We're Debt Free (Except our House)!

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cashisking500
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We're Debt Free (Except our House)!

Post by cashisking500 » Tue Oct 03, 2017 11:40 am

First off, thanks to everyone on the forum. Reading how many of you have found success with your finances is inspiring. It has really helped my wife and I with our journey.

I feel kind of weird bragging about this to anyone else outside of BH, so I'm excited to share that we are debt free except for our house. We have one paid off car, one company car (that allowed us to sell our second car), we are putting 15% towards retirement (combination of 401K's and Roth IRA's) and we recently refinanced our home to a 20-year mortgage. We also have $26,000 in our savings account/emergency fund.

We are currently evaluating what our next steps should be. We will have about $2,000 left over each month, so do we increase our retirement to more than 15%? Pay more towards our mortgage? Open a taxable investment account?

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peterinjapan
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Re: We're Debt Free (Except our House)!

Post by peterinjapan » Tue Oct 03, 2017 11:55 am

Congrats! I'm counting down to paying off my mother's house, then one more rental unit I own, in 4~5 years.

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climber2020
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Re: We're Debt Free (Except our House)!

Post by climber2020 » Tue Oct 03, 2017 11:55 am

Congrats on paying off the debt.

Do you enjoy your job enough to do it for a really long time? If not, you can bump the savings rate up and shave many years off your working life.

WhyNotUs
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Re: We're Debt Free (Except our House)!

Post by WhyNotUs » Tue Oct 03, 2017 12:05 pm

Congrats, much of the american population would love to achieve your current status and building blocks for the future.

Assuming that your mortgage rate is low and that the mortgage interest deduction survives tax "reform", then I would personally keep my mortgage and focus on taxable investments or a Roth, if applicable.
I own the next hot stock- VTSAX

cashisking500
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Re: We're Debt Free (Except our House)!

Post by cashisking500 » Tue Oct 03, 2017 12:05 pm

climber2020 wrote:
Tue Oct 03, 2017 11:55 am
Congrats on paying off the debt.

Do you enjoy your job enough to do it for a really long time? If not, you can bump the savings rate up and shave many years off your working life.
I do enjoy it a lot. It's basically my dream job. That being said, bumping up the savings rate is never a bad idea. Thanks!

snoopdoug1
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Re: We're Debt Free (Except our House)!

Post by snoopdoug1 » Tue Oct 03, 2017 12:20 pm

If it was me, I'd bump up your savings rate in a heartbeat. You should have more tax protected space to contribute to, right?

mortfree
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Re: We're Debt Free (Except our House)!

Post by mortfree » Tue Oct 03, 2017 12:25 pm

cashisking500 wrote:
Tue Oct 03, 2017 11:40 am
we are putting 15% towards retirement (combination of 401K's and Roth IRA's) and we recently refinanced our home to a 20-year mortgage. We also have $26,000 in our savings account/emergency fund.
putting 15% towards retirement vs maxing out your retirement are two different things.

I would strive to max out the 401k and Roth IRA (for at least one person).

See where that puts you.

LEB1230
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Re: We're Debt Free (Except our House)!

Post by LEB1230 » Tue Oct 03, 2017 12:31 pm

I struggled with the save more vs payoff mortgage myself. I know that mathematically its best to save more with the assumption that the stock market average return will be greater than the loan rate. The other part of me can see the financial peace that a paid off home would bring.

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Toons
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Re: We're Debt Free (Except our House)!

Post by Toons » Tue Oct 03, 2017 12:35 pm

" Pay more towards our mortgage?"
Personally?
Yes,Without a shred of doubt :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

LEB1230
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Re: We're Debt Free (Except our House)!

Post by LEB1230 » Tue Oct 03, 2017 1:06 pm

mortfree wrote:
Tue Oct 03, 2017 12:25 pm
cashisking500 wrote:
Tue Oct 03, 2017 11:40 am
we are putting 15% towards retirement (combination of 401K's and Roth IRA's) and we recently refinanced our home to a 20-year mortgage. We also have $26,000 in our savings account/emergency fund.
putting 15% towards retirement vs maxing out your retirement are two different things.
I guess that would all depend on your income.

Nearly A Moose
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Re: We're Debt Free (Except our House)!

Post by Nearly A Moose » Tue Oct 03, 2017 1:22 pm

Congrats!! Suggest putting that money into long term savings. $24k per year is real money! Or if you feel good about where you are and your path, allow yourselves to grow into the cash flow *just a little bit*. Maybe increase your discretionary budget $250 or $500 a month and save the rest. Really depends on where you are financially and how you feel about your quality of life.

