I am trying to figure out how to invest and I am struggling on understanding the case study. Sorry I am not as well versed in this. My wife and I currently make 100k gross. I contribute 4% of my pay to my 401k to get the 100% match from my employer. We have 2 kids and our home. From what I can tell we are in the 25% tax bracket. This year (2015) i contributed the max to a roth 401k b/c I liked the idea of tax free earnings and had planned on doing the same for 2016 for me and my wife before moving as much as I can back to the 401k.
Based on the below I should be maxing out the traditional instead correct? I've been attempting to follow the case study excel but I don't exactly know what I am doing. From what I can tell I am not at a point yet where I will be able to contribute enough to get into a lower tax bracket. I hope I am making sense. Basically, I have ~$15,000 in which to invest. $3200 goes to my 401k for the employee match. What is the best way to invest the remaining $11,800?
And one more, I found this advice from MDM in a couple of places while doing more reading:
"WHAT
0. Establish an emergency fund to your satisfaction
1. Contribute to 401k up to any company match
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.
3. Max HSA
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)
6. Fund mega backdoor Roth if applicable
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.
8. Invest in a taxable account with any extra.
WHY
0. Give yourself at least enough buffer to avoid worries about bouncing checks
1. Company match rates are likely the highest percent return you can get on your money
2. When the guaranteed return is this high, take it.
3. HSA funds are totally tax free when used for medical expenses, making the HSA better than either traditional or Roth IRAs.
4. Rule of thumb: traditional if current marginal rate is 25% or higher; Roth if 10% or lower; flip a coin in between (or see
http://forum.mrmoneymustache.com/investor-alley/deciding-between-roth-and-traditional-ira-based-on-marginal-tax-rate/ if you want even more details on that topic.)
5. See #4 for choice of traditional or Roth for 401k
6. Applicability depends on the rules for the specific 401k
7. Again, take the risk-free return if high enough
8. Because earnings, even if taxed, are beneficial