Investing advice

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koerb20
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Joined: Mon Jan 13, 2020 9:36 am

Investing advice

Post by koerb20 » Mon Jan 13, 2020 10:01 am

I can pay off my mortgage in 14-16 months if I stop contributing to my wife and I’s IRA accounts (6000 each per year, recently opened one year ago).I would also have to stop contributing to additional mutual funds I have with vanguard (total US stock (3000 invested/total international stock 3000 invested) during this 14-16 months. I would normally be contributing 30,000/year into the above funds. During this time I would still be contributing to my 403b (traditional) at work (18500/year plus match) and my wife would be contributing to her 403b (traditional) at work (7000/year plus match). We plan on moving in 4 years Which then we would acquire a new mortgage. Paying off my mortgage early would save us approx 13-14,000 in interest owed prior to moving. Do you think the savings in mortgage interest would outweigh not contributing to the following funds?

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LadyGeek
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Re: Investing advice

Post by LadyGeek » Mon Jan 13, 2020 10:06 am

Welcome! May I recommend you post your portfolio information in this thread using the Asking Portfolio Questions format? It will make you think about the "big picture" while providing us the information we need to point you in the right direction.

The format may seem overkill to you, but it helps us quite a bit. If you get stuck, just do the best you can.

If you have any questions, ask them here.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

Topic Author
koerb20
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Re: Investing advice

Post by koerb20 » Mon Jan 13, 2020 11:26 am

Emergency funds: yes ($20,000)
Debt: mortgage (110k @ 4.5%), lease two vehicles 410/430 a month.
Tax filing status: married filing jointly
Tax rate: federal 24%, state 4.25%
State of residence: Michigan
Age: 33
Desired asset allocation: to be determined
Portfolio: work 403b (traditional) balance $33,612.00 ($24,852.00 vested/$8,759.00 employment match). (95% stock/5%bond. 45% large cap stocks, 25% small/mid-cap stocks, 25% international stocks, 5% high yield bond— do not have fund names off hand). American funds Roth IRA: balance: $9,400. Retirement account work: (2.5% salary/year increases after so many years employment; balance: $6,000.
Vanguard funds: Traditional IRA (VFIFX): $6,565 balance. VTIAX: balance $3,394. VTSAX: balance $3,347.
Spouse: VTIVX: balance $6,425. 403b work: balance $88,000 (employer match $4,000/year. Limited info).

New annual contributions:
His IRA: $6,000
His work 403b: $18,500
His/her vanguard mutual funds: $15,000-$18,000.
Her IRA: $6,000
Her work 403b: $7,000

I apologize for any missing information.

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JoeRetire
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Re: Investing advice

Post by JoeRetire » Mon Jan 13, 2020 11:52 am

Whatever you choose to do, don't give up the employer matches.
Very Stable Genius

Topic Author
koerb20
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Joined: Mon Jan 13, 2020 9:36 am

Re: Investing advice

Post by koerb20 » Mon Jan 13, 2020 8:36 pm

We would continue to contribute to our employer 403b funds.

colodane
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Re: Investing advice

Post by colodane » Mon Jan 13, 2020 11:19 pm

$10,000 in ongoing yearly car expense jumps out at me as something that could at least partially be redirected to investment.

Grt2bOutdoors
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Re: Investing advice

Post by Grt2bOutdoors » Mon Jan 13, 2020 11:31 pm

koerb20 wrote:
Mon Jan 13, 2020 11:26 am
Emergency funds: yes ($20,000)
Debt: mortgage (110k @ 4.5%), lease two vehicles 410/430 a month.
Tax filing status: married filing jointly
Tax rate: federal 24%, state 4.25%
State of residence: Michigan
Age: 33
Desired asset allocation: to be determined
Portfolio: work 403b (traditional) balance $33,612.00 ($24,852.00 vested/$8,759.00 employment match). (95% stock/5%bond. 45% large cap stocks, 25% small/mid-cap stocks, 25% international stocks, 5% high yield bond— do not have fund names off hand). American funds Roth IRA: balance: $9,400. Retirement account work: (2.5% salary/year increases after so many years employment; balance: $6,000.
Vanguard funds: Traditional IRA (VFIFX): $6,565 balance. VTIAX: balance $3,394. VTSAX: balance $3,347.
Spouse: VTIVX: balance $6,425. 403b work: balance $88,000 (employer match $4,000/year. Limited info).

