Paid off our school loans, e fund, and now what?!

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honeymoney
Posts: 6
Joined: Thu May 17, 2018 4:14 pm

Paid off our school loans, e fund, and now what?!

Post by honeymoney » Thu May 17, 2018 4:28 pm

Just completed paying off all school debt (175k!) 1 year ago and establishing emergency fund.

Background:
Ages: early/mid 30's.
Salary:
His 120k
Hers 105k
Two small children in full time childcare.

Currently maxing 401k and 403b and an HSA through spouse work.
Current debt: 202k mortgage at 4.5 percent (house est current value 300k)

Accounts:
Checking: 13k
Emergency fund: 15.5 k (is this enough?we figure we'd dip into house down payment account- which is all cash right now)
House down payment savings: 15.5k (would like to move to new home in the next 6 months)
Total cash: 44k

Investments:
Her: 403b 85k
His: 401k less than 1k (new job just started)

Vanguard rolled over IRA, His: 150k
Vanguard joint after tax account: 35k

Stock (company award from a previous job, fully vested): 85k
HSA: 8k

529s
Child 1- 3k
Child 2- 3k

Own 2 cars outright both 6 years old.
Major expenses:
Child care 2500 a month (amount for both children) - someday this will be reduced when in school.
Mortgage and hoa $1800

Goals: we would like to move into a home in the city which is higher COL but would eliminate long commutes.
long term- vacation rental home, that we could potentially retire in.
earlyish retirement (early to late 50's- or sooner if our financial situation changes!)

So my question is:
1. Should we get a financial advisor to evaluate our progress and make a plan? go it ourselves? I'm new to investing but willing to learn.
2. What is our next best step? Should we focus on the vanguard joint after tax account sine we are maxing our 403b/401k currently?
3. Should we open roth IRA, will that help us with taxes? we did not think we qualified based on salary.

Thanks for your guidance- trying to read up on the forum and learn as much as possible.

bloom2708
Posts: 4775
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Paid off our school loans, e fund, and now what?!

Post by bloom2708 » Fri May 18, 2018 9:30 am

Welcome

1. Noooo. You have a team of financial advisors here who charge $0. 3 funds style portfolio. You can do it yourself. It is not hard or complicated.

2. I see no mention of Roth IRAs. With your standard deduction, maxing pre-tax 401k/403b and pre-tax HSA, you should be well under the income phase out limits for Roth IRAs. 2 x $5,500 at Vanguard each year is your next step. Use your tax savings from maxing pre-tax items to fund Roths.

3. Yes to Roths. You should qualify. You start with your gross pay and then lower by standard deduction, pre-tax 401k/403b and pre-tax HSA. $186k is the phase out or in that range. If you have more to invest, that goes to the taxable account. Total US and Total International.

I'd probably get to $25k on the Emergency Fund. Will have to balance with the house moving fund.

Do you have a strategy for diversifying out of the company stock? Your job and benefits already depend on the company. We sold and diversified into Total US, Total International and our bond preference (Total US for tax-sheltered and Int-Term Tax-Exempt in taxable).

Could the stock re-org fill your Emergency Fund and fill up your house fund? Fund your Roths for 2018 x 2?

Things look good. Go through the 10 Boglehead principles in the Wiki. Low cost. Know the expense ratio of anything you invest in. Broad index based. Think 3 fund. Total US, Total International, Total US Bond. Target date funds are good (4 funds in one, adding Total International Bond).

Spending time here will vault your knowledge forward. Read threads, ask follow up questions.

Welcome again!
Last edited by bloom2708 on Fri May 18, 2018 10:28 am, edited 2 times in total.
Where to spend your time: | 1. You completely control <--spend your time here! | 2. You partially control <--spend your time here! | 3. You have no control <--spend no time here!

basspond
Posts: 1073
Joined: Wed Nov 27, 2013 4:01 am

Re: Paid off our school loans, e fund, and now what?!

Post by basspond » Fri May 18, 2018 9:41 am

15 year mortgage on new house
Don’t tie yourself to a 2nd house. Adds a lot of expenses to maintain two households.
Open Roth if you can.
Don’t look for ways to spend the student loan payments.

soccerrules
Posts: 803
Joined: Mon Nov 14, 2016 4:01 pm

Re: Paid off our school loans, e fund, and now what?!

Post by soccerrules » Fri May 18, 2018 10:27 am

a few thoughts
1) Great job on knocking out the student debt-- huge win!
2) Why are you saving more for next house when it appears you have $100K equity in current house ? Sell your house and buy a new one-- move the $100K received at closing to fund down payment for the next home. Try for 15 year mortgage.
3) Increase EF to minimum of 6 mo expenses.
4) Crank up the savings to max Roth's (backdoor probably) and HSA, then go to taxable. You will need to see if HIS company will allow for an IRA rollover into the 401K to avoid the pro-rata rule on IRA and Roth conversions.

