Thank you ToddyHill

Not sure I follow you, RangerRick9211. $61k - (401K + Employer Contribution) ?

$61k is this year's cap on total contributions through an employer plan. Link: https://www.law.cornell.edu/uscode/text/26/415.

We all know the $20,500 cap on 401(k) individual contributions. If, big if, your employer allows post-tax contributions and distributions you have a mega backdoor option.

E.g.,

• Individual: $20,500
• Employer match: $5,000
• After tax potential: $61 - 20.5 - 5 = $35,500 of cap that you can backdoor into a Roth. Which is considerably more than the $6k fed cap for Roth. Hence the "mega."

I used to go Taxable after filling 401(k), HSA and backdoor normal roth. I swapped Big 4 firms and my new one has the backdoor option so I'm hitting that now instead of Taxable.

Ah gotcha, makes some sense. I work for a big hospital so I don't think they do that but I'll ask. Thank you for taking the time to explain

Which Big4 firm has a back door option? I always forget I have a Pension plan as with with my Big 4 employer

How much does your wife bring home?

I would highly recommend making a spending plan for all the take home dollars, and not just most of them. Including payments for debts. I'm a big believer that one of the easiest ways to give yourself a raise is to have a plan for where every dollar goes. When you are intentional about spending you find an extra $100 here and there each month, and sometimes more. Work to have all the cash for the spending plan for next month in the bank at the start of the month, and you already have a 1 month emergency fund that way. Lots of good apps to help with this, but even a simple spreadsheet can work. YNAB is the one we use, but there are plenty of others, so just find one that works for you. Don't be too rigid or hard on yourself, plans can and should be flexible, but there should always be a plan for each dollar.

Being engaged like you are is the first big step, so congrats on that.

My only feedback here is liquidity is a good thing too.

If you are planning to sell your home… I know what the rules of thumb are on mortgage vs. gross take home pay… but I personally think 26% of your take home going to a mortgage at your current income level is way too much. Sound like you have a fair amount of equity which is great, but if you are running that low on savings and living paycheck to paycheck… No shame in scaling down and renting for a while and, looking at your budget, this is clearly your biggest lever.

Currently my wife and I make about the same. However, her ceiling is much higher than mine. She is currently severely underpaid for the actual work she does (Re: Job Title and actual job duties don't match situation). This is why we are investing in her getting her CPA so that she qualifies for the types of jobs she wants.


aggiebq03+, that is actually something we did, more or less, before we got married but we have strayed away from that slightly. We lived together for about two year before we got married. And what we actually did is we had separate accounts. She had a federal credit union account from her hometown and I used Wells Fargo but also had a United card from Chase for miles purposes. And what we decided was that the United card would be for all joint expenditures (rent, bills, groceries, dinners, date nights) and then at the end of the month, whatever was owed on the card, we split 50/50. Once we got married, she joined my accounts on WF and we have since strayed away from tracking every dollar.

ATM9000, I tend to agree with you. Ideally, I think we would like that in the 20-25% range. But with interest rates going up, not sure how much we will be able to downsize. We would like to start trying for kid #2 in the next year and this next house will likely see our family of three grow to maybe a family of five (as much as you can plan for those things). However, I do not see the benefit of renting. I might save a few hundred dollars a month, but the equity I would gain from purchasing a home seems to outweigh that cost. Maybe I'm thinking of this wrong?

YNWA.2013 said:

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Currently my wife and I make about the same. However, her ceiling is much higher than mine. She is currently severely underpaid for the actual work she does (Re: Job Title and actual job duties don't match situation). This is why we are investing in her getting her CPA so that she qualifies for the types of jobs she wants.


aggiebq03+, that is actually something we did, more or less, before we got married but we have strayed away from that slightly. We lived together for about two year before we got married. And what we actually did is we had separate accounts. She had a federal credit union account from her hometown and I used Wells Fargo but also had a United card from Chase for miles purposes. And what we decided was that the United card would be for all joint expenditures (rent, bills, groceries, dinners, date nights) and then at the end of the month, whatever was owed on the card, we split 50/50. Once we got married, she joined my accounts on WF and we have since strayed away from tracking every dollar.

ATM9000, I tend to agree with you. Ideally, I think we would like that in the 20-25% range. But with interest rates going up, not sure how much we will be able to downsize. We would like to start trying for kid #2 in the next year and this next house will likely see our family of three grow to maybe a family of five (as much as you can plan for those things). However, I do not see the benefit of renting. I might save a few hundred dollars a month, but the equity I would gain from purchasing a home seems to outweigh that cost. Maybe I'm thinking of this wrong?

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Assuming your wife has a degree in accounting and enough hours to sit for the CPA... she has a masters too?

If she's "severely underpaid" for her title and position, I can assure you someone in DFW is willing to pay her market.

