Personal Finance Advice and Education! (5 Viewers)

[-OZ-]

Completed our senior’s FAFSA just now. 5 kids, two in college and they expect us to contribute $115,000. I only earn like 50% more than that. We knew he wouldn’t get aid anyway but that’s insane.

 

[cubd8]

Trying to make sense of how to approach this, but would like to (or at least considering) re-locate, but many challenges make it difficult. I apologize in advance for being a bit all over the place, but really not sure on what the best approach is to potentially doing something like this.

I don't have a specific time frame in mind, but sooner rather than later, but it has to make sense economically.

I currently live in a condo that I bought in 2007 - right before the housing market crashed of course. At the time, I paid $189,000 for it. It's now worth (per RedFin) about 205K and I owe about $124K on it (13 years remaining on a 15 year fixed mortgage at 2.12%). Obviously, it's very difficult to walk away from an interest rate like that and my current mortgage payment is much lower than it would be with any housing purchase given current rates are around 7%.

I've had crazy thoughts about becoming very aggressive and paying this down, but I'm not sure what that accomplishes unless I want to keep the place for the near future and/or have less financial payments to it. Even if I paid it nearly all the way down, or all the way down, what does that do for me? I now have a place with a condo association bill and property taxes, but no mortgage, which sounds great, except I want to have a fresh start.

If I were to relocate somewhere, I'm undecided on selling my current place or just paying ahead by ~15 months so that I can afford to pay rent elsewhere. The advantage of doing this approach is that I can at least spend 1 year in a new location, see if I want to commit long term and then sell my current place. If I don't like it, I still have my place. I also am not sure that I want to rent anymore and would prefer to probably just buy something.

There's also the thought of just trying to sell my condo right now, and using the money to help make a down payment on a new place. Of course, that will also have complications. The housing market is declining somewhat in the area I'm looking at, but not fast enough. If I wait longer, my condo will also like lose value.

It may make more sense to see where the housing market is at in 6 months. The same house could be selling for much less by then (of course, the same is true of my condo).

If I were to get more aggressive in paying down my condo or try to save money to rent somewhere else on a trial basis (say for 1 year), I can do that through current paychecks (i.e. making a commitment to saving more for either a new place or paying down payments on the existing place).

I also have some money saved in different places - some cash available in savings, bitcoin (which is worth half of my investment), personal stock investments and 401K. All of the investments are taking a beating this year, and may suffer well into next year given the current economic climate. Overall, at my age, I am well ahead of most people at my age.

My next mortgage payment is due on January 1st. I am currently saving money for that payment and for the months again in 2023. If I save at a clip that I am going to try to, I could pay the entire 2023 mortgage by April (ish). If I want to get a year ahead, it would probably be late spring, early summer. The good news is that I am putting myself into a position where I could pay ahead on my mortgage without using any savings or investments. I could also have some money to further cut into the mortgage, but that would mean I probably couldn't save for renting elsewhere at the same time.

I've said a lot, been all over the place, and not really sure what make sense here if my goal is to be able to relocate.

So, looking for any advice, I can answer questions.

Thank you

 

[Chadstroma]

Trying to make sense of how to approach this, but would like to (or at least considering) re-locate, but many challenges make it difficult. I apologize in advance for being a bit all over the place, but really not sure on what the best approach is to potentially doing something like this.

I don't have a specific time frame in mind, but sooner rather than later, but it has to make sense economically.

I currently live in a condo that I bought in 2007 - right before the housing market crashed of course. At the time, I paid $189,000 for it. It's now worth (per RedFin) about 205K and I owe about $124K on it (13 years remaining on a 15 year fixed mortgage at 2.12%). Obviously, it's very difficult to walk away from an interest rate like that and my current mortgage payment is much lower than it would be with any housing purchase given current rates are around 7%.

I've had crazy thoughts about becoming very aggressive and paying this down, but I'm not sure what that accomplishes unless I want to keep the place for the near future and/or have less financial payments to it. Even if I paid it nearly all the way down, or all the way down, what does that do for me? I now have a place with a condo association bill and property taxes, but no mortgage, which sounds great, except I want to have a fresh start.

If I were to relocate somewhere, I'm undecided on selling my current place or just paying ahead by ~15 months so that I can afford to pay rent elsewhere. The advantage of doing this approach is that I can at least spend 1 year in a new location, see if I want to commit long term and then sell my current place. If I don't like it, I still have my place. I also am not sure that I want to rent anymore and would prefer to probably just buy something.

There's also the thought of just trying to sell my condo right now, and using the money to help make a down payment on a new place. Of course, that will also have complications. The housing market is declining somewhat in the area I'm looking at, but not fast enough. If I wait longer, my condo will also like lose value.

It may make more sense to see where the housing market is at in 6 months. The same house could be selling for much less by then (of course, the same is true of my condo).

If I were to get more aggressive in paying down my condo or try to save money to rent somewhere else on a trial basis (say for 1 year), I can do that through current paychecks (i.e. making a commitment to saving more for either a new place or paying down payments on the existing place).

I also have some money saved in different places - some cash available in savings, bitcoin (which is worth half of my investment), personal stock investments and 401K. All of the investments are taking a beating this year, and may suffer well into next year given the current economic climate. Overall, at my age, I am well ahead of most people at my age.

My next mortgage payment is due on January 1st. I am currently saving money for that payment and for the months again in 2023. If I save at a clip that I am going to try to, I could pay the entire 2023 mortgage by April (ish). If I want to get a year ahead, it would probably be late spring, early summer. The good news is that I am putting myself into a position where I could pay ahead on my mortgage without using any savings or investments. I could also have some money to further cut into the mortgage, but that would mean I probably couldn't save for renting elsewhere at the same time.

I've said a lot, been all over the place, and not really sure what make sense here if my goal is to be able to relocate.

So, looking for any advice, I can answer questions.

Thank you

You have a 2.12% mortgage. There is no reason to pay extra principal. My rate is higher than that on a 30 year and I pay the exact payment due each month.

I keep trying to get people to understand debt is impacted by inflation as much as savings are. Inflation debases purchasing power but debt also becomes cheaper and on top of that you have 13 years of financing that debt at a cheap 2.12% which is nearly free money. There is no positive or advantage in paying that thing down right now. The only time I would say that it might make sense for someone is when you are nearing retirement or otherwise fixed income and don't want the mortgage payment liability.

As for the relocate... you didn't explain why. That is kind of important. I mean, is there a specific need or want that is driving this? If so, don't worry about the new rate as much. Once inflation is controlled then that will be because they successfully killed the economy (and hopefully we don't have a protracted stagflation such as we saw in the 70's) . Once inflation is normalized and the economy is dead, rates will come falling down again. I am expecting about a two year time frame on this. A popular saying in the RE industry right now is "Date the rate, marry the house" which simply means, if you can qualify for the house you want- don't worry about the rate as you can break up with the rate and get a new one down the road (refinance).

As for the buy, sell, rent etc... again, why? It isn't just a financial decision here and you are not giving the full picture here. Is this something you have to do? Is it something you want to do? Are you trying to make your home an investment? Are you bored? Do you have the desire to rent your current place out? There is just so much more info needed.

Keep in mind, you don't need to (and since they should all be down right now, I wouldn't) raid your investments to fund a down payment/closing costs for the new home. You can take out equity on the home and use that. I would expect rent comps to offer you plenty to cover your PITI plus HOA and extra cash flow on top based on current value and how rents have gone up so much recently in most areas.

As a mortgage broker, I am happy to walk you through the nitty gritty of it all in details and connect you to someone I know licensed in your state (assuming I am not) to assist you when ready.

 

[cudjoekey10]

I'm now 10 years or less until retirement. For those of you who can have Roth as part of your work 401k, how do you decide how what % to make a Roth vs traditional 401k? I know that having a % of my current income be allocated to a Roth is being done so at my likely peak taxed rate. But those $'s hopefully growing tax free are a good incentive. Right now I put 10% away and I allocate it 7% traditional and 3% Roth. Just to have exposure to each.

 

[Andrew74]

I'm now 10 years or less until retirement. For those of you who can have Roth as part of your work 401k, how do you decide how what % to make a Roth vs traditional 401k? I know that having a % of my current income be allocated to a Roth is being done so at my likely peak taxed rate. But those $'s hopefully growing tax free are a good incentive. Right now I put 10% away and I allocate it 7% traditional and 3% Roth. Just to have exposure to each.