You do not need a FA.
Keep reading books, blogs , BH and other forums.
Don't let your outflow exceed your income or your upkeep will be your downfall.

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djpeteski
Posts: 634
Joined: Fri Mar 31, 2017 9:07 am

Re: Paid off our school loans, e fund, and now what?!

Post by djpeteski » Fri May 18, 2018 11:23 am

honeymoney wrote:
Thu May 17, 2018 4:28 pm
Just completed paying off all school debt (175k!) 1 year ago and establishing emergency fund.
Congratulations, that is a huge accomplishment.

Background:
Ages: early/mid 30's.
Salary:
His 120k
Hers 105k
Two small children in full time childcare.
So my question is:
1. Should we get a financial advisor to evaluate our progress and make a plan? go it ourselves? I'm new to investing but willing to learn.
I wouldn't bother everything you need is here on this site for free. You can do portfolio checks, which will get great advise for free.
2. What is our next best step? Should we focus on the vanguard joint after tax account sine we are maxing our 403b/401k currently?
If it was me, I'd focus on your next house and I would do so by paying down your existing mortgage (at least some). This way you can be in your new house before the kids start school and avoid a school change. Most savings accounts do not pay the rate on your mortgage.
3. Should we open roth IRA, will that help us with taxes? we did not think we qualified based on salary.
At this juncture, I wouldn't focus on your stated goals.

To take care of ASAP:
1) Do you have life insurance? I would recommend she has at least 750k, and you 1.25 million in level term insurance outside of your employer. This is important for each other and your babies.

2) Do you guys have long term disability insurance?

3) Pat yourself on the back, you are doing pretty darn good.



Here is some nitpicking:

1) I would keep less in checking, probably around 2,500. If you add that to your efund in an online savings account I would feel better. We only have 15k in our efund but also have a bunch of sinking funds for various expenses. We are the types that never touch our efund. So you will probably be okay with about 26k in your efund.

2) That company stock is about 20% of your total liquid assets. I would sell at least some of it. if you have a lot of faith in the company, then I would sell about half, more or all if your faith is less.

3) Be flexible about the vacation home. Many people find these money pits. It may not be that way for you guys, but just be flexible.

ExitStageLeft
Posts: 896
Joined: Sat Jan 20, 2018 4:02 pm

Re: Paid off our school loans, e fund, and now what?!

Post by ExitStageLeft » Fri May 18, 2018 1:44 pm

Welcome to the forum and congratulations on paying off the student loan debt.

The question of Traditional vs. Roth doesn't always have a straightforward answer. If you're in that gray area then you can split the difference.

My in-laws bought a vacation rental condo at a Colorado ski area in the 80s. They kept it up until my MIL passed away. While they were working and accumulating it was rented out all but two weeks a year, so it managed to pay for itself. Once they retired, they took it off the rental market and used it as their mountain getaway. They lived in a condo in downtown Denver and bounced between mountains and city as their whim dictated. It worked out great for them, and if you are considering something similar I urge you to jump in with both feet. After of course checking the water for hazards! :P

honeymoney
Posts: 6
Joined: Thu May 17, 2018 4:14 pm

Re: Paid off our school loans, e fund, and now what?!

Post by honeymoney » Fri May 18, 2018 5:31 pm

bloom2708 wrote:
Fri May 18, 2018 9:30 am

2. I see no mention of Roth IRAs. With your standard deduction, maxing pre-tax 401k/403b and pre-tax HSA, you should be well under the income phase out limits for Roth IRAs. 2 x $5,500 at Vanguard each year is your next step. Use your tax savings from maxing pre-tax items to fund Roths.

3. Yes to Roths. You should qualify. You start with your gross pay and then lower by standard deduction, pre-tax 401k/403b and pre-tax HSA. $186k is the phase out or in that range. If you have more to invest, that goes to the taxable account. Total US and Total International.

I'd probably get to $25k on the Emergency Fund. Will have to balance with the house moving fund.

Do you have a strategy for diversifying out of the company stock? Your job and benefits already depend on the company. We sold and diversified into Total US, Total International and our bond preference (Total US for tax-sheltered and Int-Term Tax-Exempt in taxable).

Could the stock re-org fill your Emergency Fund and fill up your house fund? Fund your Roths for 2018 x 2?
Thanks so much for your suggestions!

We will prioritize the Roth IRA's for sure. I like the 3-4 fund strategy I've been reading about. Our current accounts are a little messy so we may need to adjust them to simplify.

25k, for emergency, I agree. We figured at this point most of our checking and the emergency fund together was about 25k, we will move that over since our checking is a bit unnecessarily high.

