2017 has been a real whirlwind year for us. I’ve had an explosive bonus year myself, and my husband took a layoff situation and effectively turned his severance into a large bonus for us & landed his “ideal job,” but lost access to his 401K on the flipside. I never imagined we would be in this position this year and I want to make sure we’re making the most of it. I’m curious of what you guys think around my potential plan here in an attempt to try to make our large bonuses that are coming work more for us.
I’m 29 and my husband is 32. We are in the 33% bracket this year, but historically we’ve been in 28%. We live in Texas, no income tax. Preferred asset allocation of 80% stock, 20% bond.
Her Salary - $75K – but works in software sales. Total income this year will be $245K (historically she makes $150K+, but heavily depending on commission and bonuses).
His Salary - $50K – but with severance, he’ll have W2s totaling $60K.
Emergency Fund - $52K (1 year expenses) in two no-penalty CDs with Ally at 1.5%
Our home – Conservative value of $265K.
His 401k - $17K – 100% Allocated to FUSVX (Fidelity 500 Index, 0.035 ER) – From previous employer. Made maximum amount of contributions we were able to for 2017 ($6,000 + $804 Employer Contribution = $6,804.00).
Her 401k - $75K – 100% Allocated to PREIX (T. Rowe Price Equity 500 Index, 0.22 ER) – Max contributed already for 2017 + Employer Contribution of $4,500 = $22,500.
His Roth IRA - $12.7K – 100% Allocated to VTIAX (Vanguard Total International Stock Index) – Backdoor for 2017 already complete.
Her Roth IRA - $14.5K – 100% Allocated to VTSAX (Vanguard Total Stock Index) – Backdoor for 2017 already complete.
Own His Car, Have a $25,000 balance at 1.9% on Her Car (prefer not to pay off – I can explain in comments)
Owe $163K at 4.5% on home. In year 3 of 30 year mortgage.
We already have an additional $64,000 in pre-tax income by year-end coming ($44,000 of which is commission and bonus, split between Nov 15 & Dec 15 – this could expand to approx. $50K depending on my commission for this month).
This was my idea of our plan:
1. Allocate $11K of our cash and make immediate Backdoor Roth contribution for 2018 in January.
2. With our current tax-advantaged retirement contributions, it is only 13% of our 2017 income. I would like to take an additional $22,000 of our cash reserves to taxable. Allocated to VTSAX, but open to suggestions. This would bring us to the 20% of yearly income retirement contribution that is part of our investment statement.
3. Start to contribute an additional $500/mo to mortgage payoff. As it stands, we can only deduct our mortgage interest every other year. We are looking to move into a new home within 5 years. That and with our age in mind, we’d like to find a balance of liquidity vs. locking more of our NW into our home.
4. Move Her 401K contribution to 25% of pay to front-load for 2018. We have no problems maxing 401K even in normal income years.
As FYI.. He currently works as contractor, but is working W2 for employment agency. They seem to offer 401K, but he is not eligible until Jan 1. Their 401K is offered by Lincoln Financial Group, which has insurance and annuity products plastered all over their website. And if the 401k is anything like the Health insurance, I am sure the choices will be absolutely abysmal. He could get hired as Full time employee at any time during 2018 – could be early, or even toward the end of the year – depending on where HR timelines his department for conversions since they just completed a major relo. And he would be immediately eligible for their 401K & match.
5. Add more to taxable as cash flow allows? This is where I could use some advice on how much to put into market vs keeping liquid in cash for future home downpayment vs. paying our mortgage.
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