Also if you're not capping your 401k, or not likely to in a reasonable timeframe, traditional IRA would probably make more sense than Roth, if/when you do contribute.
Yeah I have 5% matching (that goes up to 7.5% after this year, and have it maxed) with work, so I've got *something* at least. I do want to start adding to the IRA eventually, but yeah, sounds more and more that it's not a good investment if I'm looking to purchase right now. Which sucks, but that's life, right?
Edit - I have NO idea how I messed up the original quoting that badly.
I disagree with not going for a Roth.
If eligible (Roth has income limits), then it’s a great vehicle that lets someone hedge against some of the higher taxes we’ll see during our retirement years (I’m all for paying taxes but I also want to know that some money is WYSIWYG).
My priority when saving is the following:
1) 401k pre-tax to company match
2) Emergency fund to a nominal level (adjust annually for inflation/expense creep).
edit 2.5) Max HSA
3) Max Roth IRA
4a) Max 401k pre-tax
4b) Max 401k post-tax (if available, this can be rolled into the Roth IRA after you leave the company or rarely if your employer 401k plan allows in-service withdrawals).
5) Short Term Savings (Vacation, fancy dinner, sky diving, etc)
6) Standard Brokerage
I also like roths when young. They have the added benefit of penalty free withdraws after 5 years (I think that's the rule). Which means if you decide you want a down payment on a house you can withdraw. There are a couple extra things to consider, but the added flexibility is certainly a bonus.
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ChaosHatHop, hop, hop, HA!Trick of the lightRegistered Userregular
You can also take out what you contribute tax free at any time so it makes for a good pseudo back up savings account. You should still have a real ass savings account with an emergency fund so 1) you don't have to touch your retirement money and 2) what if the market is shitty when you need the money. You can put it towards a first time housing purchase, or education is a qualified early withdrawal so you can put your kid's college fund in there and if they end up not going to college or college is free in the future, it's just retirement money. They're pretty great overall and you and your spouse can each have one. It's pretty rare to have a household that can contribute $11k in long term savings per year.
While there are some added side-benefits to the Roth, I seriously doubt any substantial portion of anybody on this forum will be paying a higher tax rate in retirement than when they are in their earning prime. People like to argue that the tax structures could change in the next 30 years, but I cant even foresee any political reality where taxes will substantially rise on lower and middle-class income brackets of between $0-75k/yr which most people will almost certainly be in in retirement. The issue with Roth is that they are essentially top-tax dollar, in that in the progressive tax system, you can consider the contributions at your top tax bracket rate. While Traditional IRA/401k withdrawals in retirement are pretty much bottom tax-bracket (well on top of whatever paltry social security still exists for us in 30+ years).
Think about it this way with the current tax brackets. If you and your spouse make over $78,951 combined (fairly middle class), your Roth contributions are essentially taxed at 22% or more. Most retiree's have low fixed housing costs due to having paid off the house, and lower cost of living (other than healthcare). If you draw less than $78,951 in 401k/TradIRA withdrawals, you're only paying 12% on that (over $19,401, under that is only 10%). Even if you draw over that amount, you're only paying the increased tax on a much smaller portion of the income. You're essentially locking in the tax paid on Roth investments at whatever your current top tax rate is.
If anything inflationary pressures are only going to make those brackets float upward so that under $78,951 bracket now will likely be under $100,000 in a couple decades.
Roth's do have a place in financial planning, but I think they are often far too over-stated and over-estimated by most. They could be beneficial for someone very early in their career who is still at a very low tax bracket compared to their future potential earnings.
There's also the fact that most people can absorb the slight tax bump better while they're working rather than fixed income.
And you're paying pre-investment taxes when it goes in (lower value), so you might end up paying significantly more with traditional as you pull it out.
The difference of paying taxes on $150k that you've put in vs the $500k you're pulling out. I'm still unsure of which is actually better, but I suspect for everyone not a boomer who doesn't have a pension and probably won't have SSI, Roth might just eek out as a better value per dollar put in.
not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
There's also the fact that most people can absorb the slight tax bump better while they're working rather than fixed income.
And you're paying pre-investment taxes when it goes in (lower value), so you might end up paying significantly more with traditional as you pull it out.
The difference of paying taxes on $150k that you've put in vs the $500k you're pulling out. I'm still unsure of which is actually better, but I suspect for everyone not a boomer who doesn't have a pension and probably won't have SSI, Roth might just eek out as a better value per dollar put in.
The second part doesn't matter, it's all multiplication so the order doesn't have any effect. That is, if the tax rate is the same for you now and in retirement then it literally doesn't matter if you had a Trad or a Roth. It's all about whether you think you'll have a lower rate now or in retirement.
life's a game that you're bound to lose / like using a hammer to pound in screws
fuck up once and you break your thumb / if you're happy at all then you're god damn dumb
that's right we're on a fucked up cruise / God is dead but at least we have booze
bad things happen, no one knows why / the sun burns out and everyone dies
There's also the fact that most people can absorb the slight tax bump better while they're working rather than fixed income.