Finance and Accounting people that are competent are unicorns right now. I've worked in public accounting and private equity and have been apart of hiring and firing and negotiating salaries in the last couple years. Salaries for this space have sky rocketed since COVID... I'm talking 30+% increases.

You used to be able to get Controllers for $100k. Good luck finding a decent one for $135k now.

Senior Associates in public accounting could be had for 75k a few years ago. Now? You need to offer damn near 100k.

Start looking around (both of you) and see what's out there - it doesn't hurt. If you're trying to have another kid, ALL of that disposable income is about to be sucked up into daycare, food, diapers, etc.

YNWA.2013 said:

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Currently my wife and I make about the same. However, her ceiling is much higher than mine. She is currently severely underpaid for the actual work she does (Re: Job Title and actual job duties don't match situation). This is why we are investing in her getting her CPA so that she qualifies for the types of jobs she wants.


aggiebq03+, that is actually something we did, more or less, before we got married but we have strayed away from that slightly. We lived together for about two year before we got married. And what we actually did is we had separate accounts. She had a federal credit union account from her hometown and I used Wells Fargo but also had a United card from Chase for miles purposes. And what we decided was that the United card would be for all joint expenditures (rent, bills, groceries, dinners, date nights) and then at the end of the month, whatever was owed on the card, we split 50/50. Once we got married, she joined my accounts on WF and we have since strayed away from tracking every dollar.

ATM9000, I tend to agree with you. Ideally, I think we would like that in the 20-25% range. But with interest rates going up, not sure how much we will be able to downsize. We would like to start trying for kid #2 in the next year and this next house will likely see our family of three grow to maybe a family of five (as much as you can plan for those things). However, I do not see the benefit of renting. I might save a few hundred dollars a month, but the equity I would gain from purchasing a home seems to outweigh that cost. Maybe I'm thinking of this wrong?

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It's a personal preference. If I read everything, your worry ultimately comes down to liquidity. Home equity isn't very liquid. I'm in the camp that home ownership is highly overrated. I think it makes sense to own a home, but not at the cost of liquidity that makes a person comfortable. You sound uncomfortable with your personal liquidity at the moment.

I am not going to weigh in on whether you need to be or not.

She actually just passed the Audit section (we found out yesterday and that is her first section, so 3 more to go). She does not have a Master's. She is currently only interested in 100% remote jobs so I don't know if that will end up being difficult to achieve.

ATM9000, I think my main concern is investing for the future. I am looking for ways to maximize the dollars I have since I am still relatively young and have time on my side. I know the longer I spend time investing, the more I will have later in life.

If your wife's ceiling is higher than yours then I will ask again what the motivation for relocating for your job is? Is it just to save on commuting expenses? What is your current employer offering you that makes you want to commit to being there long term?

To me it feels like moving is putting the cart before the horse. The market is turning so you won't get the same return on your current home you would have 6 months ago. On the purchase side, rates are probably going to continue to rise which is going to eat into your monthly income unless you severely downgrade.

It sounds like your wife has a plan and desires to be remote regardless. She should be able to achieve this fairly easily with a CPA and make good money. How much job hunting have you done? Can your profession be done remotely? What do you do? Maybe someone on this board can help you make a connection that would give you more earning power, flexibility, or both.

Also, moving is stupid expensive. You will spend money on all kinds of things you wouldnt have otherwise. And from the Real Estate board thread, it sounds like you would potentially be moving to an older home which will cost more to maintain and have more stuff break. All this with no emergency fund.

YNWA.2013 said:

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She actually just passed the Audit section (we found out yesterday and that is her first section, so 3 more to go). She does not have a Master's. She is currently only interested in 100% remote jobs so I don't know if that will end up being difficult to achieve.

ATM9000, I think my main concern is investing for the future. I am looking for ways to maximize the dollars I have since I am still relatively young and have time on my side. I know the longer I spend time investing, the more I will have later in life.

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Hitch your wagon to that horse. Serious question, is she hot?

Good lookin' girls in accounting climb quick if they know what they're doing.

Congrats on Audit! Get FAR knocked out and it's smooth sailing. My brother and SIL both work industry accounting jobs and do well... they work from home/100% remote and make good money. Not $125k+ but I think that's because they also don't want to go out and look around. She has her CPA.

My brother just moved out of public accounting intro industry... got an immediate 50k pay bump.

The money is to be had.

Holy smokes... This discussion...Talk about making the very simple into something very complicated! You are a poster child for Dave Ramsey before everything is upside down.

Go read the baby steps - start with term insurance and emergency fund ASAP!!!!

Sell those $5000 that are spread amongst 5 stocks and 3 ETFs and simply put it in 1 index. Add to it when Dave's plan says to.

Don't move now.. real estate commissions and closing costs will set you back a lot more than excess gas and tolls for the time being.