We do not currently have a strategy to diversify the stock. It was from his previous job so no longer relying on it for salary and benefits which is good!, and had vested over time. It is now at a point where we definitely need to diversify. However the company is a long standing company that has paid increasing dividends every year for 25 some years. Still I think we have too much of our net worth tied up there.

honeymoney
Posts: 6
Joined: Thu May 17, 2018 4:14 pm

Re: Paid off our school loans, e fund, and now what?!

Post by honeymoney » Fri May 18, 2018 5:34 pm

basspond wrote:
Fri May 18, 2018 9:41 am

Don’t look for ways to spend the student loan payments.
haha daycare is doing a good job of that! ;)

honeymoney
Posts: 6
Joined: Thu May 17, 2018 4:14 pm

Re: Paid off our school loans, e fund, and now what?!

Post by honeymoney » Fri May 18, 2018 5:40 pm

soccerrules wrote:
Fri May 18, 2018 10:27 am

2) Why are you saving more for next house when it appears you have $100K equity in current house ? Sell your house and buy a new one-- move the $100K received at closing to fund down payment for the next home. Try for 15 year mortgage.

4) Crank up the savings to max Roth's (backdoor probably) and HSA, then go to taxable. You will need to see if HIS company will allow for an IRA rollover into the 401K to avoid the pro-rata rule on IRA and Roth conversions.
saving for house to supplement to get to the 20% down, on what will likely be a more expensive home/ cover closing costs. alternative would be to put less down.

will read up on backdoor roth, HSA is currently maxed. and will look up pro-rata. We rolled over his 401k and a cash pension from the previous company into a new vanguard IRA that we opened for him just recently with the job change, but maybe that wasn't a good decision? We put it straight in so we did not pay taxes- just transferred.

honeymoney
Posts: 6
Joined: Thu May 17, 2018 4:14 pm

Re: Paid off our school loans, e fund, and now what?!

Post by honeymoney » Fri May 18, 2018 5:52 pm

djpeteski wrote:
Fri May 18, 2018 11:23 am

To take care of ASAP:
1) Do you have life insurance? I would recommend she has at least 750k, and you 1.25 million in level term insurance outside of your employer. This is important for each other and your babies.
yes we currently have 1 on Him, and 850k term outside of work and then his new job offered 120k and hers is 200k, looking to up his a bit but they want a new physical etc.
2) Do you guys have long term disability insurance?
not outside of work policies yet. so we will look into this.
Here is some nitpicking:

1) I would keep less in checking, probably around 2,500. If you add that to your efund in an online savings account I would feel better. We only have 15k in our efund but also have a bunch of sinking funds for various expenses. We are the types that never touch our efund. So you will probably be okay with about 26k in your efund.

2) That company stock is about 20% of your total liquid assets. I would sell at least some of it. if you have a lot of faith in the company, then I would sell about half, more or all if your faith is less.

3) Be flexible about the vacation home. Many people find these money pits. It may not be that way for you guys, but just be flexible.
Thank you for the nit picking! its great to think about.

definitely going to move some of the checking into our emergency fund, which will bring it more in line with 6 month expenses.
going to look at diversifying the company stock. we do have pretty good faith in it. pays dividends and has been increasing them for many years. but I agree its too much of our assets in one bucket.

definitely flexible on the vacation home- but we want to keep the idea on our radar, it would be a rental home that could be rented and then be used down the road. however we are fortunate that the grandparents have one (which they bought young and rented out until retirement, and that has paid off for them in the long run).

honeymoney
Posts: 6
Joined: Thu May 17, 2018 4:14 pm

Re: Paid off our school loans, e fund, and now what?!

Post by honeymoney » Fri May 18, 2018 5:56 pm

ExitStageLeft wrote:
Fri May 18, 2018 1:44 pm
My in-laws bought a vacation rental condo at a Colorado ski area in the 80s. They kept it up until my MIL passed away. While they were working and accumulating it was rented out all but two weeks a year, so it managed to pay for itself. Once they retired, they took it off the rental market and used it as their mountain getaway. They lived in a condo in downtown Denver and bounced between mountains and city as their whim dictated. It worked out great for them, and if you are considering something similar I urge you to jump in with both feet. After of course checking the water for hazards! :P
this! that is kind of what the plan would be, and similar to our parents current retirement gig. but we want to make sure we have our financial ducks in a row before we make the leap, so just keeping it on the radar for now as we learn more!

Flyer24
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Joined: Sun Apr 08, 2018 4:21 pm

Re: Paid off our school loans, e fund, and now what?!

Post by Flyer24 » Fri May 18, 2018 8:01 pm

I would take the house down payment savings and just pay extra on your current house. You will get a bigger chunk back when you sell the house and you are paying less interest.

