Looking for ideas on what to do next with saving

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Topic Author
Bwlonge
Posts: 259
Joined: Wed Nov 22, 2017 6:36 am

Looking for ideas on what to do next with saving

Post by Bwlonge »

I'm on the fence here. I want to know 1. where to put and 2. how to invest money coming in over the next year. 31 in February, Single, no kids, currently 25% tax bracket.

Assets:
Traditional IRA
6 month-lite emergency fund (would have to cut fat)
Owner occupied duplex
2018 maxed 403b for first time

Debts:
Mortgage @ 3.75%
Student loans 3k @ 5.8%
Car loan 6k @ 3.2%

Goals:
Allocate 4k into either a Roth or current IRA for 2017
Decide on fund allocation for Tier 2 of Emergency fund
Buy more real estate? Invest more in stocks? Pay loans? Travel?

First I need to figure out whether to open a Roth IRA now for 2017, or do I just cap off my Traditional for 2017, given this may be the highest tax bracket I'm in for a while. The reason I think about the Roth is because I would feel a lot better if I had 1 year's expenses saved, that included 1 year of capital expenditure saving for the duplex. This target would be 24k. If I opened a roth, I could double it as a part of that saving account. Because I would go 50/50 stocks/bonds on that final piece of my EFund,a roth would be a nice place to have bonds from my understanding of tax efficiency. However, I would be taxed at 25%, and I expect a lower rate later on- even next year, I might be able to hit the high end of a new 12% bracket.

Once EFund is squared away, I need to decide on some goals to help drive new fund allocation in a taxable. I'm not sure whether I want to align with my overall 100% stocks strategy, or if I want to have my "arms length" assets more conservative, say that 50/50 so I can see modest growth while maintaining the principle to draw on when I want. I don't really have solid goals, though. I know I need to put X amount away monthly to save for a future car eventually, but everything like that seems to get rolled up into whatever is left over and I'm able to save in the taxable, and that's where I feel a little untethered.

I'm trying to stay disciplined- I can smell the blood on my student loans, but its a $65/mo payment and I have the duplex to worry about needing capital for, so in some ways the 1 year EFund feels more important, and it would take me almost 4 years to break even on the capital from the savings on not having to make monthly payments.
Olemiss540
Posts: 1552
Joined: Fri Aug 18, 2017 8:46 pm

Re: Looking for ideas on what to do next with saving

Post by Olemiss540 »

Can you give us a better idea of your yearly expenses (total) and income? How much money are you planning to have in 2018 after expenses are accounted for? Size of retirement accounts and emergency fund?

Are you sure with your income and access to 403b that you are eligible for traditional IRA contributions?

I would say finding a Roth IRA would be my priority given you could use it for two purposes (emergency fund and retirement fund), max out 403b, and pay down the two nagging debts or increase taxable account. I keep my Roth IRA in bonds in case my contributions are needed in an emergency which allows me to maintain lower cash on hand and I keep higher equity percentages in my other retirement accounts to compensate.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
Topic Author
Bwlonge
Posts: 259
Joined: Wed Nov 22, 2017 6:36 am

Re: Looking for ideas on what to do next with saving

Post by Bwlonge »

Ah, I try not to post my numbers in too much detail online. But:

-yes I do have deductible access to tIRA because the 403b takes so much off my MAGI.
-I project to save an additional 1k/mo after expenses and IRA 2018 saving. EFund currently 9k, which leaves 15k to save- so I'm looking at just about hitting that in a year if I make it the priority.
-Current retirement savings is only 10k, late bloomer

One thing I will probably do for sure is merge my IRA saving with my EFund saving in the 2018 Roth, especially since the new tax bill will lower my rate. Simply fill the Roth first, then put the remainder in a taxable, then move on to the next saving goal. That satisfies my EFund goal by this time next year. Its at that point I have major decisions to make about where to go next, or, if I leverage my current savings to buy real estate.

I need to place 4k for 2017 into an IRA, leaning toward sticking with the traditional, to get the $1350 tax refund to dump into 2018 Roth right away.
StealthRabbit
Posts: 528
Joined: Sat Jun 13, 2009 1:25 am

Re: Looking for ideas on what to do next with saving

Post by StealthRabbit »

If you are eligible for a Traditional, IRA I would do that while in higher tax brackets.

Longer term... convert to ROTH when your 'effective tax' is less than 10%

Invest in more RE or appropriate investments that can salvage more of your wage income. (offset earnings / getting depreciation and direct deductions for mortgage interest (which you get on investment props, but NOT personal mortgage (diluted deduction))

Sounds like you are young, so build wealth when possible (after meeting current obligations and reserves). Find investments that you are very interested in and can learn and commit the time to manage them.

For me it is RE. (investment commercial Real estate and a few special interest investment homes and properties(rural with view) Producing income and equity growth.

~ 1/2 my Net Worth and all my retirement income came from investments / non wage income. (Tho I was able to work 3 jobs most my life) I never used my FT job income for living (it was for investing) ... I just got by on my PT job income.
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