Then get more complicated.. work to grow y'all's earning potential and build liquid net worth using 401k and non-qualified investments. When you get a much more sizable nest egg, then you can consider if you'd like more sophisticated investment strategies... But the 1st item above is all you should do right now as you will be fully derailed on everything else if 1 little adverse event occurs.

FAR is the next one she is going after. Like you said, she thinks it should go pretty smooth after she has that one down.

Charismatic Megafauna said:

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In the funds vs stonks discussion, you guys are talking about doing this in a roth, right? I keep seeing "regular brokerage" and thinking otherwise

Op you gotta build an emergency fund like yesterday. If you're paying down debt aggressively slow that down until you have a couple months expenses in CASH and don't touch it. Without an emergency fund a financial hiccup (plumbing, roof, etc) can result in bad debt that can follow you around for a long time. A real emergency fund is one of the keys to financial resilience

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Agree with this100%. I went 10 years with an "operating cash" account for daily expenses, paying credit cards, bills, etc. Paychecks went into it, bills etc went out and I always tried to maintain a certain balance in it for emergencies.

In the last 2 years I set up a true cash emergency account and funded it to $10,000, then when we sold our house and bought a house on some acreage I bumped it up to $20,000. I sleep so much better at night knowing that is there. I don't watch my operating cash account nearly as close anymore and I don't fret over things that pop up. Had to replace the electrical panel at the new house and just pulled the money from the emergency fund and it's like it never happened. I'll refill that account each spring when I get my yearly bonus.

Sure that money could be working for me in the market, but it's doing a job in the savings account and protects me from potential debt and stress.

Reverse your budget thought process. Start off saving/ investing 10% with a goal of getting it to 20% of take home pay.
Save first- Spend what is leftover, adjust the budget to fit.

Maximize IRA, 401K, HSA, every incentive to save.
Buying "stuff" never makes you really happy but quality memory making time does.
We did splurge on travel with the kids- within our means.

Make sure your wife is onboard and do cherish her as a friend and partner.
Divorce is a huge setback to both of your emotional and financial independence plans.

A supportive wife, smart CPA & financial advisor were my 3 biggest helps to retiring at 55.
All three are a trust relationship.

Prayer and bible study class helped me through worry and stress.

Keeper of The Spirits said:

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Which Big4 firm has a back door option? I always forget I have a Pension plan as with with my Big 4 employer

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My friend at KPMG says they have one.

my opinion there is so much more missing from this list, so as usual you are underestimating your expenses

Quote:

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$600 on groceries

$100 on fitness

$200 on baby items

$200-$300 on entertainment

and another $100 or so into a vacation fund

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1) sounds like you have an 18 month old. Medical bills. Kids are expensive.
2) medical bills for yall...got news for you - when the kid brings home a stomach virus from daycare/school, you're gonna get it, or other strange viruses and stuff.
3) home maintenance (lawn, appliances, wear and tear, repairs, etc.)
4) is your mortgage inclusive of insurance and prop taxes?
5) $100 a month into a vacation fund is nothing. If you go somewhere for a week you might spend that all on food alone, unless you go somewhere where you can cook your own.
6) clothing, shoes, eyeglasses, contacts, haircuts, etc.
7) $600 on groceries seems like slim pickins to me, since I am assuming this means all food/meals since you did not mention eating out. So all in for all meals is $800/month? I suppose that's doable. I mean, the four of us go get tacos, chips and salsa and drink water at Taco Deli and its close to $50. Tacos. Basic tex mex restaurant is nearing $70-100. Pizza joint for a large pizza for 4 ppl and a salad was over $45 (inc tip).

Yeah, $800 does seem quite low, but guess it can be done if you never eat out.

I went into my budget (wish I hadn't) and it looks like we're about twice that for food.

family of 4 - two teenagers. $300/week at HEB, not counting any other runs to HEB needed as well as eating out 2-3 meals on the weekend. That's a "normal week". My kids prefer to take their lunch to school so thankfully we are not paying for lunches on top of that. wife and I work from home so we don't fall into the trap of eating lunch out with coworkers either.

Basically, just following the below will make a huge difference.

https://moneyguy.com/resources/financial-order-of-operations-maximize-your-army-of-dollar-bills/

We have been trying to eat out less with prices continuing to increase. It's hard but continuing to try to get our 18 month old in a bed time routine makes restaurant dinners less frequent for us at this time. But we typically spend about $150/week on groceries. And we'll spend about another $150 every two-ish months when we go to Costco and buy our meats in bulk and freeze them

OP, this won't be popular advise, but here goes.

You say you only have $1K in savings and $6600 in monthly expenses? But you have a little more than $2000 in free cash flow each month? First thing you do is build a cash cushion to handle contingencies (job loss, medical emergency, accident, etc.). Suggested amounts are from 3-6 months of cash expenses, depending on which FA you ask. And with Fed funds rates going up, you can do a little better holding cash now than in the last few years.

