this post was submitted on 02 Oct 2023
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FIRE (Financial Independence Retire Early)
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How you guys balance between contributing to tax advantage accounts and your brokerage account. I'm in a fortunate position to max my tax advantage contributions but won't have enough for a regular brokerage.
Would love to buy a home someday just not sure when so I was thinking about putting some cash in a normal brokerage account.
Btw anyone here come from Reddit? Would love to see this instance grow.
I don’t have a great answer for you, but one thing I learned from buying my first house is that you don’t have to put down as big of a down payment as you might think. My wife and I did 3.5%. We were fortunate that we made a good amount and had good credit, but we had very little in savings. We were both putting a ton toward student loans.
Although a small down payment is tough to swallow these days considering that means you’re financing more house at 7% plus.
Did you have to pay PMI?
Yes, but again because of our credit score and good DTI ratio, the PMI was very reasonable. Like $40/mo IIRC.
We refinanced and got rid of PMI when the housing boom happened and our equity was suddenly over 20%. That was pure luck, but anyway it’s possible that rates will go back down during the next recession.
Since your timeline for buying a house is "someday" I would keep maxing tax advantaged accounts. Once you have a more firm timeline (within a couple of years), I'd start funnelling my money to a down payment fund.
I haven’t consciously done much to balance it. When I was fresh out of college I couldn’t afford more than tax advantaged space and so I just did that. 15 years on I’m fortunate enough that income has made it a non-issue.
I came over from Reddit during the API dust up and never really went back, but it’s very quiet here.
Definitely much more quiet here. Would love to see this instance grow.
To be fair, there's over 2million subscribers on Reddit and maybe 250 here (edit: I see we're up to 350 now!). It will just take time to build up enough people to get more activity here.
Your can use your tax advantaged accounts in most places to help with the down payment. That may be better than foregoing those contributions.
My spouse used a 401k loan to shore up their efund between buying our house together and selling their old house. The terms were surprisingly decent.
Yeah, a lot of people discourage it, but my opinion is that if you'd be redirecting savings from the 401k anyway, you might as well just invest in your 401k and take the loan so you save the 401k space.
I agree. Last year we decided to finally replace our aging HVAC systems and take care of some other long overdue home maintenance. We could have paid for it out of our taxable brokerage account, but instead I took the maximum 401k loan and put the leftover amount into my taxable account.
We decided to go with the loan because the investment options in my 401k suck, so I would rather reduce that balance. If I leave my job, I can pay the loan from my taxable account, then roll it over to my IRA, and still get the benefit of better investment options. The only "cost" is the 5% interest that I'm paying to myself.
For others, be careful because many employer sponsored plans don't allow new contributions to the 401k while there's a loan. You don't want to lose that tax advantage space.
But if your plan allows contributions while repaying the loan, I think it's a reasonable option.
I'm in a similar phase right now. We plan on moving in 3-4 years and I'm leaning towards turning our current home into a rental. We bought it at $300k and it's now worth $650k. We are now putting money into a regular brokerage to save for the next down payment. I don't think we'll have enough saved in time so we're leaning towards lowering our tax advantage contributions until then.