I am honestly just guessing. I do 1/3 in Roth and 2/3 in traditional. With itemizing I’m in the 24% marginal bracket. I’d like to do more Roth but at that rate I can’t make myself. Plus kid 1 of 3 starts college next year. Overall about 1/3 of my total annual retirement contributions are Roths. I hope to end up close to 20%-25% total retirement funds in Roth at retirement (14-16 years away).

 

[humpback]

I'm now 10 years or less until retirement. For those of you who can have Roth as part of your work 401k, how do you decide how what % to make a Roth vs traditional 401k? I know that having a % of my current income be allocated to a Roth is being done so at my likely peak taxed rate. But those $'s hopefully growing tax free are a good incentive. Right now I put 10% away and I allocate it 7% traditional and 3% Roth. Just to have exposure to each.

I am honestly just guessing. I do 1/3 in Roth and 2/3 in traditional. With itemizing I’m in the 24% marginal bracket. I’d like to do more Roth but at that rate I can’t make myself. Plus kid 1 of 3 starts college next year. Overall about 1/3 of my total annual retirement contributions are Roths. I hope to end up close to 20%-25% total retirement funds in Roth at retirement (14-16 years away).

That's all we can do is guess since there's no way of knowing what tax rates are going to look like in the future. Considering they are currently low (historically), and debt loads have exploded, it seems more likely that tax rates will be higher in the future, but again, it's just a guess. Obviously personal considerations are important, and much of that will be a guess about the future as well. I'm in the camp of trying to get closer to 50/50 if you can, but that isn't always practical.

Not sure if it's common knowledge, but for the Roth 401k the company match is placed into a traditional account, so just something to account for.

 

[Tau837]

I have a Roth 401k option available to me but put in the max annual 401k contribution pre-tax with no contribution to Roth. I am open to being convinced I should do this differently, but I am doing it this way based on two primary reasons:

1. My tax rate is more likely to be lower when I withdraw 401k funds than right now, at least based on today's tax laws. I realize this could change, but, since we have to guess, it seems like the most reasonable guess is rates like today's or close to them, given the political pressure that always exists on politicians raising taxes.
2. I put in the max amount every year, which for my age is $27K this year.
   1. My effective tax rate last year (federal and state) was 22.3%.
   2. I would put in the max 401k contribution either way, so putting it into the Roth 401k instead means I would pay an additional $6K in taxes on the $27K, assuming that extra $27K in taxable income didn't push my effective tax rate higher.
   3. If I invest that extra $6K per year, it helps to offset the non-taxable Roth gains I could have gotten by making Roth contributions instead.
   4. I could even theoretically seek to put that $6K into a back door Roth, though I haven't done that to date.

Interested in feedback on this, since I may very well be missing some important factors.

 

[Sand]

I'm now 10 years or less until retirement. For those of you who can have Roth as part of your work 401k, how do you decide how what % to make a Roth vs traditional 401k? I know that having a % of my current income be allocated to a Roth is being done so at my likely peak taxed rate. But those $'s hopefully growing tax free are a good incentive. Right now I put 10% away and I allocate it 7% traditional and 3% Roth. Just to have exposure to each.

100% Traditional.

 

[-OZ-]

I'm now 10 years or less until retirement. For those of you who can have Roth as part of your work 401k, how do you decide how what % to make a Roth vs traditional 401k? I know that having a % of my current income be allocated to a Roth is being done so at my likely peak taxed rate. But those $'s hopefully growing tax free are a good incentive. Right now I put 10% away and I allocate it 7% traditional and 3% Roth. Just to have exposure to each.

It’sa guess based on future tax rates. I’m going mostly Roth right now but that’s due to having 5 kids at home and other tax credits and two pensions. I’m taking the bet that these dollars would be taxed higher than 24% in the future but that’s probably a coin flip really. There’s a fair chance I’ll also choose to work part time in retirement, and if we get social security near the current rate our income, if the retirement accounts were traditional, would exceed my current income.

 

[cudjoekey10]

Well at least I feel like less of a dummy for not knowing a formula for the correct allocation between Roth and traditional. My thought was to build up enough of a Roth to live on for at least a few years so your taxable income is super low the year or two before you start to draw from your traditional.

 

[notoriousbill]

I'm now 10 years or less until retirement. For those of you who can have Roth as part of your work 401k, how do you decide how what % to make a Roth vs traditional 401k? I know that having a % of my current income be allocated to a Roth is being done so at my likely peak taxed rate. But those $'s hopefully growing tax free are a good incentive. Right now I put 10% away and I allocate it 7% traditional and 3% Roth. Just to have exposure to each.

We are in same boat. Totally debt free and I do 100% to my Roth401k now and max it out. I also max out ($7k each) buying Roth IRAs for the DW and myself. I max out my HSA contributions as well. I contributed to my traditional 401K for most of my working career and wanted to have a more evened out portfolio in retirement. I was extremely top heavy in taxable retirement allocations.

 

[cubd8]

I'm now 10 years or less until retirement. For those of you who can have Roth as part of your work 401k, how do you decide how what % to make a Roth vs traditional 401k? I know that having a % of my current income be allocated to a Roth is being done so at my likely peak taxed rate. But those $'s hopefully growing tax free are a good incentive. Right now I put 10% away and I allocate it 7% traditional and 3% Roth. Just to have exposure to each.

100% Traditional.

I do 10% to 401K, the company matches 4% when you do 5%.

About 4 years ago, I switched to full Roth. Its impossible to know the future tax rates, I still have at least 15 years, probably closer to 20-25 years before retirement and decided to take the tax hit now vs. later, but i will still have 15 years taxed later on the traditional 401K

 

[Sand]

I'm now 10 years or less until retirement. For those of you who can have Roth as part of your work 401k, how do you decide how what % to make a Roth vs traditional 401k? I know that having a % of my current income be allocated to a Roth is being done so at my likely peak taxed rate. But those $'s hopefully growing tax free are a good incentive. Right now I put 10% away and I allocate it 7% traditional and 3% Roth. Just to have exposure to each.

100% Traditional.

I do 10% to 401K, the company matches 4% when you do 5%.

About 4 years ago, I switched to full Roth. Its impossible to know the future tax rates, I still have at least 15 years, probably closer to 20-25 years before retirement and decided to take the tax hit now vs. later, but i will still have 15 years taxed later on the traditional 401K

I am hoping to not be working at 65, so will use the early retirement years to do Roth conversions.

 

[stbugs]

I'm now 10 years or less until retirement. For those of you who can have Roth as part of your work 401k, how do you decide how what % to make a Roth vs traditional 401k? I know that having a % of my current income be allocated to a Roth is being done so at my likely peak taxed rate. But those $'s hopefully growing tax free are a good incentive. Right now I put 10% away and I allocate it 7% traditional and 3% Roth. Just to have exposure to each.

100% Traditional.

I do 10% to 401K, the company matches 4% when you do 5%.

About 4 years ago, I switched to full Roth. Its impossible to know the future tax rates, I still have at least 15 years, probably closer to 20-25 years before retirement and decided to take the tax hit now vs. later, but i will still have 15 years taxed later on the traditional 401K

I am hoping to not be working at 65, so will use the early retirement years to do Roth conversions.

I hope I’m done earlier that but I’m also 100% traditional. I don’t think I had access to a 401k Roth when my wife wasn’t working and once she was back again, We pay so much in taxes that I am 100% pre-tax. I’d hope that we’ll both not be working when we pull it out so a slight gamble at higher rates but pretty sure rates will be lower with no income outside of 401k withdrawals, capital gains and SS.

 

[cubd8]

Trying to make sense of how to approach this, but would like to (or at least considering) re-locate, but many challenges make it difficult. I apologize in advance for being a bit all over the place, but really not sure on what the best approach is to potentially doing something like this.

I don't have a specific time frame in mind, but sooner rather than later, but it has to make sense economically.

I currently live in a condo that I bought in 2007 - right before the housing market crashed of course. At the time, I paid $189,000 for it. It's now worth (per RedFin) about 205K and I owe about $124K on it (13 years remaining on a 15 year fixed mortgage at 2.12%). Obviously, it's very difficult to walk away from an interest rate like that and my current mortgage payment is much lower than it would be with any housing purchase given current rates are around 7%.

I've had crazy thoughts about becoming very aggressive and paying this down, but I'm not sure what that accomplishes unless I want to keep the place for the near future and/or have less financial payments to it. Even if I paid it nearly all the way down, or all the way down, what does that do for me? I now have a place with a condo association bill and property taxes, but no mortgage, which sounds great, except I want to have a fresh start.

If I were to relocate somewhere, I'm undecided on selling my current place or just paying ahead by ~15 months so that I can afford to pay rent elsewhere. The advantage of doing this approach is that I can at least spend 1 year in a new location, see if I want to commit long term and then sell my current place. If I don't like it, I still have my place. I also am not sure that I want to rent anymore and would prefer to probably just buy something.

