Financial Wellness Check-In

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Topic Author
malibuboats91
Posts: 164
Joined: Tue Jul 08, 2014 5:50 pm

Financial Wellness Check-In

Post by malibuboats91 »

Hi all - normally I do a yearly check in but a lot has changed in the past 9 months so I’m posting a bit early. I went from renting to buying a house that’s turned out to be a money pit. I paid $65k down on a $200k house and have about $18k into repairs/updates and a lot more to come. I also switched jobs and went from $120k in a MCOL city to $125k in a LCOL city, but am also working a lot less.

I’m open to any feedback but do have a few questions.

1) I max my 401k, IRA and HSA. I’m currently doing all Roth in my 401k but being in the 24% bracket for fed and 5.3% for state, at what point should I go traditional? Income tax rates will rise long term so I never know at what point I should switch. Ideally I’d get married at some point but no promises there. 😊

2) When I do projections on what I’ll end up with in retirement there’s no way I’ll ever need that much money. Is it possible I’m saving too much? If I think long term I’d like to invest in real estate, but also would like a balance between living a good life now and in retirement. I’m an accountant so I get it based on math/theory but I don’t want to pass away with a boat load of cash if that makes sense.

3) I figure I need about $15k in my emergency fund for 6 months of living expenses. I have more than that in checking, savings and money market, but use it as a cushion for if I can’t cash flow my house repairs from my salary. Is that ok or should I be doing something else?

4) Any other suggestions?

Age: 31
Status: Single
Salary: $125K - should get a $5k bonus later this year
Checking: $9k
Savings: $5k - Ally Bank
Taxable Brokerage: $13k - VMFXX
Taxable Brokerage: $10k - VTSAX
Series I Bonds - $20k - Treasury Direct
Roth IRA: $52k - Vanguard Target Retire 2055
Roth 401k: $86k - Aggressive Portfolio Option**
Roth 401k: $1k - 2055 target fund
HSA: $10k
Debt: $25k - car financed at 0.9%, worth ~$57k
Debt: $134k - house financed at 4%, worth $210-220k

**Agressive Portfolio Option
DFA US Large Cap Value I - 7.9%
Schwab S&P 500 Index - 32.87%
DFA US Targeted Value I - 7.99%
Vanguard Small Cap Growth Index Admiral - 5.09%
DFA International Value I - 11.01%
Vanguard International Growth Adm - 11.17%
DFA International Small Cap Value I - 4.94%
DFA Global Real Estate Securities Port - 9.98%
DFA Emerging Markets Core Equity I - 9.05%
Last edited by malibuboats91 on Fri Mar 24, 2023 9:15 am, edited 2 times in total.
User avatar
retired@50
Posts: 12821
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Financial Wellness Check-In

Post by retired@50 »

malibuboats91 wrote: Fri Mar 24, 2023 8:59 am
1) I’m currently doing all Roth in my 401k but being in the 24% bracket, at what point should I go traditional?
Possibly now.

Do you pay state income tax? If so, what's the marginal rate?

More details on this important, and often misunderstood, decision can be found in the Traditional versus Roth wiki page.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
Topic Author
malibuboats91
Posts: 164
Joined: Tue Jul 08, 2014 5:50 pm

Re: Financial Wellness Check-In

Post by malibuboats91 »

retired@50 wrote: Fri Mar 24, 2023 9:08 am
malibuboats91 wrote: Fri Mar 24, 2023 8:59 am
1) I’m currently doing all Roth in my 401k but being in the 24% bracket, at what point should I go traditional?
Possibly now.

Do you pay state income tax? If so, what's the marginal rate?

More details on this important, and often misunderstood, decision can be found in the Traditional versus Roth wiki page.

Regards,
Yeah I’m in WI so it’s 5.3%, with an effective rate of about 4.9% based on my 2021 tax return.
tashnewbie
Posts: 4284
Joined: Thu Apr 23, 2020 12:44 pm

Re: Financial Wellness Check-In

Post by tashnewbie »

malibuboats91 wrote: Fri Mar 24, 2023 8:59 am I went from renting to buying a house that’s turned out to be a money pit. I paid $65k down on a $200k house and have about $18k into repairs/updates and a lot more to come.

3) I figure I need about $15k in my emergency fund for 6 months of living expenses. I have more than that in checking, savings and money market, but use it as a cushion for if I can’t cash flow my house repairs from my salary. Is that ok or should I be doing something else?
Given what you wrote about the house being a money pit and needing to spend a lot more soon, I think it would be reasonable to hang onto more cash.
1) I max my 401k, IRA and HSA. I’m currently doing all Roth in my 401k but being in the 24% bracket, at what point should I go traditional? Income tax rates will rise long term so I never know at what point I should switch. Ideally I’d get married at some point but no promises there. 😊
In the 24% bracket as a single filer, I would be making traditional 401k contributions, unless you think your tax bracket in retirement will be higher (unlikely, unless you'll have a big pension plus Social Security). While income tax rates may rise in the future (they're set to rise in 2027 when the TCJA ends), you'd still probably be in a lower bracket when you are no longer working.
4) Any other suggestions?