FWIW, when we paid off our student loans, we directed the monthly payments 100% to long term savings. Will be doing the same when the car gets paid off. I don't miss the money because I never "saw it" in the past, but I do enjoy checking my Vanguard account on the 5th of each month!
Pardon typos, I'm probably using my fat thumbs on a tiny phone.

fiverus
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Re: We're Debt Free (Except our House)!

Post by fiverus » Tue Oct 03, 2017 1:35 pm

Currently I contribute 9% and company matches 5% so, total 14% to my 401k. What does 'putting 14% towards retirement vs maxing out your retirement mean? How is it different? and when do you know you maxed out?

cashisking500
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Re: We're Debt Free (Except our House)!

Post by cashisking500 » Tue Oct 03, 2017 2:12 pm

Nearly A Moose wrote:
Tue Oct 03, 2017 1:22 pm
Congrats!! Suggest putting that money into long term savings. $24k per year is real money! Or if you feel good about where you are and your path, allow yourselves to grow into the cash flow *just a little bit*. Maybe increase your discretionary budget $250 or $500 a month and save the rest. Really depends on where you are financially and how you feel about your quality of life.

FWIW, when we paid off our student loans, we directed the monthly payments 100% to long term savings. Will be doing the same when the car gets paid off. I don't miss the money because I never "saw it" in the past, but I do enjoy checking my Vanguard account on the 5th of each month!
Thanks! I would guess we will absorb just a bit of the cash flow into our lifestyle, but no more than $200 or $300 at most.

mptfan
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Re: We're Debt Free (Except our House)!

Post by mptfan » Tue Oct 03, 2017 2:15 pm

cashisking500 wrote:
Tue Oct 03, 2017 11:40 am
We are currently evaluating what our next steps should be. We will have about $2,000 left over each month, so do we increase our retirement to more than 15%? Pay more towards our mortgage? Open a taxable investment account?
That depends on the interest rate of your mortgage, and whether you itemize your tax deductions, and, if you itemize, the total amount of your itemized deductions after excluding mortgage interest.
I eat risk for breakfast. :)

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Duckie
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Re: We're Debt Free (Except our House)!

Post by Duckie » Tue Oct 03, 2017 4:22 pm

fiverus wrote:What does 'putting 14% towards retirement vs maxing out your retirement mean? How is it different? and when do you know you maxed out?
If under age 50 you are allowed to contribute $18K (not including matching) to most employer plans plus $5.5K to personal IRAs. If 50 or over the numbers are $24K and $6.5K. So $18K + $5.5K = $23.5K or $24K + $6.5K = $30.5K. Depending on your income that could be a lot of money and not everyone can do it, but that's maxing out.
Last edited by Duckie on Tue Oct 03, 2017 5:24 pm, edited 1 time in total.

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JupiterJones
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Re: We're Debt Free (Except our House)!

Post by JupiterJones » Tue Oct 03, 2017 5:00 pm

Congrats! :sharebeer

Is $26,000 the correct size for your emergency fund? If not, I'd throw that extra two grand there until it is.

Are there any expected costs on the horizon? Do you have a vacation planned? Is your HVAC on its last legs? How are your vehicles doing? Anyone planning to go back to school? Assuming you have a fully-funded emergency fund, I'd make this my next step: Saving for things that aren't technically "emergencies" (because you know about them in advance), but you're going to have to pay for them anyway.

In our case, we have "sinking funds" for both of our cars that we contribute to, plus funds for property tax (we don't escrow), upcoming trips, etc. These aren't literally separate funds--they're just earmarked portions of our savings beyond the level of our (eight-month) emergency fund.

Once that's all settled, if you still have any money left over, then yes... max out those tax-advantaged retirement accounts.

(All of the above is IMHO, of course.)
Stay on target...

denovo
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Re: We're Debt Free (Except our House)!

Post by denovo » Tue Oct 03, 2017 5:04 pm

Duckie wrote:
Tue Oct 03, 2017 4:22 pm
fiverus wrote:What does 'putting 14% towards retirement vs maxing out your retirement mean? How is it different? and when do you know you maxed out?
If under age 50 you are allowed to contribute $18K (not including matching) to most employer plans plus $5.5K to personal IRAs. Since you are married that's $18K + $18K + $5.5K + $5.5K = $47K. That's a lot of money and not everyone can do it, but that's maxing out.
I agree with the Duckie. If you can, MAX out all your tax-sheltered accounts.