There's also the thought of just trying to sell my condo right now, and using the money to help make a down payment on a new place. Of course, that will also have complications. The housing market is declining somewhat in the area I'm looking at, but not fast enough. If I wait longer, my condo will also like lose value.

It may make more sense to see where the housing market is at in 6 months. The same house could be selling for much less by then (of course, the same is true of my condo).

If I were to get more aggressive in paying down my condo or try to save money to rent somewhere else on a trial basis (say for 1 year), I can do that through current paychecks (i.e. making a commitment to saving more for either a new place or paying down payments on the existing place).

I also have some money saved in different places - some cash available in savings, bitcoin (which is worth half of my investment), personal stock investments and 401K. All of the investments are taking a beating this year, and may suffer well into next year given the current economic climate. Overall, at my age, I am well ahead of most people at my age.

My next mortgage payment is due on January 1st. I am currently saving money for that payment and for the months again in 2023. If I save at a clip that I am going to try to, I could pay the entire 2023 mortgage by April (ish). If I want to get a year ahead, it would probably be late spring, early summer. The good news is that I am putting myself into a position where I could pay ahead on my mortgage without using any savings or investments. I could also have some money to further cut into the mortgage, but that would mean I probably couldn't save for renting elsewhere at the same time.

I've said a lot, been all over the place, and not really sure what make sense here if my goal is to be able to relocate.

So, looking for any advice, I can answer questions.

Thank you

You have a 2.12% mortgage. There is no reason to pay extra principal. My rate is higher than that on a 30 year and I pay the exact payment due each month.

I keep trying to get people to understand debt is impacted by inflation as much as savings are. Inflation debases purchasing power but debt also becomes cheaper and on top of that you have 13 years of financing that debt at a cheap 2.12% which is nearly free money. There is no positive or advantage in paying that thing down right now. The only time I would say that it might make sense for someone is when you are nearing retirement or otherwise fixed income and don't want the mortgage payment liability.

As for the relocate... you didn't explain why. That is kind of important. I mean, is there a specific need or want that is driving this? If so, don't worry about the new rate as much. Once inflation is controlled then that will be because they successfully killed the economy (and hopefully we don't have a protracted stagflation such as we saw in the 70's) . Once inflation is normalized and the economy is dead, rates will come falling down again. I am expecting about a two year time frame on this. A popular saying in the RE industry right now is "Date the rate, marry the house" which simply means, if you can qualify for the house you want- don't worry about the rate as you can break up with the rate and get a new one down the road (refinance).

As for the buy, sell, rent etc... again, why? It isn't just a financial decision here and you are not giving the full picture here. Is this something you have to do? Is it something you want to do? Are you trying to make your home an investment? Are you bored? Do you have the desire to rent your current place out? There is just so much more info needed.

Keep in mind, you don't need to (and since they should all be down right now, I wouldn't) raid your investments to fund a down payment/closing costs for the new home. You can take out equity on the home and use that. I would expect rent comps to offer you plenty to cover your PITI plus HOA and extra cash flow on top based on current value and how rents have gone up so much recently in most areas.

As a mortgage broker, I am happy to walk you through the nitty gritty of it all in details and connect you to someone I know licensed in your state (assuming I am not) to assist you when ready.

Thank you for your response.

I do not have to move, but, from a personal standpoint, feel stuck in my life and think I can use a change. The condo could be used as an investment if I am able to keep it, but it seems impossible to afford two housing payments should i decide to move. At best, i can pay ahead for a period of time, but that wouldn't be a longer term solution. My condo association doesn't allow renting either, and as much as i would love to circumvent that policy, i am not sure how i could find, and then trust someone to not pay rent without drawing attention.

Can you explain how debt becomes cheaper with inflation? I understand how savings are hurt by the cost of everything rising, but not as clear on the debt side.

Very good point on refi's. I have done 2 recently to get to my current rate. My major concern is just establishing cost certainty, but i agree with you that i need to be flexible. Maybe a shorter term adjustable rate would benefit me for the shorter term if i did move more aggressively

Very happy to give you more details, and i am still trying to figure out what my most realistic options are here.

 

[Sand]

I'm now 10 years or less until retirement. For those of you who can have Roth as part of your work 401k, how do you decide how what % to make a Roth vs traditional 401k? I know that having a % of my current income be allocated to a Roth is being done so at my likely peak taxed rate. But those $'s hopefully growing tax free are a good incentive. Right now I put 10% away and I allocate it 7% traditional and 3% Roth. Just to have exposure to each.

100% Traditional.

I do 10% to 401K, the company matches 4% when you do 5%.

About 4 years ago, I switched to full Roth. Its impossible to know the future tax rates, I still have at least 15 years, probably closer to 20-25 years before retirement and decided to take the tax hit now vs. later, but i will still have 15 years taxed later on the traditional 401K

I am hoping to not be working at 65, so will use the early retirement years to do Roth conversions.

I hope I’m done earlier that but I’m also 100% traditional. I don’t think I had access to a 401k Roth when my wife wasn’t working and once she was back again, We pay so much in taxes that I am 100% pre-tax. I’d hope that we’ll both not be working when we pull it out so a slight gamble at higher rates but pretty sure rates will be lower with no income outside of 401k withdrawals, capital gains and SS.

Luckily I have a decent amount of post tax monies, so can use that as a cushion while I do conversations and stay below the cliff for Obamacare subsidies.

Still, conversions can make a lot of sense for many.

 

[stbugs]

I'm now 10 years or less until retirement. For those of you who can have Roth as part of your work 401k, how do you decide how what % to make a Roth vs traditional 401k? I know that having a % of my current income be allocated to a Roth is being done so at my likely peak taxed rate. But those $'s hopefully growing tax free are a good incentive. Right now I put 10% away and I allocate it 7% traditional and 3% Roth. Just to have exposure to each.

100% Traditional.

I do 10% to 401K, the company matches 4% when you do 5%.

About 4 years ago, I switched to full Roth. Its impossible to know the future tax rates, I still have at least 15 years, probably closer to 20-25 years before retirement and decided to take the tax hit now vs. later, but i will still have 15 years taxed later on the traditional 401K

I am hoping to not be working at 65, so will use the early retirement years to do Roth conversions.

I hope I’m done earlier that but I’m also 100% traditional. I don’t think I had access to a 401k Roth when my wife wasn’t working and once she was back again, We pay so much in taxes that I am 100% pre-tax. I’d hope that we’ll both not be working when we pull it out so a slight gamble at higher rates but pretty sure rates will be lower with no income outside of 401k withdrawals, capital gains and SS.

Luckily I have a decent amount of post tax monies, so can use that as a cushion while I do conversations and stay below the cliff for Obamacare subsidies.

Still, conversions can make a lot of sense for many.

Oh, I’m on board with that as well. While my post tax is well, let’s just say less than it was before, it’s a nice amount that like you said could hold the fort for a bit. Hopefully using some years before SS while not working or maybe just my wife working to do some conversions as well. If I can get an advantageous tax rate, the conversions make a lot of sense.

I just need to get my wife on board to work longer than me, which mainly means moving to a lake house.

 

[pecorino]

I see $31T in the national debt and think: gee, I’d rather pay tax now at 12% (helps to be poor / middle class) than whatever the tax rate will be in 10-20 years. As already pointed out, it’s impossible to know, but I plow my Roth as top priority every year and also rollover as much as possible without jumping tax brackets. YMMV if you’re in a higher tax bracket.

 

[matttyl]

I see $31T in the national debt and think: gee, I’d rather pay tax now at 12% (helps to be poor / middle class) than whatever the tax rate will be in 10-20 years. As already pointed out, it’s impossible to know, but I plow my Roth as top priority every year and also rollover as much as possible without jumping tax brackets. YMMV if you’re in a higher tax bracket.

Agree. I’m cool topping out the 12% bracket. There is a big jump from that bracket to the next one (22%), no idea why it was set up that way. Taxes aren’t going down, they are pretty historically low as it is.

 

[Chadstroma]

Trying to make sense of how to approach this, but would like to (or at least considering) re-locate, but many challenges make it difficult. I apologize in advance for being a bit all over the place, but really not sure on what the best approach is to potentially doing something like this.

I don't have a specific time frame in mind, but sooner rather than later, but it has to make sense economically.

