xcski wrote:Debt: $13,000 car loan at 1.5% apr
Current savings account total: $115,000 in HSBC online savings account with 0.10% APY
Funds available in his 401(k)
FID US EQ INDX 0.04%
VANG TOT INTL STK IS (VTSNX) 0.12%
VANG TOT BD MKT INST (VBTIX) 0.07%
Funds available in her 401(k)
Vanguard Total Bond Market Index-Inst (.07)
Vanguard Institutional Index (.04)
Vanguard Mid-Cap Index-Inst (0.08)
Vanguard Small Cap Index-Inst (.08)
1. We are hoping to buy a house in 1-2 years and will rely on the cash in our savings account (~120k) for the down payment, so we'd like to know if it is best to keep our cash savings in our current savings account or if it is worth looking into moving it into a different savings account or other type of account for the short-term that generates a better interest rate than the 0.11% APY we are currently earning. Thoughts?
2. As you can see from our 401k and Roth fund contributions, we have been pretty hands-off up to this point, having stuck with target retirement funds. However, taking into consideration the other funds offered through our 401k plans, and the other funds available through Vanguard for our Roth IRAs, do you recommend a better asset allocation plan for us? I would like to become more hands on if it means I increase my chances of better returns. Also, should we increase the % of our mix that is allocated to bonds? We are both 29 years old.
3. We currently contribute more to our 401k than our company match levels, and I also contributed the max to my Roth IRA last year and plan to do so moving forward. My wife plans to do the same once she opens her Roth soon. However, it would be great to get input on whether we should only contribute up to our company matches for the 401k, continue to contribute the max to the Roth, and then put some remaining savings into the 401k. Not sure how best to determine how much remaining savings to put into the 401ks, as we are constantly trying to weigh how much to set aside for retirement versus how much to continue saving now for a house, future kids, etc. If anyone has any insight to share it would be most appreciated.
Most people cite gross income, since taxable income depends on 401k contributions, which you're considering changing.xcski wrote:Tax Rate: 25% federal
Total taxable income: ~$140,000
That can't be right. See my illustrative stack of numbers. This would be true only if you made zero 401k contributions, zero FSA contributions, and paid no pre-tax insurance premiums. Personal exemptions and the standard deduction alone reduce your taxable income by $20,000 from your gross. Maybe that's your AGI rather than your gross?xcski wrote:Total Gross Income: $138,163
Taxable Income: 118,663
OK, so that clarifies that you are solidly in the 25% bracket, almost $30,000 below the 28% bracket, and almost $50,000 above the 15% bracket, so no fine-tuning of 401k contributions will put you into a different bracket. Until you have children, you will not be in any phaseouts such as the child tax credit phaseout. Phaseouts make your marginal rate even higher.xcski wrote:Yes, you are correct - that is my AGI. Sorry for the confusion. See below for our 2012 federal tax return stats:
Adjusted Gross Income $ 138,163.00
Taxable Income $ 118,663.00
Total Tax $ 21,726.00
Total Payments/Credits $ 22,562.00
Effective Tax Rate 15.72%
Bob's not my name wrote:Also, you are in a high tax "state", and you don't itemize, so your marginal rate is 33.5%. That's a painfully high rate and argues for maxing your 401k's before contributing anything to Roth IRAs, especially since your 401k choices are good. $11,000 of Roth IRA contributions require $16,500 of gross income, on which you pay $5,500 of taxes.
xcski wrote:1) I am a true novice when it comes to this, and am getting a bit lost in figuring out the percent allocations, both at the overall level (his 401k vs her 401k) and within each of those plans. I'd appreciate any advice on changes to make here.
2) As I said, I am a true novice, so this may be a silly question but I will ask: if we are both looking to max out our 401k contributions, shouldn't the percentages allocated to his 401k vs to her 401k be equal and one not outweigh the other? I'm confused about how to interpret some of these percentages and move forward without complicating this too much.
I wouldn't factor the Roth IRA into the equation of the % allocations since I'm not sure if I'll be contributing to it next year.
xcski wrote:Is it still recommended I include this fund?
xcski wrote:Could you clarify what you meant by "what it should be"?
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