What to do with extra $2500 a month?????

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bg5
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What to do with extra $2500 a month?????

Post by bg5 » Fri Jul 13, 2018 9:55 am

Hello,

Thanks in advance to all the help that this site has given me. I am very thankful to have a resource such as this :)

Here are the facts!

We have an extra $2500 a month and we are not sure what to do with it and I am looking for advice.

Facts about the Family

-My income is $80,000 a year and I have a guaranteed raise of at least 1.5% over the next 10 years (I am 37 and she is 33)

-My wifes income is $62,000 and she has a guaranteed raise of at least 5% over the next 10 years (We are both teachers

-We have 2 children ages 10 and 6

- We owe $240,000 on a home worth $450,000 with 4.25 interest rate.....have 28 years left on mortage

-We owe $37,000 on a boat with a 3.99 interest rate with 14 years of payments left

-We have $150,000 in retirement combined

-We have $25,000 in savings

-We will both have pensions when we retire that is 50% of our 3 highest years of salary. Both have survivor clauses which means if one of us dies the other still gets 100% until our death.

-We currently both max out our Roth IRA each year and we both contribute an additional 10% into our 403B accounts

-We contribute $2500 a year into hour HSA which more than covers our medical expenses. We usually only use around $1500 of this a year

-we contribute $2400 a year into a 529 plan through the state of Michigan which is a one of the better 529 plans out there through TIAA-Creff


The big question is what should we do with our extra $2500 a month which will continue to grow over the years.

One thing I left off is we want to fully fund our kids college tuition as long as they attend a local Public University in the State of Michigan. We currently have around $7000 in their account so we know we are way behind.

Our thoughts were as follows but are open to advice

1. Contribute around $600 a month into the 529 plan and know that we will be short on college but cash flow the rest in the future.

2. We are not sure if we should invest more.....pay down debt......or increase 529 plan? Any advice would be helpful.

3. I would love to retire in 15 years and my wife wants to retire in 20 years.


Thanks again for the help!

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goodenyou
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Re: What to do with extra $2500 a month?????

Post by goodenyou » Fri Jul 13, 2018 9:59 am

Payoff the boat ASAP.
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Marjimmy
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Re: What to do with extra $2500 a month?????

Post by Marjimmy » Fri Jul 13, 2018 10:04 am

Just my 2 cents but wanting to retire at 52 is a big goal in it self. If you plan to retire that early, fully fund your kids college tuition and continue to invest for growth....... more information is needed.

What I can ask though is how important is the boat to you? Me personally, I would sell the boat, use those funds to pay off what I can of the mortgage and use the extra $2,500 towards it aswell.

Only then would I put any extra money aside toward kids colleges. College tuition interest rates are cheaper to find than a 30yr mortgage interest rate.

Again, just my 2 cents....
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Pajamas
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Re: What to do with extra $2500 a month?????

Post by Pajamas » Fri Jul 13, 2018 10:05 am

If you don't have a taxable investment account (I may have missed it in your post) then starting one would be a good idea, especially if you want to retire early.

The idea of a $37k 3.99% 14 year boat loan would bother me and I would think about paying that off even though the interest rate is not onerous. Look at the total cost of the boat over the length of the loan including interest and see how you feel about it.

In light of your ages and your careers, you should consider getting advanced degrees if you can do so at reasonable cost locally and if that will result in higher pay and possibly open up additional opportunities for you. I'm sure you love exactly what you are doing now but you might not feel quite the same way in ten years.

John Doe 123
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Re: What to do with extra $2500 a month?????

Post by John Doe 123 » Fri Jul 13, 2018 10:07 am

Marjimmy wrote:
Fri Jul 13, 2018 10:04 am
College tuition interest rates are cheaper to find than a 30yr mortgage interest rate.
Do you know this to be true? This has not been my experience. In fact, interest rates on student loans have been as much as twice as high as mortgage rates in my experience.

