My wife and I are both 30 and recently welcomed our first kid into the world. We've had steady careers since college and have broadly followed FIRE principles (good savings rate, funded accounts in recommended order of operations, etc.)
This has gotten us to the following situation:
Overview
- Income: $290k (split evenly between the two of us)
- Location: HCOL (modest townhome in an amazing neighborhood)
- Annual spend: ~$120k (Before daycare which starts next year. However, I expect changes in lifestyle as parents will reduce our discretionary spend and somewhat offset daycare).
- Goal: One of us becomes stay-at-home parent in our 30's. Not clear at the moment what our target age is for both of us FIRE'ing.
Assets/Liabilities (combined)
- Trad 401(k) (we both max out): $488k
- Roth IRA (we both max out): $144k
- HSA (we both max out): $20k
- Taxable brokerage: $14k
- Cash (e-fund and sinking fund): $94k
- Home (purchase price in early 2024): $830k
- Mortgage (6.125% interest): ($655k) - $4,950/month payment including taxes & insurance
- Student loans (low interest): ($26k)
- Net worth: $909k
As you can see, our investments are very heavily weighted towards tax advantaged retirement accounts. This was intentional as I 100% understand how filling up tax advantaged accounts first is optimal. With the upcoming daycare costs, our ability to fund the taxable brokerage is only going to diminish. I have two concerns with our current trajectory:
- To unlock one of us transitioning to stay-at-home-parent, I envision us dumping a large sum of money towards our mortgage while simultaneously refinancing and/or moving to a less expensive home in a lower COL area. I don't see a large 401(k) helping achieve this.
- I don't see us both working to normal retirement age. My preferred method to access trad 401(k) funds prior to 59 1/2 is Roth conversion ladders. However, executing this strategy requires 5 years of living expenses located outside pre-tax accounts. I don't feel like we're on a trajectory to build 5 years living expenses in our brokerage by the time our investable assets = 25x expenses.
Net, I'm considering my wife and I both reduce our 401(k) contributions to our employer match and then shovel the additional funds into a taxable brokerage for the next several years. I understand this is not optimal from a tax perspective, but I feel like optimizing for taxes works against our primary goal of allowing one of us to quit or jobs. While I know there are several methods to pull funds from a 401(k) prior to 59 1/2, these methods seem to make more sense for those who are FIRE'ing, not those who want an injection of cash to pay off a mortgage while still working.
Talk to me r/financialindependence. Am I thinking about this right? Should I forego the sweet sweet 401(k) marginal tax rate savings for our medium-term goals? Or is there a way to have our cake and eat it too?
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