I currently live in a condo that I bought in 2007 - right before the housing market crashed of course. At the time, I paid $189,000 for it. It's now worth (per RedFin) about 205K and I owe about $124K on it (13 years remaining on a 15 year fixed mortgage at 2.12%). Obviously, it's very difficult to walk away from an interest rate like that and my current mortgage payment is much lower than it would be with any housing purchase given current rates are around 7%.

I've had crazy thoughts about becoming very aggressive and paying this down, but I'm not sure what that accomplishes unless I want to keep the place for the near future and/or have less financial payments to it. Even if I paid it nearly all the way down, or all the way down, what does that do for me? I now have a place with a condo association bill and property taxes, but no mortgage, which sounds great, except I want to have a fresh start.

If I were to relocate somewhere, I'm undecided on selling my current place or just paying ahead by ~15 months so that I can afford to pay rent elsewhere. The advantage of doing this approach is that I can at least spend 1 year in a new location, see if I want to commit long term and then sell my current place. If I don't like it, I still have my place. I also am not sure that I want to rent anymore and would prefer to probably just buy something.

There's also the thought of just trying to sell my condo right now, and using the money to help make a down payment on a new place. Of course, that will also have complications. The housing market is declining somewhat in the area I'm looking at, but not fast enough. If I wait longer, my condo will also like lose value.

It may make more sense to see where the housing market is at in 6 months. The same house could be selling for much less by then (of course, the same is true of my condo).

If I were to get more aggressive in paying down my condo or try to save money to rent somewhere else on a trial basis (say for 1 year), I can do that through current paychecks (i.e. making a commitment to saving more for either a new place or paying down payments on the existing place).

I also have some money saved in different places - some cash available in savings, bitcoin (which is worth half of my investment), personal stock investments and 401K. All of the investments are taking a beating this year, and may suffer well into next year given the current economic climate. Overall, at my age, I am well ahead of most people at my age.

My next mortgage payment is due on January 1st. I am currently saving money for that payment and for the months again in 2023. If I save at a clip that I am going to try to, I could pay the entire 2023 mortgage by April (ish). If I want to get a year ahead, it would probably be late spring, early summer. The good news is that I am putting myself into a position where I could pay ahead on my mortgage without using any savings or investments. I could also have some money to further cut into the mortgage, but that would mean I probably couldn't save for renting elsewhere at the same time.

I've said a lot, been all over the place, and not really sure what make sense here if my goal is to be able to relocate.

So, looking for any advice, I can answer questions.

Thank you

You have a 2.12% mortgage. There is no reason to pay extra principal. My rate is higher than that on a 30 year and I pay the exact payment due each month.

I keep trying to get people to understand debt is impacted by inflation as much as savings are. Inflation debases purchasing power but debt also becomes cheaper and on top of that you have 13 years of financing that debt at a cheap 2.12% which is nearly free money. There is no positive or advantage in paying that thing down right now. The only time I would say that it might make sense for someone is when you are nearing retirement or otherwise fixed income and don't want the mortgage payment liability.

As for the relocate... you didn't explain why. That is kind of important. I mean, is there a specific need or want that is driving this? If so, don't worry about the new rate as much. Once inflation is controlled then that will be because they successfully killed the economy (and hopefully we don't have a protracted stagflation such as we saw in the 70's) . Once inflation is normalized and the economy is dead, rates will come falling down again. I am expecting about a two year time frame on this. A popular saying in the RE industry right now is "Date the rate, marry the house" which simply means, if you can qualify for the house you want- don't worry about the rate as you can break up with the rate and get a new one down the road (refinance).

As for the buy, sell, rent etc... again, why? It isn't just a financial decision here and you are not giving the full picture here. Is this something you have to do? Is it something you want to do? Are you trying to make your home an investment? Are you bored? Do you have the desire to rent your current place out? There is just so much more info needed.

Keep in mind, you don't need to (and since they should all be down right now, I wouldn't) raid your investments to fund a down payment/closing costs for the new home. You can take out equity on the home and use that. I would expect rent comps to offer you plenty to cover your PITI plus HOA and extra cash flow on top based on current value and how rents have gone up so much recently in most areas.

As a mortgage broker, I am happy to walk you through the nitty gritty of it all in details and connect you to someone I know licensed in your state (assuming I am not) to assist you when ready.

Thank you for your response.

I do not have to move, but, from a personal standpoint, feel stuck in my life and think I can use a change. The condo could be used as an investment if I am able to keep it, but it seems impossible to afford two housing payments should i decide to move. At best, i can pay ahead for a period of time, but that wouldn't be a longer term solution. My condo association doesn't allow renting either, and as much as i would love to circumvent that policy, i am not sure how i could find, and then trust someone to not pay rent without drawing attention.

Can you explain how debt becomes cheaper with inflation? I understand how savings are hurt by the cost of everything rising, but not as clear on the debt side.

Very good point on refi's. I have done 2 recently to get to my current rate. My major concern is just establishing cost certainty, but i agree with you that i need to be flexible. Maybe a shorter term adjustable rate would benefit me for the shorter term if i did move more aggressively

Very happy to give you more details, and i am still trying to figure out what my most realistic options are here.

If you can't rent it out... explain why you want to keep the property. If you can't carry both then keeping it as a second home doesn't make financial sense. Unless I am missing something, the options are: 1) Stay. 2) Sell and buy as you want.

As for debt becoming cheaper with inflation. It is the same thing for savings as it is for debt. The easiest way to explain it is this.... inflation makes the dollar have less value. $100K today is not the same as $100K 10 years ago (with exceptionally low inflation over those 10 years)- it does not matter if that is a debt or savings account. The $ is less value due to inflation. With elevated inflation, just as much as the value of savings account is eroded, the same is true for debt. Your interest rate is essentially the 'target' for inflation (2%) so you are paying less in interest that inflation is eroding the value of that debt. If you keep the condo there is very little reason (except if you really want to pay a premium for a mental/emotional payoff) to pay down the loan quicker than your term.

Another potential option is a 2-1 Buydown. It is all the rage right now. Essentially, as you buy the new house, you negotiate sellers concessions and then use those for a temporary buydown of the rate in the first and second years. Typically, it is 200 bps lower the first year, 100 bps the second year and then goes to the final rate. A 2 year time frame is a good one (IMO) to expect rates to come down to refinance.

 

[cubd8]

Trying to make sense of how to approach this, but would like to (or at least considering) re-locate, but many challenges make it difficult. I apologize in advance for being a bit all over the place, but really not sure on what the best approach is to potentially doing something like this.

I don't have a specific time frame in mind, but sooner rather than later, but it has to make sense economically.

I currently live in a condo that I bought in 2007 - right before the housing market crashed of course. At the time, I paid $189,000 for it. It's now worth (per RedFin) about 205K and I owe about $124K on it (13 years remaining on a 15 year fixed mortgage at 2.12%). Obviously, it's very difficult to walk away from an interest rate like that and my current mortgage payment is much lower than it would be with any housing purchase given current rates are around 7%.

I've had crazy thoughts about becoming very aggressive and paying this down, but I'm not sure what that accomplishes unless I want to keep the place for the near future and/or have less financial payments to it. Even if I paid it nearly all the way down, or all the way down, what does that do for me? I now have a place with a condo association bill and property taxes, but no mortgage, which sounds great, except I want to have a fresh start.

If I were to relocate somewhere, I'm undecided on selling my current place or just paying ahead by ~15 months so that I can afford to pay rent elsewhere. The advantage of doing this approach is that I can at least spend 1 year in a new location, see if I want to commit long term and then sell my current place. If I don't like it, I still have my place. I also am not sure that I want to rent anymore and would prefer to probably just buy something.

There's also the thought of just trying to sell my condo right now, and using the money to help make a down payment on a new place. Of course, that will also have complications. The housing market is declining somewhat in the area I'm looking at, but not fast enough. If I wait longer, my condo will also like lose value.

It may make more sense to see where the housing market is at in 6 months. The same house could be selling for much less by then (of course, the same is true of my condo).

If I were to get more aggressive in paying down my condo or try to save money to rent somewhere else on a trial basis (say for 1 year), I can do that through current paychecks (i.e. making a commitment to saving more for either a new place or paying down payments on the existing place).

I also have some money saved in different places - some cash available in savings, bitcoin (which is worth half of my investment), personal stock investments and 401K. All of the investments are taking a beating this year, and may suffer well into next year given the current economic climate. Overall, at my age, I am well ahead of most people at my age.

My next mortgage payment is due on January 1st. I am currently saving money for that payment and for the months again in 2023. If I save at a clip that I am going to try to, I could pay the entire 2023 mortgage by April (ish). If I want to get a year ahead, it would probably be late spring, early summer. The good news is that I am putting myself into a position where I could pay ahead on my mortgage without using any savings or investments. I could also have some money to further cut into the mortgage, but that would mean I probably couldn't save for renting elsewhere at the same time.

