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Old 04-25-2016, 07:38 PM   #21
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If you are eligible for an HSA, it is free money. Contributions are tax deductible and unlike an IRA, you never pay taxes on it as long as you use it for medical, dental, or eye care. You are still young, but for many of us, we plan to invest it and let it ride then use it to pay Medicare premiums and out of pocket costs as we age.
Yes, we have contributed to an HSA for over 7 years without ever using the money. We pay for our health and dental expenses out of our pocket. Most people are not aware of the benefits of using HSA money after age 65.
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Old 04-25-2016, 07:48 PM   #22
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You say your tax bracket isn't that high. Be careful about deferring even more income to build up a large 401K, and potentially be paying a higher tax rate when you go to withdraw that money. If that is the case, max out a Roth, and consider a taxable investment account.

I don't really get what you're asking for here. You want to pay off your mortgage and max out your investments. Short of increasing your income, or reducing your spending, what I guess you are asking is which should have the emphasis. You can make a case for either. The mortgage is a guaranteed return. You can probably do better in the market. It's a risk, but you'd have the added advantage of available money if you needed it, rather than having your cash tied up in your house.
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Old 04-25-2016, 08:04 PM   #23
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Can you re-fi to a lower rate? Some of us here do not consider a mortgage a bad thing. If you sink more money into the mortgage, you won't see any reduction in payments until it is all paid off. In the meantime, that money is tied up in the house.

Would you still have plenty of liquidity if you paid it off? Some people get hung up on the idea that "if I lose my job, at least I won't have that mortgage payment" - but $303K will carry you through a long dry stretch. And you still have utilities, taxes etc.

-ERD50
This is how we've always looked at it. Mostly we look at the differential between the after tax interest payments and after tax alternative investments rate. Your only true expense is your interest. Paying down principal vs. investing that money elsewhere doesn't change your net worth.
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Old 04-25-2016, 08:05 PM   #24
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I've been studying Dave Ramsey for about a year now and everything he teaches is pay down that mortgage as fast as possible!

I just know that if I do this, I might not be able to drop another ~$40k into my 401k next year.
OK, but from what I've heard, paying off the mortgage is like religion with Dave Ramsey. There is no questioning, no evaluation, no consideration of the consequences or alternatives. Just pay it off, and sing "Hallelujah, I'm debt free!! (and I don't care what it 'cost')".

If we were talking about 20% CC debt, I'd pretty much agree (hey, one can even make a case for that, though it would be extremely unusual). But mortgage debt can be looked at as a choice, with pros/cons, not simply as something 'evil'.

I've heard his show a couple times. I swear the one show (I was driving so not able to pay full attention), the family made all sorts of short term decisions that were costly, and just not good for their family, just so they could get rid of that mortgage. What's to be afraid of (assuming a decent rate, and they didn't buy a home that stretched them, mortgage or not)?

PS - Dave Ramsey is still working!

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Old 04-25-2016, 08:15 PM   #25
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I think you should keep the mortgage and keep plowing funds into retirement/tax-advantaged accounts and any additional funds into brokerage accounts.

It wouldn't hurt, of course, to pay off the mortgage but given the low rate and your young age, I think it makes more sense to invest the funds.

But then again, this is coming from someone who just did a cash out refi, so of course I would think this. I also am a young investor (27 here), and was able to do a cash-out refi and walk away with $25k yet my monthly payment is only going up $60 due to the lower interest rate and the good deal I got on my bank owned condo 2 years ago (basically was instant equity over night after closing).

The power of $25k plowed into my tax advantaged accounts compounded for 33 years will be awesome, especially when I am able to pull it out completely tax free 8-). I ran the numbers, and assuming a very modest return, it made more sense for me!
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Old 04-25-2016, 08:25 PM   #26
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The power of $25k plowed into my tax advantaged accounts compounded for 33 years will be awesome, especially when I am able to pull it out completely tax free 8-). I ran the numbers, and assuming a very modest return, it made more sense for me!
What tax advantage accounts are you currently using?
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Old 04-25-2016, 08:33 PM   #27
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I've been putting the maximum into my HSA over the last years without drawing on it and it has grown into a tidy stash to be used pose retirement for medical expenses.
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Old 04-25-2016, 08:35 PM   #28
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I've been putting the maximum into my HSA over the last years without drawing on it and it has grown into a tidy stash to be used pose retirement for medical expenses.
Nice!

what company do you have your HSA through and who manages it for you?
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Old 04-25-2016, 08:55 PM   #29
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I've been jamming the max into retirement accounts for 27 years and have yet to pay off mortgage. If I could have done both at the same time I would have but any remaining money was used to enjoy life while young.