And you're paying pre-investment taxes when it goes in (lower value), so you might end up paying significantly more with traditional as you pull it out.
The difference of paying taxes on $150k that you've put in vs the $500k you're pulling out. I'm still unsure of which is actually better, but I suspect for everyone not a boomer who doesn't have a pension and probably won't have SSI, Roth might just eek out as a better value per dollar put in.
The second part doesn't matter, it's all multiplication so the order doesn't have any effect. That is, if the tax rate is the same for you now and in retirement then it literally doesn't matter if you had a Trad or a Roth. It's all about whether you think you'll have a lower rate now or in retirement.
Roth has a limit on how much you can remove at once though, trad doesn't? So you can effectively overtax yourself by "earning" more.
not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
There's also the fact that most people can absorb the slight tax bump better while they're working rather than fixed income.
And you're paying pre-investment taxes when it goes in (lower value), so you might end up paying significantly more with traditional as you pull it out.
The difference of paying taxes on $150k that you've put in vs the $500k you're pulling out. I'm still unsure of which is actually better, but I suspect for everyone not a boomer who doesn't have a pension and probably won't have SSI, Roth might just eek out as a better value per dollar put in.
The second part doesn't matter, it's all multiplication so the order doesn't have any effect. That is, if the tax rate is the same for you now and in retirement then it literally doesn't matter if you had a Trad or a Roth. It's all about whether you think you'll have a lower rate now or in retirement.
Roth has a limit on how much you can remove at once though, trad doesn't? So you can effectively overtax yourself by "earning" more.
Possible, but unlikely if you aren't dumb enough to pull out 300k in a single year to buy a lakehouse in cash.
@Mvrck I think you're trying to do two different things at once. Saving for long term is separate from saving for a down payment for a house.
For the house, as you noted, you need those funds to retain their value as much as possible; so the best you could hope for is a short term CD, which won't net you much of anything. You're basically trading security for growth (see market moves end of last week and this week). If you're asking whether there's an investment vehicle that can help you earn more funds in the next 12 months for your down payment, there is nothing that will move the needle enough while also giving you reassurance the funds will be there when you need them (1% on $13k is only $130).
As for retirement/long term savings, your 403b is a good bet. It's worth reading up on the fees/expense ratio to ensure you aren't paying too much to administer the funds.
Your original post is a bit vague. Is the $13k for the house down payment, or is that what you have available for long term savings? If that $13k is for the house, then keep it liquid even if it sits for a year. If you're looking to use that $13k to set up longer term savings, use the list from @thatassemblyguy above. Basically, ensure you're maxing the "free money" you get as a match from your employer, then set up an Emergency Fund of ~6 mos of expenses (not paychecks), then back fill a Roth and other investment vehicles.
Not to get too far into the weeds, but some people have access to very favorable investments at work, so their priority list changes slightly. For example, I have access to the TSP, which has ridiculously low fees, so for simplicity and for "duh," I max that out since I already have an emergency fund (I still have a slow trickle into the emergency fund every paycheck).
A cursory Google says that some 403b plans offer loans, but it sounds like yours may not? Or does your plan not offer the hardship withdrawals? That is another option if you need access to cash; though I'd caution against a 403b loan for a house down payment. The money is "locked up" either way (i.e. it's not easy to get to any of it in an emergency), but you're gaining interest in the 403b while paying interest in the mortgage (yes I know the point is to pay less interest buy increasing the down payment, but I think the comparison is apt). Again, this is simplifying things; I'm just trying to get all my thoughts into a post so don't crucify me if any of these details aren't completely right.
A cursory Google says that some 403b plans offer loans, but it sounds like yours may not? Or does your plan not offer the hardship withdrawals? That is another option if you need access to cash; though I'd caution against a 403b loan for a house down payment. The money is "locked up" either way (i.e. it's not easy to get to any of it in an emergency), but you're gaining interest in the 403b while paying interest in the mortgage (yes I know the point is to pay less interest buy increasing the down payment, but I think the comparison is apt). Again, this is simplifying things; I'm just trying to get all my thoughts into a post so don't crucify me if any of these details aren't completely right.
Yeah, my 403 does not allow loans or hardship withdrawals, hence me starting really crank the separate saving for the down payment. I previously thought it did, due to a mixture of poor labeling on the schools part and poor reading comprehension on mine, so I'm feeling mildly frustrated at "starting over" per say (especially here in Seattle where housing is not cheap at all). I didn't really want to touch it, but it was at least (in my mind) available if I found something I wanted to move on right away. But now that I'm probably pushing a purchase out at least 2-5 months, I was curious if there was a way to min-max things a bit without being dumb and trying to play the market.
Sounds like a high interest savings account is the best short term thing while I start allocating some of my monthly savings into an IRA as well.
There's also the fact that most people can absorb the slight tax bump better while they're working rather than fixed income.
And you're paying pre-investment taxes when it goes in (lower value), so you might end up paying significantly more with traditional as you pull it out.
The difference of paying taxes on $150k that you've put in vs the $500k you're pulling out. I'm still unsure of which is actually better, but I suspect for everyone not a boomer who doesn't have a pension and probably won't have SSI, Roth might just eek out as a better value per dollar put in.