Second, max out on your tax deferred accounts (401K, IRA, 529). It's a gift from the government, and if you do, the amounts will astound you in 15-20 years. Dollar cost average, if you can. If you're not a professional, you'll do better over the long term than trying to time the market. An article in the WSJ just this week by Barton Malkiel saying just that.

As far as what equities to buy, I'd leave that to others. But if you're going for a balanced portfolio, there are easy to find strategies that target % of equites by age. As far as where to put it, a FA gave me some sage advice when I was younger that has proven to be good over the long term. In a balanced portfolio, put your fixed income into the tax deferred accounts, and equities into the taxable accounts. The reason for this is twofold. 1. Fixed income will generate normal taxable income that will be taxed at your marginal income tax rate on a current basis (whereas the only tax you pay on stocks is dividend and cap gains, and these rates will probably be lower for you), and 2. ultimate withdrawals from 401k and IRA are taxed as normal income, so long term portfolio gains in stocks will be taxed at normal income tax rates instead of capital gains (which are likely to be lower for you). So you want your big portfolio growth to occur in your taxable accounts instead of your tax deferred accounts.

Of course, that only applies if you are buy and hold for the long term. If you plan on activity trading all the time, it doesn't really matter where you put your money.

northeastag said:

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OP, this won't be popular advise, but here goes.

In a balanced portfolio, put your fixed income into the tax deferred accounts, and equities into the taxable accounts. The reason for this is twofold. 1. Fixed income will generate normal taxable income that will be taxed at your marginal income tax rate on a current basis (whereas the only tax you pay on stocks is dividend and cap gains, and these rates will probably be lower for you), and 2. ultimate withdrawals from 401k and IRA are taxed as normal income, so long term portfolio gains in stocks will be taxed at normal income tax rates instead of capital gains (which are likely to be lower for you). So you want your big portfolio growth to occur in your taxable accounts instead of your tax deferred accounts.

Of course, that only applies if you are buy and hold for the long term. If you plan on activity trading all the time, it doesn't really matter where you put your money.

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This is completely opposite of what I'd do on this topic. The long term benefit of an IRA is to not pay taxes on the growth, short term benefit would be the deductibility of the contribution. So why would you put something in an IRA and try to minimize growth?

Based on OPs metrics, Roth IRA/401k is most likely the most appropriate option. So no tax deduction and no tax coming out, you want growth to occur in the sheltered account. With respect to the balanced portfolio approach across accounts, tax free income options in the taxable account would accomplish the highest efficiency for what you describe.

cjsag94 said:

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northeastag said:

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OP, this won't be popular advise, but here goes.

In a balanced portfolio, put your fixed income into the tax deferred accounts, and equities into the taxable accounts. The reason for this is twofold. 1. Fixed income will generate normal taxable income that will be taxed at your marginal income tax rate on a current basis (whereas the only tax you pay on stocks is dividend and cap gains, and these rates will probably be lower for you), and 2. ultimate withdrawals from 401k and IRA are taxed as normal income, so long term portfolio gains in stocks will be taxed at normal income tax rates instead of capital gains (which are likely to be lower for you). So you want your big portfolio growth to occur in your taxable accounts instead of your tax deferred accounts.

Of course, that only applies if you are buy and hold for the long term. If you plan on activity trading all the time, it doesn't really matter where you put your money.

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This is completely opposite of what I'd do on this topic. The long term benefit of an IRA is to not pay taxes on the growth, short term benefit would be the deductibility of the contribution. So why would you put something in an IRA and try to minimize growth?

Based on OPs metrics, Roth IRA/401k is most likely the most appropriate option. So no tax deduction and no tax coming out, you want growth to occur in the sheltered account. With respect to the balanced portfolio approach across accounts, tax free income options in the taxable account would accomplish the highest efficiency for what you describe.

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You totally missed the point but I can't explain it much clearer.

The point I got from your post was that capital gains taxes are lower than income taxes, so position portfolio so that you pay cap gains versus income tax.. Right?

So over time put $500,000 into one account... Grows to $1,000,000 in slower growing fixed income.

Put $500,000 in equities, grows to $2,500,000. Assume completely buy and hold.

Your point is 15% on the $2MM growth and 24% on the $1MM IRA w/d is favorable. I get that.. but this ignores the long term tax shelter of dividends and cap gains you would've gotten, and that you could almost entirely avoid taxes on the fixed income piece.

So I get it, I just don't agree with that strategy, especially with the numbers OP is presenting because Roth is likely a no-brainer for him so he can have tax free qualified accounts.

Man, I don't have time. But I suggest you go back and rethink the fixed income piece to see what you're getting wrong.

And I didn't say that the strategy was only good for buy and hold.