This strategy has paid off as we now have a large portfolio balance and only 59k left on the mortgage. About to retire next year at age 50.
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Old 04-25-2016, 09:07 PM   #30
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The best strategy, as I've always heard and have done for many years is to max out any tax advantaged vehicles first. If there's money left to save, throw it at the mortgage. For me that means maxing out the 403b, Roth, HSA. I've paid off three mortgages in my lifetime so far but then moved several times and assumed new ones for nicer properties. Mine current one is below 50,000, payment is a whopping 350 per month and there's no real reason to pay it off. In fact I'm about to stop putting extra money on it for a year as I pay for a major remodel. But I do like being debt free so will eventually begin to throw an extra 500 or so to it monthly.

Dave Ramsey is an excellent source for people paying off debt. That's his niche and he's helped many people. But he's not at all great in terms of building wealth. If you are not in debt start looking into more sophisticated financial advice.
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Old 04-25-2016, 09:19 PM   #31
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....One of the best feelings is when you own your home free and clear. ...
It feels just as good to have a big ol' taxable account and know you can pay off your mortgage with a few clicks of a mouse.

In the OPs case, I think tax-deferred savings like the 401k/HSA is the way to go rather than pay down the house. He'll most likely save 28% now and pay 15% or less later if he play his card right. I deferred 28%+ and am now paying ~10%.

Plus his tax-deferred will likely return more than his mortgage interest rate but that is chump change compared to the 13% head start that he'll have.
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Old 04-25-2016, 09:20 PM   #32
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I would refi if it's possible. Your rate seems high. The max contribution for solo 401k is around $53k.


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Old 04-25-2016, 09:23 PM   #33
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+1 on the refi... should be able to shave a point or more off that 4.625%. Or better yet, go with a 15 year... lower rate and faster payoff about 3% today.
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Old 04-25-2016, 09:48 PM   #34
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We paid our house off in 9 years from a 15 year mortgage. There is a lot of security in having your home paid for. I then added extra $
to the 401K & IRAs.
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Old 04-25-2016, 09:57 PM   #35
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Your mortgage rate of 4.625% is terrible. With your income, you could pay off your mortgage in 7 - 10 years. So, get a 7-year ARM loan with 2.85% interest or a 10-year ARM loan with 3.25% interest. I've seen rates like this yesterday. That way, most of your payment would go to principal instead of interest.
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Old 04-25-2016, 10:48 PM   #36
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We paid our house off in 9 years from a 15 year mortgage. There is a lot of security in having your home paid for. I then added extra $
to the 401K & IRAs.
Personally I don't really understand the difference. If you have $400K in Treasury bills paying 3% and a $400K 2.5% mortgage, or a $400K house with no mortgage, would you feel better with no mortgage?
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Old 04-26-2016, 08:12 AM   #37
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What kind of interest rates are you guys getting on your HSA's?

Also, who do you use to buy your muni bonds?
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Old 04-26-2016, 08:19 AM   #38
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What kind of interest rates are you guys getting on your HSA's?..........
My HSA is invested in Vanguard Admiral funds. I use primarily the Total Stock market fund.
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Old 04-26-2016, 08:23 AM   #39
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+1 Total Stock in HSAs. No munis now... had some while I was working and I just used Vanguard's muni bond fund.
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Old 04-26-2016, 09:34 AM   #40
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I don't know much about HSA's as an investment tool. Who do you have yours through and how effective are they.
You have to be covered by a High Deductible Health Plan that meets the IRS requirements for a Health Savings Account. Usually when you look for a plan this information is available. The insurance company (Blue Cross, United Heath etc) is the one who makes sure it meets IRS requirements.

After you are covered under the HDHP you can look for a HSA administrator. Many companies offer Vanguard low expense funds. However, you have to research the funds since other funds may have high expense rates.

Some of the companies who administer HDHP's are HealthEquity and Optum Bank. There are many other companies who offer HSA administration.
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