02nz
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Re: What to do with extra $2500 a month?????

Post by 02nz » Fri Jul 13, 2018 10:09 am

First, pay off the debt on the boat (even though it has a slightly lower rate than your mortgage). It may not have been a wise purchase, but that's a sunk cost; you now need to decide whether it's worth continuing to pay the costs of upkeep. But pay off the debt regardless.

You're not making best use of the HSA. You should max the HSA ($6900/year); the benefits are far too rich to pass up. And since you have plenty of cash left over, you should keep the money growing in the HSA rather than using it now to reimburse expenses. Those expenses can be reimbursed at any point in the future (just keep the receipts). When you turn 65 your HSA can also be withdrawn like a traditional IRA (paying income taxes), or even used to pay Medicare premiums totally tax-free.

You have decent-sized pensions, but you'll need to step up the retirement savings if you want to retire in the desired time frame. What are your options and costs like in the 403b? I'd put the bulk of available cash flow toward that, maybe 70% retirement 30% 529. As people like to point out here, you can borrow for college but not for retirement.

paramedic
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Re: What to do with extra $2500 a month?????

Post by paramedic » Fri Jul 13, 2018 10:12 am

I would advise that you try to save more for retirement. I'm concerned with the low amount of your retirement savings. A HSA is also a great retirement vehicle.

I know that you and your wife each have a pension, but I am so loath to trust those in terms of retirement income.

Chrono Triggered
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Re: What to do with extra $2500 a month?????

Post by Chrono Triggered » Fri Jul 13, 2018 10:16 am

Personally, I would seek to max out the HSA before the Roth IRA's, or contribute only to the 401k match and then to the HSA, and forgo investing in the 529 plan. Wanting to pay for your children's tuition is an admirable goal, but having assets in a 529 will reduce their financial aid eligibility, which means you'll give up free assistance. It's best to ensure every tax advantaged space is maxed out before contributing to a 529 plan. If anything, saving money in a taxable account with a tax efficient fund that is earmarked for their tuition will most likely provide a better outcome than a 529 plan (especially if tax advantaged space is not maxed out).

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mhc
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Re: What to do with extra $2500 a month?????

Post by mhc » Fri Jul 13, 2018 10:19 am

You have $25k in savings. Is that your emergency fund? If so, how many months of expenses is that? You may wish to increase that.

I would look at paying of the boat before increasing 529 contributions. I would also look at maxing the HSA contributions before 529 contributions. I would also stop using the HSA for medical expenses. Use it as a retirment account.

The more debt you can eliminated before the children hit college, the more you will be able to cash flow their education.

sjt
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Re: What to do with extra $2500 a month?????

Post by sjt » Fri Jul 13, 2018 10:22 am

Marjimmy wrote:
Fri Jul 13, 2018 10:04 am
What I can ask though is how important is the boat to you? Me personally, I would sell the boat, use those funds to pay off what I can of the mortgage and use the extra $2,500 towards it aswell.
Came to post this. A boat is an extravagance and comes with other costs besides the boat loan - insurance, titling / licensing, possibly trailer, possibly large car to tow boat, fuel for boat, etc. I have a boat but it's 12 ft long, wind powered and 40 years old. Need to really evaluate how important it is to you and if the cost is worth it.


Do you have any other tax deferred options? My wife is a teacher and has access to 403b, 401k, and 457.
"The one who covets is the poorer man, | For he would have that which he never can; | But he who doesn't have and doesn't crave | Is rich, though you may hold him but a knave." - Wife of Bath tale

02nz
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Re: What to do with extra $2500 a month?????