New annual contributions:
His IRA: $6,000
His work 403b: $18,500
His/her vanguard mutual funds: $15,000-$18,000.
Her IRA: $6,000
Her work 403b: $7,000

I apologize for any missing information.
I'm normally in the camp of paying off the mortgage. You are going to be moving though in 3-4 years, would you be of the same belief to pay off the mortgage in an accelerated fashion if markets rise 4.5% per year until retirement? Roth space is very valuable, you never get the ability to contribute for that tax year after April of the following year. As someone else noted, what is the implicit interest rate on the car fleece? Did you calculate that? IMO, I'll bet that the lease is costing you more than your mortgage rate. Here is a good tutorial on it https://www.warreninfinance.com/3372/ca ... -interest/
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Watty
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Re: Investing advice

Post by Watty » Mon Jan 13, 2020 11:47 pm

koerb20 wrote:
Mon Jan 13, 2020 10:01 am
if I stop contributing to my wife and I’s IRA accounts (6000 each per year, recently opened one year ago).
......
Tax rate: federal 24%, state 4.25%
I would not stop contributing to the IRA since you would be giving up a combined 28.25% tax break to save 4.25% in interest.

Being in the 24% federal tax bracket implies that you have a taxable income of around $200K or more. You also have a low mortage payment so unless there is something odd going on you should be able to max out all your retirement accounts even with the car leases.

Topic Author
koerb20
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Joined: Mon Jan 13, 2020 9:36 am

Re: Investing advice

Post by koerb20 » Tue Jan 14, 2020 7:47 am

I know the amount I’m paying to lease two vehicles is not financially sound. It is easy to argue against selling my home in the future to attain yet an even larger mortgage loan. Desire vs need.



I would be looking at converting the IRAs to Roth’s each year. Hypothetically speaking, let’s say I have a fixed amount of income ($30,000) to be used for investing each year outside of employment retirement plans/403bs. Would you advise against withholding IRA and vanguard mutual fund contributions for 14-16 months in exchange of paying off my loan on my house and being without a mortgage payment for 2.5-3 years.

The reason I am interested in paying off my mortgage early is to save on the interest I would be paying prior to moving and have a much larger down payment on a home when I move.

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Sandi_k
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Re: Investing advice

Post by Sandi_k » Tue Jan 14, 2020 12:35 pm

koerb20 wrote:
Tue Jan 14, 2020 7:47 am

Would you advise against withholding IRA and vanguard mutual fund contributions for 14-16 months in exchange of paying off my loan on my house and being without a mortgage payment for 2.5-3 years.

The reason I am interested in paying off my mortgage early is to save on the interest I would be paying prior to moving and have a much larger down payment on a home when I move.
I would not give up the IRA contributions. That money, converted to Roth, has 30+ years to grow untaxed. Saving a small amount of interest is dwarfed by the long-term benefit of the Roth funds.

And plowing money into a house that you know you will sell in <5 years? You are assuming that paying down the house = larger downpayment on future house. If we have any housing crash or retraction in the next five years, that is a faulty assumption. Those funds could disappear into the RE ether, and you'd lose them forever.

Stop pre-paying on the house. Invest in the IRA.

deikel
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Re: Investing advice

Post by deikel » Tue Jan 14, 2020 1:07 pm

If I understand you correctly you will NOT contribute to your IRAs, missing out on tax savings for two years (true?) and not invest in taxable account but instead kill off your mortgage and save 14k ?

Your tax savings from the IRAs is about (12k x2 x 30%) 7k , market gains in those two years of the 36k you would have invested in the taxable account, so say 4k (8% a year of 18k and 36k respectively) - that is awefully close to the 13-14k you think you can save in interest...not considering any possible market correction or housing bubble popping. You might get ahead with 1 or 2k

The benefit is a new motivating goal for the medium term, a payed off house at the end (although you plan to go back into debt anyway) and a minor amount of cash

I think this only makes sense if you expect a market correction or a sub average market development for the next two years or as an insurance against a market correction and for simplification (which you don't seem to value much since you want to go back to another house with a loan).
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