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It sounds like Vanguard is the preferred investment account broker?
Many people, many busy professionals with little extra time to devote towards investing (think JD or MD) like to follow Boglehead.org as in John C Bogle, who founded Vanguard. Vanguard is considered a "discount brokerage" but don't think it's like a "discount store". Bogle and "bogleheads" like low cost index funds, cutting out front loads, back loads, management fees.. basically, you don't have a manager since the fund is indexed, which brings the costs down. There is no timing the markets with this approach. The idea is that you invest consistently and long term.
I like it. We are fortunate enough to have one of our 401ks with Vanguard (which it appears we'll be returning to... for those of you who know about my situation ). I balance my own portfolios (well, technically they're my husband's) using mostly Vanguard offerings.
I'm going to go against the grain and say put nearly the whole amount into your future retirements. If you do it via Vanguard and even if you put it into taxable accounts, you'd only pay a few hundred a year in dividend taxes. At 40 years old with only $50k in retirement, you really need to get the time value of money working in your favor, and can later cash out bits and invest it into IRAs when eligible.
Do you need to buy a new car? Then why pay off that loan? Same with student loans. You can put a bit down and count on some home price appreciation to get rid of PMI, but I wouldn't put anywhere near $40k down.
Location: Was Midvalley Oregon; Now Eastside Seattle area
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IMO,
do Not payoff auto loan if you have 2 years or less of payments. Because Auto loans are Installment loans. See Rule of 78.
Other than Emergency funds and Unemployment buffer. Stick the remainder in Retirement funds, 401k/IRA/Roth/taxables. If you job is secure, then go 80/20 stock/bonds and use the 20% bonds as a way to buy more equity on severe down markets.
I'm going to go against the grain and say put nearly the whole amount into your future retirements. If you do it via Vanguard and even if you put it into taxable accounts, you'd only pay a few hundred a year in dividend taxes. At 40 years old with only $50k in retirement, you really need to get the time value of money working in your favor, and can later cash out bits and invest it into IRAs when eligible.
Do you need to buy a new car? Then why pay off that loan? Same with student loans. You can put a bit down and count on some home price appreciation to get rid of PMI, but I wouldn't put anywhere near $40k down.
I agree with this. 40 with only $50k in retirement is waaaaay behind the curb. Thing is, you can't really stuff more than $5500 into your retirement with the IRA. OP is already doing the $18k max 401k limit. Not much else to do. You can't shove a square peg in a round hole.
I agree I'm behind the curve. Many years of being in jobs under 3 years means I have a handful of small 401s/IRAs at various companies that I always forget to consolidate and that I suspect are sitting there in a non growth fund account type. I know the error of my past now, just need to make a priority to round them up and choose a place for it all to go.
I've checked with HR to see if they can auto-deposit $X to max out the 401k for the year when the merger closes, but they are still working out all the details. Regardless, I will definitely max that out as step 1.
Leastprime - I'm pretty sure my auto loan isnt using the Rule of 78 calculation, but I will contact them to verify. Either way, Id personally rather see the monthly payment get shoved into my emergency & retirement funds.
I'd get rid of the PMI first. I'm not usually a fan of tying up a lot of money in a house, but seems like a no-brainer to me to stop throwing away $1200/year on PMI. Why aren't others recommending this as a priority?
After that, I'd max out any tax-advantaged options you have like your 401K and your wife's 401K ($18k/yr each) since you're probably getting hit with a pretty high tax rate.
Since you're behind on retirement savings, I'd also do an IRA/ROTH IRA for you and your spouse. As others have mentioned you can do a "backdoor" ROTH even if you're over the income limits.
You didn't mention an emergency fund, but I'd make sure you have on and that it is fully funded with anything left over.
I wouldn't be too concerned about paying off the car and student loans since those interest rates are fairly low, but there's nothing wrong with doing so if you want. To me it would be a lower priority than getting your savings on track.
Lastly, put aside a small amount to enjoy (take a vacation, home improvement, etc.)
I do have an emergency fund, but its down to ~$2k currently as we used the bulk of it for the house down payment. Was shoving over 1k/mo in it until my car died.
Even if the OP can't do a backdoor Roth IRA for whatever reason, he can still contribute to a traditional IRA. He just doesn't get the tax deduction. And the tax-free growth in any retirement account is the primary reason to fund one.
He's better off investing in low turnover funds in a brokerage account at that point. I'd rather pay the 15% on capital gains than my tax rate on a non-deductible traditional IRA.
And the tax-free growth in any retirement account is the primary reason to fund one.
Only in crazy 2016 where paying a few bucks in taxes is looked at as a shame, no matter what your percent of gains are. The OP should be long-term investing and won't be paying 15% capital gains for 20-30 years. If you are on your retirement funds, you are moving your money around too much.
In a taxable account, you will be paying 15% on dividends. Only $80-130k, that's like $2000 a year in dividends (which are automatically reinvested) and like $300 in tax.
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). I balance my own portfolios (well, technically they're my husband's) using mostly Vanguard offerings.