User avatar
djpeteski
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Re: Paid off our school loans, e fund, and now what?!

Post by djpeteski » Mon May 21, 2018 6:12 am

honeymoney wrote:
Fri May 18, 2018 5:52 pm
yes we currently have 1 on Him, and 850k term outside of work and then his new job offered 120k and hers is 200k, looking to up his a bit but they want a new physical etc.
Pretty good, lets get hers upped, but it sounds like you guys are working on that!

not outside of work policies yet. so we will look into this.
It is okay with having LTD through an employer, provided the coverage is sufficient. Typically this is the most affordable way for you to buy.
Thank you for the nit picking! its great to think about.
:mrgreen: Not everyone says that to me. :beer This is however nit picking. For example if selling 32.3% of your company stock is the right number, then fine. You guys have a great trajectory.

While HGTV will tell you otherwise, vacation homes do not often workout to be good investments. Now if you guys want to own a vacation home, and it brings some income. Fine. Just be prepared that things will not go as well as they could financially. You will probably make some great family memories, but it might hurt a bit on the balance sheet/income statement.

Again, well done and keep up the good work!

101
Posts: 29
Joined: Tue Dec 01, 2015 9:10 pm

Re: Paid off our school loans, e fund, and now what?!

Post by 101 » Mon May 21, 2018 9:57 am

honeymoney wrote:
Thu May 17, 2018 4:28 pm
Salary:
His 120k
Hers 105k
Between your 401k, 403b and HSA deductions, you may just make it under the phaseout limit for Roth IRA contributions (189,000 for Married Filing Jointly). 225,000 - (18,500*2 + 6850) = 181,150, which would give you $7850 of headroom.

If this is true, funding both Roth IRAs is somewhat of a no-brainer, even if it means just moving your emergency fund into them.
honeymoney wrote:
Thu May 17, 2018 4:28 pm
Vanguard joint after tax account: 35k
Stock (company award from a previous job, fully vested): 85k

529s
Child 1- 3k
Child 2- 3k
Since your mortgage interest rates (both current and future) are likely to be higher than the expected return of any portfolio you could construct with similar risk, it's a better deal for you to direct any money you would otherwise add to a taxable account towards reducing your mortgage instead. For the same reason, depending on how much you would need to pay in taxes, it might also be a good idea to use some of your taxable funds, especially the individual stocks, towards your next mortgage down payment.

Because your mortgage interest rate will likely be higher than a similar portfolio's return, you could also use extra payments towards your mortgage as a method to generate savings for your children's education. You could for instance get a 15 year mortgage, which would be paid off by the time your first child starts college, and then the extra cash flow that's no longer going towards the mortgage can be used for education. You could use the taxable funds and the equity when your current house sells to pay the higher monthly mortgage payments, which would be a better use of the money anyway than taking a longer mortgage and putting that money into a taxable account or 529 instead.

soccerrules
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Joined: Mon Nov 14, 2016 4:01 pm

Re: Paid off our school loans, e fund, and now what?!

Post by soccerrules » Mon May 21, 2018 10:44 am

honeymoney wrote:
Fri May 18, 2018 5:40 pm
soccerrules wrote:
Fri May 18, 2018 10:27 am

2) Why are you saving more for next house when it appears you have $100K equity in current house ? Sell your house and buy a new one-- move the $100K received at closing to fund down payment for the next home. Try for 15 year mortgage.

4) Crank up the savings to max Roth's (backdoor probably) and HSA, then go to taxable. You will need to see if HIS company will allow for an IRA rollover into the 401K to avoid the pro-rata rule on IRA and Roth conversions.
saving for house to supplement to get to the 20% down, on what will likely be a more expensive home/ cover closing costs. alternative would be to put less down. Be mindful of buying too much house. $100K in Equity gives you 20% down on a $500K house.

will read up on backdoor roth, HSA is currently maxed. and will look up pro-rata. We rolled over his 401k and a cash pension from the previous company into a new vanguard IRA that we opened for him just recently with the job change, but maybe that wasn't a good decision? We put it straight in so we did not pay taxes- just transferred. You are fine with rolling past 401K/cash pension to IRA. This is a common action. If your income is to high to make a direct Roth contribution you will need to do a backdoor contribution. Which is making a non-deductible contribution to a traditional IRA and then moving the money to a Roth IRA. If you personally have other money in a traditional IRA, the IRS looks at these together and employs a prorata rule to your Traditional IRAs. If you can move your Traditional IRA monies into your current company 401k/403B then you can avoid the tax hit based on the pro rata rule. (read up on it) FYI I just did this with my Trad IRA to allow for roth conversion.
Don't let your outflow exceed your income or your upkeep will be your downfall.

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