The second part doesn't matter, it's all multiplication so the order doesn't have any effect. That is, if the tax rate is the same for you now and in retirement then it literally doesn't matter if you had a Trad or a Roth. It's all about whether you think you'll have a lower rate now or in retirement.
It does matter, but it's not a clear cut advantage, I think. A Roth account will never pay tax on gains, just on contributions. While the traditional pays tax on both contributions and gains (albeit when the person is retired and possibly in a lower tax bracket). These are true statements, and if the tax bracket is the same now and in the future, you will pay more in taxes for the traditional.
But, the traditional allows you to save more now. Because $6k pre-tax dollars costs you $6000 from your income now, but $6k post tax dollars costs you like $7k-8k (depending on your tax bracket). So technically, to be an accurate comparison, you should be taking that extra $1k-2k (minus taxes) and investing it in a regular taxable account. That extra investment, which has a long time to grow, is then what makes up the difference for the traditional vs roth IRA. Even though you paid more in taxes for the traditional, buy delaying when you pay the taxes, you get to invest more early, which tends to cover the extra taxes paid.
I didn't dig into the details, but nerd wallet has a basic calculator if anyone wants to play around with it (can put in things like expected tax brackets now and in future, expected rate of growth, contribution levels, length of investments, etc). It spits out which IRA would come out ahead and by how much. Link.
"The world is a mess, and I just need to rule it" - Dr Horrible
right, if you were just flat dropping $6k in per year then the Roth would have bigger numbers at the end, but that's because you're entirely discounting the tax you're paying now
if your tax rate is 20% then you'd need to compare a $6k traditional contribution to a $4800 Roth contribution
life's a game that you're bound to lose / like using a hammer to pound in screws
fuck up once and you break your thumb / if you're happy at all then you're god damn dumb
that's right we're on a fucked up cruise / God is dead but at least we have booze
bad things happen, no one knows why / the sun burns out and everyone dies
I've usually ignored refinancing ads since I got my loan in 2012 at 3.625% so it seems like it's never been low enough to justify the costs of refinancing.
Now 0.5 seems closer to the margin than ever before. Should I look into refinancing now? Any refi calculators you guys would recommend?
"Simple, real stupidity beats artificial intelligence every time." -Mustrum Ridcully in Terry Pratchett's Hogfather p. 142 (HarperPrism 1996)
It does matter, but it's not a clear cut advantage, I think. A Roth account will never pay tax on gains, just on contributions. While the traditional pays tax on both contributions and gains (albeit when the person is retired and possibly in a lower tax bracket). These are true statements, and if the tax bracket is the same now and in the future, you will pay more in taxes for the traditional.
Roth = tax on contributions only
Traditional = tax on gains only (it is not taxed on contributions)
Given equal contributions, equal tax rates, and equal growth rates, then it would be dead even, because as Aioua mentioned, it's all multiplicative. But tax rates aren't even close to equal.
Roth effective tax rate = whatever top tax bracket you are in; likely 22%+ if you are married and make over $78k combined or make over $39k as a single person; median college educated income is 48k+
Traditional effective tax rate = whatever you need to live on at the time over social security. Average social security is 18k/yr, and say you and your spouse need another 40k to live your life, that's 40k taxed at 12%.
The effective tax rate on the traditional (in most situations) is almost half of the Roth, like I don't even get how this is an argument at this point. Now if you think that tax rates on the lowest income brackets (0-50k) will double in the next 30 years, then sure it might come out closer. I don't see that as a political reality, personally.
Edit: If you only have access to IRAs, then yes due to taxation rules, the Roth might allow you to save slightly more actual real cash at the penalty of paying more tax. But if you do have access to a 401k, then that's moot.
I've usually ignored refinancing ads since I got my loan in 2012 at 3.625% so it seems like it's never been low enough to justify the costs of refinancing.
Now 0.5 seems closer to the margin than ever before. Should I look into refinancing now? Any refi calculators you guys would recommend?
Hm, if you can get one without or low closing costs you might eek out some savings.
not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
It does matter, but it's not a clear cut advantage, I think. A Roth account will never pay tax on gains, just on contributions. While the traditional pays tax on both contributions and gains (albeit when the person is retired and possibly in a lower tax bracket). These are true statements, and if the tax bracket is the same now and in the future, you will pay more in taxes for the traditional.
Roth = tax on contributions only
Traditional = tax on gains only (it is not taxed on contributions)
Given equal contributions, equal tax rates, and equal growth rates, then it would be dead even, because as Aioua mentioned, it's all multiplicative. But tax rates aren't even close to equal.
Roth effective tax rate = whatever top tax bracket you are in; likely 22%+ if you are married and make over $78k combined or make over $39k as a single person; median college educated income is 48k+
Traditional effective tax rate = whatever you need to live on at the time over social security. Average social security is 18k/yr, and say you and your spouse need another 40k to live your life, that's 40k taxed at 12%.