I've said a lot, been all over the place, and not really sure what make sense here if my goal is to be able to relocate.

So, looking for any advice, I can answer questions.

Thank you

You have a 2.12% mortgage. There is no reason to pay extra principal. My rate is higher than that on a 30 year and I pay the exact payment due each month.

I keep trying to get people to understand debt is impacted by inflation as much as savings are. Inflation debases purchasing power but debt also becomes cheaper and on top of that you have 13 years of financing that debt at a cheap 2.12% which is nearly free money. There is no positive or advantage in paying that thing down right now. The only time I would say that it might make sense for someone is when you are nearing retirement or otherwise fixed income and don't want the mortgage payment liability.

As for the relocate... you didn't explain why. That is kind of important. I mean, is there a specific need or want that is driving this? If so, don't worry about the new rate as much. Once inflation is controlled then that will be because they successfully killed the economy (and hopefully we don't have a protracted stagflation such as we saw in the 70's) . Once inflation is normalized and the economy is dead, rates will come falling down again. I am expecting about a two year time frame on this. A popular saying in the RE industry right now is "Date the rate, marry the house" which simply means, if you can qualify for the house you want- don't worry about the rate as you can break up with the rate and get a new one down the road (refinance).

As for the buy, sell, rent etc... again, why? It isn't just a financial decision here and you are not giving the full picture here. Is this something you have to do? Is it something you want to do? Are you trying to make your home an investment? Are you bored? Do you have the desire to rent your current place out? There is just so much more info needed.

Keep in mind, you don't need to (and since they should all be down right now, I wouldn't) raid your investments to fund a down payment/closing costs for the new home. You can take out equity on the home and use that. I would expect rent comps to offer you plenty to cover your PITI plus HOA and extra cash flow on top based on current value and how rents have gone up so much recently in most areas.

As a mortgage broker, I am happy to walk you through the nitty gritty of it all in details and connect you to someone I know licensed in your state (assuming I am not) to assist you when ready.

Thank you for your response.

I do not have to move, but, from a personal standpoint, feel stuck in my life and think I can use a change. The condo could be used as an investment if I am able to keep it, but it seems impossible to afford two housing payments should i decide to move. At best, i can pay ahead for a period of time, but that wouldn't be a longer term solution. My condo association doesn't allow renting either, and as much as i would love to circumvent that policy, i am not sure how i could find, and then trust someone to not pay rent without drawing attention.

Can you explain how debt becomes cheaper with inflation? I understand how savings are hurt by the cost of everything rising, but not as clear on the debt side.

Very good point on refi's. I have done 2 recently to get to my current rate. My major concern is just establishing cost certainty, but i agree with you that i need to be flexible. Maybe a shorter term adjustable rate would benefit me for the shorter term if i did move more aggressively

Very happy to give you more details, and i am still trying to figure out what my most realistic options are here.

If you can't rent it out... explain why you want to keep the property. If you can't carry both then keeping it as a second home doesn't make financial sense. Unless I am missing something, the options are: 1) Stay. 2) Sell and buy as you want.

As for debt becoming cheaper with inflation. It is the same thing for savings as it is for debt. The easiest way to explain it is this.... inflation makes the dollar have less value. $100K today is not the same as $100K 10 years ago (with exceptionally low inflation over those 10 years)- it does not matter if that is a debt or savings account. The $ is less value due to inflation. With elevated inflation, just as much as the value of savings account is eroded, the same is true for debt. Your interest rate is essentially the 'target' for inflation (2%) so you are paying less in interest that inflation is eroding the value of that debt. If you keep the condo there is very little reason (except if you really want to pay a premium for a mental/emotional payoff) to pay down the loan quicker than your term.

Another potential option is a 2-1 Buydown. It is all the rage right now. Essentially, as you buy the new house, you negotiate sellers concessions and then use those for a temporary buydown of the rate in the first and second years. Typically, it is 200 bps lower the first year, 100 bps the second year and then goes to the final rate. A 2 year time frame is a good one (IMO) to expect rates to come down to refinance.

The one option would be to keep my current place, pay ahead for about 15 months and then rent in my potential long term area for 1 year From a logical standpoint, that gives me a year to make a long-term decision. If I decide to not move, i still have my current place, but selling my current place would need to happen if I decide to move permanently.

Financially, if I begin now, I can probably get ahead of my mortgage, but still not sure i like the idea of just not making a decision so may consider doing some online research and travel. I am also watching the housing market closely and patience could be helpful with housing pricing seemingly lowering.

Your debt explanation makes sense and is helpful. I have always been one who likes to pay debt down, but your explanation makes sense and there isn't really any reason to do so unless i stay for good

I just need to figure out the timing and the best path for doing so. My preference is to buy, not rent, so i think i am making progress towards determining how i would do this

 

[Juxtatarot]

The one option would be to keep my current place, pay ahead for about 15 month

The plan would be to prepay so you don’t have to pay again for 15 months? I have concerns that 14 months would be applied to principal and you’d owe again the next month.

 

[Instinctive]

re: Roth vs traditional - Generally my perspective is to get as much into Roth as I can if I can afford it now, because I may not be able to later and it can't hurt to have more tax free later. Obviously you want a mix, because you can draw a certain amount of traditional with minimal tax challenges too, but personal finance is PERSONAL. It isn't only about the perfect finance math, but also living your life in the way you want and with(out) stress.

 

[cubd8]

The one option would be to keep my current place, pay ahead for about 15 month

The plan would be to prepay so you don’t have to pay again for 15 months? I have concerns that 14 months would be applied to principal and you’d owe again the next month.

If i took this option, it would allow me to rent for hopefully about 1 year to avoid rushing into a decision while still having my current place.

Paying ahead means only one payment monthly (for rent). Obviously, i would still be paying two monthly payments, just in a way that i can more easily absorb.

I dont like the idea of renting though. If i decide to make the decision to sell my current place and buy a new place, that is also an option. The other advantage i can think of is seeing what happens with the housing market, being patient and getting a better deal.

Of course, all of this can be done by just staying where I am, not renting, but studying potential areas to live, keep an eye on prices and strike when the time is right.

 

[SFBayDuck]

re: Roth vs traditional - Generally my perspective is to get as much into Roth as I can if I can afford it now, because I may not be able to later and it can't hurt to have more tax free later. Obviously you want a mix, because you can draw a certain amount of traditional with minimal tax challenges too, but personal finance is PERSONAL. It isn't only about the perfect finance math, but also living your life in the way you want and with(out) stress.

Yeah I'm kind of with this. I've been above the Roth contribution income for years, but have had the ability to leverage a Roth 401K for the past 6-7 years or so. So I've been putting 15-20% or so of my 401k contributions into the Roth even if the math, using today's tax brackets, would tell me to go 100% in pre-tax since I'm paying taxes at the 35% rate. But 1) we don't know what future tax brackets will be and 2) I just want to have some flexibility when it comes to accessing funds in retirement, and Roth and HSA funds can provide some of that.

 

[Sand]

I dont like the idea of renting though.

After being a landlord for a while I have come to the conclusion that one should have 0 or 10 rentals. 1 is the worst number.

 

[Chadstroma]

The one option would be to keep my current place, pay ahead for about 15 months and then rent in my potential long term area for 1 year From a logical standpoint, that gives me a year to make a long-term decision. If I decide to not move, i still have my current place, but selling my current place would need to happen if I decide to move permanently.

Financially, if I begin now, I can probably get ahead of my mortgage, but still not sure i like the idea of just not making a decision so may consider doing some online research and travel. I am also watching the housing market closely and patience could be helpful with housing pricing seemingly lowering.

Your debt explanation makes sense and is helpful. I have always been one who likes to pay debt down, but your explanation makes sense and there isn't really any reason to do so unless i stay for good

I just need to figure out the timing and the best path for doing so. My preference is to buy, not rent, so i think i am making progress towards determining how i would do this

Paying for an empty condo and then paying rent is likely going to be more costly than buying a place and in a year and if you don't like it selling or at least it would be close with the upside of if you do like it then you haven't wasted a year on rent and carrying a condo. Unless you just really like that condo then I am not seeing the upside on going that direction and then if you really like that condo.... why are you antsy to move on?

I am also not clear on the "paying ahead". Do you mean just hold cash for those payments or do you mean making extra principal payments? If extra principal, unless you pay it off that really isn't going to do anything for you unless perhaps you did a recast.