Post by 02nz » Fri Jul 13, 2018 10:26 am

Chrono Triggered wrote:
Fri Jul 13, 2018 10:16 am
Wanting to pay for your children's tuition is an admirable goal, but having assets in a 529 will reduce their financial aid eligibility, which means you'll give up free assistance.
While this is generally true (and many people underestimate the amount of financial aid they may qualify for), in OP's case it sounds like the kids are likely to go to Michigan public universities; the spread in their ages is such that their time in college won't be overlapping (or only by a year); and the parents have well-above-average income. Families with $150K of income and one kid in college don't get need-based scholarships for schools that cost $30K, because they can afford it. If however one or both are very high achievers and are likely to get into one of the top private colleges that cost much more but also meet the full financial aid, then it might be different.

bg5
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Re: What to do with extra $2500 a month?????

Post by bg5 » Fri Jul 13, 2018 10:41 am

Thanks for all the quick responses :)

Boat Issue

Yes, I know this was probably a bit silly but we live on a lake and use it everyday as a family. We dive beater cars, dont go shopping often so our $250 payment is something we are comfortable with. I agree that we need to pay this off sooner than later and with $2500 a month it wont take long to do with our income.

529 plan
I never really thought about how having alot of money if a 529 plan might impact any "free money" that is out there. After a few of these posts I am now considering keeping the $200 a month in a 529 plan and contributing more to our HSA and bumping up our 403B plans.

Furthering Education
Both my wife and I have two master degrees so we are at the top of the pay scale in our teaching profession. It was the wisest decision we have ever made because on our pay scale its a guaranteed return on investment. The next step is a doctorate and it would not benefit us financially in our current jobs.

Roth IRA & 403B accounts
We will continue to max out our Roth IRA each year and as I mentioned earlier we are putting away an extra 10% into our 403B accounts which is pretax. We have great options from our employer and we are currently investing most of it into VTSMX.

Retirement Concerns
The biggest concern I have for retirement is paying off my home. I really want this bad boy paid off but most people I have talked to said invest like hell and pay off house later with interest rates so low. Mine is just over 4% so that is not terrible.

My thoughts
I continue to think about just investing more in my 403B and HSA. I dont know how I could go wrong with this as long as I get the boat paid off sooner than later!

I am still confused on what to do :)

sjt
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Re: What to do with extra $2500 a month?????

Post by sjt » Fri Jul 13, 2018 11:09 am

bg5 wrote:
Fri Jul 13, 2018 10:41 am
Thanks for all the quick responses :)

Boat Issue

Yes, I know this was probably a bit silly but we live on a lake and use it everyday as a family. We dive beater cars, dont go shopping often so our $250 payment is something we are comfortable with. I agree that we need to pay this off sooner than later and with $2500 a month it wont take long to do with our income. Everyone should money on hobbies they enjoy. If you use it often and it's one of your only splurges, that's important.

Retirement Concerns
The biggest concern I have for retirement is paying off my home. I really want this bad boy paid off but most people I have talked to said invest like hell and pay off house later with interest rates so low. Mine is just over 4% so that is not terrible. You can invest in a taxable account and earmark it as the 'house payoff fund', but the money is still liquid. Alternatively, consider switching to a 15 year mortgage with a lower rate. It would increase your monthly payment but also save you a couple hundred going to interest each month.

My thoughts
I continue to think about just investing more in my 403B and HSA. I dont know how I could go wrong with this as long as I get the boat paid off sooner than later!

I am still confused on what to do :) Have a solid plan and stick to it. Use a conservative market rate and calculate how much you'll have for retirement. Is it enough? A saying often said here goes something like "The enemy of a good plan is a better plan". Whatever you decide, it's not going to be perfect. If you knew what would happen with the market / interest rates / etc in the future, you could build the perfect plan. But you don't know this, so you just need to pick a solid plan you can live with
"The one who covets is the poorer man, | For he would have that which he never can; | But he who doesn't have and doesn't crave | Is rich, though you may hold him but a knave." - Wife of Bath tale

PedsDoc
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Re: What to do with extra $2500 a month?????

