Hi all, I'm looking for advice on optimizing retirement accts, 457, HSA, etc. The questions are at the bottom. The rest is background.
I'm in my late 30s, married, have 2 elementary school-aged kids. I started earning fairly late, because of many years completing professional degrees. I would love to cut down to working 1/2 time in a couple of years, but the stache growth may slow to a crawl at that point. I don't anticipate completely leaving paid employment at any time. I like my job, but would like to do it 10-20 hours a week instead of 60... Mostly I want FI, a hedge against the world of healthcare becoming untenable, and the option of taking a year off here and there to work overseas without financial worries.
Here is where we are at:
Assets:
Retirement plans: $265k ($80k of that is in Roths) about 85% stock, 15% bonds. This is wife and I combined.
Cash: $96k (we had this on hand because we were going to buy another rental property, but now are probably going to put it away instead).
Home: $125k equity - worth $410k (owe $285k)
Duplex #1: $130k equity - Worth $400k (owe $270k)
Duplex #2: $80k equity - 1/2 ownership with partner (worth $330k, owe $170k)
HSA: $2k!!
Other assets - pleasant demeanor and self-deprecating sense of humor.
===================
Total: ~$700k
Liabilities:
Student loans: $41k total (<3% interest)
Home mortgage: $285k (2.75% 15 yr left)
Rental #1: $270k (3.125% 15 yr left)
Rental #2: $85k (3.125%) - actually owe $170k, but half-owned with partner.
other liabilities--foot odor and occasional gassiness.
===============
Total $41k (the amount of the mortgages was already subtracted out in the assets section)
Net Worth about $660k including primary residence
Income
My income is $180-200k annually, working for not-for-profit corporation. After retirement contributions, etc, Box 1 of my W-2 is $175k.
Wife is self-employed in real estate. Last year she earned ~$16k after expenses.
Rentals: about 14k/year cashflow after expenses, which is $0 to the IRS for now because of depreciation.
Retirement savings
403(b) - I max out my $17k. Employer matches about $8k
401(a) - another ~ $8k contributed by my employer
457(b) - I contributed $10k last year to get below the Roth maximum income. I'm leery of this plan (see questions).
Roth - I try to contribute max to a Roth. The last few years have been hit or miss in terms of staying below the income cut off.
Wife's retirement plans - opened an individual 401k last year. Haven't contributed yet for 2012 (see questions below).
Spending
$60k per year expenses/spending. This doesn't include income taxes, principal payments on our mortgage (~$18k), or rental property expenses. It also doesn't include savings/retirement plan.
This is certainly higher than it should be (face punches accepted), but that is a topic for another post and an ongoing discussion/negotiation with my wife. It is lower than it was a couple of years ago...
Finally, my questions:
1) HSA - We just started a high deductible plan with HSA this year. I have $2k in the HSA now. I figure I should probably go ahead and max out the $6450/year contribution. If I'm fortunate enough to not need it for healthcare expenses, I can add it to the retirement 'stache. By default, it is in a savings acct earning 0.1% (!?!?!?!?). If I put it into an investment acct (TD Ameritrade or Devenir Funds), the HSA Bank charges an additional $3 per month fee which is waived if I keep a daily balance of $5k in the HSA savings acct (NOT including the money in the investment accts). TD Ameritrade apparently doesn't show me their offerings, or expenses until I register for an acct (???WTF??). Devenir charges an additional $24 per year, and their cheapest funds have an ER of 0.7%. Even their S+P 500 index has an ER of 0.9% (!?!?!). I suppose that I need to just suck up the fees. $50 in fees on an investment of $5k is only 1%, and putting the money in even a crappy high expense fund should still get me a t least 1% better in the long-term than the 0.1% they are offering... Am I thinking about this right?
2) 457(b) - I could put up to $17k per year into the 457 plan. I can basically put the money in pre-tax. Whenever I terminate employment, I can elect when to begin taking distributions (or a lump sum), and pay taxes at my future marginal tax rate. I don't have to be retired to collect. I just have to leave my current employer. The rub is that the employer owns the money until I get the distributions, so if they go bankrupt, I'm just a creditor standing in line. That scares me. Even though they are quite solvent now, this is healthcare, and who knows what the future will hold. Do you think it is reasonable to contribute? I could always fill it up and then jump ship if it looks like they are going to tank... I'd be without a job, but that's what ER is all about, right :-)
3) Wife's individual 401k - Held at vanguard. We haven't contributed yet for 2012 (still have 2 weeks), but my inclination is to contribute the full amount of her net earnings of ~16k before April 15. If I put all of it into a (non-Roth) indiv 401k, then I could keep our earnings low enough that we could both contribute fully to our non-employer Roth accts for 2012, too. Any thoughts on this strategy?
4) After we max out the above, we'll still have over $60k in cash. I haven't put anything in "non-retirement" investment accounts, as we've been using most of our non-retirement funds for investment properties. Of course, there's the option of paying down our mortgage sooner. With our current interest rates, it's hard to justify, but would feel really nice. Do people think I'm putting too much into retirement accounts and should save more outside of these accts for ER? We've kind of looked at the rental properties as retirement income, but they aren't very liquid, and it might be nice to diversify our pre 59 1/2 yrs old investments.
I'd love any and all thoughts on the above. Sorry this is so long.