My suggestion would be to attack it as a regular sell and buy. I am not seeing the upside of trying to get creative with it. Here is my suggestion for the progression of your decision making...

1) Do I want/need to move?
2) How much can I get for my property and what will be the end cash available to after selling?
3) Where do I want/need to move to- what are the properties I would be interested in that area?
4) Can I qualify for what I want/need to buy?
5) How much do I want/need to put down into the new property? Do I want to sink the equity from the old property into the new one or take the cash for other things? How much do I need to put down that to keep payments where I want/need them?
6) Is any choice going to cost me emotionally/mentally?

Make decisions based on the answers of the above.

Other than being able to qualify for what you want/need now, I wouldn't overly worry about rates since as discussed in a couple of years, you will be able to refi them down. Will you get another 2.12% on a 15? Maybe/maybe not. Again, that goes to the #6 question more than anything in my view. Yes, your home is a financial decision but it isn't a financial decision.... meaning, you live there. Standard of living has to matter more than money because what good is a pile of cash if you are miserable? Then again, some people care more about piling that cash as high as they can than they do living life. You have to know you and what your priorities are beyond financial security and making sound decisions.

 

[Chadstroma]

I dont like the idea of renting though.

After being a landlord for a while I have come to the conclusion that one should have 0 or 10 rentals. 1 is the worst number.

There is a lot of truth to that actually.

 

[Andrew74]

I'm now 10 years or less until retirement. For those of you who can have Roth as part of your work 401k, how do you decide how what % to make a Roth vs traditional 401k? I know that having a % of my current income be allocated to a Roth is being done so at my likely peak taxed rate. But those $'s hopefully growing tax free are a good incentive. Right now I put 10% away and I allocate it 7% traditional and 3% Roth. Just to have exposure to each.

100% Traditional.

I do 10% to 401K, the company matches 4% when you do 5%.

About 4 years ago, I switched to full Roth. Its impossible to know the future tax rates, I still have at least 15 years, probably closer to 20-25 years before retirement and decided to take the tax hit now vs. later, but i will still have 15 years taxed later on the traditional 401K

I am hoping to not be working at 65, so will use the early retirement years to do Roth conversions.

Good point and something that is on my radar, too. Hopefully Congress doesn’t do away with conversions.

 

[cubd8]

The one option would be to keep my current place, pay ahead for about 15 months and then rent in my potential long term area for 1 year From a logical standpoint, that gives me a year to make a long-term decision. If I decide to not move, i still have my current place, but selling my current place would need to happen if I decide to move permanently.

Financially, if I begin now, I can probably get ahead of my mortgage, but still not sure i like the idea of just not making a decision so may consider doing some online research and travel. I am also watching the housing market closely and patience could be helpful with housing pricing seemingly lowering.

Your debt explanation makes sense and is helpful. I have always been one who likes to pay debt down, but your explanation makes sense and there isn't really any reason to do so unless i stay for good

I just need to figure out the timing and the best path for doing so. My preference is to buy, not rent, so i think i am making progress towards determining how i would do this

My suggestion would be to attack it as a regular sell and buy. I am not seeing the upside of trying to get creative with it. Here is my suggestion for the progression of your decision making...

1) Do I want/need to move?
2) How much can I get for my property and what will be the end cash available to after selling?
3) Where do I want/need to move to- what are the properties I would be interested in that area?
4) Can I qualify for what I want/need to buy?
5) How much do I want/need to put down into the new property? Do I want to sink the equity from the old property into the new one or take the cash for other things? How much do I need to put down that to keep payments where I want/need them?
6) Is any choice going to cost me emotionally/mentally?

Make decisions based on the answers of the above.

1) Do I want/need to move?

I don't need to move. In fact, my job is located in the downtown area (my place is in the suburbs), I have family in the area and some friends.

I feel like a change is needed though. I have been so focused on work and avoid to take chances in my personal life on relationships and finding happiness.

Moving won't solve that unless I am also willing to put myself out there. I think i am ready.

2) How much can I get for my property and what will be the end cash available to after selling?

According to RedFin, my condo is worth $207K. I owe around $124K on it. If those numbers prove accurate, I would have around $82K in equity.

3) Where do I want/need to move to- what are the properties I would be interested in that area?

This part needs more research by me. I think i know where, but its then identifying what i can afford. I want a safe neighborhood but one where i can walk to some bars, things like that.

I have begun doing some research, but more is needed to identify specific areas.

4) Can I qualify for what I want/need to buy?

I am not sure yet, and this is where you may be able to assist. Assuming i have $82K to start, i am probably off to a decent start, but need to understand all costs, rates and options, etc.

5) How much do I want/need to put down into the new property? Do I want to sink the equity from the old property into the new one or take the cash for other things? How much do I need to put down that to keep payments where I want/need them?

Probably a similar answer to the previous question, but would likely need to use most, if not all of the equity, but also need to understand overall costs of a monthly mortgage including property taxes and anything else.

I can definitely use help though in understand what is realistic.

6) Is any choice going to cost me emotionally/mentally?

I hope not. I need and want to make this decision for the right reasons. I think i can do that.

 

[cubd8]

The one option would be to keep my current place, pay ahead for about 15 months and then rent in my potential long term area for 1 year From a logical standpoint, that gives me a year to make a long-term decision. If I decide to not move, i still have my current place, but selling my current place would need to happen if I decide to move permanently.

Financially, if I begin now, I can probably get ahead of my mortgage, but still not sure i like the idea of just not making a decision so may consider doing some online research and travel. I am also watching the housing market closely and patience could be helpful with housing pricing seemingly lowering.

Your debt explanation makes sense and is helpful. I have always been one who likes to pay debt down, but your explanation makes sense and there isn't really any reason to do so unless i stay for good

I just need to figure out the timing and the best path for doing so. My preference is to buy, not rent, so i think i am making progress towards determining how i would do this

Paying for an empty condo and then paying rent is likely going to be more costly than buying a place and in a year and if you don't like it selling or at least it would be close with the upside of if you do like it then you haven't wasted a year on rent and carrying a condo. Unless you just really like that condo then I am not seeing the upside on going that direction and then if you really like that condo.... why are you antsy to move on?

I am also not clear on the "paying ahead". Do you mean just hold cash for those payments or do you mean making extra principal payments? If extra principal, unless you pay it off that really isn't going to do anything for you unless perhaps you did a recast.

My suggestion would be to attack it as a regular sell and buy. I am not seeing the upside of trying to get creative with it.

It probably isnt practical to hold the condo or pay ahead. Realistically, i think it is more logical to make a decision which is probably selling the current condo and buying something elsewhere.

If i did pay ahead, which is probably the best option, i could save between now and spring to pull that off.

It probably makes more sense to still save what i can, but reserve it for my future.

 

[Chadstroma]

The one option would be to keep my current place, pay ahead for about 15 months and then rent in my potential long term area for 1 year From a logical standpoint, that gives me a year to make a long-term decision. If I decide to not move, i still have my current place, but selling my current place would need to happen if I decide to move permanently.

Financially, if I begin now, I can probably get ahead of my mortgage, but still not sure i like the idea of just not making a decision so may consider doing some online research and travel. I am also watching the housing market closely and patience could be helpful with housing pricing seemingly lowering.

Your debt explanation makes sense and is helpful. I have always been one who likes to pay debt down, but your explanation makes sense and there isn't really any reason to do so unless i stay for good

I just need to figure out the timing and the best path for doing so. My preference is to buy, not rent, so i think i am making progress towards determining how i would do this

My suggestion would be to attack it as a regular sell and buy. I am not seeing the upside of trying to get creative with it. Here is my suggestion for the progression of your decision making...

1) Do I want/need to move?
2) How much can I get for my property and what will be the end cash available to after selling?
3) Where do I want/need to move to- what are the properties I would be interested in that area?
4) Can I qualify for what I want/need to buy?
5) How much do I want/need to put down into the new property? Do I want to sink the equity from the old property into the new one or take the cash for other things? How much do I need to put down that to keep payments where I want/need them?
6) Is any choice going to cost me emotionally/mentally?

Make decisions based on the answers of the above.

1) Do I want/need to move?

I don't need to move. In fact, my job is located in the downtown area (my place is in the suburbs), I have family in the area and some friends.

I feel like a change is needed though. I have been so focused on work and avoid to take chances in my personal life on relationships and finding happiness.

Moving won't solve that unless I am also willing to put myself out there. I think i am ready.

2) How much can I get for my property and what will be the end cash available to after selling?

According to RedFin, my condo is worth $207K. I owe around $124K on it. If those numbers prove accurate, I would have around $82K in equity.