Congrats on being mostly debt-free.

ThePrince
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Re: We're Debt Free (Except our House)!

Post by ThePrince » Tue Oct 03, 2017 8:39 pm

Toons wrote:
Tue Oct 03, 2017 12:35 pm
" Pay more towards our mortgage?"
Personally?
Yes,Without a shred of doubt :happy
+1

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DaftInvestor
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Re: We're Debt Free (Except our House)!

Post by DaftInvestor » Tue Oct 03, 2017 8:43 pm

If you are this excited being debt free and carrying a mortgage, imagine how excited you will be when 100% debt free with no mortgage. Pay more towards the mortgage. Guaranteed interest savings.

cashisking500
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Re: We're Debt Free (Except our House)!

Post by cashisking500 » Wed Oct 04, 2017 1:54 pm

WhyNotUs wrote:
Tue Oct 03, 2017 12:05 pm
Congrats, much of the american population would love to achieve your current status and building blocks for the future.

Assuming that your mortgage rate is low and that the mortgage interest deduction survives tax "reform", then I would personally keep my mortgage and focus on taxable investments or a Roth, if applicable.
Thanks! Our Roth's are both maxed out, so a taxable investment or adding more to 401K is our next step it seems.

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Elsebet
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Re: We're Debt Free (Except our House)!

Post by Elsebet » Wed Oct 04, 2017 3:02 pm

Congrats! Great work!

The only non-mortgage debt we have currently is my 2016 truck. I have been paying way over the normal payment but have been contemplating using some of my emergency fund + tax refund to pay it off next February, then replenish the fund with what I was paying on the truck monthly. That would leave us also with nothing but mortgage debt.

indexonlyplease
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Re: We're Debt Free (Except our House)!

Post by indexonlyplease » Wed Oct 04, 2017 3:09 pm

I like having the house paid off. Nice not making a monthly payment and it feels good!! You are putting in the recommended 15%.

Why not do a little of both.

Increase percent to 401k, to max if possible, depends on your Salary and what amount you are paying now.
Pay extra on the house each month.

You are now a low percent of Americans not in debt. Maybe the only one on your block.

soccerrules
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Re: We're Debt Free (Except our House)!

Post by soccerrules » Wed Oct 04, 2017 3:52 pm

Cash-
I think you have options which is good. I would be aware of having enough liquidity. If you dump all of your money into House and 401K's you might be short on liquidity/cash. What happens if you lose your job and it takes 12 months to find a new one, will $26K be enough?

I would do the following (on the limited details you provided)
1) Pump up EF to 9-12 mo, or higher if you want a little more liquidity.
2) Increase Max yearly 401K and IRA contributions to hit maximum
3) For now don't let spending creep. Having $2K /mo to save is more important than where you actually put it, right now.

Once you have done #1 and #2, I would consider putting some toward the mortgage. It depends on if being completely debt free is really important to you.
Don't let your outflow exceed your income or your upkeep will be your downfall.

dccboone
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Re: We're Debt Free (Except our House)!

Post by dccboone » Wed Oct 04, 2017 8:23 pm

Elsebet wrote:
Wed Oct 04, 2017 3:02 pm
Congrats! Great work!

The only non-mortgage debt we have currently is my 2016 truck. I have been paying way over the normal payment but have been contemplating using some of my emergency fund + tax refund to pay it off next February, then replenish the fund with what I was paying on the truck monthly. That would leave us also with nothing but mortgage debt.
Elsebet, I don’t believe Emergency Funds should be used for anything other than a true emergency. However, you may want to consider this alternative. I built our Emergency fund from the ground up by compiling all of our expenses in an average month. We wanted our Emergency Fund to be able to cover 6-months of these expenses just in case I became incapacitated and couldn’t work or I lost my job. If your Emergency Fund is based on “expenses,” then you could take the dollars you set aside to cover your truck payments in case of job loss and reallocate those funds at the end of the process to pay off your truck even earlier. For example, as we were working to pay-off our house, we knew our Emergency Fund included enough money to cover 6 months of mortgage payments, plus all of our other expenses during that period. We used the “mortgage” dollars to pay-off our house even earlier and when all was said and done, we still had a fully funded 6-month Emergency Fund and no house payment. Perhaps this might be a consideration on your truck.

guitarguy
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Re: We're Debt Free (Except our House)!

Post by guitarguy » Thu Oct 05, 2017 6:51 am

cashisking500 wrote:
Wed Oct 04, 2017 1:54 pm
WhyNotUs wrote:
Tue Oct 03, 2017 12:05 pm
Congrats, much of the american population would love to achieve your current status and building blocks for the future.