Post by PedsDoc » Fri Jul 13, 2018 11:11 am

I would try to have the boat paid off over the next 2 years and put the rest into your retirement accounts. So that would look like this:

1. $1500 extra toward the boat making your payment $1750 - pays off your boat in 22 months. After this work on paying off the house.
2. The other $1000 can be used to max out your HSA and then add to your retirement accounts. These would both be pretax and so will be more than 1K per month into those accounts depending on you tax rate.

The money in you 529 plans does affect getting financial aid later but not by a lot, so I would not let that hold you back in contributing to those accounts. The tax savings should be greater than the reduction of your financial aid. I would certainly make a long term goal for retirement first and fund that before funding the 529's though.

Dottie57
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Re: What to do with extra $2500 a month?????

Post by Dottie57 » Fri Jul 13, 2018 11:13 am

goodenyou wrote:
Fri Jul 13, 2018 9:59 am
Payoff the boat ASAP.

+1

WhiteMaxima
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Re: What to do with extra $2500 a month?????

Post by WhiteMaxima » Fri Jul 13, 2018 11:13 am

divided evenly among: paying off the boat, laddered CD as emergency fund, Roth for both of you. So 1/3 1/3 1/3.

bloom2708
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Re: What to do with extra $2500 a month?????

Post by bloom2708 » Fri Jul 13, 2018 11:14 am

50% to boat.

50% to help max pre-tax 403b and HSA.

I'm fine with a boat, just not owing $37,000 on that boat. If you had to trade or try to sell outright, it is highly unlikely you get anywhere close to $37k. Probably closer to $25k. I know you enjoy and have no plans to sell. It is just heading toward $0 faster than some other purchases.
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Pajamas
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Re: What to do with extra $2500 a month?????

Post by Pajamas » Fri Jul 13, 2018 11:14 am

bg5 wrote:
Fri Jul 13, 2018 10:41 am
I am still confused on what to do :)
Based on the additional comments from you, divert the $2.5k monthly to the boat loan and then you have another year or eighteen months to figure out what to do with $2.75k after that. That's a guaranteed 3.99% return, much better than any other comparably safe return right now.

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djpeteski
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Re: What to do with extra $2500 a month?????

Post by djpeteski » Fri Jul 13, 2018 11:19 am

bg5 wrote:
Fri Jul 13, 2018 9:55 am

-We have 2 children ages 10 and 6

One thing I left off is we want to fully fund our kids college tuition as long as they attend a local Public University in the State of Michigan. We currently have around $7000 in their account so we know we are way behind.
Nothing could be further from the truth, you are not way behind. If they both started university today, the 2500 could cash flow tuition and books if they lived at home. One thing people miss about college savings is that they do not need the entire amount before the kid starts, the only need one semester and can cash flow from there.
We owe $37,000 on a boat with a 3.99 interest rate with 14 years of payments left
How about we make that 14 months instead. The amount in question $2500 pays off the boat in 14.8 months. With the payment you are already making and interest charges you will be right around 14 months. Can you do it in 12?

If it was me, I would cut out all investing, empty the savings account, put the budget on a diet and pay this off ASAP, I would then rebuild the savings account as quickly as possible. I would want to start next boating season with a paid off boat.

jj
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Re: What to do with extra $2500 a month?????

Post by jj » Fri Jul 13, 2018 12:33 pm

There are no bad options which is why you're getting all kinds of different answers... having $2,500 a month left over in your budget is a great situation to be in.

If it were me I would, in order:

- re-mortgage to a 15-year note. This reduces your term to approximately the year you want to retire, reduces your interest rate, and the amount of total interest you pay over the years.

- increase the HSA amount to the $6900 maximum and consider investing it rather than using it. You can take each (major) bill as it comes, so in effect, this is can be seen as part of your emergency fund.

- pay off the boat, starting a taxable brokerage account when this is done.

- add to 529 plans.

Review every couple of years to see if your priorities have changed.