3) Where do I want/need to move to- what are the properties I would be interested in that area?

This part needs more research by me. I think i know where, but its then identifying what i can afford. I want a safe neighborhood but one where i can walk to some bars, things like that.

I have begun doing some research, but more is needed to identify specific areas.

4) Can I qualify for what I want/need to buy?

I am not sure yet, and this is where you may be able to assist. Assuming i have $82K to start, i am probably off to a decent start, but need to understand all costs, rates and options, etc.

5) How much do I want/need to put down into the new property? Do I want to sink the equity from the old property into the new one or take the cash for other things? How much do I need to put down that to keep payments where I want/need them?

Probably a similar answer to the previous question, but would likely need to use most, if not all of the equity, but also need to understand overall costs of a monthly mortgage including property taxes and anything else.

I can definitely use help though in understand what is realistic.

6) Is any choice going to cost me emotionally/mentally?

I hope not. I need and want to make this decision for the right reasons. I think i can do that.

2) Keep in mind that it will cost money to sell so you are not going to walk with $82K.
3) Shoot me a DM with your info... first/last name, email addy, phone.... then a zip code you might be interested in exploring and a price point.... I will sign you up for a service that can assist you with researching areas, houses, etc. Also could help with the value (better than Redfin).
4 and 5) Yes, I can help with that as well. I can get more info from you and give you a ballpark of what you qualify for. Send the following in the DM and I can start to assist on that too.
- Gross monthly income (what kind of income, hourly, salary, commission, OT, etc)
- Total of monthly debt obligations- minimum payments for all loans, credit cards, etc.
- Best idea of your current credit score
- Rough idea of city, state you are interested in
- Top end of what you think you would want to do purchase price wise
1 and 6) It sounds like these answers are intertwined. That 'cost' could also be in not doing something.

 

[cubd8]

The one option would be to keep my current place, pay ahead for about 15 months and then rent in my potential long term area for 1 year From a logical standpoint, that gives me a year to make a long-term decision. If I decide to not move, i still have my current place, but selling my current place would need to happen if I decide to move permanently.

Financially, if I begin now, I can probably get ahead of my mortgage, but still not sure i like the idea of just not making a decision so may consider doing some online research and travel. I am also watching the housing market closely and patience could be helpful with housing pricing seemingly lowering.

Your debt explanation makes sense and is helpful. I have always been one who likes to pay debt down, but your explanation makes sense and there isn't really any reason to do so unless i stay for good

I just need to figure out the timing and the best path for doing so. My preference is to buy, not rent, so i think i am making progress towards determining how i would do this

My suggestion would be to attack it as a regular sell and buy. I am not seeing the upside of trying to get creative with it. Here is my suggestion for the progression of your decision making...

1) Do I want/need to move?
2) How much can I get for my property and what will be the end cash available to after selling?
3) Where do I want/need to move to- what are the properties I would be interested in that area?
4) Can I qualify for what I want/need to buy?
5) How much do I want/need to put down into the new property? Do I want to sink the equity from the old property into the new one or take the cash for other things? How much do I need to put down that to keep payments where I want/need them?
6) Is any choice going to cost me emotionally/mentally?

Make decisions based on the answers of the above.

1) Do I want/need to move?

I don't need to move. In fact, my job is located in the downtown area (my place is in the suburbs), I have family in the area and some friends.

I feel like a change is needed though. I have been so focused on work and avoid to take chances in my personal life on relationships and finding happiness.

Moving won't solve that unless I am also willing to put myself out there. I think i am ready.

2) How much can I get for my property and what will be the end cash available to after selling?

According to RedFin, my condo is worth $207K. I owe around $124K on it. If those numbers prove accurate, I would have around $82K in equity.

3) Where do I want/need to move to- what are the properties I would be interested in that area?

This part needs more research by me. I think i know where, but its then identifying what i can afford. I want a safe neighborhood but one where i can walk to some bars, things like that.

I have begun doing some research, but more is needed to identify specific areas.

4) Can I qualify for what I want/need to buy?

I am not sure yet, and this is where you may be able to assist. Assuming i have $82K to start, i am probably off to a decent start, but need to understand all costs, rates and options, etc.

5) How much do I want/need to put down into the new property? Do I want to sink the equity from the old property into the new one or take the cash for other things? How much do I need to put down that to keep payments where I want/need them?

Probably a similar answer to the previous question, but would likely need to use most, if not all of the equity, but also need to understand overall costs of a monthly mortgage including property taxes and anything else.

I can definitely use help though in understand what is realistic.

6) Is any choice going to cost me emotionally/mentally?

I hope not. I need and want to make this decision for the right reasons. I think i can do that.

2) Keep in mind that it will cost money to sell so you are not going to walk with $82K.
3) Shoot me a DM with your info... first/last name, email addy, phone.... then a zip code you might be interested in exploring and a price point.... I will sign you up for a service that can assist you with researching areas, houses, etc. Also could help with the value (better than Redfin).
4 and 5) Yes, I can help with that as well. I can get more info from you and give you a ballpark of what you qualify for. Send the following in the DM and I can start to assist on that too.
- Gross monthly income (what kind of income, hourly, salary, commission, OT, etc)
- Total of monthly debt obligations- minimum payments for all loans, credit cards, etc.
- Best idea of your current credit score
- Rough idea of city, state you are interested in
- Top end of what you think you would want to do purchase price wise
1 and 6) It sounds like these answers are intertwined. That 'cost' could also be in not doing something.

Thank you! I will DM you on Tuesday!

Appreciate all of the help

 

[stbugs]

I see $31T in the national debt and think: gee, I’d rather pay tax now at 12% (helps to be poor / middle class) than whatever the tax rate will be in 10-20 years. As already pointed out, it’s impossible to know, but I plow my Roth as top priority every year and also rollover as much as possible without jumping tax brackets. YMMV if you’re in a higher tax bracket.

12%, I’d do the same as you. With my wife and I both working, we don’t even have a chance at a Roth anyway and everything we put in the 401k comes off our taxes at our highest bracket so traditional 401k it is. If our retirement tax bracket is higher, I feel really bad for non-wealthy high earners because their tax rate would have to be ridiculous.

 

[stbugs]

re: Roth vs traditional - Generally my perspective is to get as much into Roth as I can if I can afford it now, because I may not be able to later and it can't hurt to have more tax free later. Obviously you want a mix, because you can draw a certain amount of traditional with minimal tax challenges too, but personal finance is PERSONAL. It isn't only about the perfect finance math, but also living your life in the way you want and with(out) stress.

Yeah I'm kind of with this. I've been above the Roth contribution income for years, but have had the ability to leverage a Roth 401K for the past 6-7 years or so. So I've been putting 15-20% or so of my 401k contributions into the Roth even if the math, using today's tax brackets, would tell me to go 100% in pre-tax since I'm paying taxes at the 35% rate. But 1) we don't know what future tax brackets will be and 2) I just want to have some flexibility when it comes to accessing funds in retirement, and Roth and HSA funds can provide some of that.

I think it depends on your age. I don’t see rates going up rapidly in the next few presidential cycles so for me (7-10 years before possible retirement) I’ll hope for a conversion at lower rates. If you’ve got a 20-30 years then it’s something to think about. We are in the 30s now (since added income is at top rate) and even if we made $120k in retirement, the total rate is 15. You only hit 17% up to $173k.

 

[Sand]

I feel like a change is needed though. I have been so focused on work and avoid to take chances in my personal life on relationships and finding happiness.

Sounds more like you need to hit up a hot yoga class and find a friend...

 

[cudjoekey10]

Ok, I'm a bit confused about caps for a 403b, Roth and Traditional, and a 457. I work for a not for profit so we contribute to a 403B. I believe I understand that my my contribution to the 403B is $27k (I'm unfortunately over 50). Since my 403b offers both Roth and Traditional, the after tax Roth contributions and the pre-tax Traditional contribute toward this cap, yes?

I'm also in a 457 plan more than 3 years from retirement so my max contribution is $20,500. And this $20.5k is completely independent of the 403b contribution cap so my total cap would be the $27k + $20.5k.

Do I have all this correct?

 

[ConstruxBoy]

I have a Roth 401k option available to me but put in the max annual 401k contribution pre-tax with no contribution to Roth. I am open to being convinced I should do this differently, but I am doing it this way based on two primary reasons:

1. My tax rate is more likely to be lower when I withdraw 401k funds than right now, at least based on today's tax laws. I realize this could change, but, since we have to guess, it seems like the most reasonable guess is rates like today's or close to them, given the political pressure that always exists on politicians raising taxes.
2. I put in the max amount every year, which for my age is $27K this year.
   1. My effective tax rate last year (federal and state) was 22.3%.
   2. I would put in the max 401k contribution either way, so putting it into the Roth 401k instead means I would pay an additional $6K in taxes on the $27K, assuming that extra $27K in taxable income didn't push my effective tax rate higher.
   3. If I invest that extra $6K per year, it helps to offset the non-taxable Roth gains I could have gotten by making Roth contributions instead.
   4. I could even theoretically seek to put that $6K into a back door Roth, though I haven't done that to date.

