Thank you all for your wonderful advice.
I apologize for not responding sooner, but I was busy with some things for work and had a hard time getting back to review the responses.
MDM, thanks for pointing out the Vanguard funds overlap. I didn't realize that 457s could be included in bankruptcies until I followed up on what you mentioned. It adds some risk, but if a flagship state university goes into bankruptcy I imagine there will be bigger issues (i.e. fundamentals of the economy flaws) at play. As far as MAGI eligibility to receive the full tIRA benefit, I think we need to be down to $98,000 instead of $118,000. With regards to the house down payment we are not in a position to have to buy something so in a significant market downturn we would hold on cashing out Roth IRA deposits.
Dr. Funk, we still pay social security taxes which I believe should still make us eligible for benefits down the road. A few years ago, our university shifted from being a pure pension system to a split system. We still are forced to contribute to the pension (~ 1% - 1.5% annually to receive the 1% per year of last 5 years salary averaged), but have access to the other 4 retirement account options [401(a), 403(b), Roth 403(b) & 457(b)] as well as the HSA because of the health plans we chose. The 401(a) is the account with the highest limit ($53,000), but as always the employer chooses the limits of the plan. While the investment options are excellent [same Vanguard funds as the 403(b) & 457(b)], there seems to be some confusion between two documents provided by the employer. One states that at the beginning of employment an "irrevocable election" is made (i.e. for me this would be the 5% salary match the university makes for my 3% 457 contribution) and can never be changed whereas another says things can be changed within the first 24 months of employment. I plan to follow-up with HR on if I have the flexibility to change my allocations for the 401(a). Right now I can personally change my 403(b) and 457(b) contributions online, but I do not have the same option available to me for the 401(a).
Logan T, I appreciate the link on the three-fund portfolio. I will have to do a bit more leg work to determine if I should drop VINIX & VSMAS and focus only on VITSX, VTIAX & VBTLX. Also thanks for giving my a run-down of your situation. It is nice to know how other people are approaching similar pre-tax options. My wife and I actually already own a home in a neighboring state from graduate school that we have since been renting out (see below for more information) which should make us ineligible for any first-time home buyer options. With regards to losing the ability to contribute back to the Roth IRA if we take them out we are okay with that. We have been able to contribute to the Roth mostly when we had lower income taxes (mostly in the 15% bracket), so in many ways our maxing out the pre-tax with our current high incomes is a ledger shift I mentioned in my previous post. We are not against PMI if we have to use it, but will simply evaluate the value of paying PMI for a period of time (probably using the idea of paying down the mortgage to discharge the PMI requirement) versus removing Roth contributions. I like to run scenarios on spreadsheets so this will be another fun one to play around with.
While limiting our income tax burden and gaining FIRE is very high on our list, this year we are looking to sell our old house (which has been rented out an been on a depreciation schedule for the past 4+ years) and some taxable long-term investments to help us buy a house, so reaching the 15% income tax bracket is of significant importance so we can go from 15% capital gains tax to 0% (would save ~$3,000 - $4,000). Based on recommendations from responders and looking over the numbers myself this is what I have come up with that is required to get us below certain limits.
175,000 Gross
- 72,000 2x Max of 457 & 403
- 2,500 Required Pension Contributions
- 3,100 Pre-Tax Deductions (Health, Dental, Vision, Life & Parking)
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97,400 Adjusted Income (Just Below $98,000 Making Us Completely Eligible for tIRA Deduction)
- 2,000 tIRA
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95,400 AGI
- 12,600 Standard Deduction
- 8,000 2x Personal Exemptions
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74,800 Taxable Income (Just Below $74,900 Putting us in the 15% Tax Bracket Making Us Eligible for 0% Capital Gains Tax Rate)
- 10,700 Social Security
- 2,500 Medicare
- 10,300 Federal Income Taxes
- 5,300 State Income Taxes
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66,600 Take Home Pay (On ~ $62,700 Expenses ==> Working on improving this but over 50% is rent and student loan payments)
I think I have the math correct, but appreciate other people reviewing it. We have more room in the tIRA and could contribute to the HSAs to decrease our AGI.