Good luck!
...it is madness to risk losing what you need in pursuing what you simply desire. Warren E. Buffett

Ron Ronnerson
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Re: What to do with extra $2500 a month?????

Post by Ron Ronnerson » Fri Jul 13, 2018 1:27 pm

I would look into whether or not you and your wife have a 457b available. If so, and it has good investments available, I would begin to fund 457b accounts. These accounts have a provision which makes them more favorable than 403b accounts for those who retire early. Basically, there is no 10% penalty to withdraw from 457b accounts once you separate from your employer regardless of your age.

Assuming you have good, low-cost investments available in all accounts, I would prioritize like this:
1) Max to HSA
2) Max to Roth IRA accounts
3) Max to 457b accounts
4) Max to 403b accounts
5) 529 accounts
6) Taxable accounts

With $2500 extra a month, you can probably get part way through #4.

Personally speaking, My wife and I have focused on retirement accounts and don’t have a 529 for our daughter. Education is very important to us. I’m also a teacher with two masters degrees.

I also wouldn’t pay off the house early since your rate is low.

I think 529 accounts and paying off a home (that has a low interest rate) early are fine things to do with your money but only once you’ve maxed out retirement account space, especially if you hope to retire early.

By the way, your emergency fund seems on the low side but might be okay depending on your expenses. You may want to add a bit to that over the next few months.

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midareff
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Re: What to do with extra $2500 a month?????

Post by midareff » Fri Jul 13, 2018 1:30 pm

Cruise ship and see the world.

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blackfish
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Re: What to do with extra $2500 a month?????

Post by blackfish » Fri Jul 13, 2018 1:42 pm

I see a lot of people pushing the HSA even over the Roth IRA. What is the main reason for this, and is there some literature one could point me to?

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knpstr
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Re: What to do with extra $2500 a month?????

Post by knpstr » Fri Jul 13, 2018 1:54 pm

Assuming those pensions will be there for you, you are in a good spot.

If you have a goal to retire early I'd suggest saving the money in a taxable account, an account free of strings attached to do whatever you please.
The boat will be paid off by the date of your desired retirement and the house nearly paid off by the date of her desired retirement.

If you change your mind or things change you can use the taxable investment account to pay down debt or use help pay for college or whatever else depending upon how the future unfolds.

Rough calculation:

80k+62k=142k combined salary
142k-30k-5.5k-5.5k-14.2k-2.5k-2.4k= 81.9K living expenses or estimated retirement needs (what is left after all of your savings you do)

assuming pension is 50% then 142K*.5=71k pension income
81.9k-71k=10.9K shortfall
10.9k*25=272.5K nest egg need
272.5-150=122K more needed to have full funded retirement
122/25.2=4.84 years from fully funded retirement at current retirement savings rate (assuming no growth or loss).

So as you can see you are very close to a fully funded retirement... as long as your pension doesn't disappear.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

02nz
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Re: What to do with extra $2500 a month?????

Post by 02nz » Fri Jul 13, 2018 2:27 pm

blackfish wrote:
Fri Jul 13, 2018 1:42 pm
I see a lot of people pushing the HSA even over the Roth IRA. What is the main reason for this, and is there some literature one could point me to?
The contribution is tax-deductible, grows tax-free, and when used for to reimburse medical expenses (including Medicare premiums) it comes out tax-free as well. Can't beat that. And from age 65 it can be withdrawn like a regular traditional IRA. It requires a high-deductible health plan, which doesn't make sense for everyone, but that's really the only caveat.

https://www.bogleheads.org/wiki/Health_savings_account

John Doe 123
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Re: What to do with extra $2500 a month?????

Post by John Doe 123 » Fri Jul 13, 2018 2:29 pm

blackfish wrote:
Fri Jul 13, 2018 1:42 pm
I see a lot of people pushing the HSA even over the Roth IRA. What is the main reason for this, and is there some literature one could point me to?
The HSA is referred to as "triple tax advantaged" in that the contributions are pre-tax, the funds are not taxed upon withdrawal (as long as they are used on a qualified medical expense), and the gains are not taxed.