Interested in feedback on this, since I may very well be missing some important factors.

If you really do invest the extra $6k, that's a good process. But most people say they will do that and then never do, making the Roth closer to an even proposition with the Traditional.

 

[ConstruxBoy]

I'm now 10 years or less until retirement. For those of you who can have Roth as part of your work 401k, how do you decide how what % to make a Roth vs traditional 401k? I know that having a % of my current income be allocated to a Roth is being done so at my likely peak taxed rate. But those $'s hopefully growing tax free are a good incentive. Right now I put 10% away and I allocate it 7% traditional and 3% Roth. Just to have exposure to each.

100% Traditional.

I do 10% to 401K, the company matches 4% when you do 5%.

About 4 years ago, I switched to full Roth. Its impossible to know the future tax rates, I still have at least 15 years, probably closer to 20-25 years before retirement and decided to take the tax hit now vs. later, but i will still have 15 years taxed later on the traditional 401K

I am hoping to not be working at 65, so will use the early retirement years to do Roth conversions.

I hope I’m done earlier that but I’m also 100% traditional. I don’t think I had access to a 401k Roth when my wife wasn’t working and once she was back again, We pay so much in taxes that I am 100% pre-tax. I’d hope that we’ll both not be working when we pull it out so a slight gamble at higher rates but pretty sure rates will be lower with no income outside of 401k withdrawals, capital gains and SS.

Luckily I have a decent amount of post tax monies, so can use that as a cushion while I do conversations and stay below the cliff for Obamacare subsidies.

Still, conversions can make a lot of sense for many.

Here is a thought experiment: Which is more likely to have happened in 15 years: Congress has raised the tax rates or Congress has eliminated Roth conversions?

I think both are likely but I'm betting that the latter is more likely. It's an easy "fix" for the complaints from the Left that the rich have bastardized a benefit meant for the middle class.

 

[NutterButter]

I can certainly see the backdoor going away. It really doesn't make much sense to have a cap if there's an easy way around it.

 

[Sand]

Here is a thought experiment: Which is more likely to have happened in 15 years: Congress has raised the tax rates or Congress has eliminated Roth conversions?

I think both are likely but I'm betting that the latter is more likely. It's an easy "fix" for the complaints from the Left that the rich have bastardized a benefit meant for the middle class.

I concur, but we are talking a Congress that couldn't get the carried interest loophole closed. You'll have to excuse me if I'm hesitant to ascribe any competence to that particular institution.

 

[jm192]

They were pushing to eliminate Roth conversions at the end of 21 weren't they?

 

[-OZ-]

I can certainly see the backdoor going away. It really doesn't make much sense to have a cap if there's an easy way around it.

That’s the thing, the mega back door isn’t available for many, but the regular back door seems super easy.

I'm now 10 years or less until retirement. For those of you who can have Roth as part of your work 401k, how do you decide how what % to make a Roth vs traditional 401k? I know that having a % of my current income be allocated to a Roth is being done so at my likely peak taxed rate. But those $'s hopefully growing tax free are a good incentive. Right now I put 10% away and I allocate it 7% traditional and 3% Roth. Just to have exposure to each.

100% Traditional.

I do 10% to 401K, the company matches 4% when you do 5%.

About 4 years ago, I switched to full Roth. Its impossible to know the future tax rates, I still have at least 15 years, probably closer to 20-25 years before retirement and decided to take the tax hit now vs. later, but i will still have 15 years taxed later on the traditional 401K

I am hoping to not be working at 65, so will use the early retirement years to do Roth conversions.

I hope I’m done earlier that but I’m also 100% traditional. I don’t think I had access to a 401k Roth when my wife wasn’t working and once she was back again, We pay so much in taxes that I am 100% pre-tax. I’d hope that we’ll both not be working when we pull it out so a slight gamble at higher rates but pretty sure rates will be lower with no income outside of 401k withdrawals, capital gains and SS.

Luckily I have a decent amount of post tax monies, so can use that as a cushion while I do conversations and stay below the cliff for Obamacare subsidies.

Still, conversions can make a lot of sense for many.

Here is a thought experiment: Which is more likely to have happened in 15 years: Congress has raised the tax rates or Congress has eliminated Roth conversions?

I think both are likely but I'm betting that the latter is more likely. It's an easy "fix" for the complaints from the Left that the rich have bastardized a benefit meant for the middle class.

Least likely - Congress gets enough votes for either. They didn’t even get the daylight saving time fixed.

 

[Sand]

. They didn’t even get the daylight savings time fixed.

 

[ConstruxBoy]

Here is a thought experiment: Which is more likely to have happened in 15 years: Congress has raised the tax rates or Congress has eliminated Roth conversions?

I think both are likely but I'm betting that the latter is more likely. It's an easy "fix" for the complaints from the Left that the rich have bastardized a benefit meant for the middle class.

I concur, but we are talking a Congress that couldn't get the carried interest loophole closed. You'll have to excuse me if I'm hesitant to ascribe any competence to that particular institution.

Oh sure. Congress is a train wreck. I'm just saying that I keep hearing/reading about people in their mid-40s putting almost everything in Traditional with the idea that once they get to their mid-60s, they'll retire and then do Roth conversions each year before they have to take the RMDs. I'm just saying there is a reasonable risk that may not be possible in 20 years and getting 20-30% of your funds into a Roth over the next 20 years might be worth the income hit.

 

[ConstruxBoy]

And to think about it more, my thought is not that they eliminate the Roth Conversion completely. I think the easiest change is just to have the same income limits on conversions as on contributions. That's still allowing people making less than the limit to convert Traditional to Roth. That's basically a win-win for middle class/Democrat folks.
And frankly, that still allows you to do the conversions if you wait until retirement. Let's use today's dollars and say you make/withdraw $70k a year in retirement with a $200k Roth limit. You can still convert $130k or so each year. And maybe that will be fine. But it's likely that will be less than you'd really want to convert before RMDs hit.

 

[shuke]

I have some money sitting in cash and decided to open a Roth IRA. I realized today that there is a contribution limit based on income. However, I am confused on whether I need to use my 2021 income to determine 2022 limits, or waiting until I file my taxes for 2022 to determine my AGI for 2022 and see if we are above the limit for 2022.

If I'm over the limit, I guess a traditional IRA is my next best option?

As a background, I have an active employer 401(k) that I max out in, an IRA that was a previous 401(k), and a 401(k) account from another previous employer. My wife, who is not working, has multiple traditional and Roth IRA accounts that we are not actively contributing to.

TIA will answer yours.

 

[humpback]

I have some money sitting in cash and decided to open a Roth IRA. I realized today that there is a contribution limit based on income. However, I am confused on whether I need to use my 2021 income to determine 2022 limits, or waiting until I file my taxes for 2022 to determine my AGI for 2022 and see if we are above the limit for 2022.

If I'm over the limit, I guess a traditional IRA is my next best option?

As a background, I have an active employer 401(k) that I max out in, an IRA that was a previous 401(k), and a 401(k) account from another previous employer. My wife, who is not working, has multiple traditional and Roth IRA accounts that we are not actively contributing to.

TIA will answer yours.

Not financial advice, etc, but you have until the tax filing deadline (not including extensions, so typically April 15th) to make your contribution, so any contribution now would be for 2022. You are allowed to make the contribution before you file your 2022 taxes (which will be in 2023), but if you end up making too much you'll have to correct it. FYI the AGI limit for 2022 is $204K for married filing jointly (can make a partial contribution up to $214K). All of those other plans have no bearing on your ability to contribute to a Roth (they can impact the deductibility of contributions to a traditional IRA).

So, long story short you can look at your 2021 AGI to use as a guide to see if you think you'll be below the limits but it ultimately will be based on 2022 AGI.

 

[bcat01]

I have 500,000 chase points that I know I won't use for at least a year or more. Is there any reason not to cash them out and buy I bonds or max out a Roth IRA?

 

[Sand]

I have 500,000 chase points that I know I won't use for at least a year or more. Is there any reason not to cash them out and buy I bonds or max out a Roth IRA?

They're worth so much more as points. I hesitate to cash all those in.