The effective tax rate on the traditional (in most situations) is almost half of the Roth, like I don't even get how this is an argument at this point. Now if you think that tax rates on the lowest income brackets (0-50k) will double in the next 30 years, then sure it might come out closer. I don't see that as a political reality, personally.
Edit: If you only have access to IRAs, then yes due to taxation rules, the Roth might allow you to save slightly more actual real cash at the penalty of paying more tax. But if you do have access to a 401k, then that's moot.
Traditional IRAs tax everything when you withdraw. Contributions and gains. From IRS website:
If only deductible contributions were made to your traditional IRA (or IRAs, if you have more than one), you have no basis in your IRA. Because you have no basis in your IRA, any distributions are fully taxable when received.
Personally I could see my income staying equal or going up when I retire, as I will probably want to do more interesting stuff (travel, do more upgrades around the house, new cars, etc).
But it's pretty case by case, so tough to say one is generally better than the other.
"The world is a mess, and I just need to rule it" - Dr Horrible
I occasionally listen to financial podcasts. Apparently in the FIRE movement, there is such thing as a HENRY (High Earner, Not Rich Yet).
And apparently it's anyone who makes over $100k but isn't financially independent. Which seems like such an arbitrary number since cost of living doesn't seem to take into account.
There are fewer $100k jobs in Iowa, but those people live like Kings compared to $100k earners in Southern CA.
I actually spoke to my mortgage company today about a refinance. Apparently, since the amount is so low, I'd get nothing under 4.5%, unless I rolled in a home equity loan as well, in which case it'd go to 4.25%. And that is with buying points. With 4.4k and 5k closing costs respectively.
yeah your current mortgage company won't ever give you a good deal on a refi, they have no real incentive to do so
life's a game that you're bound to lose / like using a hammer to pound in screws
fuck up once and you break your thumb / if you're happy at all then you're god damn dumb
that's right we're on a fucked up cruise / God is dead but at least we have booze
bad things happen, no one knows why / the sun burns out and everyone dies
I occasionally listen to financial podcasts. Apparently in the FIRE movement, there is such thing as a HENRY (High Earner, Not Rich Yet).
And apparently it's anyone who makes over $100k but isn't financially independent. Which seems like such an arbitrary number since cost of living doesn't seem to take into account.
There are fewer $100k jobs in Iowa, but those people live like Kings compared to $100k earners in Southern CA.
Think of it more this way, if you just got a $100k job you have a great first paycheck. However, it's going to take more than a couple of paychecks to build wealth regardless of cost of living. Even if you're saving a massive percentage of it. That's a High Earner Not Rich Yet. You're not rich yet because time's arrow marches slowly, but after a decade or so on the job you ought to be pretty rich. Even in SoCal or New York. Six figures is top 20% and ~double median income for Manhattan.
The other consideration with Roth vs Traditional IRAs is that if you also have a 401k at work, then your income has to be below $64k-$74k to contribute to a Traditional IRA. (This is modified income, so 401k contributions can subtract from that number. It's also single tax status.) Roth IRAs phase out at $122k to $137k, (again, can be modified by 401k contributions) which gives you a significant income range where Roth IRA and 401k are your only available tax-advantaged options. As a 401k will max out at $19k, a Roth IRA will give you an extra $6k of tax-advantaged retirement savings per year.
I've usually ignored refinancing ads since I got my loan in 2012 at 3.625% so it seems like it's never been low enough to justify the costs of refinancing.
Now 0.5 seems closer to the margin than ever before. Should I look into refinancing now? Any refi calculators you guys would recommend?
I've read that the fed is expected to cut rates back to 0-.25% in April (that's 1 full % lower than today's rates). That may already be priced in to mortgage rates, but something to keep in mind.
I've usually ignored refinancing ads since I got my loan in 2012 at 3.625% so it seems like it's never been low enough to justify the costs of refinancing.
Now 0.5 seems closer to the margin than ever before. Should I look into refinancing now? Any refi calculators you guys would recommend?
I've read that the fed is expected to cut rates back to 0-.25% in April (that's 1 full % lower than today's rates). That may already be priced in to mortgage rates, but something to keep in mind.
Yeah, implementing an emergency rate cut doesn't necessarily suggest the end of rate cuts for the next scheduled meeting.
yeah your current mortgage company won't ever give you a good deal on a refi, they have no real incentive to do so
Mine straight up refuses to even offer rifi terms.
I'm 15 years into a 35y 4.785%. That's right, 2005 baby.
I wonder if i should hit up a credit union and see what they say.
I had good luck with AIM Loan for my refi 5 years ago (2.875% on a 15-year, boiiiiiiii). Their rate sheet is showing me a 3.337% APR on a 20-year fixed or 3.112% on a 15-year.
People on Bogleheads seem to like Lenderfi (not taking applications right now) and Better if you are looking for a lower-fee option. But the rates aren't as good.
In general, consider using lower rates as an opportunity to reduce your term instead of your payment, unless you have the discipline to pay extra every month forever.
Personally I could see my income staying equal or going up when I retire, as I will probably want to do more interesting stuff (travel, do more upgrades around the house, new cars, etc).