In the case of a Roth IRA, the funds are not taxed upon withdrawals and the gains are not taxed, but the funds input to the Roth are post-tax.

So, the HSA has the tax benefit over the Roth IRA, but the Roth IRA has the benefit of flexibility. The funds input to a Roth IRA (not the gains) can be withdrawn at any time without penalty, so it can be treated like an emergency fund of sorts pre-retirement. Post retirement the Roth funds are also more flexible because they can be spent on more than just medical expenses.

There are arguments to be made for both. Personally I fund both a Roth IRA and HSA to the maximum allowable. If I had to chose between the two, I would probably lean towards Roth due to flexibility but you can't really go wrong funding either.

John Doe 123
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Re: What to do with extra $2500 a month?????

Post by John Doe 123 » Fri Jul 13, 2018 2:32 pm

02nz wrote:
Fri Jul 13, 2018 2:27 pm
blackfish wrote:
Fri Jul 13, 2018 1:42 pm
I see a lot of people pushing the HSA even over the Roth IRA. What is the main reason for this, and is there some literature one could point me to?
The contribution is tax-deductible, grows tax-free, and when used for to reimburse medical expenses (including Medicare premiums) it comes out tax-free as well. Can't beat that. And from age 65 it can be withdrawn like a regular traditional IRA.

https://www.bogleheads.org/wiki/Health_savings_account
I don't think this is true... unless you are implying that they can save receipts for all medical expenses paid out of pocket and use those to make withdrawals. I believe the funds need to be used towards qualified medical expense even beyond age 65.

02nz
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Re: What to do with extra $2500 a month?????

Post by 02nz » Fri Jul 13, 2018 2:34 pm

John Doe 123 wrote:
Fri Jul 13, 2018 2:32 pm
02nz wrote:
Fri Jul 13, 2018 2:27 pm
blackfish wrote:
Fri Jul 13, 2018 1:42 pm
I see a lot of people pushing the HSA even over the Roth IRA. What is the main reason for this, and is there some literature one could point me to?
The contribution is tax-deductible, grows tax-free, and when used for to reimburse medical expenses (including Medicare premiums) it comes out tax-free as well. Can't beat that. And from age 65 it can be withdrawn like a regular traditional IRA.

https://www.bogleheads.org/wiki/Health_savings_account
I don't think this is true... unless you are implying that they can save receipts for all medical expenses paid out of pocket and use those to make withdrawals. I believe the funds need to be used towards qualified medical expense even beyond age 65.
It's definitely true. From age 65 you can withdraw (for any reason) by paying just regular income tax. Read the wiki I linked.

John Doe 123
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Re: What to do with extra $2500 a month?????

Post by John Doe 123 » Fri Jul 13, 2018 2:36 pm

02nz wrote:
Fri Jul 13, 2018 2:34 pm
John Doe 123 wrote:
Fri Jul 13, 2018 2:32 pm
02nz wrote:
Fri Jul 13, 2018 2:27 pm
blackfish wrote:
Fri Jul 13, 2018 1:42 pm
I see a lot of people pushing the HSA even over the Roth IRA. What is the main reason for this, and is there some literature one could point me to?
The contribution is tax-deductible, grows tax-free, and when used for to reimburse medical expenses (including Medicare premiums) it comes out tax-free as well. Can't beat that. And from age 65 it can be withdrawn like a regular traditional IRA.

https://www.bogleheads.org/wiki/Health_savings_account
I don't think this is true... unless you are implying that they can save receipts for all medical expenses paid out of pocket and use those to make withdrawals. I believe the funds need to be used towards qualified medical expense even beyond age 65.
It's definitely true. Read the wiki I linked.
What am I missing. Here is the excerpt from the wiki link you posted:

Withdrawals

Withdrawals for qualified medical expenses (as outlined in IRS Publication 502, Medical and Dental Expenses) are tax-free. As long as you keep proper records, you can even reimburse yourself in a later year for medical expenses which you paid out of pocket after you established the HSA (see Q39 in IRS Notice 2004-50).