Roth 401k: $86k - Aggressive Portfolio Option**
If possible, I'd want to select my own funds in the 401k instead of using this off-the-shelf option.
Topic Author
malibuboats91
Posts: 164
Joined: Tue Jul 08, 2014 5:50 pm

Re: Financial Wellness Check-In

Post by malibuboats91 »

tashnewbie wrote: Fri Mar 24, 2023 9:15 am
malibuboats91 wrote: Fri Mar 24, 2023 8:59 am I went from renting to buying a house that’s turned out to be a money pit. I paid $65k down on a $200k house and have about $18k into repairs/updates and a lot more to come.

3) I figure I need about $15k in my emergency fund for 6 months of living expenses. I have more than that in checking, savings and money market, but use it as a cushion for if I can’t cash flow my house repairs from my salary. Is that ok or should I be doing something else?
Given what you wrote about the house being a money pit and needing to spend a lot more soon, I think it would be reasonable to hang onto more cash.
1) I max my 401k, IRA and HSA. I’m currently doing all Roth in my 401k but being in the 24% bracket, at what point should I go traditional? Income tax rates will rise long term so I never know at what point I should switch. Ideally I’d get married at some point but no promises there. 😊
In the 24% bracket as a single filer, I would be making traditional 401k contributions, unless you think your tax bracket in retirement will be higher (unlikely, unless you'll have a big pension plus Social Security). While income tax rates may rise in the future (they're set to rise in 2027 when the TCJA ends), you'd still probably be in a lower bracket when you are no longer working.
4) Any other suggestions?

Roth 401k: $86k - Aggressive Portfolio Option**
If possible, I'd want to select my own funds in the 401k instead of using this off-the-shelf option.
Thanks for the feedback! Would I flip to 100% traditional or do an allocation such as 50/50? I hate paying so much in tax but want to set myself up for the future.

As far as selecting funds, I know when I posted last year the group said to do VOO or VTI. I have to look more into that but yeah I agree.
User avatar
retired@50
Posts: 12821
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Financial Wellness Check-In

Post by retired@50 »

malibuboats91 wrote: Fri Mar 24, 2023 9:14 am
retired@50 wrote: Fri Mar 24, 2023 9:08 am
malibuboats91 wrote: Fri Mar 24, 2023 8:59 am
1) I’m currently doing all Roth in my 401k but being in the 24% bracket, at what point should I go traditional?
Possibly now.

Do you pay state income tax? If so, what's the marginal rate?

More details on this important, and often misunderstood, decision can be found in the Traditional versus Roth wiki page.

Regards,
Yeah I’m in WI so it’s 5.3%, with an effective rate of about 4.9% based on my 2021 tax return.
So, your total marginal rate is 29.3%. (Fed + State)

In my view, it's unlikely you'll be paying more than that as a retiree (probably much less), with no job, and no wages, when RMDs begin at 75 years old. Therefore, switch to traditional tax-deferred for 100% of your contributions.

P.S. Don't just take my word for it. You should really review the wiki link above to gain a better understanding of the situation. There is some nuance and estimation that comes into play that's worth knowing about.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
steadyosmosis
Posts: 976
Joined: Mon Dec 26, 2022 11:45 am

Re: Financial Wellness Check-In

Post by steadyosmosis »

malibuboats91 wrote: Fri Mar 24, 2023 9:17 am
tashnewbie wrote: Fri Mar 24, 2023 9:15 am
malibuboats91 wrote: Fri Mar 24, 2023 8:59 am I went from renting to buying a house that’s turned out to be a money pit. I paid $65k down on a $200k house and have about $18k into repairs/updates and a lot more to come.

3) I figure I need about $15k in my emergency fund for 6 months of living expenses. I have more than that in checking, savings and money market, but use it as a cushion for if I can’t cash flow my house repairs from my salary. Is that ok or should I be doing something else?
Given what you wrote about the house being a money pit and needing to spend a lot more soon, I think it would be reasonable to hang onto more cash.
1) I max my 401k, IRA and HSA. I’m currently doing all Roth in my 401k but being in the 24% bracket, at what point should I go traditional? Income tax rates will rise long term so I never know at what point I should switch. Ideally I’d get married at some point but no promises there. 😊
In the 24% bracket as a single filer, I would be making traditional 401k contributions, unless you think your tax bracket in retirement will be higher (unlikely, unless you'll have a big pension plus Social Security). While income tax rates may rise in the future (they're set to rise in 2027 when the TCJA ends), you'd still probably be in a lower bracket when you are no longer working.
4) Any other suggestions?

Roth 401k: $86k - Aggressive Portfolio Option**
If possible, I'd want to select my own funds in the 401k instead of using this off-the-shelf option.
Thanks for the feedback! Would I flip to 100% traditional or do an allocation such as 50/50? I hate paying so much in tax but want to set myself up for the future.

As far as selecting funds, I know when I posted last year the group said to do VOO or VTI. I have to look more into that but yeah I agree.
I spent working years doing pre-tax 401k in 22% and 25% marginal tax brackets.
Now early-retired, I convert annually to Roth IRA at tax cost of 12%, or less.
Good luck with your decision.
Age<59.5. Early-retired. AA ~55/45. Taxable account, Roth IRA, HSA...all are 100% equities. 100% of fixed income is in tIRA. I spend from taxable and re-balance in tIRA.
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