But it's pretty case by case, so tough to say one is generally better than the other.
Sorry I was confusing withdrawals with gains for the traditional. You can argue though that because the tax applies to Roth before it gains, that all gains are effectively taxed if you would have invested the before-tax dollars in a 401k.
But as for effective tax rate, even if you wanted to draw more income in retirement, due to the progressive nature of our tax structure a vast majority of your withdrawals will be at a lower rate (as opposed to everything in the Roth being at your highest rate). If a retired couple decided to draw $120k/yr right now, that's 60k at 12% and another 42k at 22% which is an effective tax rate of 16.1%, a fair bit less than the earner in his prime who is likely paying 22-25%. It's also likely that inflationary pressures are likely going to make the lower tax brackets rise. What is currently the big break from 12% to 22% at $78k right now is probably going to be 100k+ in 30 years.
So I guess at the end of the day, in order to be even moderately tax-efficient with a Roth, you still need to have a very sizable traditional 401k/IRA. In order to not lose money for any given year in retirement, you need to make sure your Roth withdrawals only happen once you've withdrawn enough traditional retirement funds to kick you into a tax bracket that is at the very least equal to what you paid in the Roth at. In my mind, I think the vast majority of people won't reach that plateau, but if you think you will, then go for it.
Well typing some numbers into my Credit Union's refi calculator make the picture more murky for "no cost" loans:
refinance to a 20 year loan and pay 275 more per month, but save $50k over the life of the loan.
refinance to a 30 year loan and pay 215 less per month, but lose $28k over the life of the loan.
trying it with an assumed $1,500 closing costs (financed, so it affects the overall totals) it's
refinance to a 20 year loan and pay 280 more per month, but save $47k over the life of the loan.
refinance to a 30 year loan and pay 300 less per month, but lose $46k over the life of the loan.
Meh, this whole thing makes me just want to stick with the status quo. My current finances can't really afford the extra per month (especially since our health insurance has a huge new deduction this year), and it's hard for my brain to appreciate $28-47k in savings at some point 20 years from now.
EDIT: No no no! These numbers are all wrong, see my posts below.
DisruptedCapitalist on
"Simple, real stupidity beats artificial intelligence every time." -Mustrum Ridcully in Terry Pratchett's Hogfather p. 142 (HarperPrism 1996)
Well typing some numbers into my Credit Union's refi calculator make the picture more murky for "no cost" loans:
refinance to a 20 year loan and pay 275 more per month, but save $50k over the life of the loan.
refinance to a 30 year loan and pay 215 less per month, but lose $28k over the life of the loan.
trying it with an assumed $1,500 closing costs (financed, so it affects the overall totals) it's
refinance to a 20 year loan and pay 280 more per month, but save $47k over the life of the loan.
refinance to a 30 year loan and pay 300 less per month, but lose $46k over the life of the loan.
Meh, this whole thing makes me just want to stick with the status quo. My current finances can't really afford the extra per month (especially since our health insurance has a huge new deduction this year), and it's hard for my brain to appreciate $28-47k in savings at some point 20 years from now.
Since those numbers don't look too great, consider putting in your current mortgage and seeing what an extra $275/mo payment to principle would save you for the rest of your term. It might wind up close to the same, takes less paperwork, and you can always skip an extra payment if circumstances change.
Well typing some numbers into my Credit Union's refi calculator make the picture more murky for "no cost" loans:
refinance to a 20 year loan and pay 275 more per month, but save $50k over the life of the loan.
refinance to a 30 year loan and pay 215 less per month, but lose $28k over the life of the loan.
trying it with an assumed $1,500 closing costs (financed, so it affects the overall totals) it's
refinance to a 20 year loan and pay 280 more per month, but save $47k over the life of the loan.
refinance to a 30 year loan and pay 300 less per month, but lose $46k over the life of the loan.
Meh, this whole thing makes me just want to stick with the status quo. My current finances can't really afford the extra per month (especially since our health insurance has a huge new deduction this year), and it's hard for my brain to appreciate $28-47k in savings at some point 20 years from now.
Is there not an option to stick with roughly the same payments as current at whatever amount of time that makes it and just get the savings from the lower interest rate?
Since those numbers don't look too great, consider putting in your current mortgage and seeing what an extra $275/mo payment to principle would save you for the rest of your term. It might wind up close to the same, takes less paperwork, and you can always skip an extra payment if circumstances change.
Ooohhh good point! Seems like it's $27k savings over the life of the loan. So... sorta?
Actually it just reminded me I've got a much better rate on my car loan so I should seriously consider just putting the money into my home loan the next time I get a windfall instead of the car loan. (HAHA who am I kidding, next time I have a windfall I need to repair the back door of my house which has a serious rotting problem going on because of a nearby tree.)
"Simple, real stupidity beats artificial intelligence every time." -Mustrum Ridcully in Terry Pratchett's Hogfather p. 142 (HarperPrism 1996)
Is there not an option to stick with roughly the same payments as current at whatever amount of time that makes it and just get the savings from the lower interest rate?