Withdrawals to pay for some types of medical insurance premiums are also tax-free. As detailed in Internal Revenue Bulletin 2004-2 (January 12, 2004) - Health Savings Accounts, you can use HSA funds to pay for qualified long-term care insurance (but only up to IRS specified dollar amounts), COBRA health care continuation coverage, and health care coverage while an individual is receiving unemployment compensation. Furthermore, once reaching age 65, premiums for Medicare Part A or B, Medicare HMO, and the employee share of premiums for employer-sponsored health insurance, including premiums for employer-sponsored retiree health insurance can be paid from an HSA. Premiums for Medigap policies are not qualified medical expenses and therefore can't be paid tax-free from an HSA.

Withdrawals for other purposes are taxed at your full tax rate, with an extra 20% penalty. The penalty is waived if you are at least 65 or disabled, and if you die and do not leave the account to a spouse, the account is distributed with tax but with no penalty.[6]

John Doe 123
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Re: What to do with extra $2500 a month?????

Post by John Doe 123 » Fri Jul 13, 2018 2:38 pm

Ah, I see what I was missing now. You said it can be withdrawn from like a traditional IRA. I was thinking you were implying it could be withdrawn without tax.

Pay no attention to that man behind the curtain :)

ThePrince
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Re: What to do with extra $2500 a month?????

Post by ThePrince » Fri Jul 13, 2018 9:19 pm

Dottie57 wrote:
Fri Jul 13, 2018 11:13 am
goodenyou wrote:
Fri Jul 13, 2018 9:59 am
Payoff the boat ASAP.

+1
The boat loan is ridiculous. Get rid of it ASAP.

PFInterest
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Re: What to do with extra $2500 a month?????

Post by PFInterest » Fri Jul 13, 2018 9:36 pm

bg5 wrote:
Fri Jul 13, 2018 9:55 am
Hello,

Thanks in advance to all the help that this site has given me. I am very thankful to have a resource such as this :)

Here are the facts!

We have an extra $2500 a month and we are not sure what to do with it and I am looking for advice.

Facts about the Family

-My income is $80,000 a year and I have a guaranteed raise of at least 1.5% over the next 10 years (I am 37 and she is 33)

-My wifes income is $62,000 and she has a guaranteed raise of at least 5% over the next 10 years (We are both teachers

-We have 2 children ages 10 and 6

- We owe $240,000 on a home worth $450,000 with 4.25 interest rate.....have 28 years left on mortage

-We owe $37,000 on a boat with a 3.99 interest rate with 14 years of payments left

-We have $150,000 in retirement combined

-We have $25,000 in savings

-We will both have pensions when we retire that is 50% of our 3 highest years of salary. Both have survivor clauses which means if one of us dies the other still gets 100% until our death.

-We currently both max out our Roth IRA each year and we both contribute an additional 10% into our 403B accounts

-We contribute $2500 a year into hour HSA which more than covers our medical expenses. We usually only use around $1500 of this a year

-we contribute $2400 a year into a 529 plan through the state of Michigan which is a one of the better 529 plans out there through TIAA-Creff


The big question is what should we do with our extra $2500 a month which will continue to grow over the years.

One thing I left off is we want to fully fund our kids college tuition as long as they attend a local Public University in the State of Michigan. We currently have around $7000 in their account so we know we are way behind.

Our thoughts were as follows but are open to advice

1. Contribute around $600 a month into the 529 plan and know that we will be short on college but cash flow the rest in the future.

2. We are not sure if we should invest more.....pay down debt......or increase 529 plan? Any advice would be helpful.

3. I would love to retire in 15 years and my wife wants to retire in 20 years.


Thanks again for the help!
you own a boat....you dont have extra anything!

