Where to put my money?

[kidkd]

I'm sure this question has come up a lot, but I finally got my financial house in order and am saving 50+% of my income each month, usually 2000-3000 depending on how much freelance I do.

I'm 28 and I'd like to retire by my early forties, and my income will likely increase quite a bit over the next few years as I learn a few more programming languages/get promoted.

Monthly expenses: around $2k a month
Salary: $70,000
Freelance: 0-$1500 a month, depending on how much work comes in. Made like $8500 on it last year (but was also my first year professionally programming).

Right now I have:
$11,650 - Emergency fund in my bank savings account, pretty much no interest.
$8,845 - My Roth IRA with Vanguard. I can still put in about $7141 this year, due to being able to contribute a bit still for last year. I have the Target Retirement 2055 Fund (VFFVX)
$330 - My 401k at my job that I just started at, they do 2% matching, so that can be an extra $1400 a year. It's two year vested though. It's a SpartanŽ 500 Index Fund - Fidelity Advantage Class (FUSVX).
Debt: none.

I had planned on maxing out my Roth IRA first, then dumping everything into my 401k, but now I'm not sure if that's the best idea. I'm worried about the penalties for withdrawing before you're 59.5. I saw the sticky at the top of the page, but is that really reliable? What if the laws change?

Sorry for the newbie questions - any advice on this matter (or even recommended reading materials) would be highly appreciated.

[GrowingTheGreen]

You are doing pretty awesome! I like to tell people to get your max 401k match first, then go to max out your Roth. After you max out your Roth, jump back to the 401k.

If you're not confident about the laws staying the same so you can do a Roth ladder (don't blame you), then make it so that 20% of your income goes towards the tax advantaged accounts. After that, open a Vanguard taxable account and invest in a mutual fund or ETF of your choice. I personally like their Life Cycle funds, but if you're up for managing ETFs, it's a little less expensive (maybe .1% difference).

[Geekenstein]

+1

Max out the 401k first.  Avoiding taxes now means you have more to stick in your Roth :)  If you still have money to invest, you can find plenty of tax-friendly ways to do that too.

Bottom line - you are doing fantastic!  Nice work.

[kidkd]

Thanks for you help and answers! Glad to hear confirmation I'm on the right path.

If you have any other suggestions on tax-friendly ways to invest, I'd be happy to hear them. 2Maxing out my roth and 401k would just about eat up all the money I had set to save for the year. I think it's just hard to get past the fear of not being able to access the 401k money as easily as I'd like when I retire. But then again I guess have the time to plan it out : )

[GrowingTheGreen]

Thanks for you help and answers! Glad to hear confirmation I'm on the right path.

If you have any other suggestions on tax-friendly ways to invest, I'd be happy to hear them. 2Maxing out my roth and 401k would just about eat up all the money I had set to save for the year. I think it's just hard to get past the fear of not being able to access the 401k money as easily as I'd like when I retire. But then again I guess have the time to plan it out : )

Google Roth Ladder. You're good to go!

[Geekenstein]

Also, it's not a bad idea to open a brokerage account when you open that Roth that GrowingTheGreen suggested. :)  You may not have a need for awhile, but sometimes you may have more money to invest than you have places to put it.  As long as you are paying attention to the types of investments you make you can do a lot of tax-friendly stuff in a taxable account. 

[MustacheAndaHalf]

First, grab the free money.  Invest in the 401k to grab the maximum match even before paying off credit cards - it's that good a deal (a 50%-100% match beats any investment out there).  Then, consider other options that don't involve free money.

If you're confident in your retirement planning, you might avoid a Roth now to pave the way for Roth conversions later.  You can contribute to a Traditional 401(k) or Traditional IRA, and then later pay taxes to turn it into a Roth.  You get a tax deduction now (in the 25% tax bracket for $70k income), and when you're down in the 15% tax bracket you start doing Roth Conversions.  Because there's so much uncertainty with far off plans, tax rates and such... consider a mixed strategy where you have some Traditional IRAs for later conversion, and some Roth IRAs in case you decide not to retire early.

[bearkat]

Right now I have:
$11,650 - Emergency fund in my bank savings account, pretty much no interest.
$8,845 - My Roth IRA with Vanguard. I can still put in about $7141 this year, due to being able to contribute a bit still for last year. I have the Target Retirement 2055 Fund (VFFVX)
$330 - My 401k at my job that I just started at, they do 2% matching, so that can be an extra $1400 a year. It's two year vested though. It's a SpartanŽ 500 Index Fund - Fidelity Advantage Class (FUSVX).
Debt: none.

Are you worried about not having access to your money in an emergency or in FIRE?

If emergency, you have nearly $20k accessible (or what sounds like 8-10 months of expenses).

If FIRE, you've got 15+ years to get there at a 50% savings rate. Just because you "can't" save beyond maxing IRA and 401k now, doesn't mean that will be the case in 1, 3, or 5+ years. When we first started saving, we couldn't even max out our tax advantaged space, and now 4 years later we opened our first taxable account (after maxing it all out)! Income tends to go up and expenses tend to go down on this Mustachian path.

My $0.02, max it all out now because you can't go back and make up for tax-advantage space that you've missed along the way. Dec 31st / April 15th are hard deadlines. I say use your fear of laws changing as motivation to freelance more and save even more in a taxable account.