To return to the forum homepage, please click the banner at the top of your browser.

Main Menu

next steps?

Started by Doogle235, January 05, 2020, 01:12:29 PM

Previous topic - Next topic


Hi All -

I have being reading FS for some time and I wanted to get some feedback and advice from others on the forum. 
We are married (both 35 years old) with well paying jobs in a higher cost of living area.  We've been aggressively saving for retirement and have also made paying off our mortgage a priority ($2K extra per month plus lump sums from our bonuses.)  We also have a newborn.
Here is our current situation:
Mortgage of 275K @ 3.5%No other debt (including credit cards)
Cash: $160K, including a $60K reserve for emergencies.
Invesments:401(k):$1.025M (maxing out each Roth 401(k))
HSA: $40K (invested in ETFs) (maxing out annually, and paying medical expenses out of pocked to allow for continued tax free growth)
Deferred Stock: $25K
Other Investments: $50K (ETFs outside of retirement funds)

We have been debating about what to do with some of our excess cash.  We've thought about funding a 529 plan, each doing a back door Roth, adding to the non-retirement post tax investments, purchase a rental property, or more aggressively paying off the mortgage. We value the feeling of security that comes with paying down our mortgage, but shortly we will have paid down to a point where the interest is small. 



I'm in a similar situation where I've met all my goals and my obligations, and I don't really know "where" the extra month should go... but there are a couple of things I would definitely say...

1 - 529 Education Account: I highly recommend you do this now that you have a newborn. There are no risks here, only benefits. I assume college is in your child's future... but even if they get a scholarship, this can still be used for the next level degree, or other costs. Worse comes to worst, you can still cash it out or defer it to someone else (like a grandchild). Lots of opportunities here. What's more, the money is tax deductible on your state taxes. The last two states I've lived in do not have any state income taxes, so I've never been able to do this, but any state with a state income tax will generally let you claim it as a tax break.

2 - Mortgage: Your interest rate is about as low as they generally get, 3.5%. You can certainly make additional payments, but it really depends on how far along you are in your mortgage. I'm not an expert on this, but every year that goes by, the amount of interest you pay goes down and the amount of principle you pay goes up... while keeping the same monthly payment (generally). Because this is how it almost always works in a 10/15/30 year conventional mortgage, the greatest amount of interest is paid within the first 1/3rd of the mortgage term. What that means is... if you've only had your home for a few years, then I would definitely start making larger payments towards the home. But if you've already had the home for 10+ years, you've already paid the bulk of the interest and really you'd just be wasting your time. Then again, it's never a bad thing to pay it off if you can.


I did the backdoor Roth for years and since you are both relatively young and appear to have ample free cash, adding to a Roth IRA will diversify your piggy banks. One day when you leave your company and rollover the 401(k)s to a Traditional IRA, the backdoor becomes mostly useless. 


thanks for the feedback, much appreciated!


My situation is similar to yours - I'm just a little further in life.  My wife and I are both around 50.  I'd highly recommend the backdoor roth.  I've been doing it, but I started late.  Given the low amount you can contribute each, the earlier you start the better.

I also started saving for my kids college in 529s when they were born.  Now I have 2 in college, with one more going in a few years, and I have enough saved in 529s so it is not as big of a hit.  Depending what state you live in, you might get some tax breaks from 529 contributions too.

I've looked at getting into real estate - but I have trouble making the numbers work- especially when we have a bull market.  I do a lot of pre-tax and post-tax investments in SP500 type index funds, and it seems like the returns are higher than real estate and risks are lower - but that is just my opinion.

Good luck - seems you are off to a good start. 


First of all I'd say congratulations on saving/investing prolifically.  I'm not sure how much money you and your wife make, but having $1.4M invested at 35 years old is an accomplishment.  I am also 35 years old and thought that I was a pretty disciplined saver with a little over $500k in NW accumulated, but I can't hold a candle to you.  Personally, I would say that a lot depends on your investment goals.  You have a lot of money in retirement accounts that you can't tap into until you are 59.5.  If you plan on working until then, it's no problem to continue to contribute to those and to back door you Roth contributions.  But, if you are looking to retire early you might find it necessary to start contributing to after tax accounts.  Sure, it doesn't maximize your net worth, but it makes you more flexible.

Personally, I realized that I was likely to get to where I needed to be by continuing to max out my 401k (actually TSP because I work for Fed Govt), and that maxing out our Roth accounts with back door contributions may unnecessarily tie up too much of my money until age 60.  I actually diverted some of my retirement money to my post tax real estate investments  in order to have a decent amount of money that I can access before 60, and also trying to avoid dumping a even more money than I currently am into a stock market at with crazy high valuations.  I also contribute to a 529 plan (I have 3 little uns, so I contribute to three separate accounts).


Congrats on the balance sheet achievement! I would try to max out all tax breaks you get, albeit small, before paying down the mortage. Either way, both investments are NPV positive, so I guess you are good either way. Congrats!


Thanks for the feedback everyone!


Superfund the 529, and then go buy some rental properties and start building a cash flow for your future selves.