OnTrack2020
Posts: 266
Joined: Mon Mar 20, 2017 10:24 am

Re: What to do with extra $2500 a month?????

Post by OnTrack2020 » Sat Jul 14, 2018 6:58 am

I personally would take $20,000 out of savings to pay down the boat. I'm assuming it's a standard savings account paying little interest. That would leave you with $5,000 in savings for emergencies, and roughly $17,000 owed on the boat. The $2,500 a month extra for the rest of the year and January would have the boat paid off this January.

Then, after the boat is paid off, I would take the additional $2,500 per month (or $30,000 per year) and just start splitting it up.

$500 into taxable Vanguard accounts (yearly $6,000); can also be used for future expenses--college, car, home maintenance, retirement, etc.
$500 into kids' college fund (yearly $6,000)
$250 additional into HSA (additional $3,000 a year for a total HSA of $5,500 year)
$500 into building back up savings account/emergency fund until you get it where you want it (yearly $6,000). After you build this up to where you want it, say in 3 to 4 years or so, throw this additional $500 toward retirement accounts
$750 put additional towards mortgage principal (yearly $9,000 - over the next 15 years would be $135,000)

You can also take child tax credit received from your tax return and put toward college fund.
Last edited by OnTrack2020 on Sat Jul 14, 2018 7:25 am, edited 1 time in total.

dogagility
Posts: 160
Joined: Fri Feb 24, 2017 6:41 am

Re: What to do with extra $2500 a month?????

Post by dogagility » Sat Jul 14, 2018 7:15 am

Agree with some of the other posters on these points.
1. Paying off the boat loan should be a priority
2. Fully fund the HSA. Suggest not using this money to pay current medical expenses. Cash flow your medical expenses. Instead, save your medical receipts (I know it can be a PITA) in case you need to withdraw this amount of previously-spent money at any point in the future (withdrawal of such money can be for any reason... including non-medical expenses).
3. Increase 529 saving at some point. At a combined income of 140K, you won't be getting any need-based grant money from the state of Michigan or the federal government for college expenses. Any "financial aid' will be in the form of loans. How do I know? I was in your nearly exact shoes a couple of years ago.

(Enjoy the boat!) :sharebeer

Compound
Posts: 609
Joined: Mon May 26, 2014 1:32 pm

Re: What to do with extra $2500 a month?????

Post by Compound » Sat Jul 14, 2018 7:51 am

Pajamas wrote:
Fri Jul 13, 2018 11:14 am
bg5 wrote:
Fri Jul 13, 2018 10:41 am
I am still confused on what to do :)
Based on the additional comments from you, divert the $2.5k monthly to the boat loan and then you have another year or eighteen months to figure out what to do with $2.75k after that. That's a guaranteed 3.99% return, much better than any other comparably safe return right now.
My thoughts exactly. You’d be trading of a bit of tax deferred savings for doing this, but having that 4% $37k loan gone in one year seems like a good deal. It may be more optimal to add to the HSA and 403b accounts while paying off the boat more slowly, but I wouldn’t bother.

mslaw
Posts: 58
Joined: Wed Jun 15, 2011 5:35 pm

Re: What to do with extra $2500 a month?????

Post by mslaw » Sat Jul 14, 2018 9:25 am

Sorry to disagree, but as a boat owner I would think carefully before paying off a loan . A loan seems to help with maintaining insurance coverage and the payout amount in an accident.

dirtlaw
Posts: 11
Joined: Sat Jan 13, 2018 6:51 pm

Re: What to do with extra $2500 a month?????

Post by dirtlaw » Sat Jul 14, 2018 1:48 pm

I would try to max 403b contributions, pay off the boat, see if you can contribute to a 457, and if your HSA money can be invested, max it out and pay medical expenses in cash. Kids can go to an state school if they want to avoid student loans.

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