Assuming that your mortgage rate is low and that the mortgage interest deduction survives tax "reform", then I would personally keep my mortgage and focus on taxable investments or a Roth, if applicable.
Thanks! Our Roth's are both maxed out, so a taxable investment or adding more to 401K is our next step it seems.
Congrats OP! We found ourselves in literally this exact same situation in Feb 2017 when we paid off the remaining balance on student loans. It's a great feeling!! :beer

Re: the mortgage...what is your rate? Ours is a 2.8% 15 year fixed...no hurry to pay extra to the mortgage in our financial house.

We chose to up our savings rate instead. We've gone from 15% to 17.5% since February (got a raise it it basically went right into 401k). When my next raise comes early in 2018, we'll be up over 20%.

Another thing to think about is your tax implications. As my side business has made more substantial money, even with Mrs. Guitarguy quitting her full time job and going back to school while working a few hours a week as an intern in her new field, our tax bills have increased. Increasing 401k savings will hedge against that. When she finishes her program in May 2018 and starts her new full time career, we'll be re-starting her 401k and essentially looking to dump 30-40% or more of her salary in there, which will up our savings rate and help our tax burden even more.

Really though...you can't go wrong if you dedicate the extra money to building your net worth in some way, shape, or form.

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djpeteski
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Re: We're Debt Free (Except our House)!

Post by djpeteski » Thu Oct 05, 2017 7:10 am

Congratulations! Well done eschewing rugged consumerism.

One thing you may want to look at is another refi. What we did is get a 7 year, fixed rate home equity loan in first position and was the only loan on the house. The interest rate was lower then the advertised teaser rate, at the time 2.32 or something like that. There were no closing costs, which makes it very worthwhile. It will be a great use of your 2K left over.

The loan underwriter(s) tried to push us to take cash out, go for a longer term to make the payments more affordable, etc... However we were fortunate that we had a the banker understand what we wanted: The lowest rate possible, on the lowest balance possible. We were looking to get the home paid for.

Meeting and and exceeding financial goals with you and your spouse working together is worth far more than actually meeting the goal. You have done some great things and will continue to do so.

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rustymutt
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Re: We're Debt Free (Except our House)!

Post by rustymutt » Thu Oct 05, 2017 7:29 am

Yessssssssssssssssssssssssssss, I love to hear these victories for staying debt free! Push on master of your own destiny, and keep the banks out of your life. Learn to love life below your means, and you'll be a happier person, family, business, or country. Now join with us teaching others this important concept. :moneybag

Congratulations are in order.
Last edited by rustymutt on Thu Oct 05, 2017 7:33 am, edited 2 times in total.
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rustymutt
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Re: We're Debt Free (Except our House)!

Post by rustymutt » Thu Oct 05, 2017 7:32 am

Toons wrote:
Tue Oct 03, 2017 12:35 pm
" Pay more towards our mortgage?"
Personally?
Yes,Without a shred of doubt :happy
Agreed!
Knowledge is knowing that the Tomato is a fruit. Wisdom is knowing better than to put the tomato in a fruit salad.

cashisking500
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Re: We're Debt Free (Except our House)!

Post by cashisking500 » Thu Oct 05, 2017 11:03 am

Thanks all! We're really excited!

spammagnet
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Re: We're Debt Free (Except our House)!

Post by spammagnet » Thu Oct 05, 2017 11:27 am

Elsebet wrote:
Wed Oct 04, 2017 3:02 pm
The only non-mortgage debt we have currently is my 2016 truck. I have been paying way over the normal payment but have been contemplating using some of my emergency fund + tax refund to pay it off next February, then replenish the fund with what I was paying on the truck monthly. That would leave us also with nothing but mortgage debt.
You describe my situation exactly, including the year of the truck. I could pay it off using emergency funds today but, for purposes of mental accounting, want to delay a couple months until I have invested a bit more.

The reason is that I don't include the truck or loan in my net worth which is at a certain comfortable threshold. (The truck is worth far more than the loan, so that's a wash.) If I spend cash to pay the truck, I'll drop below that threshold. I will have invested enough by the end of this year that the loss of cash won't cause me to go below my target.

We may differ in proximity to retirement and, therefore, need for an emergency fund. Because I'm fairly close, a financial event that would cause a need for emergency fund may well be the cue to bag it and retire. I do plan to replete it and work a little more but it's not a requirement for survival.

spammagnet
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Re: We're Debt Free (Except our House)!

