One last big money move of the year. I was going to say decade, but I decided to take a little pressure off you.
Pressure off me? It’s your money, Penny. I know that’s what you’re thinking. It is my money, and ultimately, it’s my decision.
But like most things in life on this blog, the best ideas come in the comments.
So, what I’m going to do is run you through a few possibilities, tell you which way I’m leaning, and then I’ll ask you to go work your magic in the comments like always. Sound good? OK. Let’s go make a big money move.
How Much Money Are We Moving?
We have far too much money in an emergency fund. But now that we have a son, it never feels like enough. Still, I know that rationally we can take some of that money and use it more strategically.
RELATED POST: Why I Prefer Extra Income to Emergency Funds
That means that we’re looking to shave about $6,000 off our emergency fund and put it to work somewhere else. (Please pause your scrolling while I run around sprinkling holy water on our windows, siding, doors, major appliances, and cars.)
It’s worth noting that we are confident enough to make this money move for a few reasons. My husband and I both have contracted jobs, which means that even if our positions are dissolved for next school year, we are employed through June and paid through August. Additionally, even if we do move that $6,000, we still have enough money to live on…for 2-3 years. Assuming we don’t need new windows and siding. Because apparently one year of my life is worth the same as those projects.
So $6,000 is the number. Now where do we put it?
Yes, I Still Hate Our Mortgage
If you’ve been following my blog for a while, you know that I absolutely hate my mortgage. The only good debt is no debt. Yes, I understand how wealthy people leverage money and loans. Yes, I know that the stock market returns outperform our mortgage interest rates.
And yet, I simply don’t care.
Why?
My mortgage feels yucky. It’s a commitment that I knew I was making of course. After all, I did sign my name approximately 87,564 times. But the wild thing is that even though I had enough financial acumen (and a healthy dose of luck and privilege) to buy a house on my own at 26, I didn’t actually know a mortgage was debt.
I know.
So maybe I’m just bitter. Whatever the reason, the possibility of being able to put one more serious dent in our mortgage before the end of the decade is mighty appealing.
Set It Aside for Our 2020 Roths
We could also put the money aside for our Roths. There are a lot of reasons why we love these accounts and work so hard to max them out. Compared to our 403bs, we enjoy total control of where our money goes (Hey, Vanguard, heyyyy!). We also love that we can withdraw our contributions if there’s a serious need.
Something else that we love is the fact that due to our salary schedule as teachers, we will make considerably more closer to retirement (and in retirement, if this pension thing holds!) than we did when we started investing in our Roths. Lots of people talk about how you can’t know how much money you’ll make in retirement compared to now. Thanks to a unique aspect of our profession, we mostly can.
So I love my Roth IRA as much as I hate my mortgage. That means that it’s also probably logical to set the money aside and make two (one for me, one for Mr. P) sizable contributions once the calendar resets.
Whether we do this or not, we will prioritize maxing out our Roths before we make additional mortgage payments in our regular 2020 budget.
Other Considerations
No, I’m not going to use this to buy more shoes. Or any sort of splurge or travel. We have sinking funds and side hustles to cover those wants.
No, we can’t put this in our 403bs. But we can increase those contributions more in 2020 so there isn’t extra money sitting in savings at the end of next year.
Yes, I could beef up our charitable contribution. But I don’t want to make a huge one-time donation and then feel bad about my giving practices when they never live up to that again. Instead, we are working to incrementally up our giving every six months. (We’ve already more than doubled our charitable giving each month since I started blogging! You are a good influence, pals!)
Maybe we could put some or all of this in our taxable account. But I would be lying if that didn’t feel a little like putting it all on red. I’m not sure why I’m so leery of our taxable account (its had a great year!). But I’m really only comfortable tossing in $50 here, $100 there.
What Should My One Last Big Money Move of the Year Be?
So you don’t fret over the state of my marriage, please know that I do talk about all of our money decisions with Mr. P.
Then, I crowd source them online.
It’s not that I don’t trust my husband. In fact, for someone who would rather put a hot poker in his eye than talk about money (That’s, uh, kind of a direct quote from when I asked him if he wanted a FinCon pass), he’s actually very money savvy. The problem is he answered this question the same way he answers me when I ask him how we should spend date night. “What would you like to do?”