Maybe. The best way to get an answer would just be to go in and talk to someone since they know the ins and outs far better than I do. I've probably already wasted enough time on this this morning anyway, and I probably won't get a better answer on my own at this point.
DisruptedCapitalist on
"Simple, real stupidity beats artificial intelligence every time." -Mustrum Ridcully in Terry Pratchett's Hogfather p. 142 (HarperPrism 1996)
OH WAIT! dammit I just realized I've been comparing these numbers to the current payoff, not the overall life of my current loan. Plus I fucked up my formulas in excel becuase I'm a dummy.
Let's try this again with the no-cost loan:
refinance to a 20 year loan and pay $59 more per month but save $129k
refinance to a 30 year loan and pay $217 less per month but still save $78k
Ok, this makes the decision much clearer. >_<
DisruptedCapitalist on
"Simple, real stupidity beats artificial intelligence every time." -Mustrum Ridcully in Terry Pratchett's Hogfather p. 142 (HarperPrism 1996)
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DemonStaceyTTODewback's DaughterIn love with the TaySwayRegistered Userregular
OH WAIT! dammit I just realized I've been comparing these numbers to the current payoff, not the overall life of my current loan. Plus I fucked up my formulas in excel becuase I'm a dummy.
Let's try this again with the no-cost loan:
refinance to a 20 year loan and pay $59 more per month but save $129k
refinance to a 30 year loan and pay $217 less per month but still save $78k
Ok, this makes the decision much clearer. >_<
There ya go!
That makes more sense.
Yea when I did it a few months ago it knocked money off the monthly payment, shaved 2 years off the end and saved money from the lower rate.
So it was just an upgrade at every turn.
+2
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BrodyThe WatchThe First ShoreRegistered Userregular
Ya'll were taking about new rates, so I decided to look at the rate on the mortgage I "inherited", and it looks like its at 3.25% I'm not sure how I would even manage to refinance this sort of thing, and I'm not sure I'd get much better for a rate, so I'll just leave it alone.
"I will write your name in the ruin of them. I will paint you across history in the color of their blood."
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If eligible (Roth has income limits), then it’s a great vehicle that lets someone hedge against some of the higher taxes we’ll see during our retirement years (I’m all for paying taxes but I also want to know that some money is WYSIWYG).
My priority when saving is the following:
1) 401k pre-tax to company match
2) Emergency fund to a nominal level (adjust annually for inflation/expense creep).
edit 2.5) Max HSA
3) Max Roth IRA
4a) Max 401k pre-tax
4b) Max 401k post-tax (if available, this can be rolled into the Roth IRA after you leave the company or rarely if your employer 401k plan allows in-service withdrawals).
5) Short Term Savings (Vacation, fancy dinner, sky diving, etc)
6) Standard Brokerage
Think about it this way with the current tax brackets. If you and your spouse make over $78,951 combined (fairly middle class), your Roth contributions are essentially taxed at 22% or more. Most retiree's have low fixed housing costs due to having paid off the house, and lower cost of living (other than healthcare). If you draw less than $78,951 in 401k/TradIRA withdrawals, you're only paying 12% on that (over $19,401, under that is only 10%). Even if you draw over that amount, you're only paying the increased tax on a much smaller portion of the income. You're essentially locking in the tax paid on Roth investments at whatever your current top tax rate is.
If anything inflationary pressures are only going to make those brackets float upward so that under $78,951 bracket now will likely be under $100,000 in a couple decades.
Roth's do have a place in financial planning, but I think they are often far too over-stated and over-estimated by most. They could be beneficial for someone very early in their career who is still at a very low tax bracket compared to their future potential earnings.
And you're paying pre-investment taxes when it goes in (lower value), so you might end up paying significantly more with traditional as you pull it out.
The difference of paying taxes on $150k that you've put in vs the $500k you're pulling out. I'm still unsure of which is actually better, but I suspect for everyone not a boomer who doesn't have a pension and probably won't have SSI, Roth might just eek out as a better value per dollar put in.
The second part doesn't matter, it's all multiplication so the order doesn't have any effect. That is, if the tax rate is the same for you now and in retirement then it literally doesn't matter if you had a Trad or a Roth. It's all about whether you think you'll have a lower rate now or in retirement.
fuck up once and you break your thumb / if you're happy at all then you're god damn dumb
that's right we're on a fucked up cruise / God is dead but at least we have booze
bad things happen, no one knows why / the sun burns out and everyone dies
Roth has a limit on how much you can remove at once though, trad doesn't? So you can effectively overtax yourself by "earning" more.
Possible, but unlikely if you aren't dumb enough to pull out 300k in a single year to buy a lakehouse in cash.
Good thing social security will still exist in 30 years.
Most likely, though probably not at the same amounts and for the same retirement ages*
Anyone who's around 35 now will likely have to retire at 70 to get 100% (right now you get a higher % if you wait past 66+2mo).
