Author Topic: What should I max out first?  (Read 5564 times)

GGNoob

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What should I max out first?
« on: July 13, 2014, 09:43:31 PM »
My wife (26) and I (27) just got into investing and saving for retirement last year. She was finally eligible to contribute to her 401k about a year ago and I have a pension and have not yet contributed to my other work retirement accounts. We each opened a Roth IRA last year and maxed it out for 2013 and are on track to max them out for 2014. I expect our combined income to be around $125-130k this year.

Up until early 2013, we were not saving any money. So while this is all still rather new to me, I've spent pretty much all of my free time in the last year reading articles, blogs, and books about investing, retirement, and personal finance.

Here's our employer retirement plan options:

Wife-
Roth/Traditional 401k with 4% match on a 5% contribution (just switched it from Roth contributions to Traditional, currently only contributing 5%)
Best fund: Vanguard Target Retirement 2055 Fund
Reason: Only Vanguard funds available are Target Date, others are very expensive with fees up to almost 2%!

Me-
401k and 457 Deferred Compensation Plan (Roth option coming later this year for both, there is no match due to my pension that my employer contributes to)
Best fund for both accounts: PERAdvantage 2055 Fund
Reason: Other funds have fees of 2-3x more, seems like the logical choice to go with the lower fee that manages the allocation for me.

Current Roth IRAs are at Lending Club and Betterment. The Lending Club custodian has a $100 annual fee unless our account is at $10,000 by the end of year 2. We are currently contributing just enough to hit $10,000 in each of our LC accounts and the rest is going to Betterment. Betterment accounts are currently too low to invest at Vanguard.

We max out an HSA for my wife (it is invested in Vanguard Funds, currently VASGX) as well.

I'm also working on building up my emergency fund right now. Currently $534 a month is going towards that. After a couple of low interest loans are paid off, we will switch those "payments" to our emergency fund. Once we hit about $30,000 in the EF, I'll have another $1,500 a month available to max out retirement plans. We also have a business investment that gives us about $10,000 a year. After setting 30% aside for taxes, the other $7,000 will be put into taxable investment accounts or could be put into an IRA if we divert our IRA money to our employer plans.

What order would you invest in? All available investments:
-Wife's 401k (Roth or Traditional)
-My 457 Plan (Roth or Traditional)
-My 401k (Roth or Traditional)
-Roth IRAs
-HSA (will continue to max this out no matter what)
-Taxable account

Here's what I'm thinking of doing:
-Cancel future Roth IRA contributions and put about $1,000 a month into my 457 Plan (Traditional)
-Roll over the Roth IRAs from Betterment to Lending Club so I can get my $10,000 minimum and avoid the $100 annual fees
-After the EF is complete...
-Max out my 457 Plan
-Use tax savings and business profits to max out Roth IRAs
-Increase wife's 401k as much as possible (I like her Vanguard fund more than my fund)
-In the very unlikely chance we could max out my 457, my wife's 401k, and our Roth IRAs, I could contribute to my 401k (traditional).

Thoughts? Let me know if you have any questions or need some more information to help you out.

Joel

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Re: What should I max out first?
« Reply #1 on: July 13, 2014, 10:28:17 PM »
At your income I would try to maximize your traditional tax deferred accounts before putting money into Roth accounts. I also would not have my retirement accounts at lending club. Could you consolidate and then move to vanguard?

Cheddar Stacker

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Re: What should I max out first?
« Reply #2 on: July 14, 2014, 08:25:32 AM »
logant1337, your situation screams of this post. Please read it, as with a 401K and 457 you are in a unique position not available to most people.

http://rootofgood.com/make-six-figure-income-pay-no-tax/

Good luck. You're on the right track.

GGNoob

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Re: What should I max out first?
« Reply #3 on: July 14, 2014, 09:39:36 AM »

logant1337, your situation screams of this post. Please read it, as with a 401K and 457 you are in a unique position not available to most people.

http://rootofgood.com/make-six-figure-income-pay-no-tax/

Good luck. You're on the right track.

Thanks for this. Sounds like tax-deferred are for sure the way to go. Also sounds like if I contribute enough to the employee plans, I could actually get my MAGI low enough to contribute to a Traditional IRA. I'll take a look and try to figure out what we can do!


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Cheddar Stacker

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Re: What should I max out first?
« Reply #4 on: July 14, 2014, 09:52:37 AM »

logant1337, your situation screams of this post. Please read it, as with a 401K and 457 you are in a unique position not available to most people.

http://rootofgood.com/make-six-figure-income-pay-no-tax/

Good luck. You're on the right track.

Thanks for this. Sounds like tax-deferred are for sure the way to go. Also sounds like if I contribute enough to the employee plans, I could actually get my MAGI low enough to contribute to a Traditional IRA. I'll take a look and try to figure out what we can do!


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Exactly, then you can retire at 33 like ROG. ; )

If I were in your shoes I would max everything I could, make sure it's invested properly, and never look back.