Need some advice

[cheetah999]

Hi everyone,
I have just cut down my debts from $48,000 (mostly parent-plus student loan & credit cards) to $2,600. I don't owed anything else. My vehicle is paid for. However, I don't own a house/property. I am looking to move forward with opening an Roth IRA and a mutual fund account and put in as much as I possible can. Currently, I have $10,000 in savings account and another $2000 in another investment account which automatically take out $100 monthly from my checking account. My 401K stands at $154,000. I am married with two kids (one graduated and working and another one will start college this fall). My wife is not working (homemaker) and I am currently employed with a $105,000 salary. I am looking to see if the Roth IRA and/or a mutual fund investment make any sense. My goal is to purchase a $200,000 house/condo in cash. Thanks.

[CYBERSAM]

Congrats on paying down your debts!

I would buy a house now that you can afford it! You are saving for your future every month and yet pay rent that is not redeemable in the future! What ever you pay can easily be a mortgage! Land is one thing that can not be imported, therefore always would do up.

Interest rate for mortgage is still very low historically so buying a house around 300K is about 1500 per month. You can always pay it off sooner if you want to.

Calculate how much you going to pay rent for next year! That could be going towered your house! Ten years from now, house market would be higher then today!

[SouthJamaica]

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@cheetah999 wrote:

Hi everyone,
I have just cut down my debts from $48,000 (mostly parent-plus student loan & credit cards) to $2,600. I don't owed anything else. My vehicle is paid for. However, I don't own a house/property. I am looking to move forward with opening an Roth IRA and a mutual fund account and put in as much as I possible can. Currently, I have $10,000 in savings account and another $2000 in another investment account which automatically take out $100 monthly from my checking account. My 401K stands at $154,000. I am married with two kids (one graduated and working and another one will start college this fall). My wife is not working (homemaker) and I am currently employed with a $105,000 salary. I am looking to see if the Roth IRA and/or a mutual fund investment make any sense. My goal is to purchase a $200,000 house/condo in cash. Thanks.

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Congratulations on  your debt reduction achievement.

If your goal is to purchase a $200k house or condo for cash, and you presently have $10,000 in savings, I can't see why you would be putting money into illiquid types of savings, such as IRA's and 401k's. In my opinion you should just  be using liquid savings accounts, and a limited amount into CD's with target dates prior to the target date for your home purchase.

[Anonymalous]

There's a cap of $6000, or $7000 if you're 50 or older, for annual contributions to a Roth or traditional IRA. Maximizing that is almost always a good idea. Both you and your wife can contribute, but it has to be earned income. So if your wife makes any income at all, even a side hustle, it can be used to put money away for retirement. There are tons of online brokers, like Fidelity, Schwab, Vanguard, M1, or Betterment. Pick one known for low fees, and invest in no fee index funds. You can't go wrong with a simple Boglehead portfolio based on your risk preference. Just don't panic if (when) the stock market drops. Be a buy and hold investor, and ride out any swings. You might also want to look at your 401(k). At the very least maximize any matching contributions, ideally invest the maximum, and make sure it's invested in the best option availbale. Which is typically the investment with your preferred asset allocation that has the lowest expense ratio.

But I agree with @SouthJamaica this is a different pool of money than saving for a house. Since the interest rates on savings and CDs are so terrible, you might want to look into alternatives, like I Bonds, which might be the best bet for keeping up with inflation. Another option is a brokerage account where you invest in low-risk, low-fee index funds, like treasuries or a total bond market index. But those type of bonds have been doing terribly lately, and they aren't the most tax efficient investment. There are tax free bonds, but those really only make sense for people in the top income bracket.

[cheetah999]

Thank you all for your responses. Really appreciated it. Looking at the market's behavior lately, I just want to know if there is anything else worth investing.  

Anonymalous - Thanks for pointing out the I Bonds. I will definitely look into that.

[Anonymalous]

I Bonds are adjusted bi-annually for inflation, so theoretically you're not supposed to lose any real value as nominal prices rise. Though of course with taxes and the way they've tweaked the CPI to hide at least some of the inflation, it's still a real loss. But still, 7.12% is far better than a savings account. One downside is they have to be purchased from the government (TreasuryDirect), and can't be bought through third parties (can't hold them in an investment account). There's also a limit of $10K (per person per year), though you can get an extra $5K in paper bonds if you pay for them with a tax refund. In addition, they're slightly illiquid -- you can't redeem them in the first year, and lose 3 months of interest if you redeem them between 1 and 5 years -- but that shouldn't matter much if you're saving for a house. They can never earn negative interest and are backed by the full faith and credit of the federal government, so they're as safe as an investment gets.

[cheetah999]

That was very helpful. I will take 7.12% anytime. Appreciated it!

[Tazman81]

Also, if you are working on retirement, and you are under the IRS Income limit, you can contribute to both your Roth IRA (up to the yearly limit), and to a Roth IRA in your wife's name (up to the yearly limit).  I do think one of the requirements from the IRS is that you are filing a joint tax return, but I am no tax professional.  So because you are married, even if you are the only one with an income, you can still contribute to her Roth IRA account with your earned income.

Otherwise, as others have said, definitely make sense to try and keep your funds liquid if you are trying to save for a downpayment and/or the full purchase price of a home.  Great work with the debt payoff, and best of luck in your home search.

[cheetah999]

Thanks!@Tazman81   I will hold off putting in Roth IRA for now. With the bond markets severely affected by the fed aggresiveness, stocks will continue to perform poorly. I think I will stay on the sideline until they are done with their objective.

[Anonymalous]

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@cheetah999 wrote:

Thanks!@Tazman81   I will hold off putting in Roth IRA for now. With the bond markets severely affected by the fed aggresiveness, stocks will continue to perform poorly. I think I will stay on the sideline until they are done with their objective.

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You can contribute to a Roth and just leave the money in the core position, which is typically cash or a cash-equivalent like short term treasuries. In fact, there are stories of investors who put money to a retirement account and never invest it, and then come back in 10 years and see that it hasn't grown. But you can always do it deliberately if you want to time the market (though timing the market is generally a bad idea). The money in the core position won't gain or lose you anything worth mentioning, but it might be useful if you want to start putting away that money now, because it'll be in the tax advantaged account and ready to invest when you think the market is right.

At the very least, it's a good idea to max it out every year, whether you do it at the start or the end of the year.