA limit (like 115k I think for medicare/SS), plus a state utah or arizona tax ~5%, it's very beneficial to contribute tax-deferred rather than post-tax as much as possible. For you, that means maximum to a pre-tax 401k, and then maximum to roth (no need to go nuts on Roth). If your income ever drops to 15% bracket, feel free to convert some to Roth if that helps you feel more balanced. Your annual picture would then look like this:
18k - 401k (pretax)
11k - roth ira (post tax)
403b (don't know details here, but I think it's similar to 401k, so pretax here as well)
Here's a good article regarding pre vs post-tax retirement accounts
http://www.madfientist.com/traditional-ira-vs-roth-ira/3) I'd look into differences between your 401k vs spouse's 403b (may be almost the same). Assuming no significant differences, I'd just split it in half and cut contributions to both by whatever you need to keep in cash or outside the accounts.
4) If you are planning on a new home, then I'd keep this in an aftertax account. Mostly cash, if not all.
5) Same. If you plan to buy a home, then you should keep in cash, or other aftertax account.
6) If you want to avoid it completely, you could potentially just buy from a different provider. For example, sell your Vanguard ETF's and buy the Fidelity equivalents. Fees will be essentially the same.
General comments: Gerat job on the retirement savings! Assuming you plan to retire around age 55, the 640k (401k and roth) today retirement savings alone should hit ~1.5 million assuming 6% returns. Given you likely have 15+ years left, and not sure about your spouse, the tax-deferred compounding could be very valuable. Given you have nearly all your assets in retirement accounts, and ~100k in home equity, you could potentially benefit from having more savings in aftertax accounts (non-retirement), if you prefer to have some available assets.
Things for you/spouse to think about as you plan long term:
- if/how much you want to contribute to children's college (consider putting half or some other amount in a 529 plan)
- how much new house to buy
- if/when you and spouse plan to retire from full-time work... OR would like to have the option to retire from full-time work
Just looking at some high level numbers, you're in a solid position today. If I were in your position, I would want some more assets in aftertax accounts plus a bit more cash (for the upcoming home purchase). Given how much you already have in retirement accounts, I'd contribute enough to get the full employer match, maybe a bit more, and divert some assets into the following:
- aftertax investments
- cash
- 529 plan (the earlier the better, since this grows tax free)