Would love feedback for 2023!

[maryatheseeker]

Early 30's, single income, 2 Parents, 3 kids under 5y/o, HCOL.

In for some crowdsourced financial feedback from my peers. Looking for possible improvement/blindspots.

2023 Finances

Roth IRA 525k

401k 100k

HYSA/Cash 35k

HSA 12k

529 7k

Home 850k market value with 460k left on mortgage (30yr@3.75%)

Notes: Only debt is mortgage, home project is finished so won't be on future years, giving is important to our family, the savings funds are a way for us to have designated savings funds for specific medium/long term expenses and we budget for those monthly (cash for cars etc), Misc. is one off things like replacement vacuum, kid humidifier (not shush/fun money), wife is a fantastic coupon-er/meal planner and saves extraordinary amounts on our groceries/household, there's not a ton of "fun" money compared to others in our situation but we have never been big spenders in that category so we don't know the difference and usually spend time playing with our kids in our free time and plan to do more costly activities as they get older.

Thanks for your thoughts!

 

[resjudicata]

@maryatheseeker How did your Roth IRA balance get so high on that income?

 

[maryatheseeker]

@resjudicata Wife’s dad was a financial guru and put money in a Roth when she was little, hiring her in his business to do janitorial work.

 

[boss121]

@maryatheseeker I don’t think people understand this. You all need to talk to your financial advisor if you have kids. You can pay them and they can easily have 250K by the time they go to college.

 

[maryatheseeker]

@boss121 Absolutely

 

[maryatheseeker]

We know we are an incredibly lucky position, and I tell him frequently how grateful I am for his foresight and generosity.

 

[resjudicata]

@maryatheseeker Did your wife actually do $6000 worth of annual janitorial work? I want to do this for my kids but I'm worried about getting audited.

 

[maryatheseeker]

@resjudicata This is where I draw the line at what I know and don't know. She cleaned the office most weekday nights after school for multiple years, so, I'd say if you paid someone else to do the work then she was paid fairly - but this is a better question for a CPA. I think this gets into the nitty gritty of "what is the law technically".

 

[crt1990]

@maryatheseeker At what age did she start?

 

[maryatheseeker]

@crt1990 Young, 5 or 6.

 

[crt1990]

@maryatheseeker How much did she start with and at what age?

 

[maryatheseeker]

@crt1990 $160k ish by 20y/o

 

[maryatheseeker]

@resjudicata Basically if you own a business and hire your child as an employee and (for example) in 2023 report that the child made $6000, they can have a Roth contribution up to the amount of their income. So you can open and put money into your children’s Roth IRAs at a young age. The benefit being that obviously with 55 years of market grown you can have a large Roth IRA with minimal contributions.

 

[m21820]

@maryatheseeker This is not yet well-researched, but I had this thought about Roth vs. traditional distributions.

I'm thinking the ideal retirement plan will have a mix of traditional and Roth. In 2023 (no idea what it will be at retirement, but...) the first $22,000 of income for married couples is taxed at only 10%. From there to $89,450, it's 12%. I'm thinking that taking a mix of traditional and Roth in retirement may be optimal as long as you don't go over that 10% or 12% tax bracket from your traditional distributions.

I think, that a mix between maybe 1/3 traditional and 2/3 Roth might make more sense than 100% into Roth. Do some research on this, but I think you may be unnecessarily overtaxed at this point in your life with going fully Roth.

 

[maryatheseeker]

@m21820 I agree 100% and have come more around to this way of thinking. Right now our Roth to 401k contributions are 1:3.

 

[phil4508]

@m21820 This is the correct way of thinking, but the exact ideal ratio will be impossible to predict without knowing what the tax brackets will look like in your retirement years and what your total desired retirement income is.

But assuming they're about the same as they are now, your taxable income in the 0% (standard deduction), 10%, and 12% brackets withdrawn from a 401k will be taxed much less than Roth contributions now if you're currently in a higher tax bracket. So much better than 100% Roth. What you want to avoid is having a huge taxable income in retirement that could have been reduced via Roth savings, so avoid 100% traditional too.

My wife and I are currently about 1/3 Roth, 2/3 traditional. No idea if that'll end up being the ideal split, but I'm confident it'll work better than 100% in either.

 

[maryatheseeker]

@phil4508 Totally agree, I'm shooting for 50/50. I tend to lean towards the Roth camp but having income up to 90k only taxed at 10-12% (yes, I think this will go up but even at 15% effective it's not bad) would be great. Having more pretax would also give me buffer to let the Roth grow tax free longer.

 

[m21820]

@phil4508 This is what I've been thinking. I don't know about the ratios though, maybe I just split it 50/50? Some of this is looking into a crystal ball. I feel like there will be a desire to tax more in the future given the interest we pay on the US debt, so I think the higher brackets will not move up with inflation as much as they have in the past.

 

[tara5509]

@maryatheseeker Off $150k income that’s pretty great especially with 3 kids under 5.

You and your spouse are setting yourselves up great for retirement and for life later with your kids

Someone is going to likely comment about your $11K in charitable giving. But considering you guys seem to be able to do everything you want and thing i could see adding more to is your 401k’s/529’s but that would take away from your charitable giving and i can understand not wanting to do so

That’s the great thing about personal finances, they’re personal

 

[maryatheseeker]

@tara5509 Yea, I see people call out high charitable giving, simply put - we feel like we have been really fortunate and so we want to be generous.