Post by spammagnet » Thu Oct 05, 2017 11:29 am

cashisking500 wrote:
Tue Oct 03, 2017 11:40 am
I feel kind of weird bragging about this to anyone else outside of BH, so I'm excited to share that we are debt free except for our house.
Congratulations. I recall that feeling, and it's good. I currently do have a car loan, but it's elective and soon will be paid off.

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Elsebet
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Re: We're Debt Free (Except our House)!

Post by Elsebet » Fri Oct 06, 2017 3:19 pm

spammagnet wrote:
Thu Oct 05, 2017 11:27 am
You describe my situation exactly, including the year of the truck. I could pay it off using emergency funds today but, for purposes of mental accounting, want to delay a couple months until I have invested a bit more.

The reason is that I don't include the truck or loan in my net worth which is at a certain comfortable threshold. (The truck is worth far more than the loan, so that's a wash.) If I spend cash to pay the truck, I'll drop below that threshold. I will have invested enough by the end of this year that the loss of cash won't cause me to go below my target.

We may differ in proximity to retirement and, therefore, need for an emergency fund. Because I'm fairly close, a financial event that would cause a need for emergency fund may well be the cue to bag it and retire. I do plan to replete it and work a little more but it's not a requirement for survival.
I'm 41 so have at least until 59.5 unless my portfolio is big enough to go earlier. In addition to my emergency fund I have empty credit cards, a small taxable account, and HELOC, so even if I had an emergency immediately after paying off the truck I'd have coverage. However the emotional security of having that big emergency fund is hard to give up which is why I'm fretting over the decision.

My emergency fund is 32k. I should owe about 25k on the truck next Feb. I usually get a 2-3k refund, so I would still have around 10k in the emergency fund after paying off the truck in addition to my taxable and HELOC. I pay $1000 on the truck per month, so I'd fill the fund back up in 22 months.
It's scary though to think about not having that cash available.

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Meg77
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Re: We're Debt Free (Except our House)!

Post by Meg77 » Fri Oct 06, 2017 3:28 pm

cashisking500 wrote:
Wed Oct 04, 2017 1:54 pm
WhyNotUs wrote:
Tue Oct 03, 2017 12:05 pm
Congrats, much of the american population would love to achieve your current status and building blocks for the future.

Assuming that your mortgage rate is low and that the mortgage interest deduction survives tax "reform", then I would personally keep my mortgage and focus on taxable investments or a Roth, if applicable.
Thanks! Our Roth's are both maxed out, so a taxable investment or adding more to 401K is our next step it seems.
Awesome! Definitely max out the 401k(s) before starting taxable investing. And max out or at least run medical expenses through a Health Savings Account too if you don't already. After that I'd probably bump cash up to $35k or so ($25K plus any foreseeable expense like a new car on the horizon), and THEN decide between taxable investing or paying extra on the mortgage. You can always split the difference if you aren't sure too.
"An investment in knowledge pays the best interest." - Benjamin Franklin

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JupiterJones
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Re: We're Debt Free (Except our House)!

Post by JupiterJones » Fri Oct 06, 2017 3:36 pm

Elsebet wrote:
Fri Oct 06, 2017 3:19 pm
I usually get a 2-3k refund
Sounds like you may need to adjust your withholding. That's up to $250 more on your paycheck each month that you could've been using this whole time to pay extra on your truck, instead of loaning it to the government interest-free while your truck loan racks up interest.
Stay on target...

Not Law
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Re: We're Debt Free (Except our House)!

Post by Not Law » Fri Oct 06, 2017 4:53 pm

I suggest considering the following:

First, anything in taxed deferred funds, including whatever earnings, capital gains and dividends (even tax free government bonds) are taxed as ordinary income.
Second, most earnings on taxable accounts are taxed at a lower long term capital gain/dividend rate. A married couple with less than about $75k in taxable earnings pays NO tax on these.
Third, Roth accounts are never taxed, but are funded with post income tax dollars.

Think about where you want your funds at or after retirement:

Tax deferred funds require RMDs (Required Minimum Distributions) beginning at age 70.5, which could bump your income up to the point that your Social Security becomes taxed as ordinary income.
Taxable accounts provide funds with a generally lower tax rate when cashed out for consumption.
Roth funds incur no tax when cashed out for consumption.

Depending on your income level at retirement, age 70.5, etc., you may want a mix of the three types of accounts so you can manage your tax rate upon withdrawal. Takes some long term thinking, but considering the long term tax issues might affect your decision about where to allocate extra funds.

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