For the house, as you noted, you need those funds to retain their value as much as possible; so the best you could hope for is a short term CD, which won't net you much of anything. You're basically trading security for growth (see market moves end of last week and this week). If you're asking whether there's an investment vehicle that can help you earn more funds in the next 12 months for your down payment, there is nothing that will move the needle enough while also giving you reassurance the funds will be there when you need them (1% on $13k is only $130).
As for retirement/long term savings, your 403b is a good bet. It's worth reading up on the fees/expense ratio to ensure you aren't paying too much to administer the funds.
Your original post is a bit vague. Is the $13k for the house down payment, or is that what you have available for long term savings? If that $13k is for the house, then keep it liquid even if it sits for a year. If you're looking to use that $13k to set up longer term savings, use the list from @thatassemblyguy above. Basically, ensure you're maxing the "free money" you get as a match from your employer, then set up an Emergency Fund of ~6 mos of expenses (not paychecks), then back fill a Roth and other investment vehicles.
Not to get too far into the weeds, but some people have access to very favorable investments at work, so their priority list changes slightly. For example, I have access to the TSP, which has ridiculously low fees, so for simplicity and for "duh," I max that out since I already have an emergency fund (I still have a slow trickle into the emergency fund every paycheck).
A cursory Google says that some 403b plans offer loans, but it sounds like yours may not? Or does your plan not offer the hardship withdrawals? That is another option if you need access to cash; though I'd caution against a 403b loan for a house down payment. The money is "locked up" either way (i.e. it's not easy to get to any of it in an emergency), but you're gaining interest in the 403b while paying interest in the mortgage (yes I know the point is to pay less interest buy increasing the down payment, but I think the comparison is apt). Again, this is simplifying things; I'm just trying to get all my thoughts into a post so don't crucify me if any of these details aren't completely right.
Yeah, my 403 does not allow loans or hardship withdrawals, hence me starting really crank the separate saving for the down payment. I previously thought it did, due to a mixture of poor labeling on the schools part and poor reading comprehension on mine, so I'm feeling mildly frustrated at "starting over" per say (especially here in Seattle where housing is not cheap at all). I didn't really want to touch it, but it was at least (in my mind) available if I found something I wanted to move on right away. But now that I'm probably pushing a purchase out at least 2-5 months, I was curious if there was a way to min-max things a bit without being dumb and trying to play the market.
Sounds like a high interest savings account is the best short term thing while I start allocating some of my monthly savings into an IRA as well.
It does matter, but it's not a clear cut advantage, I think. A Roth account will never pay tax on gains, just on contributions. While the traditional pays tax on both contributions and gains (albeit when the person is retired and possibly in a lower tax bracket). These are true statements, and if the tax bracket is the same now and in the future, you will pay more in taxes for the traditional.
But, the traditional allows you to save more now. Because $6k pre-tax dollars costs you $6000 from your income now, but $6k post tax dollars costs you like $7k-8k (depending on your tax bracket). So technically, to be an accurate comparison, you should be taking that extra $1k-2k (minus taxes) and investing it in a regular taxable account. That extra investment, which has a long time to grow, is then what makes up the difference for the traditional vs roth IRA. Even though you paid more in taxes for the traditional, buy delaying when you pay the taxes, you get to invest more early, which tends to cover the extra taxes paid.
I didn't dig into the details, but nerd wallet has a basic calculator if anyone wants to play around with it (can put in things like expected tax brackets now and in future, expected rate of growth, contribution levels, length of investments, etc). It spits out which IRA would come out ahead and by how much. Link.
if your tax rate is 20% then you'd need to compare a $6k traditional contribution to a $4800 Roth contribution
fuck up once and you break your thumb / if you're happy at all then you're god damn dumb
that's right we're on a fucked up cruise / God is dead but at least we have booze
bad things happen, no one knows why / the sun burns out and everyone dies
I've usually ignored refinancing ads since I got my loan in 2012 at 3.625% so it seems like it's never been low enough to justify the costs of refinancing.
Now 0.5 seems closer to the margin than ever before. Should I look into refinancing now? Any refi calculators you guys would recommend?
Roth = tax on contributions only
Traditional = tax on gains only (it is not taxed on contributions)
Given equal contributions, equal tax rates, and equal growth rates, then it would be dead even, because as Aioua mentioned, it's all multiplicative. But tax rates aren't even close to equal.
Roth effective tax rate = whatever top tax bracket you are in; likely 22%+ if you are married and make over $78k combined or make over $39k as a single person; median college educated income is 48k+
Traditional effective tax rate = whatever you need to live on at the time over social security. Average social security is 18k/yr, and say you and your spouse need another 40k to live your life, that's 40k taxed at 12%.
The effective tax rate on the traditional (in most situations) is almost half of the Roth, like I don't even get how this is an argument at this point. Now if you think that tax rates on the lowest income brackets (0-50k) will double in the next 30 years, then sure it might come out closer. I don't see that as a political reality, personally.
Edit: If you only have access to IRAs, then yes due to taxation rules, the Roth might allow you to save slightly more actual real cash at the penalty of paying more tax. But if you do have access to a 401k, then that's moot.
Hm, if you can get one without or low closing costs you might eek out some savings.
