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tomservo
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How am I doing?  Reply with quote  

I am 32 and married . I have always saved a bit of money but am now getting serious to make sure everything is structured properly for the future. I'd like to get some feedback from the forum on how I am doing as well as some advice going forward.
I own a home with a low interest rate. Bought in 2015 with 10% down.
Have $10k liquid asset emergency fund
Currently saving 10% into 401k with 3% employer match.
Have a Roth IRA but haven't contributed much in the past few years.
Mutual Fund account of about $29k
$5k in credit card debt that I am aggressively paying down and will be gone in 3-4 months.

Once the debt is paid off I want to increase savings in some combination of 401k, RothIRA and Mutual Fund.

I have between 2-4 years left before I am phased out of contributing to ROTH. Am I better off maxing the contribution here before returning to my 401K? I can max out one but not both.
Alternatively am I putting too much emphasis on retirement accounts and should focus more on mutual funds?

I am probably leaving important info out so I apologize in advance and thank you for your patience.
Post Tue Apr 11, 2017 3:46 pm
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oldguy
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Location: arizona
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quote:
Once the debt is paid off I want to increase savings in some combination of 401k, RothIRA and Mutual Fund.


The key metrics for you are 'time' and 'rate". In your case, 'time' is about 30 yrs. (Most of us are given about 30 yrs for wealth-building before we transition to wealth-preservation.) You are investing roughly $20,000/yr, if you select an investment with an 11%/yr rate (the longterm US Market average), that will be about $4.4M at age 62.

How you split it (401k, Roth, Taxable) isn't too important, $4M is $4M in any case, only the tax treatment is different. You pay the tax on all 3 categories - ie, you pay tax upfront with the Roth, at the back-end with the 401k, and at both ends with the Taxable account but w/ a capital gains preferential treatment.

You cannot make a decision on the 'best' split , the Tax Code is a moving target. Eg, if Congress switches from an Income Tax to a Fed Sales Tax within the next 30 years, the Roth advantage will be lost (actually there will be a convoluted set of protections, equally bad). One approach is to fund all three, then you won't be 100% in the wrong category when you retire.

As for "waiting until the debt is repaid" - that is true for consumer revolving debt (cc, etc). But NOT true for longterm, low rate debt (such as your mortgage). Keep the mortgage and direct that extra income stream to one of the 11% accounts.
Post Tue Apr 11, 2017 4:52 pm
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tomservo
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Thank you for the insight. Very good points about the long term tax code implications.

To clarify the CC debt is what I am paying off now. Mortgage just making regular payments.
Post Tue Apr 11, 2017 5:05 pm
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