Retirement account contribution questions

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Joined: Thu Sep 12, 2019 10:08 pm

Retirement account contribution questions

Post by System1 »

Background info:
Emergency funds: Three months of expenses
Mortgage: $200k 20yr @ 3.0% - recently refi’d
Student Loans:
$32k @ 6.55% Federal and deferred under COVID – have $7-9k to send in Sept.
$32k @ ~3% not deferred – minimum payments
$16k @ ~5% not deferred – minimum payments
Currently budgeting to have all student loans paid off in less than 5 years.
Auto Loan: $16k @ 3% - 4 yrs left

Tax Filing Status: Married Filing Jointly
Tax Rate: 22% Federal, 6.8% State + 3-4% for medical TEFRA

State of Residence: MN

Age: 41/41

Desired Asset allocation: 85% stocks / 15% bonds
Desired International allocation: 10% of stocks

Current total portfolio: low six-figures

Current retirement assets:
0% cash (for investing – do not include emergency funds)
0% fund name (ticker symbol) (expense ratio)
0% stock company name (ticker symbol)


His Rollover Roth IRA old Roth 401k
3% Schwab U.S. REIT ETF ( SCHH ) ( 0.070% )
16% Schwab US Broad Market ETF ( SCHB ) ( 0.030% )

His Rollover IRA from old 401k
3% Aberdeen Standard Gold ETF Trust ( SGOL ) ( 0.170% )
3% Schwab U.S. Aggregate Bond ETF ( SCHZ ) ( 0.040% )
26% Schwab US Broad Market ETF ( SCHB ) ( 0.030% )
3% Schwab U.S. TIPS ETF ( SCHP ) ( 0.050% )
4% Schwab US Broad Market ETF ( SCHB ) ( 0.030% )

His current 401k
6% 401k Fidelity International Index ( FSPSX ) ( 0.035% )
5% 401k Fidelity US Bond Index ( FXNAX ) ( 0.025% )
20% 401k Fidelity 500 Index ( FXAIX ) ( 0.015% )

His current Roth 401k
1% 401k Fidelity International Index ( FSPSX ) ( 0.035% )
1% 401k Fidelity US Bond Index ( FXNAX ) ( 0.025% )
4% 401k Fidelity 500 Index ( FXAIX ) ( 0.015% )

Her old 403b
4% Mutual of America Equity Index Fund ( MEQII ) ( 0.130% )
New annual Contributions
$19,500 his 401k + 4% match
$0 her 403b(former employer, looking to rollover to Trad IRA)
$0 his IRA/Roth IRA
$6,500 her IRA
$0 taxable (for retirement, not short term goals)

1. Does anybody object to continue to max out tax deferred contributions and sending the rest of available money to student loans at 6.55%?
2. Planning ahead for possible back door Roth contributions after 6.55% student loans are paid off. Should we continue to contribute to the Trad IRA as a non-working spouse deductible contribution? From what I can tell, this would affect using this account to roll over to a Roth. We have less than $10k in this account. My wife has an LLC that doesn’t generate any income right now. This could in the future, and could be used to fund a Self-401k, which then could be used to rollover the Trad IRA contributions into. Is this the best plan? Maxing out the spouse IRA contribution is saving us about $2100 in taxes each year.

Key Points
1. We plan to be at a lower tax rate during retirement (based on current tax brackets).
2. We have 4 children under 8, 3 of which we expect to attend post-secondary. Minimal savings to date for college.
3. We have one child with long term medical care requirements.
Posts: 1729
Joined: Sat Jan 10, 2015 10:50 pm

Re: Retirement account contribution questions

Post by terran »

1) I would contribute enough to your 401(k) to get a full employer match, but after that I would pay off the 6.55% and probably also the 5% loan before contributing anything additional to retirement accounts.
2) Since you expect to be in a lower marginal tax bracket in retirement you should contribute to tax deferred retirement accounts over Roth whenever eligible.
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Posts: 10574
Joined: Sun Mar 16, 2014 2:43 pm

Re: Retirement account contribution questions

Post by FiveK »

1. If your tax-deferred contributions are 100% stocks, maxing them in preference to paying more on the debt is reasonable. If you have a bond component in those investments, putting that amount toward the debt might be better. See Investment Order and Paying down loans versus investing for more discussion.

2. The "best" plan will be known only in hindsight but taking the tIRA deduction now is reasonable. Depending on where you are within the 22% bracket, and future income increases vs. tax bracket changes, it may be some time before the backdoor Roth bridge needs crossing, and you have a plan if it does.
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