Traditional IRAs tax everything when you withdraw. Contributions and gains. From IRS website:
Personally I could see my income staying equal or going up when I retire, as I will probably want to do more interesting stuff (travel, do more upgrades around the house, new cars, etc).
But it's pretty case by case, so tough to say one is generally better than the other.
And apparently it's anyone who makes over $100k but isn't financially independent. Which seems like such an arbitrary number since cost of living doesn't seem to take into account.
There are fewer $100k jobs in Iowa, but those people live like Kings compared to $100k earners in Southern CA.
fuck up once and you break your thumb / if you're happy at all then you're god damn dumb
that's right we're on a fucked up cruise / God is dead but at least we have booze
bad things happen, no one knows why / the sun burns out and everyone dies
Small savings but then I'd also get the satisfaction of telling Nationstar DBA Mr. Cooper to fuck off.
Think of it more this way, if you just got a $100k job you have a great first paycheck. However, it's going to take more than a couple of paychecks to build wealth regardless of cost of living. Even if you're saving a massive percentage of it. That's a High Earner Not Rich Yet. You're not rich yet because time's arrow marches slowly, but after a decade or so on the job you ought to be pretty rich. Even in SoCal or New York. Six figures is top 20% and ~double median income for Manhattan.
Mine straight up refuses to even offer rifi terms.
I'm 15 years into a 35y 4.785%. That's right, 2005 baby.
I wonder if i should hit up a credit union and see what they say.
I've read that the fed is expected to cut rates back to 0-.25% in April (that's 1 full % lower than today's rates). That may already be priced in to mortgage rates, but something to keep in mind.
Yeah, implementing an emergency rate cut doesn't necessarily suggest the end of rate cuts for the next scheduled meeting.
I had good luck with AIM Loan for my refi 5 years ago (2.875% on a 15-year, boiiiiiiii). Their rate sheet is showing me a 3.337% APR on a 20-year fixed or 3.112% on a 15-year.
People on Bogleheads seem to like Lenderfi (not taking applications right now) and Better if you are looking for a lower-fee option. But the rates aren't as good.
In general, consider using lower rates as an opportunity to reduce your term instead of your payment, unless you have the discipline to pay extra every month forever.
Sorry I was confusing withdrawals with gains for the traditional. You can argue though that because the tax applies to Roth before it gains, that all gains are effectively taxed if you would have invested the before-tax dollars in a 401k.
But as for effective tax rate, even if you wanted to draw more income in retirement, due to the progressive nature of our tax structure a vast majority of your withdrawals will be at a lower rate (as opposed to everything in the Roth being at your highest rate). If a retired couple decided to draw $120k/yr right now, that's 60k at 12% and another 42k at 22% which is an effective tax rate of 16.1%, a fair bit less than the earner in his prime who is likely paying 22-25%. It's also likely that inflationary pressures are likely going to make the lower tax brackets rise. What is currently the big break from 12% to 22% at $78k right now is probably going to be 100k+ in 30 years.
So I guess at the end of the day, in order to be even moderately tax-efficient with a Roth, you still need to have a very sizable traditional 401k/IRA. In order to not lose money for any given year in retirement, you need to make sure your Roth withdrawals only happen once you've withdrawn enough traditional retirement funds to kick you into a tax bracket that is at the very least equal to what you paid in the Roth at. In my mind, I think the vast majority of people won't reach that plateau, but if you think you will, then go for it.
trying it with an assumed $1,500 closing costs (financed, so it affects the overall totals) it's
Meh, this whole thing makes me just want to stick with the status quo. My current finances can't really afford the extra per month (especially since our health insurance has a huge new deduction this year), and it's hard for my brain to appreciate $28-47k in savings at some point 20 years from now.
EDIT: No no no! These numbers are all wrong, see my posts below.
Since those numbers don't look too great, consider putting in your current mortgage and seeing what an extra $275/mo payment to principle would save you for the rest of your term. It might wind up close to the same, takes less paperwork, and you can always skip an extra payment if circumstances change.
https://www.bankrate.com/calculators/mortgages/mortgage-loan-payoff-calculator.aspx
Is there not an option to stick with roughly the same payments as current at whatever amount of time that makes it and just get the savings from the lower interest rate?
For me $150 extra into principle cuts my loan term in half.
Ooohhh good point! Seems like it's $27k savings over the life of the loan. So... sorta?
Actually it just reminded me I've got a much better rate on my car loan so I should seriously consider just putting the money into my home loan the next time I get a windfall instead of the car loan. (HAHA who am I kidding, next time I have a windfall I need to repair the back door of my house which has a serious rotting problem going on because of a nearby tree.)
Maybe. The best way to get an answer would just be to go in and talk to someone since they know the ins and outs far better than I do. I've probably already wasted enough time on this this morning anyway, and I probably won't get a better answer on my own at this point.
Let's try this again with the no-cost loan:
Ok, this makes the decision much clearer. >_<
There ya go!
That makes more sense.
Yea when I did it a few months ago it knocked money off the monthly payment, shaved 2 years off the end and saved money from the lower rate.
So it was just an upgrade at every turn.
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