Since neither of us can make a decision and the clock is ticking, the blog seemed like a great place to pose this question.
So Tell Me…Where should we put our money?
Given everything you said, I’d just set the money aside to front load IRAs in January. Back when we had qualifying income, I used to really enjoy maxing out our IRAs on the first day the markets opened in the new year. (Yes, this was toward the end of our working careers, when we had the means to do so.)
I’d do both. Attack the mortgage with another $1,000 or some number that rounds off the balance to a fun number (I can’t be the only one that does this!?) Then use the rest for your 2020 Roth contributions.
My vote is for 2020 Roth IRA contribution. But I know how much you hate your mortgage. I’m at a point with my mortgage where I’m ok never making an extra payment again, so everything “extra” is going into my taxable brokerage and I make sure late in the year to set aside the next year’s Roth IRA contribution so I can max it out early in the new year. Talk about getting the year started on a great foot!
Since your mortgage is your top priority, I’d say throw your $6k there. Then you’re $6k closer to having it gone.
I have every confidence that you will wipe that debt out within the next few years. Then you will have a lot of excess cash that you can throw at the next (non shoe) goal! 🙂
Frontload the Roth IRA– You can only use that space once a year and then it disappears. The mortgage will still be there until you pay it off.
When it comes time for your kid(s) to be going to college you’ll be able to hide money (for financial aid purposes) in your house, but you won’t be able to put it in 2020’s IRA account unless you make that decision now (technically, before April 2021).
I’m gonna agree with life zemplified and say split the difference between Roth contribution and mortgage pay off. A little bit of joy split between the two. Enjoy!
Hey Penny, is there a contribution limit for Roth IRAs being from Canada I don’t know if you have a limit? I think I would invest the $6,000 in your IRAs and get that money working for you. If there is a limit then once they are maxed you could then start making the extra payments on your mortgage. That’s my two pennies worth of thoughts 🙂
Please let us know what you guys decide to do!
Agreeing with Amy at LifeZemplified and Karen! Put a chunk towards mortgage and the rest for the Roth.
This is a good problem to have!
I know you were not particularly keen on your 457s, but that is probably where I would consider putting that $6k. Even if the plans are riddled with fees, the tax savings presumably would be so great that you come out way ahead.
Let’s say 22% in federal taxes avoided on that income, plus maybe a 7% annual return on the investment, that’s 29% total return….even if there are 2% in fees you’re way ahead.
But I obviously don’t know the specifics of the 457 or how bad the options are. As always, you’re the expert on your own situation!
If you have room in your 403b, that also would be good. Though it sounds like maybe you max those out already for 2019.
If the 457 is just a non-starter, I think I like the mortgage a bit more than the Roths since it sounds like you may already have enough available to max those out on an annual basis, too. (Also, kuddos! That’s rad.)
Yeah, we are going to max out our Roths (baring a major catastrophe) regardless. I really should look at a 457. Sometimes, I think I let the PF world noise cloud my judgement, too.
My only option is a variable annuity from AXugh. But the tax benefit might be the angle I needed to pull the trigger?!
I vote $2000 to mortgage and $2k to each ira in 2020. Hurray options! You’re a rockstar!
It is so nice to have options!
Oh man, I dunno what I would do! I do love the idea of paying down our mortgage but ugh, it feels like such an insurmountable number. Somehow, it almost feels like the money just disappears when we send it over to the mortgage because it’s such a small drop in the bucket.
You have good options, at least none of them are bad.
Personally I would use the money to fund the Roth IRAs early in the year, then decide between the 457 or mortgage paydown.
I know this may sound like horrible for a personal finance writer to say, but I would be hesitant to put anything beyond what it takes to get a match into your 403b/457. With the projected pensions you both have in retirement, you’ll probably withdraw from your pre-tax accounts at a similar federal tax rate as you are paying now. Add in the kind of fee drag you are saddled with in those plans, I would take the sure thing and pay down the mortgage.
Once the mortgage is paid off, then its worth running an analysis in the difference between the fee drag in the 403b/457 compared to the tax drag in just holding an after-tax brokerage account in a tax efficient index fund. My guess is #2 will win out, but only a guess.
Best of luck